Bloomberg News

Google’s Admeld Purchase Slated for Justice Department Review

June 18, 2011

June 18 (Bloomberg) -- Google Inc.’s planned purchase of Admeld Inc., an Internet advertising company, will be subject to a probe by the U.S. Justice Department for its potential to hurt competition, two people familiar with the situation said.

The review of the deal by the Justice Department comes at the same time the Federal Trade Commission is preparing a separate investigation of Mountain View, California-based Google’s dominance of the Internet search industry, three people familiar with the matter said in April.

Simultaneous antitrust investigations of one company by the two agencies is “unusual,” said Rebecca Arbogast, a Washington-based analyst with Stifel Nicolaus & Co., adding that probes by regulators are fast becoming the “new normal” for Google.

“Google isn’t going to get away from this kind of scrutiny until a competitor comes along and unseats them,” Arbogast said. “It’s a weight tied to their ankle they are carrying around all the time.”

Admeld offers technology services to Internet publishers that help them boost revenue by managing display ads from hundreds of sources, including ad networks. Customers of the New York-based company, founded in 2007, include News Corp.’s Fox News and the Weather Channel.

Display Advertising

Display advertising -- the ads that appear along the tops and sides of Internet publishers’ websites -- is the fastest- growing segment of the online ad market, according to market research firm IDC.

Google, stepping up investment in display advertising as growth slows in search-based ads, had 14.7 percent of the U.S. display advertising market in the first quarter, according to IDC. Yahoo! Inc. had 12.3 percent, Microsoft Corp. had 6.5 percent and Facebook Inc. had an 8.8 percent share, IDC said in a report published May 26.

The Admeld acquisition may help Google boost its growth in the online display advertising segment, said Benjamin Edelman, assistant professor of business administration at the Harvard Business School. Google became a central player in that market through its $3.2 billion acquisition of DoubleClick Inc. three years ago. That deal was approved by the FTC.

Under U.S. antitrust law, all transactions over $63 million must be reported for review by authorities.

No Harm

Buying Admeld isn’t going to hurt competition in display advertising, Rob Shilkin, a Google spokesman, said in an e-mail.

“The acquisition is designed to help publishers get the most from the rapidly growing display advertising industry, which is both complicated and incredibly competitive -- the emergence in recent years of a huge variety of technologies for publishers, like Admeld’s, is great evidence of that,” Shilkin said.

The Justice Department review will consider whether Google’s dominant position in search advertising could render the Admeld transaction anticompetitive, what Google’s expansion strategies are for Admeld and whether those plans would shut out competition, the people said.

Justice Department spokeswoman Alisa Finelli declined to comment.

“Display advertising is one of the few areas of online advertising where Google isn’t dominant,” said Harvard’s Edelman, who according to his website also consults for Microsoft Corp., a Google competitor, as well as media clients including the New York Times, and Universal Music Corp. “That’s rapidly changing, and the Admeld deal would accelerate Google’s growth that much faster,” Edelman said.

Shared Authority

The Justice Department and the FTC share authority to decide if mergers are anticompetitive and to review whether dominant companies are abusing their market power.

They negotiate which will handle major antitrust investigations, with the decision often turning on their respective expertise in an industry.

The agencies may want to probe deals of companies with “innovative business practices because it allows them to weigh in on matters that involve cutting-edge technologies or practices, and enables them to set policies,” said Alicia Batts, an antitrust lawyer with Proskauer Rose LLP in Washington.

The Admeld review means the Justice Department’s antitrust division will once again be scrutinizing Google after approving, with conditions, the company’s $700 million acquisition of internet travel information company ITA Software Inc. in April.

Travel Data

Google, seeking to bolster its competitive strength in the ad market against rivals such as Facebook and Apple Inc., followed its purchase of DoubleClick with the acquisition of AdMob Inc. last year for about $700 million. The AdMob transaction was cleared by the FTC, which also reached a settlement with Google in March over privacy violations arising from its Buzz social networking service.

Approval of Admeld may hinge on how the Justice Department defines the internet advertising market, Proskauer’s Batts said.

Google is the market leader for search advertising, which is the placement of advertisements alongside search engine query results. Google dominated this market in the U.S. in the first quarter with 59.6 percent compared with Microsoft’s 7.9 percent and Yahoo!’s 7 percent, according to the IDC report.

Still, Stifel’s Arbogast said she expects the Admeld deal to be approved.

“The Admeld transaction seems to allow them to do what they do already better,” she said.

--With assistance from Jeff Bliss in Washington and Brian Womack in San Francisco. Editors: Fred Strasser, Mary Romano

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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