http://www.businessweek.com/stories/2007-12-20/google-closes-in-on-doubleclick-dealbusinessweek-business-news-stock-market-and-financial-advice

Technology

Google Closes In on DoubleClick Deal


The FTC ruled in Google's favor on Dec. 20, but the Web search giant still needs the approval of the EU's antitrust commission

Score one for Google. The Federal Trade Commission ruled Dec. 20 that it would not block Google's (GOOG) proposed $3.1 billion acquisition of leading online ad-serving and tracking firm DoubleClick. The 4-1 decision in Google's favor marked a major win for the Web search Goliath, which is battling to expand its considerable share of the $30 billion online advertising market beyond tiny text ads related to Web queries.

But Google can't claim victory yet. The European Union's antitrust commission still needs to sign off on the merger before Google can begin incorporating DoubleClick into its business. That may not happen without Google agreeing to certain conditions, if at all. Already, the EU has raised concerns about its impact on consumer privacy. "This is round one of a two-round battle," says Jeff Chester, executive director of the Center for Digital Democracy (CDD), a nonprofit public interest group that opposed the merger. "The EU can kill the deal, there is no question about it."

The FTC said in its decision that it could only consider privacy concerns as they relate to marketplace competition. But it did issue a separate statement with some recommendations concerning online customer data collection and privacy.

The Personal Business of Ad Placement

Google has faced strong opposition to its online advertising ambitions since it announced plans to acquire DoubleClick in April (BusinessWeek.com, 4/14/07). Competitors for online ad dollars, such as Microsoft (MSFT), argue the merger will enable Google to effectively control the market. Ads placed beside Web search results account for more than 40% of the dollars spent online, and Google controls more than two-thirds of that market, according to eMarketer. Much of the remaining online ad dollars go to display ads, the poster-like banners—DoubleClick's forte—that run on most Web sites.

Online ads are priced based on how well they are matched to the target consumer. Google collects data on searches performed by individual computers, and DoubleClick records information about the computers that visit the Web pages in its network. The more data they collect, the better they can match a marketer's ad to a potentially interested customer, and the higher the premium they can charge on the ad.

But consumer groups see the issue another way: the more data collected, the higher the risk of violating someone's privacy. For the past eight months, groups voiced concerns to the FTC that a combined Google/DoubleClick would aggregate too much information about what Web surfers do online, putting consumers at risk. In the end, the majority of the commissioners decided DoubleClick does not control enough of the display-ad market to give Google an unfair monopoly. "Competition among firms in this market is vigorous and will likely increase," the commission majority wrote in a statement.

Increased Competition

Recent announcements by Google's chief competitors support this argument. On Dec. 19, Microsoft—one of the few to challenge Google's merger before the FTC—announced a $500 million, five-year advertising deal to place ads on Viacom's (VIA) network of popular Web sites, including MTV.com. Microsoft will also be able to sell ad space on Viacom pages that are not in a premium position, based on the data it has about visitors to Viacom's sites.

Microsoft also recently solidified multiyear advertising agreements with Facebook, the second most popular social network in the U.S., after News Corp.'s (NWS) MySpace, and well-trafficked social news site Digg (BusinessWeek.com, 9/19/07). "When Microsoft comes into a room and talks about anticompetitive behavior and threats to privacy, no one can take them seriously," says the CDD's Chester.

It also didn't help Google opponents that many of the company's competitors recently struck agreements to buy ad networks themselves, similar to Google's proposed deal with DoubleClick. Microsoft bought DoubleClick competitor aQuantive for $6 billion in May (BusinessWeek.com, 5/18/07). Yahoo! (YHOO) and Time Warner's (TWX) AOL also scooped up ad-serving and targeting firms earlier this year. Meanwhile, independent players, such as Specific Media, have secured millions in funding to consolidate their operations with other smaller ad networks (BusinessWeek.com, 11/1/07).

In a statement on Google's blog, Chief Legal Officer David Drummond applauded the ruling: "The FTC's decision publicly affirms what we and numerous independent analysts have been saying for months, our acquisition does not threaten competition in what is a robust, innovative, and quickly evolving online advertising space."

Privacy Violation?

But will it threaten Web users? The final answer may rest with the European Commission. In November the commission delayed a decision on the deal (BusinessWeek.com, 11/14/07), saying it was more complicated than many competition cases and demanded further review. The EC has until Apr. 2 to issue a ruling.

Privacy advocates worry that Google, combining its wealth of search data with the information DoubleClick collects on who visits clients' sites, would violate consumer privacy. The sheer volume of information that DoubleClick collects would make it easy for Google to understand nearly everything about what millions of individual consumers do on the Web, critics say.

Google counters that DoubleClick clients own information about who visits their sites and what they do there. Many of those clients would consider it a violation of that agreement for Google to, say, sell car ads on its Gmail service to people who have recently visited an automotive site that uses DoubleClick. As a result, Google says, it can't simply fuse its data with DoubleClick's customer information. However, privacy groups argue that Google could easily encourage DoubleClick clients to relinquish their data in exchange for, say, free search ads.

The FTC did offer a ray of hope for privacy advocates. The commissioners issued several recommendations about behavioral targeting, where information about users' Web activity is used to tailor online ads. The FTC said sites should clearly notify users when they're collecting data on their actions, and that sites should limit the length of time they store that data to reduce the risk of it falling into the wrong hands.

The FTC said it plans to look into whether "heightened protections" are needed to safeguard consumer privacy online.


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