The EU Delays Google's Ad Buy

European officials want more time to review the proposed DoubleClick deal, and critics in the U.S. hope the FTC is paying attention

by Catherine Holahan

Sheer size has helped Google (GOOG) dominate much of the world's $30 billion online advertising market. But the search giant's massive reach is proving to be a liability in Europe. On Nov. 13, the European Union's antitrust authority held off on approving Google's proposed $3.1 billion acquisition of online ad company DoubleClick, opting instead to subject the transaction to further review.

The European Commission's move, which extends the decision deadline until Apr. 2, is a setback for a deal that would broaden Google's already considerable ability to determine ad placement not only on its own search engine—the world's largest—but also across untold sites across the Web. Google may have to jump through additional hoops to win approval for the deal, whereas rivals Microsoft (MSFT), Yahoo! (YHOO), and Time Warner's (TWX) AOL are moving ahead with similar acquisitions that have already passed EU muster (BusinessWeek.com, 10/1/07). "We can't just treat this as just another competition case," Sophia In't Veld, a Dutch member of the European Parliament, says in defense of the decision.

Approval Still Likely

Google was quick to cry foul. "We are obviously disappointed by the European Commission's decision to extend its review of our acquisition of DoubleClick," Google Chairman and CEO Eric Schmidt said in a statement. "We seek to avoid further delays that might put us at a disadvantage in competing fully against Microsoft, Yahoo, AOL, and others whose acquisitions in the highly competitive online advertising market have already been approved."

The Google deal will most likely also get a green light—but not before European officials take measures to prevent the enlarged company from exerting undue control over the market. "It could lead to additional conditions being placed on the combined company's actions, which could compromise Google's efforts to fully exploit the DoubleClick value," analysts at securities firm Stifel Nicolaus wrote in a Nov. 13 note. Only 3% to 4% of mergers reviewed by the EU in the last several years have been subjected to the second level of scrutiny, according to the Stifel analysts.

Pleased Opponents

Opponents of the merger are hoping the additional review will influence the U.S. Federal Trade Commission, which is also examining the deal. Like the EU, the FTC has approved comparable deals by Microsoft, Yahoo, and AOL. "The European Commission decision has sent a friendly European wind to prop open the doors at the FTC," says Jeff Chester, executive director of the Center for Digital Democracy, one of the 35-plus groups urging the commission and the FTC to impose restrictions on the merger. Other opponents include the International Advertising Assn., the World Federation of Advertisers, and Google competitors Microsoft, Yahoo, and Ask.com.

The concern is that Google would amass too much data on its users and their online habits. It already has a vast storehouse of information on what people using its Web search tool are looking for, and it uses that information to place ads alongside users' search results. The fear is that owning DoubleClick would improve Google's ability to use that data to place targeted ads on other sites, too. To date, the information DoubleClick collects on clients' site visitors is owned by the clients and is not shared.