Google’s acquisition of Double click: A boom or bane?

Background of the acquisition

Google is the world’s most popular search engine. It also has the largest video hosting service on YouTube and various facilities like a web browser, meeting software (g-meet), email (g-mail), maps (Google Maps), etc. The main source of its profits however is through advertising. DoubleClick was a company founded by Kevin O’Connor and Dwight Merriman in New York, US. Previously it was listed as DCLK. The company specializes in serving video ads and graphics that appear on websites.  This was the company that placed small programs on the computers, known as ‘cookies’, this is done to keep track of what sites users visit. This further helps to deliver targeted ads. Both this feature and its business relationships were great assets of Double-click. In 2007 Google acquired DoubleClick for $3.1 billion in cash. This was one of the biggest deals in the online advertising world.

 Acquisition of DoubleClick by Google:

There were 3 finalists for the auction of DoubleClick which included Yahoo, Google, and Microsoft. They were all similar in value but Google won the round because of its growing search business and large pool of investors which complimented DoubleClick’s strengths.

In 2007, Google was much smaller in size compared to what it is at the current time. It was a surging company, mastered in searches and search advertising with $16.6 billion in revenue. Digital advertising was in its developing stage with only 12% of ad spending in the US. While paid search provided targeted advertising with a much higher rate of interest, it became very popular. These paid searches were good to attract users into buying a product but not good enough to create a brand reputation.  Google knew that display advertising was one of its weaknesses for which DoubleClick was the solution.

The merger worked in a way that Google was giving software tools that DoubleClick had charged and DoubleClick created an ad exchange or a marketplace for a new business and source of revenue. Both companies needed each other.

The main issue in the acquisition

The acquisition of DoubleClick by Google resulted into great controversies and investigations. It included concerns like if the company had tried to choke off competitors or shortchanged advertisers and publishers. There were questions regarding how Google set up its entire ad emote including DoubleClick.

Challenges in the acquisition

The European Commission planned to issue a statement of objections on this merger which would showcase protection’s infringements and harms of the EU competition law. There were allegations regarding Google obtaining a dominant position in the market of online advertising intermediation. Matching publishers and advertisers in the market would be dominated by Google. Its main rivals, Microsoft and Yahoo claimed that Google would end up controlling a major portion of the online advertising industry and become a gatekeeper for the market. Data protection was also one of the concerns. It would provide Google with the power to exploit databases of online user data in order to target advertising at consumers.

Outcome by the Commission

The Federal Trade Commission whose function is to review mergers approved this merger. It was approved by a 4 to 1 vote. It was described by the Commission as ‘relatively nascent, dynamic and highly fragmented’ and that other big companies ‘appear to be well positioned to compete vigorously against Google.’

Following a Phase 2 investigation, the Commission concluded that Google and DoubleClick were not causing large competitive constraints on activities and couldn’t be considered as competitors in the relevant market for providing online advertising space, its intermediation, or any provision of online display ad serving technology. Furthermore, DoubleClick’s elimination as a potential competitor would not create any adverse effect because of other competitive constraints already existing. It was also concluded that Google would not be able to foreclose any competitors or increase costs because of its market strength, the market position of DoubleClick, and their combined market positions.

The Commission views that the merger entity would not be capable of engaging in strategies that would aim to marginalize competitors due to the existence of other credible ad-serving alternatives that can be used by customers, particularly vertically integrated companies like Yahoo, and Microsoft. It would also not have the incentive to close access for competitors because those strategies would not be profitable mostly in the ads market.

The Commission cleared this merger based on its appraisal under the EU Merger Regulation.

Analysis

This great merger of Google and DoubleClick was a very complex event which potentially had both benefits and drawbacks. While the benefits of having an increased efficiency and improved user experience was significant but the concerns about reduced completion and privacy remained significant as well. It was unclear as to how it would have a long-term impact on innovation.

This merger lead to the shaping of the current day online advertising landscape. It also contributed greatly towards growing public scrutiny of big tech companies and data privacy issues which will always be a part of the important discussions in this digital age.

Some of its positive impacts are:

1. Enhanced efficiency- Both Google and double click offered this complementary service. A lot of advertisers benefited from this as both Google and DoubleClick helped in a more efficient targeted ad campaign and helped advertisers reach a larger audience at a potentially lower cost.
2. Improved user experience – Reduction of irrelevant ads and focusing more on targeted advertising can improve the user experience. A user is more likely to be attracted to a well-placed ad than a generic one.
3. Innovation Potential- Substantial Resources for factors like research and development were brought together with this merger. This led to a fueled innovation in aspects such as online advertising, leading to new ad formats and analytics tools.

Some of its negative impacts are:

1. Reduced competition- This led to the creation of a powerful entity that controlled both search and ad serving, which might lead to stifling competition in the online advertising market. This would in turn make it harder for the new players to emerge thus potentially leading to higher prices for the advertisers
2. Privacy Concerns- One of the major set-back was the lack of user control over personal information as the merger had concentrated a massive amount of user data with Google which could be potentially used for tracking users across search queries and browsing activity through double clicks ad network was another major concern
3. Limiter Innovation- While the merger had offered great resources for innovation the argument of it having an opposite effect remained significant. As Google was the dominant player, there might be a struggle for the smaller companies with novel ideas to compete, which would eventually hinder the overall progress of the online advertising industry.

Conclusion

Finally, Google buying DoubleClick was one of the biggest transitions in the online advertising unit which built the present form. Despite those advancements in ad targeting, user experience, innovation etc, the merger also resulted into some concerns that are making a lot of waves in the digital space today such as privacy and monopolistic tendencies. While acquiring additional capabilities through the assimilation of DoubleClick’s strong ad-serving platform, google further entrenched itself in Internet advertising and enabling the advertisers to craft their more effective programs. But it triggered concerns from the regulatory authorities, and there are constant debates on finding the right approach between innovation, competition and, data control. Ultimately, this acquisition highlights the dual-edge nature of tech mergers: However, they can contribute to the advancement and effectiveness of procuring technologies and services, as well as their quality, while at the same time potentially erode consumer anonymity and decrease competitive variety.

Author: Mahek Shah, in case of any queries please contact/write back to us via email to [email protected] or at IIPRD.