UPDATED 15:19 EST / JULY 08 2022

POLICY

Report: Google proposed spinning off parts of ad tech unit to avoid antitrust lawsuit

Google LLC has raised the possibility of spinning off parts of its advertising technology business into a separate company, the Wall Street Journal reported today.

After the spinoff, the new company would reportedly operate under the Alphabet Inc. corporate umbrella. Alphabet is the holding company that includes Google. 

The proposed spinoff is said to be connected with an ongoing antitrust investigation into Google being conducted by the U.S. Department of Justice. The investigation could lead to a lawsuit against the company. According to the Journal’s sources, Google hopes that spinning off parts of its advertising technology business would avoid the lawsuit.

Google generates most of its revenue from online advertising. The company provides tools that enable publishers to sell ad space on their websites. Additionally, Google offers software that brands can use to buy publishers’ ad space.

Google not only provides tools that enable publishers to sell ad space and brands to buy it, but also operates a popular platform through which ad space purchases are processed. The platform takes an auction-based approach to managing sales. Multiple brands bid for a publisher’s ad space and the brand with the highest offer wins.

The Justice Department is reportedly investigating allegations that Google abuses its role as both a broker and auctioneer of online ads to gain an unfair edge over rivals. Last year, sources told Bloomberg that the investigation may lead to an antitrust lawsuit against Google. The search giant reportedly hopes that offloading certain components of its advertising technology business to parent company Alphabet could stave off the lawsuit.

The spinoff would reportedly involve the part of the business that “auctions and places ads on websites and apps.” Today’s report didn’t specify whether Google proposed to split off all the business units and product lines that focus on this area, or only some assets.

It’s also unclear whether Google’s proposed spinoff would be sufficient to address the Justice Department’s concerns. According to the Journal, Justice Department officials have “signaled a preference for deep structural changes” to Google’s advertising technology business.

“We have been engaging constructively with regulators to address their concerns,” a Google spokesperson said in a statement. “As we’ve said before, we have no plans to sell or exit this business.” The spokesperson added that “rigorous competition in ad technology has made online ads more relevant, reduced fees, and expanded options for publishers and advertisers.”

Today’s report also contains new details about Google’s efforts to address antitrust scrutiny in the European Union. The European Commission, the EU’s executive arm, last year launched a probe into Google’s advertising technology business. The investigation seeks to determine, among others, whether Google breached competition laws with its YouTube advertising practices. 

The company currently enables brands to purchase YouTube ads only by using its own ad purchasing tools. According to today’s report, the search giant has offered to change this policy in a bid to settle one of the EU’s antitrust allegations. Google has reportedly offered to enable other companies to broker the sale of YouTube ads.

Google and other tech giants will soon face increased regulatory requirements in the EU as a result of two recently approved laws. The first law, the Digital Services Act, establishes new rules for digital service providers and places a particular emphasis on large online platform operators. EU lawmakers also approved the Digital Markets Act, which focuses on ensuring that tech giants don’t implement anticompetitive business practices.

Photo: Google

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