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My Senate Judiciary Testimony why the Google-DoubleClick merger should be blocked

Below is the summary of my testimony before the Senate Judiciary Subcommittee on Antitrust yesterday on why the Google-DoubleClick merger should be blocked.

  • I find the Google-DoubleClick merger review process to be one of the most illuminating and fascinating ways to explore the future of the business of the Internet.
    • I also strongly believe the trajectory of Internet content business will be profoundly affected by the outcome of this merger review.
  • I highly recommend you review the six charts I prepared which provide a very useful visual overview of why this merger is so far-reaching, little understood and important. 
  • My full testimony and my previous white paper, "Googleopoly" can be found at www.googleopoly.net.

Summary of Testimony of Scott Cleland, President, Precursor LLCBefore the Senate Judiciary Subcommittee On Antitrust Hearing on: Google-DoubleClick Merger and the Online Advertising Industry” -- September 27, 2007 

Introduction: Mr. Chairman and Members of the Subcommittee, thank you for the honor of testifying, I am Scott Cleland, President of Precursor LLC. The views expressed by me in this testimony are my own personal views and not the views of any of my clients. Attached to this testimony is my July 17, 2007, white paper: “Googleopoly: The Google-DoubleClick Anti-competitive Case” which can also be found at www.googleopoly.net.

This Merger in Perspective: This merger review is a watershed moment for Internet competition. I believe Google-DoubleClick is clearly one of the most far-reaching, least-understood and important mergers this Subcommittee has ever reviewed. 

 

The Problem: The biggest challenge for antitrust authorities is to not miss the proverbial “forest for the trees” in this merger review. Online advertising is the only proven business model for monetizing Internet content. The Internet is the ultimate network of networks and it creates the ultimate network effect of network effects. The biggest risk for Congress and the FTC here is missing the critical importance of the essence of online advertising, which is the exceptional inter-connectedness of: inter-related segments, networks, people, products, services, and technologies -- by artificially assuming that they are separate and distinct, and not highly-interdependent markets. The traditional antitrust concept of “separate” antitrust markets is arguably least applicable and most artificial and contrived when applied to Internet businesses. See the attached charts for a visual explanation of the merger’s antitrust problems:

  • The “Internet Choice Paradox:” Advertisers not Consumers Pay for Internet Content;
  • Extreme Concentration: Comparing Analogous Intermediary Markets;
  • Extreme Media Concentration: A De Facto “End-run” Around Media Ownership Limits?
  • Googleopoly Tipping Point? Accelerating Network Effects Via Acquisition;
  • Facilitating Bottleneck Control of Online Advertising? and
  • Extreme Market Power: How Merger “Corners” the Online Advertising Market.

 The Stakes of Lax Antitrust Enforcement: Will Google be enabled to become the:

  • “Online-advertising bottleneck provider” picking Internet content winners and losers?
  •  “Ultimate Internet Gatekeeper” deciding which Internet content gets viewed?
  • “Internet’s de facto paymaster/boss” determining which websites get paid how much? 
  • “Internet market maker” that has uniquely comprehensive market intelligence and information on advertisers, websites, ad-inventory, viewers, and Internet user behavior?

 

No Checks and Balances? This merger should also give pause because every politician understands that “information is power”, and Google openly aspires to be the world’s most powerful information broker. No other entity currently has such a naked ambition to control or effectively corner the market for any of the world’s commodities, let alone all “the world’s information” (public and private), while also having the wherewithal (infrastructure, technology, capacity, expertise, and acquisitions) to accomplish the task. The combined Google-DoubleClick would have little accountability to consumers, competition, regulators, or third-party oversight.

 

Recommendation: Block This Merger. The strong evidence that this merger “substantially lessens competition” compels me to recommend that this Subcommittee oppose this merger and urge the FTC to seek an injunction to block it in Federal Court.

 

This Isn’t a Hard Antitrust Call. In my fifteen years of relevant experience, I have never seen another merger which:

·         Facilitates more extreme global concentration both horizontally and vertically – simultaneously;

·         Generates more powerful and cumulative “network effects” or increasing barriers to competitive entry;

·         Tips so many market sub-segments to “substantially less competition” going forward: (Search, text ad-serving, contextual ad-serving, graphic display-ad-serving, rich-media/video ad-serving, consumer behavior data, ad-publishing analytical tools, cross-market performance analytics, ad-brokering, and ad-exchanges.)

·         Accelerates a dominating “platform effect” so quickly and completely where dominance in one segment can be cross-leveraged to dominate related segments; and

·         Forecloses more actual and potential competition by effectively “cutting off the supply of oxygen” to competitors.  

 

Conditions Won’t Work. There is no remedy to “cure” or merger conditions that would “fix” the obvious and severe anti-competitive impacts of this merger. I believe merger conditions would prove futile and counter-productive and probably result in the worst of all possible outcomes – a slippery slope to regulating the Internet. I most fear that lax merger enforcement of an obviously anti-competitive Internet merger would ultimately force individual countries or the EU to regulate the Internet in the absence of sufficient competition, therefore Balkan-izing and undermining the Internet’s universal value. The best outcome is maintaining Internet competition and denying the merger to keep DoubleClick a viable competitor to Google.

 

Conclusion: This merger should be opposed and ultimately blocked because it would create extreme market concentration horizontally and vertically, and also tip the online advertising market to a bottleneck, a market which is one of the most strategically fundamental markets for the new economy going forward – the only proven monetization engine of Internet content.

 

  • This is a watershed merger; the stakes of lax antitrust enforcement are exceptionally high because there would be no effective “checks and balances” to Google-DoubleClick’s extraordinary “web of market power” over “the world’s information.”
  • Bottom-line: if a business wants its content to succeed on the Internet, it would have no choice but to use the Google-DoubleClick-YouTube online advertising platform. No real competitive choice.

 For the referenced charts please click here.

Q&A One Pager Debunking Net Neutrality Myths