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Analyzing the FTC-EU divergence in reviewing the Google-DoubleClick merger

Ironically, just as the EU is gearing up to conduct an "in-depth investigation" of the Google-DoubleClick merger, the FTC investigation is apparently wrapping up with a whimper. What accounts for this divergence in approaches to this merger review?

The first and obvious explanation is differences in the process and timing.

  • Google chose to delay initiation of the EU review, which was Google's prerogative.
    • The strategy was that they expected a more favorable review from the FTC than the EU, so they wanted to get the "first impression" and hopefully precedent set by the FTC -- the more favorable antitrust forum for Google.
  • This may turn out to have been a big tactical mistake by Google.
    • By techincally delaying their initiation of the EU review by about six months, an eternity in deal time, it's tactic became obvious -- that Google was playing the forum shopping game and that Google was trying to minimize the EU's role in the process.
    • Big mistake for several reasons:
      • By choosing to do the review process sequentially and not simultaneously, as is more normal, they now have a year-long review rather than a 7-8 month review process.
      • They also didn't appreciate the effect of more time on the process. As I have said many times, because it is so true and important, the more one learns about this merger the more concerned one becomes.
      • This is a very complicated merger, in an indirect business model (where the consumer does not pay, but advertisers do) in a not very well understood industry.
        • What this means is a much bigger than normal learning curve for reviewers, opponents, investors and the media.
      • Google's mistake was letting the FTC process run its full course, and let opposition get organized, focused and better prepared for a de novo review, (a do-over review) at the EC -- armed to the teeth.
      • Compounding this tactical error is that the EU forum starts with:
        • A tougher initial stance because EU directives are much tighter on online advertising use of data than in the US;
        • More aggressive approach to protecting competition and competitors than the US; 
        • More problematic market shares in Europe than in the U.S. -- 75-90% vs 55-65% search shares; and
        • A predisposition to wanting to respect and foster individual country cultures and languages in the EU which are threatened with the larger scale and scope of Google and Doubleclick and the American-ization of Europe and Europe's online culture.     

The second big reason for divergence between the FTC and EU in the Google-DoubleClick review is the truism that: "One finds what one looks for."

  • It has become increasingly clear to me in following this merger review so intensely over the last several months that the FTC investigators had a first impression bias that this market was dynamic, fast moving, and that there should be a strong reluctance to regulate the Internet (which I wholeheartedly embrace) -- so I believe in their "glass half full/empty" view of the world -- they looked for evidence to justify not intervening. 
  • They also bought into the notion that since search engines and display ad servers were different functions, that they were not competitors. 
    • It appears most of their review has been to justify they are separate markets and don't compete, despite the growing and compelling evidence to the contrary. 
    • The latest evidence is quite amazing, in that Google maintains semantic purity by saying they don't compete in display ad-serving because Google has named its competitive offering "Image ads" and not "display ads." 
  • It has become increasingly clear to me that the FTC investigators don't want to see how the two compete and would increasingly compete because that would force them down a road that they don't want to go. 

Third, the EU and the FTC are diverging because the EU is focused on "intermediation services" and not on just online advertising.

  • "Intermediation services" is the code word for the thesis in my Googleopoly report and Senate Judiciary Subcommittee testimony that the combination of Google and DoubleClick will give the combined entity such overwhelming advantage on market information of: supply (advertisers), demand (audience interests) and currency (publishers) that Google-DoubleClick can effectively corner the submarkets for a variety of "intermediation services".
  • The EU rules, process and precedent, allow them more latitude than the FTC to focus on vertical issues, integration advatages and network effects.
    • Just look at the EU recent actions on Microsoft and GE-Honeywell among others, to remember that the EU looks at these vertical/integration issues much differently and more aggressively than the U.S. FTC or DOJ.

Bottom line: Different processes, timing, focuses, and interests can yield different outcomes.

  • The Google-Doubleclick merger is on much thinner ice in Europe than it was in the U.S. 

 

  

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