The Google division of Alphabet Inc. (GOOGL, GOOG) and the Facebook division of Meta Platforms, Inc. (FB) could be forced to divest much of their online advertising business, if a new bill pending in the United States Senate eventually happens. become law. The Digital Advertising Competition and Transparency Act would prohibit companies with digital advertising revenues exceeding $20 billion per year from running a “digital advertising exchange.”
In the first quarter of 2022 alone, Alphabet generated $68 billion in total revenue, with nearly $55 billion, or 81%, coming from Google’s advertising business. The bill thus threatens Alphabet’s main source of revenue and its business model. Specifically, Google runs an auction, or exchange, where ad transactions are made and prices are set. It also offers tools to help businesses sell and buy ads. If the new legislation were passed, Google would have to choose which of these companies it would keep. Facebook faces a similar threat.
Key points to remember
- Google and Facebook could be forced to divest much of their online businesses if a bipartisan US Senate bill becomes law.
- A similar measure is expected to be introduced in the US House of Representatives.
- However, the chances of success in an election year appear dim.
The rationale for the bill
Although Facebook must also divest much of its online advertising business if the bill passes, Google is its main target. Google’s critics allege that it engages in monopolistic practices when it comes to the online advertising market, creating an antitrust problem. These critics find it problematic that Google represents both providers and buyers of online ads, while conducting real-time auctions that match buyers and sellers and set prices.
In that vein, Sen. Mike Lee (R-Utah), the bill’s lead sponsor, said, “When Google simultaneously serves as seller and buyer and runs an exchange, it gives them an unfair and unfair advantage in the market… it can engage in behavior that harms everyone.”
Meanwhile, led by Texas, attorneys general from 16 states and Puerto Rico have already joined a lawsuit against Google. They accuse the company of controlling the online advertising market while misleading publishers and advertisers about its processing and pricing of advertisements. Google rejects these claims as inaccurate and has asked a judge to dismiss the case.
The bipartisan measure is co-sponsored by Senators Mike Lee (R-Utah), Ted Cruz (R-Texas), Amy Klobuchar (D-Minnesota) and Richard Blumenthal (D-Connecticut). A similar bill is expected to be introduced in the U.S. House of Representatives by Reps. Ken Buck (R-Colorado) and Pramila Jayapal (D-Washington). However, it is uncertain whether these bills would pass in a midterm election year.
Google spokeswoman Julie Tarallo McAlister said, “Advertising tools from Google and many competitors help US websites and apps fund their content, help businesses grow, and help protect users from privacy risks and misleading ads. Breaking these tools would hurt publishers and advertisers, reduce advertising quality, and create new privacy risks. And, in an age of increased inflation, it would hurt small businesses looking for simple and effective ways to grow online.
Google also claims that if the bill passes, “poor data brokers” will flood the internet with “junk ads.” The company says this bill is the “wrong bill, at the wrong time, aimed at the wrong target.”
Other criticisms of the bill
Dr. Todd Henderson, a law professor at the University of Chicago, writes that behind the bill is the premise that Google manipulates advertising markets in a way similar to insider trading or market vanguard. scholarship. He finds no evidence for this.
Instead, he says, “Google and others revolutionized the market by developing exchanges that held real-time auctions for all available ad space. This process generated countless benefits for both sellers and buyers of ads. “
The Software & Information Industry Association (SIIA) has published its own critique of the bill. He notes that competition in digital advertisements is dynamic and that digital advertising makes the “free and open internet” possible. Moreover, he warns that the bill would provide consumers with fewer and more expensive choices.
The SIIA also sees a dangerous trend in a series of recent laws that seek to use the “brutal instrument of antitrust law” to punish certain large companies based on their size, not their conduct. His statement concludes: “Our nation has long believed that companies should be punished for bad behavior, not for success. This principle should continue to apply in the digital age.”
Other Bills Targeting Big Tech
In addition to the Competition and Transparency in Digital Advertising Act, five other bipartisan bills are pending in Congress that target not only Alphabet and Meta, but also Amazon.com, Inc. (AMZN) and Apple Inc. (AAPL). These are:
- The US Online Innovation and Choice Act would prohibit companies from discriminating against smaller competitors, for example by prioritizing their products over others.
- The Platform Competition and Opportunity Act would empower regulators to prevent dominant firms from acquiring potential competitors.
- The Ending Platform Monopolies Act would prohibit companies from taking action against smaller competitors that would restrict fair and free online competition.
- The Enhancing Compatibility and Competition by Enabling Change of Service (ACCESS) Act would make it easier for new businesses to enter the market by changing requirements that affect business costs.
- The Merger Filing Fee Modernization Act would update filing fees for mergers, intended to help regulators enforce antitrust laws.