- The Washington Times - Thursday, April 19, 2007

Last Friday, a landmark acquisition unfolded in the fledgling online advertising industry. Google proposed to acquire DoubleClick Inc. for $3.1 billion. The acquisition should raise the eyebrows of the federal antitrust enforcement attorneys at the Federal Trade Commission (FTC) and the Justice Department.

The Act properly hovers over Google’s proposed acquisition of DoubleClick, which might substantially lessen competition in online advertising or an online submarket. At a minimum, the acquisition gives the FTC the first real opportunity to closely analyze the dynamics of the increasingly important online advertising marketplace.

Serious scrutiny is critical because, as the U.S. Supreme Court has sermonized, antitrust rules are the nation’s Magna Carta of economic liberty, the best instrument ever discovered for individual and collective prosperity. The laws focus on mergers or consolidations in growth industries like the Internet economy to make sure they do not inhibit new ways of doing business or the development of innovative products. In his landmark work “Capitalism, Socialism and Democracy,” Joseph Schumpeter observed that the process of “Creative Destruction” is the keystone of national wealth, i.e., the wholesale displacement of old products and ways of doing business with new superior products and methods “which strikes not at the margins and outputs of existing firms but at their foundations and their very lives.” Think of the way that the Internet has revolutionized news; the distribution of television and movies; telephone calling; retail shopping; travel planning; banking; investing; education; health care; and, virtually substituted for letter mail.

It’s fair to say the Internet drives forward almost every facet of our economy. We must strive to protect that flow of Internet innovation. That is why the Clayton Antitrust Act generally forbids acquisitions “where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or tend to create a monopoly.”

Google controls the lion’s share of the market for Internet-search text advertising and related contextual ads. DoubleClick would make it additionally dominant in serving graphical ads on Web sites on behalf of their publishers. Together, Google and DoubleClick are poised to possess a unique ability to combine each of these methods under one roof — potentially giving them an unparalleled competitive advantage in the online advertising marketplace. Advertisers and agencies use DoubleClick to deliver their ads to Web pages. Publishers rely on DoubleClick to insert ads when their site is visited. It has been estimated that the consolidation would leave Google with more than 80 percent of the advertisements served up to third-party Web sites when a user pulls up a page. That would be a monopoly if that online niche were viewed as a distinct advertising market relatively uninfluenced by adjacent advertising opportunities.

The 80 percent eye-opening percentage does not automatically condemn the acquisition. Bigness is not the same as badness under the antitrust laws. Size may yield consumer friendly economies of scale, and thorough review may conclude Google’s online rivals would be able to successfully compete even after a merger. But that is precisely the question antitrust reviewers must ask: Will this combination smother nascent competition, or will competitors still have genuine market opportunities?

The consolidation would apparently strengthen Google’s ability to compete with Yahoo, AOL and Microsoft in selling display or banner ads on Web sites. Google hopes to use its technology to match Web content with DoubleClick’s banner advertisements, for example, a NASCAR Web site might carry a banner ad for a sports car dealer. More precisely targeted ads are real economic gains. The Supreme Court has cautioned, however, that a pro-competitive effect in one market or submarket is no antitrust defense to an anti-competitive effect in an alternative, adjacent market or broader market.

Moreover, Google’s acquisition of DoubleClick would give it perhaps the most significant player in the display and banner ad portion of the rapidly expanding online advertising market, removing them as a potential competitor exercising market restraint on the incumbents. According to published reports, Google was considering internal expansion into DoubleClick’s domain until it went on the block. Google obviously possessed the resources and technological wizardry to make its potential entry credible, and thus deter any monopolistic behavior by DoubleClick.

Google has earned most of its profits through online basics: selling small text ads with its text-based search engine. DoubleClick, in contrast, has offered a more upscale service with flashy banner and video ads. Over the last year, Google attempted inroads on DoubleClick’s turf by expanding its AdSense program to include display advertising. It has not gained instant success. With more persistence, however, Google might have diminished DoubleClick’s market share and made the upscaled online ad market more competitive.

In sum, Google’s acquisition of DoubleClick raises hard antitrust questions. The FTC should demand that the companies provide good answers.

Bruce Fein is a former general counsel of the Federal Communications Commission and a consultant with AT&T.

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