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Tuesday, May 28, 2024

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Misplaced Concern: The FTC, Google, Apple & United Airlines

Google was hoping that the announcement of Apple’s iAd program would help with approval of the AdMob acquisition at the FTC. However that doesn’t seem to be the case; Bloomberg reported on Friday that the FTC seemed poised to try and block the deal:

The U.S. Federal Trade Commission staff is urging the filing of an antitrust suit challenging Google Inc.’s $750 million acquisition of AdMob Inc., according to three people familiar with the matter. It will be up to the five-member commission to decide whether to follow the staff’s advice or approve the deal. The people familiar with the matter spoke on condition of anonymity. Peter Kaplan, an FTC spokesman, declined to comment.

The FTC staff signaled last month it was leaning toward urging a court challenge when it was disclosed the agency was seeking sworn declarations from Google’s competitors and advertisers.

Google PR has been periodically sending bloggers and analysts material critical of that position. A post from mobile app developer Wertago is the latest in that series: “Ignorance and Hubris at the FTC…” It details the company’s interaction with FTC staffers and critiques their apparent lack of knowledge and expertise around questions of mobile advertising and competition:

There is no way the FTC knows enough to support a decision to block the deal. The staff members we spoke to were not particularly knowledgeable about the mobile ad space they are considering interfering in, or about the technology sector more generally, or about mobile app development and monetization, or about the changes in the mobile advertising sector in the past year, or about the level of competition and pace of change and innovation in the market, however broadly or narrowly you define it. More generally, it seems obvious to us that the computer, web, and mobile technology sectors are so competitive and fast-moving that NO ONE has the knowledge, expertise, economic insight, or clairvoyance to say with much confidence precisely what effect the AdMob acquisition will have on competition in the market or on consumer welfare. We think a recommendation to block the acquisition would be a mistake.

Among scores of others I also spoke to the FTC. I have not talked about it because I was not really supposed to. But the post above and the prospect of the FTC’s action cause me want to make a few comments about that experience and my impressions.

My sense from the questions I heard and their underlying assumptions is that the FTC was inclined to block the deal from the start. I say that carefully; I don’t think the investigation has been a sham but my sense is that the bias was always against the deal.

The attorney I spoke to was a very intelligent person but had a limited understanding of the mobile advertising market — at best. I spent a total of about three hours over two conversations trying to help explain and describe the companies operating in the mobile advertising space and the highly dynamic nature of the market.

This is a summary of what I said about Google to the FTC:

The company will have a number of advantages if the AdMob deal goes through. And AdMob unquestionably makes Google more competitive in mobile display and in-app advertising. It also puts Google in a stronger “holistic” position than Yahoo or Microsoft in mobile, partly because Google has moved faster and done a better job of executing vs. its main rivals.

I said however that I didn’t believe competition would be affected adversely and that advertising prices were not likely to go up. Indeed, mobile CPM prices have been falling in mobile. In short I said, yes Google becomes more powerful and effective but the deal doesn’t stifle competition. The market is dynamic and highly competitive, I told the FTC.

There were also some other things that I won’t go into, in my interactions with the FTC, leading me to believe the agency wanted to block the Google-AdMob deal. Again, I don’t think the investigation was a sham or pretense but I think the FTC point of view going in was a too-simplistic one: Google is overly powerful online and we don’t want that to extend to this important new arena as well. I think that turns out to be basically the “Alpha and Omega” here.

The FTC is certainly not alone. There are many critics out there who agree with that viewpoint and want to see Google “reigned in” in one or more ways. Yes, Google is powerful. And as an abstract matter too much power or control isn’t a good thing.

I’m no laissez-faire capitalist but I think the mobile ad market is both very young and highly dynamic. It’s evolving quickly and definitely very competitive. If the objective of anti-trust law is to protect competition in the market then it is simply unnecessary for the FTC to intervene at this stage by blocking the AdMob deal.

It is similarly unnecessary for the FTC to investigate Apple around its developer rules. Apple and the iPhone are far from a monopoly in mobile. The idea that the FTC is going to try and get involved in the debate over what software tools third party developers can or should be able to use is kind of absurd. The FTC wants to protect and promote Flash?

Apple’s rules and restrictions may cause developers to spend more time with other mobile operating systems such as Android, for example. Apple might hang itself by being too controlling. But the market is in a position to make that determination better than the lawyers at the FTC. Again it’s much too early for any regulatory intervention. Apple doesn’t have a smartphone monopoly (or even the majority share); it has a very strong product and platform that lots of people want to develop for. But there are multiple platforms out there and plenty of competition: Symbian, RIM, Android, Windows Mobile, WebOS, Meego, Bada and so on.

Let the market and the competitive dynamics of the marketplace do their job at this stage.

I’d much rather have the good folks at the FTC pay attention to things like the United-Continental merger and other potential consolidation in the airline industry. Ticket prices are high and getting higher it would appear. Combinations and acquisitions in that sector pose real risks to competition and ultimately to consumer prices.

Mobile advertising, by contrast, is a new and highly dynamic industry with intense competition. It’s literally evolving on a monthly basis. I would challenge the FTC and anyone to find a market more competitive.

Postscript From Danny Sullivan: I’ll also add something I shared on a publisher’s mailing list yesterday.

The last time the FTC acted against Google to “protect” competition, it was to suggest that if Google moved ahead with a deal to provide search results to Yahoo in 2008, it would face an anti-trust complaint. Google quickly backed down.

Google’s proposal would have left Yahoo with its own search technology. All along, Google’s argument had been that its move was intended to help a competitor stay a competitor in the space. Crazy? In Google’s view, it’s a better company if it faces competitors. They ensure Google stays on its toes. Unsaid is that they also help ensure Google can point to a healthy competitive market and say “look, no need to regulate us here!” In addition, having two weak competitors (Yahoo and Microsoft) might be better than a single one that potentially grows stronger (Microsoft).

Still, Yahoo would have kept its search tech and stayed a search player. In contrast, Microsoft also wanted a deal with Microsoft, to buy its technology outright. That deal would have been worth at least $9 billion.

After the FTC’s action to preserve competition, suddenly, Yahoo was no longer so valuable. It didn’t have Google that it could play against any Microsoft offer, no were there any other companies stepping forward to match the rich offers that both Google and Microsoft had put on the table. As I read it, the FTC effectively undermined Yahoo’s value, pretty much gift-wrapping the company for Microsoft.

A year later, with a leadership change at Yahoo, Microsoft came back with a new deal proposal. It still wanted Yahoo’s search technology, but it would no longer buy $8 billion in stock nor pay $1 billion in cash for it. Instead, it would simply allow Yahoo to keep 88% of sales form search ads on Yahoo’s site. Here’s the side-by-side of the two deals.

Only one thing had changed to produce this firesale price. Google was no longer allowed to compete for Yahoo’s business. As a result, the marketplace appears to have gotten less competitive, not more. Microsoft offered far less for Yahoo’s assets than a year before. In addition, Yahoo effectively signaled it would no longer be in the search game. Yes, the spin remains that Yahoo will still be a major search player, that it doesn’t need to own its own search tech, etc. etc.

A Search Eulogy For Yahoo article from last year debunks this from my experience in watching the same. Perhaps I’ll be proven wrong. But so far, since the launch of Microsoft’s Bing, all we’ve seen according to comScore figures is Bing taking share away from Yahoo. The deal’s not even in place, and Yahoo’s dropping. It’s hard to imagine that it’s going to recover, especially after it sells its technology.

So the FTC might block a Google purchase of AdMob? All that leaves me with is the idea that Apple might get the same gift-wrapped present — plus a feel a little sorry for any start-up that may be looking for a payday by being purchased by Google. The more it is prevented from buying, the more its competitors are likely to be handed bargain gifts.

Opinions expressed in this article are those of the guest author and not necessarily Search Engine Land. Staff authors are listed here.

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