Yichuan Cao/Sipa USA via AP Images
At Google headquarters in Mountain View, California
Using the Kübler-Ross diagnostic model (on the five stages of grief) to describe a political or business negotiation is by now so horribly clichéd that anyone leading a story with it, present company included, should be ashamed of themselves. But there really is a textbook example of the bargaining stage happening right now with Google, which is being challenged throughout the world on its self-aggrandizing practices.
In the U.S., Google faces two major lawsuits, one from a coalition of state attorneys general led by Texas, and another suit led by the Justice Department (although the head of the Antitrust Division, Jonathan Kanter, has been tentatively barred from participating in the case). In addition, DOJ is preparing a second lawsuit that specifically targets Google’s adtech business, where it simultaneously runs auctions for programmatic ads for publishers and serves as a broker for advertising companies, playing both sides of the transaction in a way that, according to critics, allows the company to increase commissions and steer business its way.
This is separate from an adtech investigation in the European Union. A proposed EU regulatory effort known as the Digital Markets Act would obligate Google and other “gatekeepers” to refrain from combining data from different services of the same company, avoid “self-preferencing” products over rivals, and provide interoperability and data portability. There are also three separate bills in the U.S., one on self-preferencing, one on preventing app stores from taking large cuts on app purchases, and one that would force divestment of Google’s adtech business.
In other words, Google is under significant threat, and while it is fighting back through legal means and lobbying, it is clearly also trying to escape through concessions that sound consequential but don’t stand up very much to scrutiny.
Nevertheless, the bargaining tells you something about how Google views its own position. While it’s trying to get away with pretending to give up power in exchange for relief from legal liability and government regulation, doing so could be a stop on the road to giving up real power in a settlement—as long as policymakers understand that they can take advantage of this moment.
The Wall Street Journal reported late on Friday that Google offered the Justice Department to split off the auction and ad placement services into separate companies. However, those companies would still have the same corporate parent, Alphabet: They just wouldn’t be in the same division as Google.
This isn’t really a concession at all. If Google is not actually divesting the companies, having the adtech and the ad broker businesses under separate business lines is a distinction without a difference. As Dina Srinivasan, a lawyer and online advertising expert who has been a lead consultant on the Texas lawsuit, explained on Twitter, “We have experience with the same remedies in other exchange markets. They fall short and [are] 100% certain to fail—[it’s] why Google offers them.”
Indeed, a Google spokesman told the Journal that “we have no plans to sell or exit this business,” which gives away the whole game. Putting the auctioneer and the broker in separate affiliates of the same business is not a structural separation, nor does it change any of Google’s incentives.
If Google is not actually divesting the companies, having the adtech and the ad broker businesses under separate business lines is a distinction without a difference.
In Europe, Google has offered to allow other rival adtech companies to place ads on YouTube, which Google owns. This wouldn’t be meaningless, as currently advertisers seeking to run ads on YouTube are restricted to using Google’s ad tools. The change could promote competition throughout all digital ads, as it would break the monopoly Google has over adtech on the largest online video service. The EU has not formally accepted the offer.
However, allowing competitors to place ads doesn’t really reckon with the problem of Google controlling the winner of auctions for ads placed in a programmatic fashion. You still would have the inherent conflict of Google Ad Manager and competitors vying for space on Google’s video service. That could easily lead to self-preferencing once again.
In a third concession, Google has gone even further. On June 30, the company announced in a blog post a $90 million settlement with small-scale app developers, ending a lawsuit over the 30 percent fee Google levies for in-app purchases on Android phones. But the funding is only part of the deal. Google confirmed it will maintain, as Apple has, a lower commission of 15 percent for the first $1 million in revenue. More important, Google will allow app developers to use contacts obtained through the app to tell users outside the app about lower-cost subscriptions or other deals. Google also said that users could use other app stores on Android phones, with the caveat of “being careful not to compromise the safety measures Android has in place.”
This effectively gives app companies a road map to avoid the 30 percent fee. However, it’s limited to the small developers in the case. (Google reached a similar agreement with Spotify earlier this year.) It also doesn’t go as far as the Open Apps Market Act would, which would allow app companies right inside Google to tell users how to get cheaper subscriptions.
More important, it’s part of the same dynamic of Google offering a modest concession to stop a much more invasive alternative. The company has proposed a fake structural separation to try to stop a lawsuit; it’s proposing this slightly more real reform to how it treats app developers to forestall a more sweeping legislative option. It’s a $90 million payoff to stop legislation that would extract far more than that.
The series of Google’s actions certainly show that it fears the consequences of regulation and litigation enough to make a counteroffer. It doesn’t yet seem scared enough to make a legitimate counteroffer, one with real concessions to ending its anti-competitive behavior and market dominance. However, it’s a flash of recognition that storm clouds are descending on Mountain View.
The key will be how antitrust enforcers in the U.S. and Europe, along with lawmakers in Washington, respond. Will they jump at a settlement, or will they reject them as weak substitutes? Will they continue on the path of real accountability, or not? If they do, there will likely be other offers coming soon—just possibly ones that might be worth considering.
