EU’s Google Ad Tech Probe Strikes at Heart of Business Model
(Bloomberg) -- Google faces a sweeping European Union probe into its advertising technology, a move that strikes at the heart of the tech giant’s business model.
The European Commission said Tuesday its new confrontation with the Alphabet Inc. unit will focus on concerns the company may be illegally favoring its own online display advertising technologies, squeezing out rivals.
“This is probably the probe that many people were waiting for because it goes to the core of Google’s business,” said Aitor Ortiz, an analyst for Bloomberg Intelligence. The biggest risk would be an order for Google to separate from or restrict its online ads operations, which “could have a significant impact on the money generated through online advertising,” he added.
It’s the first time the EU has directly examined the black-box of online advertising where Google automatically calculates and offers ad space and prices to advertisers and publishers as a user clicks on a web page. Earlier EU cases focused on shopping search ads, mobile phone ads and advertising contracts.
Alphabet shares fell 0.3% at 12:25 p.m. in New York. The company gets some 81% of its revenue from online advertising, which amounted to $147 billion last year.
The investigation will also check if Google unfairly blocks competitors’ access to user data and will scrutinize privacy changes to phase out some cookies and data access for advertisers. Regulators want to examine YouTube’s strong position for online video too and how Google may use that to help its advertising tools.
“We are concerned that Google has made it harder for rival online advertising services to compete,” Margrethe Vestager, the EU’s antitrust commissioner, said in the statement. “Online advertising services are at the heart of how Google and publishers monetize their online services.”
The latest EU case has been brewing for months. Vestager signaled in March the regulator was working on a “very large” probe into Google.
Regulators gathered information in January on Google’s practices in the “advertising technology value chain,” according to questionnaires sent to publishers and ad firms.
Google said in an emailed statement that European business choose its services “because they’re competitive and effective. The company will “continue to engage constructively with the European Commission to answer their questions and demonstrate the benefits of our products to European businesses and consumers.”
The Google probe adds to a slew of global regulatory actions targeting the dominance of a handful of tech giants. The investigations often focus on how they may use access to data and platforms to suppress competition.
At the same time, the EU authority is trying to acquire new powers to investigate so-called internet gatekeepers and forbid them from favoring their own products. The rules may be finalized early next year, a German lawmaker working on the report said Monday.
Digital advertising spending was around 20 billion euros ($24 billion) in the EU in 2019, the regulator said. EU fines are based on the value of sales and capped at 10% of yearly revenue. Google has previously been fined more than $9 billion by the EU.
Click here to read more about the EU concerns.
Opening a probe raises the risks that the EU will slap the company with fines or order it to change its business model. But cases can take years to conclude and are sometimes dropped if regulators can’t back up their initial suspicions.
What Bloomberg Intelligence Says:
Google’s antitrust problems in Europe aren’t over, with new rules and probes targeting the company’s dominant position in European and U.K. search and online-advertising markets, but the risks are manageable, in our view.
-- Aitor Ortiz, BI antitrust analyst
Click here to read the research.
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