Google and Microsoft took Capitol Hill Thursday as their rivalry spilled out during hearings on the Google's DoubleClick acquisition.
Both parties have posted their prepared remarks before theSenate Subcommittee on Antitrust, Competition Policy and Consumer Rights Committee on the Judiciary. Here's a look at the backstory, Google's remarks and blog and Microsoft's testimony.
So put on a little dueling banjos in the background and let's get to it.
Economics and privacy:
Brad Smith, Microsoft's general counsel, will argue that there are serious economic questions and consequences to consider around the Google-DoubleClick deal. His two biggest questions to ponder are:
On the consequences, Smith says:
While there are millions of web sites and advertisers on the Internet, there are actually a very small number of “intermediaries” that provide the tools and services that connect them. These intermediaries play a gateway or middleman role if you will, much like the natural gas pipelines that connect refineries to distributors and to consumers in their homes. If you are a web site and want to sell ad space on your site, or if you are an advertiser who wants to display your ads online, you have to work with them or one of their intermediaries.
Already Google is the dominant company for one of the two main types of online advertising - namely online search ads. Roughly 70 percent of global spending on search-based advertising today flows through Google’s AdWords.
If Google is allowed to proceed with this merger, it will also obtain a dominant gateway position over the other main type of online advertising – non-search ads. Today Google and DoubleClick are the two largest competitors in this area. Combined, Google will account for nearly 80 percent of all spending on non-search ads.
If Google and DoubleClick are allowed to merge, Google will become the overwhelmingly dominant pipeline for all forms of online advertising.
As for the privacy implications Smith breaks out the fear of Google theme.
Online ads are served based on user data. As consumers we give up this data – though often without knowing it – in exchange for access to free content and services. Today, it’s generally believed that Google and DoubleClick have amassed the two largest databases of online user data in the world.
This country doesn’t permit a phone company to listen to what you say and use that information to target ads. The computer industry doesn’t permit a software company to record what you type and use that information to target ads. Yet with this merger, Google seeks to record almost everything you see and do on the Internet and use that information to target ads. One question is whether this merger will create a whole new meaning to the term “being googled.”
These privacy issues have antitrust consequences. Given the nature and economics of online advertising, this concentration of user information means that no other company will be able to target ads as profitably. It will substantially reduce the ability of others to compete.
Google obviously begs to differ:
David Drummond, Google's chief legal officer, says there's plenty of competition.
We believe that by combining our advertising network with DoubleClick’s display ad serving products, and by investing resources in the display ad business, we will be able to help publishers and advertisers generate more revenue, which will fuel the creation of even more rich and diverse content on the Internet.
Some have asked whether this acquisition raises competition concerns. We are confident – and numerous independent analysts have agreed – that our purchase of DoubleClick does not raise antitrust issues because of one simple fact: Google and DoubleClick are complementary businesses, and do not compete with each other. DoubleClick does not buy ads, sell ads, or buy or sell advertising space. All it does is provide the technology to enable advertisers and publishers to deliver ads once they have come to terms, and provide advertisers and publishers statistics relating to the ads.
The simplest way to look at this is by way of analogy. DoubleClick is to Google what FedEx or UPS is to Amazon.com. Our current business involves primarily the selling of text-based ads – books in our analogy. By contrast, DoubleClick's business at its core is to deliver and report on display ads.
Our acquisition of DoubleClick does not foreclose other companies from competing in the online advertising space. Rather, the transaction is just one of several that underscore the strong competition in the online advertising space.
As for privacy, Google counters Smith's argument by adding that it's a good steward of consumer data.
As a result of the DoubleClick acquisition, consumers will benefit from more relevant and useful advertising, as well as from improvements that we plan to make to DoubleClick’s ad serving technology to enhance the loading speed of websites. Another area where Google plans to continue innovating is in privacy.
Google's bottom line is this: We believe deeply in protecting online users’ privacy, and we have a strong track record of doing so. We are constantly working to innovate in our privacy practices and policies. Some have asked questions about privacy protections in connection with the DoubleClick acquisition, but for us privacy does not begin or end with our purchase of DoubleClick. Privacy is a user interest that we've been protecting since our inception.
For example, just recently we announced a finite data retention policy that states in a clear and simple manner what we do with our server logs. We were the first leading Internet company to decide to anonymize IP addresses and cookies-- which are bits of data placed by nearly all websites on your computer -- in our server logs after 18 months. We are pleased that other search engines – including Microsoft, Yahoo and Ask.com – followed our lead in setting their own data retention policies.
We have also announced a new policy to reduce our cookie lifespan from 30 years to 24 months, which will be a much shorter lifespan than the cookies of many other companies.
We also spend a lot of time designing products on the principles of transparency and choice – transparency about what information we collect and how we use it, and user choice about whether to provide us with personal information at all. For example, to give users more control Google engineers built an "off the record" feature in Google Talk, our instant messaging product, so that users could decide whether their conversations are stored.
We make privacy a priority because our business depends on it.
And then Drummond makes an interesting turn on cookies.
Our desire to protect consumer privacy is one reason why we are late to the display advertising space. For some time, Google's leadership has been concerned that third party cookies – a key component of the display ad-serving systems of Atlas (now owned by Microsoft), 24/7 Real Media (now owned by WPP), DoubleClick, and many other companies – might collect data in a way that might not be easily detected or understood by users. As a consequence, we traditionally have not accepted third party cookies in our advertising network.
Note: This argument needs some major followup. Google is late to display advertising because of third party cookies? Puhleeze. It is a novel--yet unconvincing to me--argument.
Smith sticks to his script.
I appreciate that this technology and this business model are new, and I agree the Internet continues to change.
Yet amidst constant change, it is worth bearing in mind that one rule of the road has remained fixed in this country for the 117 years since the Sherman Act was adopted. That principle is this: We are all encouraged to work hard every day. We are all encouraged to earn our way to success. But no one is permitted to buy success by purchasing its largest competitors.
That principle has served this country well through generations of new industries and technologies. We’re discussing today what is almost certain to become one of the most important markets of the 21st century. The question for this Congress – and for the Federal Trade Commission and this country – is whether we should abandon this principle now.
I don't buy the arguments from either party to be honest. Microsoft may have a point. Google may have a point too. They are both too big to be trusted. And given what both parties have at stake there are so many vested interests it's impossible to know who's on the up and up. I don't completely buy the antitrust argument against the Google-DoubleClick deal and frankly few understand the technology underneath to make a solid case. My prediction: This deal will get done and then we'll find out in a few years if Google is evil.
As for this Senate committee I have little confidence that they'll know the issues to really probe the Google-DoubleClick deal. And if they shoot down the Google-DoubleClick deal what will they say about the other mergers in the pipeline?