Google’s Ad Tech Trial: A Summary

By Kenrick Cai

SAN FRANCISCO – As Google’s trial regarding alleged illegal monopolization in advertising technology nears its conclusion, experts believe the financial risk for the tech giant is minimal.

The U.S. Department of Justice (DOJ) and several states are alleging that Alphabet Inc. (NASDAQ: GOOGL) has unlawfully dominated markets for ad purchasing technology. Google concluded its case on Friday, with closing arguments set for November 25 and a ruling anticipated in the coming months.

Background Information

The trial commenced a month after a U.S. judge ruled against Google on August 5, stating it had illegally cornered the online search market. Remedies for that case may be proposed as early as December, and Google plans to appeal the ruling.

On September 15, Evercore ISI adjusted its price target for Alphabet stock from $225 to $200, citing “probable medium-term uncertainty” around potential remedies, which could involve divesting parts of Google’s business including its Android operating system. Analysts like Scott Devitt of Wedbush argue that the advertising trial has limited implications compared to the search case.

Revenue Dependence on Advertising

Advertising represents over 75% of Google’s revenue, amounting to $307.4 billion in 2023. The DOJ’s case focuses on Google Network, a segment managing the auction system for digital ad purchases, which generated $31.4 billion last year, down from $32.8 billion the year before. Bernstein analysts predict this revenue will continue to decline over the next three years.

Mark Shmulik, another analyst, emphasizes that investors are primarily drawn to Google due to its search business, while the Network division appears to be losing its revenue significance.

Legal Implications

The DOJ seeks to either partially or fully sever Google Ad Manager from the company. Past figures revealed Ad Manager contributed 4.1% to Google’s overall revenue and 1.5% to operating profit in 2020. Even if Google loses the case, experts believe the revenue impact would be limited to less than 10%.

Google reportedly offered to sell parts of its advertising exchange to appease European regulators, but this proposal was declined by publishers.

Potential Ripple Effects

Should Google lose the trial, implications may extend beyond revenue, affecting how the company manages its ad tech products. The DOJ argues that the interconnectedness of Google’s ad business is key to its monopoly status.

Critics have highlighted potential far-reaching implications, positing that the case might set a precedent for holding tech companies accountable for monopolistic conduct.

Nikolas Guggenberger, a law professor, cautioned that predicting outcomes is complex and dependent on the court’s ruling and subsequent actions taken by Google.

“This may either merely impact long-term profits or disrupt the entire advertisement ecosystem,” he noted, expressing uncertainty about future developments.