Could Google-DoubleClick Merger be Halted?

Google surprised many observers back in April when it put down $3.1 billion to purchase online advertising firm DoubleClick. The deal spawned a certain amount of furor, and something like copycat purchases by Microsoft (who completed its acquisition of aQuantive) and Yahoo. Some six months later, government officials are taking a hard look at Google and its would-be acquisition.

It’s actually been something of a long, strange trip to this point. The Financial Times reported two years ago that Google had considered — and abandoned — a DoubleClick purchase. Why? One reason cited, though not as the deciding factor, was that DoubleClick’s use of “cookies” to collect user data for ad targeting purposes conflicted with the ethics of Google founders Larry Page and Sergy Brin. As everyone knows, these ethics are summed up in the Google motto “Do no evil,” and they’re part of the reason that Google once refused to turn over information to the US Department of Justice on the searches conducted on its site over a single week.

That show of backbone, however, happened in January of 2006, and, to put it bluntly, in Internet terms a tremendous amount of time has passed since then. Google’s executives may not like the use of cookies in Internet advertising, but they are a standard practice. And Google already tracks its users for a number of purposes, from improving its advertising to paying the publishers in its advertising network to fine tuning its search engine algorithms.

Google has belatedly taken up another standard practice of big business that some would consider "evil," namely lobbying. The search engine giant recently added some in-house lobbyists to complement the lobbying firms it employs in Washington, and this year alone spent $580,000 on lobbying. That’s a drop in the bucket compared to Google’s net revenues, and considerably less than other companies spend.

It’s understandable if Google figures it can use all the help it can get. In May, the Federal Trade Commission announced it was looking into Google’s pending purchase of DoubleClick for anti-competitive issues. European regulators have also expressed an interest in the deal. And on Thursday, September 27, the US Senate Judiciary subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing at 2 PM entitled “An Examination of the Google-DoubleClick Merger and the Online Advertising Industry: What Are the Risks for Competition and Privacy?”

{mospagebreak title=Senate’s Antitrust Concerns about GoogleClick}

What will happen when Google’s user data about search and DoubleClick’s user data are merged? That seems to be everyone’s biggest concern, especially in light of the company’s privacy policies. Google recently bowed to pressure from the European community to change its data retention period to 18 months rather than indefinitely, but that has done little in the way of calming anyone’s fears.

Microsoft, not surprisingly, opposes the merger. Brad Smith, the software giant’s General Counsel, noted that “This merger will almost certainly result in higher profits for the operator of the dominant advertising pipeline, but it will be bad for everyone else. It will be bad for publishers, bad for advertisers, and most importantly, bad for consumers.” He was one of five witnesses who spoke before the Senate subcommittee hearing.

To be sure, safeguarding consumer privacy was hardly the only issue on the minds of the senators at the hearing. In his opening remarks, subcommittee chairman Herb Kohl (D-Wisconsin) observed that “The total amount of merger activity in the industry exceeds $30 billion this year, creating profound consequences for all who use the ‘net and all who sell products and services using the ‘net. The leading company placing Internet display ads is DoubleClick…In less than a decade Google has become universally known as the best, fastest way of searching the Internet…Once these two companies have joined forces, will the barrier for a new entrant to the marketplace simply be too high? Or will the likely benefit outweigh the potential damage?”

David Drummond, Google’s chief legal officer, addressed the antitrust issue at the hearing. “The acquisition does not raise antitrust issues, because DoubleClick is not our most significant competitor,” he said. “Google is in the business of selling advertising. DoubleClick does not buy ads or sell ads — it provides tools that enable pubs [online publishers] to deliver ads — they don’t compete.”

Microsoft disagreed, and so did Internet business expert Scott Cleland, founder of Precursor and author of a white paper entitled “Googleopoly.” Cleland pointed out that “They do compete, because it’s about how ads get served to a screen. Google serves those screens with text and contextual ads and DoubleClick serves them in banner or video — but it’s the exact same function that serves ones and zeroes through a network. These are interrelated markets and they compete for the same ad dollars. It’s like someone saying since my eye and ear are separate they don’t have any interaction with my brain.”

{mospagebreak title=Microsoft’s Self-Interest}

Microsoft has some very good reasons for trying to throw a monkey wrench into Google’s purchase of DoubleClick. When it completed its purchase of aQuantive about a month ago, it entered the advertising arena in a big way. Advertising is outside of Microsoft’s core competence, but Google specializes in it. Microsoft will do anything it can to slow down the search engine behemoth.

Just consider the stance revealed by this quote from Microsoft CEO Steve Ballmer, made at the company’s financial analyst meeting in July. “We are hell-bent and determined to allocate the talent, the resources, the money, the innovation, to absolutely become a powerhouse in the ad business.” He even portrayed his company’s smaller footprint in the advertising business as an advantage. “This is a chance to invest in, or to reinvent and rethink the whole business model of online advertising,” he noted.

Interestingly, the system on the drawing board at Microsoft might end up being more invasive than Google’s. Called “conversion attribution,”  the New York Times noted that the system “would track all of the online places where consumers see ads and give advertisers a fuller picture of the various ways that consumers reach them.” Brian McAndrews, who joined Microsoft along with aQuantive and heads up Microsoft’s new advertising and publisher solutions group, thinks the system will show that Internet searches and online advertising are not nearly as closely connected as believed.

While that would be good for Microsoft, the tracking system may raise more than a few eyebrows. It can give advertisers a log of all the places on the Internet where web surfers see ads before going to an advertiser’s web site. The data is based on individual computers’ electronic signatures. That’s not the same thing as basing it on individual people — unless, of course, it happens that only one person uses a particular computer. Despite the many shared computers in both offices and households, this situation is fairly common. If Microsoft is concerned with threats to consumer privacy online as a result of the Google-DoubleClick deal going through, one must wonder what it is doing itself to safeguard the privacy of these consumers.

{mospagebreak title=Google’s Case and Other Concerns}

To its credit, Google is working on ways to protect consumer privacy online. Drummond cited one new technology in the works called “crumbled cookie.” This technology would not connect information about a web surfer to a single piece of identifying code (the previously-mentioned “cookies” that Google was once reluctant to use).

Drummond said his company was also exploring other ways to address privacy concerns. “We have consulted with numerous privacy, consumer and industry groups in developing these ideas and have endeavored to be responsive to their concerns,” he said at the hearing. The company may still not be sensitive enough — though one can barely fault it for not thinking through all the fiendish possibilities of its technologies.

For example, Google recently created something called Google Gadgets, which are mini-applications that do useful or entertaining things for the user. It has opened up the API to developers so they can create their own gadgets for others to use. Here’s the problem: some of the gadgets in Google’s gadget directory ask for Google account usernames and passwords. Since the gadgets are part of a Google directory, users may not realize that this information is going to a third party and not Google. It’s a situation ripe for a phishing scam. If Google isn’t more careful about what is appearing on its own site, how can we expect it to be careful enough with the treasure trove of personal information it will have access to after merging with DoubleClick?

Here’s another area that’s ripe for privacy violation: Google Gadget Ads. These are portable applications that let advertisers customize their look and feel. One that promoted Paramount Pictures “A Brave Heart,” which was based on a true story, let users view a trailer and (among other things) relive the 18 months surrounding a key event in the movie via a clickable timeline. But these ads may have a dark side. Cory Treffiletti, writing for Media Post Publications, warned that they could all too easily be turned into spyware by less-than-ethical marketers. Spyware is not just a nuisance, it’s an invasion of privacy.

If Google’s purchase of DoubleClick is to go through without making a lot more people unhappy, it needs to show that it is more capable of thinking through the privacy ramifications of its actions, and more responsible about what it brings to open beta. In short, Google needs to prove that it is worthy of our trust now, and will continue to be worthy of our trust after the purchase of DoubleClick is complete.

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