Google ad tech probe in Europe strikes at the core of company’s business model that makes up the bulk of its revenue
- The European Union is investigating the opaque process of how Google automatically calculates and offers ad space and prices
- The US internet giant has been under increasing antitrust scrutiny, but the latest probe targets how the company makes 81 per cent of its revenue
The European Commission said Tuesday its new confrontation with the Alphabet Inc unit will focus on concerns the company may be illegally favouring 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.
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Alphabet shares fell 0.3 per cent at 12:25pm in New York. The company gets some 81 per cent of its revenue from online advertising, which amounted to US$147 billion last year.
Cookie phase-out
The investigation will also check if Google unfairly blocks competitors’ access to user data and will scrutinise 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 monetise their online services.”
The latest EU case has been brewing for months. Vestager signalled in March the regulator was working on a “very large” probe into Google.
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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”.
Gatekeepers
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.
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At the same time, the EU authority is trying to acquire new powers to investigate so-called internet gatekeepers and forbid them from favouring their own products. The rules may be finalised early next year, a German lawmaker working on the report said Monday.
Digital advertising spending was around 20 billion euros (US$24 billion) in the EU in 2019, the regulator said. EU fines are based on the value of sales and capped at 10 per cent of yearly revenue. Google has previously been fined more than US$9 billion by the EU.
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.
