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CONFIDENTIAL
SUMMARY OF ANTITRUST ANALYSIS:
GOOGLE’S PROPOSED ACQUISITION OF DOUBLECLICK
I. Introduction

Advertising is the fuel that powers the Internet. By combining the dominant network for
sales of online advertising with the dominant provider of ad-serving tools (which are the
advertiser and publisher “portals” to the online advertising market), Google will obtain
dominant control over the “pipeline” for online advertising. The transaction will put
Google in a position to extract an increasing portion of the money flowing between
advertisers and publishers through the pipeline. It will also enable Google to use its
access to, and control over, a predominant share of publisher “inventory” (the ad space on
a Web page available to be seen by users) and valuable user information to impair its
rivals’ ability to compete to sell and serve ads.

By acquiring the dominant provider of ad-serving tools that publishers use to manage and
make their inventory available to advertisers, Google will force other online ad networks
to build and market their own ad-serving tools. Unless and until Google’s competitors
are able to obtain access to competitively neutral and unbiased ad-serving tools like those
currently provided by DoubleClick, the ability of Google’s rivals to create viable
alternative pipelines will be very difficult, if possible at all. Moreover, by the time
competitors are able to assemble their own pipelines, given the network economics that
characterize online advertising, Google likely will have obtained in non-search
advertising the same unbeatable market position that it now enjoys in search advertising.

If the transaction is allowed to proceed, Google will control so much of the publishers’
inventory and such a large portion of advertisers that Internet competitors trying to catch
up will not have access to sufficient inventory and advertisers to mount a credible
competitive challenge to Google.
II. Relevant Markets

Ad-serving Tools (publisher tools and advertiser tools)—Ad-serving tools provide the
functionality that determines which advertiser gets access, and what ad gets served, to
particular ad space on a particular Web page. The tools also gather information about the
user (for example, by placing cookies on a user’s browser and then reading the cookies
when that user returns). The tools also store user information, and provide analytics for
interpreting the information in order to target ads to the user dynamically as each Web
page appears. Publisher tools thus can convey to publishers how their ad space
performed (e.g., which ads were served at what price) and advertiser tools can provide
advertisers information about how their campaigns on one Web site performed versus
other Web sites.

DoubleClick currently is the dominant provider of standalone tools to publishers
and advertisers with approximately 65% and 52% share, respectively. It has only
two distant competitors, 24/7 (recently acquired by WPP) and aQuantive (recently
acquired by Microsoft).
CONFIDENTIAL


Google is a major player because the advertiser and publisher ad-serving
functionality is integrated into AdSense. In addition, Google is in the final stages
of developing and testing its own standalone tools.
Financial Intermediation—Participants in this market provide a mechanism for
transacting sales of publisher inventory to advertisers. Early in the history of online
advertising, virtually all sales were made directly, or “by hand,” by the publishers’ sales
force dealing directly with advertisers or their agents. More recently, ad networks and ad
exchanges have developed to facilitate the automated sales of inventory that was
previously sold directly or is being offered by publishers too small to field a direct sales
force. Typically, the ad network obtains access to this inventory, referred to as
“discretionary” or “remnant” inventory, which the network then sells to advertisers. The
network retains some portion of the revenues and passes the rest back to the publisher.

Google used its dominant AdWords network to become the leading non-search ad
network. It currently has a lock on smaller publishers in the “long tail” of the
Internet and has used search syndication deals to get exclusive control over
portions of the inventory of larger publishers.

While directly sold ads in many cases yield significant premiums for publishers
who can afford a direct sales force, networks have been closing the gap through
sophisticated targeting techniques that allow the networks to enhance the value of
inventory aggregated across publishers.
III. Elimination of Competitive Overlaps

Elimination of actual competition


The acquisition eliminates the existing competitive overlap between
DoubleClick’s ad-serving tools, DFP and DFA, which are currently sold on a
stand-alone basis and the ad-serving capabilities integrated into Google’s
AdSense. As a result of the acquisition, Google will serve—on a revenue basis—
almost 78% of all non-search ads served to third-party Web pages (that is, 78% of
all ads served to the Web pages of publishers who do not have proprietary adserving tools—today, only MSN and Yahoo! have such tools).
Elimination of important potential competition

Prior to entering its agreement to acquire DoubleClick, Google was in the process
of launching its own ad-serving tools to compete directly with DoubleClick’s
DFP and DFA offerings.

We understand that these tools are called Google Ad Manager for Publishers and
Google Ad Manager for Advertisers (referred to in the industry as GFP and GFA,
respectively) and were being marketed by Google even before they agreed to buy
DoubleClick.
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
Under DOJ’s Non-Horizontal Merger Guidelines, Google’s acquisition of
DoubleClick would harm competition by eliminating potential competition:
1) assuming, arguendo, it is a separate market, DoubleClick dominates standalone
tools for publishers (with a 65% share) and for advertisers (with a 52% share);
2) entry into tools is difficult; and 3) Google is unique in its willingness and
ability to enter this space.

Similarly, DoubleClick recently launched a full-featured ad exchange
(DoubleClick Advertising Exchange) that, in the absence of the acquisition,
would have created a formidable direct competitor to Google’s AdSense.
IV. Harm to Competition from Combining Related Dominant Positions

Combining DoubleClick’s dominant (and previously neutral) ad-serving tools with
Google’s dominant online ad networks, will give Google end-to-end control of the
dominant, integrated pipeline for online advertising. Advertisers and publishers wishing
to buy and sell non-search online advertising will have no real alternative for transacting
online non-search advertising.

As a result of its acquisition, Google will control access to an enormous share of
publisher inventory. By denying or degrading other networks’ access to DoubleClick
(and through it to the inventory), Google will make it virtually impossible for other
networks to get sufficient scale to compete with Google.

By making DoubleClick’s DFA the only ad-serving tool that is fully and seamlessly
integrated with AdWords and AdSense (today, Google’s exclusionary practices
effectively prevent any ad-serving tools to integrate with Google’s ad networks), Google
will similarly be able to trap advertisers and make it more costly for competing networks
to attract sufficient advertiser demand to compete with Google.

Given the large portion of advertisers who already view Google’s ad networks as a “must
buy,” and given the huge share of publisher inventory and data to which the combined
Google/DoubleClick will have access, the combination will enjoy network effects that
will compound the exclusionary impact of the merger on rival networks and ad-serving
tool vendors.

Under established precedents, a merger of dominant firms in vertically related (or
complimentary) markets can violate the antitrust law. That is particularly true when the
acquired party controls assets that competitors of the acquiring party have relied on to
reach the market and that cannot be duplicated in a timely fashion once the assets are
acquired by the dominant rival. One recent example is Monsanto/Delta & Pine Land,
where the Department of Justice challenged a vertical transaction under analogous—and
arguably less compelling—facts.

The Department’s Non-Horizontal Merger Guidelines articulate a conservative analytical
framework for vertical mergers that may have adverse effects on horizontal competition.
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CONFIDENTIAL

Increased Barriers to Entry

First, the Non-Horizontal Merger Guidelines recognize that a vertical
merger can raise barriers to entry if: (i) the result of the merger is that
insufficient unintegrated capacity is left at one level to accommodate
competitors at another level, resulting in those rivals being forced
simultaneously also to enter the first level in order to compete; (ii) the
requirement of two-level entry makes entry more difficult and less likely;
and (iii) at least one level is not competitive.


All three factors are present here: Google’s acquisition of
DoubleClick would result in Google controlling a virtual
monopoly share of the ad-serving capacity currently available to
third-party publishers and thus would raise barriers to
entry/competition to insurmountable levels (and require
competitors to confront a rival that is dominant in every
component of the pipeline and that can manipulate network effects
to make entry even more difficult).

Given Google’s history of providing software or services for free in
exchange for the right to have and use data, it is not a stretch to predict
that Google will offer DFP for free in exchange for, among other things,
giving Google a “first look” at the publisher’s remnant inventory. As a
result, Google will be able to “cream-skim” the most valuable publisher
inventory and/or use the publisher’s cookie data in a more extensive
manner than they already do. This conduct would further exacerbate the
already significant inventory and data barriers to entry and weaken the
ability of rival ad networks (and others) to compete on the merits.

Moreover, today, Google affirmatively discourages the integration of
AdWords into buy-side tools. Google demands that third-party tools
segregate keywords on the AdWords network from keywords on other
networks and manipulates the API required to access AdWords. Because
AdWords is a “must buy” for advertisers, these policies inhibit the ability
of vendors to develop tools that reduce the cost and time that advertisers
must spend managing ad campaigns on multiple platforms like those of
Google, Yahoo, and Microsoft. Google will be willing to relax these
exclusionary practices only for its wholly-owned DoubleClick. As a
result, Google will be able to trap advertiser demand for both search and
non-search online advertising and to increase the cost and time required
for competing networks to attract sufficient demand to compete with
Google.
Monitoring competitors’ prices

Second, the Non-Horizontal Merger Guidelines recognize that a vertical
merger may adversely affect competition by providing the merged firm
with access to competitively sensitive information of its rivals, making it
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CONFIDENTIAL
easier to monitor price. By acquiring access to DoubleClick’s tools,
Google will have access to real-time information on the alternative prices
(and other competitively sensitive information) at which publishers can
sell their inventory and advertisers buy inventory. Using this information,
Google will be able to minimize Google’s price (or portion of the total ad
revenue that Google passes through) to publishers for their inventory, to
maximize the price it charges advertisers, and to extract the maximum
amount of revenue flowing between advertisers and publishers.
V. No Countervailing Justifications

The fact that Google was on the verge of introducing ad-serving tools that compete
with those of DoubleClick indicates that this merger is not necessary to generate any
consumer welfare benefits. Moreover, the fact that Google does not depend on
DoubleClick’s ad-serving tools indicates that this transaction is not intended to reduce
“double-marginalization.”

Any “efficiencies” from the combination of DoubleClick’s information with that of
Google or from integrating DoubleClick’s information into AdSense and/or AdWords are
not merger-specific. Rather, they result from a calculated choice by Google and are
nothing more than an expansion of Google current exclusionary practices that prevent
other networks and tool vendors (including DoubleClick) from interoperating.

Significant companies like Microsoft, Time Warner and Yahoo! that continue to make
investments in non-search advertising will be unable to counter the anticompetitive
impact of this transaction. One need look no further than search advertising to see that
despite Microsoft’s size, technical prowess, and strong incentives, it has been unable to
compete effectively with Google in search and that Google’s lead in search advertising
has continued to grow because of network efforts.
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