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This Deal Helped Turn Google Into an Ad Powerhouse. Is That a Problem?



Google owns the world’s leading search engine, it operates the largest video-hosting service in YouTube, and its popular web browser, email, map and meeting software is used by billions of people.

But its financial heft — the source of nearly all its enormous profits — is advertising. And perhaps no day was more pivotal in transforming Google into a powerhouse across the entire digital advertising industry than April 13, 2007, when the company clinched a deal to buy DoubleClick for $3.1 billion.

The deal turned out to be “a total game changer, a crucial piece in the larger jigsaw puzzle Google put together,” said Timothy Armstrong, a former Google executive who championed the acquisition.

It has also turned out to be a classic example of why a growing number of antitrust experts say lawmakers need to broadly rethink how mergers are regulated when the buyer is a tech company with strong and growing market power.

Google’s ad business is now a focus of wide-ranging investigations by the Justice Department and state attorneys general. The scrutiny includes whether the company choked off competitors, or shortchanged advertisers and publishers, and how it assembled its ad empire, including DoubleClick, an ad technology company and marketplace.

ImageTimothy Armstrong championed the acquisition of DoubleClick when he was a Google executive.
Credit…Gabby Jones for The New York Times

The Justice Department is expected to file an antitrust suit against Google by the end of the month. It is unclear whether the case will be focused on the ad business, or concentrate on renewed allegations that Google’s search algorithm gives preference to its shopping and other commerce services and hobbles rivals.

That internal debate, many experts say, points to the challenge facing antitrust enforcement in a fast-moving, complex tech business: Investigations are difficult, long and backward looking.

Instead, those experts say, the country needs a more pre-emptive approach, making it much more difficult for big tech corporations to buy other companies — and perhaps forcing spinoffs if a past acquisition took out a nascent competitor or became a short cut to greater market power. In other words, changing the law so that Google would not have been able to buy DoubleClick.

The Federal Trade Commission, which reviews many mergers, approved the DoubleClick deal in a 4-to-1 vote. William Kovacic cast one of the four assenting votes.

“If I knew in 2007 what I know now, I would have voted to challenge the DoubleClick acquisition,” said Mr. Kovacic, now a law professor at George Washington University who is among the experts pushing for stronger merger oversight.

In Senate testimony last week, Donald Harrison, Google’s president of global partnerships and corporate development, described the DoubleClick deal and smaller ones in digital advertising as “finding a piece of technology” that the company then invested in and strengthened to accelerate innovation.

Online ad prices, Mr. Harrison said, have fallen over the past decade, and it is a highly competitive marketplace.

DoubleClick had a valuable asset: its business relationships and ad-serving technology used by thousands of publishers online.

In 2007, Google was a tenth of the size it is today. Still, it was a surging company and a heavyweight in search and in search advertising, with $16.6 billion in revenue. And it was headed for the business where DoubleClick made its living — larger display ads on websites and video ads. Google, for example, was giving away software tools that DoubleClick had charged for. To diversify, DoubleClick created an ad exchange, or marketplace, as a new business and a buffering source of revenue.

Credit…Frances Roberts for The New York Times

“But we were terrified,” recalled Michael Rubenstein, a former DoubleClick executive. The DoubleClick managers and investors decided it was a good time to sell.

The auction for the company came down to three finalists, Yahoo, Microsoft and Google, said David Rosenblatt, a former chief executive of DoubleClick. The three bids were similar in value, he said, but Google, given its thriving search business, had access to the largest pool of advertisers, complementing DoubleClick’s strength with publishers.

“The combination with Google made the most sense,” Mr. Rosenblatt said.

The Federal Trade Commission gave Google the go-ahead to buy DoubleClick by December 2007, as did the European Commission a few months later. Looking back, Mr. Kovacic said a legal challenge to the deal would have been “difficult but not impossible.”

Another former commissioner said a merger review was a prediction of whether competition may or may not result. But he added that it was an educated guess, made by regulators grounded in the present. No one foresaw the power that tech platforms like Google, Facebook and Amazon would amass, said the former commissioner, who asked not to be identified because of potential conflicts with clients of his firm.

In its 2007 statement allowing the DoubleClick deal, the commission described broad swaths of the digital ad market as “relatively nascent, dynamic and highly fragmented,” adding that other big companies “appear to be well positioned to compete vigorously against Google.”

Microsoft, it seemed, could be a formidable rival. Just a month after Google announced the DoubleClick deal, Microsoft agreed to pay about twice as much — more than $6 billion — to acquire aQuantive, another digital ad company.

Credit…Chester Higgins Jr./The New York Times

At the time, aQuantive mainly appealed to Microsoft as a competitor to Google that could slow its expansion plans in advertising. Microsoft saw Google as its most dangerous rival because it posed a threat to Microsoft’s lifeblood products, Windows and Office, former executives say. Google was offering free versions of email, document and spreadsheet programs over the internet, subsidized by advertising.

“With DoubleClick, Google was playing offense, but aQuantive was a defensive move for Microsoft,” said Brian McAndrews, the former chief executive of aQuantive. (Mr. McAndrews is a member of The New York Times’s board of directors.)

For Microsoft, aQuantive was never really a priority, former executives say, and its leaders departed and it withered. In 2012, Microsoft publicly conceded that the deal had failed, taking a $6 billion write-off.

While DoubleClick was its largest deal by far, Google built up its ad technology business with a string of acquisitions. It bought start-ups that made software for publishers, advertisers and mobile ads, including AdMob in 2009, Invite Media in 2010 and AdMeld in 2011.

Those building blocks and its in-house innovations have given Google a strong presence in every step of buying and selling online ads.

“Google has put it all together,” said Jeffrey Rayport, an online marketing expert at the Harvard Business School. “Google is the market under one roof.”

Google’s one-stop shop is a huge convenience for the smaller businesses that generate much of the tech giant’s revenue and do not have online advertising expertise. But the Google machine can seem like a fortress to ad tech companies seeking a slice of the market.

In 2007, with big companies scooping up digital ad properties, Brian O’Kelley saw opportunity. He left Right Media, which Yahoo had just bought and where he had been chief technology officer, and founded AppNexus.

His ad tech start-up was meant to be an independent middleman for advertisers and publishers, an alternative to the rising powers of digital advertising, Google and later Facebook.

By 2010, the start-up was gaining momentum and attracting attention. That October, Microsoft led a $50 million round of venture funding in AppNexus. A month later, Mr. O’Kelley said, AppNexus was cut off from DoubleClick, just as the peak holiday marketing season was getting underway.

“They almost killed us,” Mr. O’Kelley recalled.

Credit…Ozier Muhammad/The New York Times

Google said it could not comment on dealings with specific customers like AppNexus. But Google said that it had policies on “ad quality, ad content and malware” and that violations sometimes led to suspending access to the DoubleClick ad exchange.

The issue, Mr. O’Kelley said, was a technical one: Google’s software attributed ads it said violated its rules to AppNexus rather than to the advertiser.

When the AppNexus cutoff raised alarm in the ad industry, Google issued a statement calling AppNexus “a great partner” and saying the two companies were working to resolve the matter.

The problem lasted a few weeks, a temporary blow to the start-up. The message Mr. O’Kelley and his team took from the episode was that operating a business in the Google ad ecosystem could be precarious and unpredictable.

Over the next several years, AppNexus struggled at times, but it persevered and emerged as an alternative to the Google marketplace. In 2018, AT&T bought AppNexus for $1.6 billion. AT&T executives spoke of the company as a linchpin in AT&T’s vision of creating a television and digital video advertising exchange that would be a counterweight to Google and Facebook.

But those ambitions were scaled back, and the focus became using AppNexus to provide the best ad tech for AT&T’s Time Warner television and video units, including CNN, TBS and TNT. This month, The Wall Street Journal reported that AT&T was looking to sell its digital ad unit.

Things might look different today if the Federal Trade Commission had made a different decision in 2007, said Mr. O’Kelley, who left AT&T in early 2019.

“Had DoubleClick not gone to Google,” he said, “it’s not clear that Google would have been the power it became — certainly not as easily.”


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The Trump campaign celebrated a growth record that Democrats downplayed.



The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.


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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.



The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.


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Ant Challenged Beijing and Prospered. Now It Toes the Line.



As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.


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