As some of you might know, tech giant Google has been facing serious challenges with the U.S. Department of Justice (DOJ) recently. It all started with an antitrust case that was filed against it in 2023, where Google was accused of abusing its monopoly in the online ad industry through its Google Ad Manager platform (Belanger, 2024a). According to McCabe (2024), the company controls about 87 percent market share in ad-selling technology, allowing it to push out any competition and set extremely high prices. This level of control could potentially harm news publishers and website owners, as they would be forced to accept whatever terms Google sets.
The SIlicon Valley giant managed to gain so much power after the acquisition of DoubleClick, an online ad management and tracking platform, in 2007 (Belanger, 2024b). That move gave Google the ability to create a two-sided network, linking advertisers and publishers in a way that fueled its growth. The platform benefits from a cross-sided network effect, where more publishers/websites attract more advertisers (Koss, 2022). And vice versa: a platform with more advertisers drives up competition for ad space, increasing prices and making it more profitable for website owners. As more members joined on both sides, it became more and more difficult for any competitor to enter the market, effectively making Google a textbook example of the “winner-takes-all” phenomenon (Hayes, 2022).
But how did Google break into this market so quickly and become its dominant force? The answer could be found in the company’s envelopment strategy. Google used aspects of a foreclosure strategy by using its dominance in the online search market to gather massive amounts of data, which it then used to improve its targeted advertising capabilities (Google, 2024). Besides, the acquisitions of companies like DoubleClick helped turn Google Ad Manager into a one-stop-shop for anyone who wants to buy or sell their ads (Belanger, 2024b). Google’s bundling of ad tech services created a closed ecosystem, where users had little reason to switch to independent or smaller companies. The company also used a conglomeration technique, building on its existing user base—people who already used its search engine, watched YouTube videos, or owned Android devices. Essentially, Google had a ready-made audience for advertisers, and by sharing data across its platforms, it offered more precise ad targeting than any competitor.
In the end, the DOJ argues that Google’s dominance is unfair and that it crosses into monopolistic abuse (Belanger, 2024b). And while it seems straightforward, one could argue that Google’s success is simply a natural outcome of platform growth and network effects. For Google, losing this trial will simply mean selling off parts of its ad business (Belanger, 2024b). But for the rest of the industry, the impact could be far more significant. Other companies will need to be cautious when building powerful and innovative ecosystems that harness the network effect, as these could lead them to grow into tech giants — and face similar antitrust challenges down the line.
References:
- Belanger, A. (2024a, September 10). DOJ claims Google has “trifecta of monopolies” on Day 1 of ad tech trial. Ars Technica. https://arstechnica.com/tech-policy/2024/09/doj-claims-google-has-trifecta-of-monopolies-on-day-1-of-ad-tech-trial/
- Belanger, A. (2024b, September 12). Google’s ad tech empire may be $95B and “too big” to sell, analysts warn DOJ. Ars Technica. https://arstechnica.com/tech-policy/2024/09/google-holds-publishers-hostage-ex-news-corp-exec-testifies-at-ad-tech-trial/
- Google. (2024). Ad Controls & Personalisation on Google – Google Safety Centre. https://safety.google/privacy/ads-and-data/#:~:text=What%20data%20does%20Google%20use,across%20our%20products%2C%20including%20ads.
- Hayes, A. (2022, June 4). Winner-Takes-All Market: Definition, Examples, Economic impact. Investopedia. https://www.investopedia.com/terms/w/winner-takes-all-market.asp#:~:text=A%20winner%2Dtakes%2Dall%20market%20refers%20to%20an%20economic%20system,a%20majority%20of%20market%20share.]
- Koss, H. (2022, June 14). What are network effects and why are they important? Built In. https://builtin.com/articles/network-effect
- McCabe, D. (2024, September 9). U.S. Argues Google Created Ad Tech Monopoly. The New York Times. https://www.nytimes.com/2024/09/09/technology/google-antitrust-ad-technology.html
Hello Oryna, I really enjoyed reading your blogpost, I never knew about Google’s ad monopoly! I really like how you based the post on the envelopment strategy, which makes much more sense to me now. You also mention network effects and how Google’s success could be attributed to those, using the theories we discussed in class while simultaneously offering a nuanced view of Google’s success factors. Very well done!
I really liked this article. It really is informative, especially the way the whole antitrust case by DOJ is summarized, as well as the explanations on how google reached this position via envelopment. However, I would disagree with the way the final paragraph seems to frame Google’s success as natural, and the way the author paints a somewhat negative tone about the outcome on the rest of the industry if google loses. Google’s success is not natural in any way. Time and time again google has engaged in activities which are harmful to everyone but itself. It has used its dominant position to fix ad prices to affect its competitors (https://www.wsj.com/articles/inside-the-google-facebook-ad-deal-at-the-heart-of-a-price-fixing-lawsuit-11609254758), it has overcharged advertisers (https://www.theverge.com/2024/9/16/24244357/google-adx-take-rate-commission-antitrust-trial), and it has made the quality of its products worse for end users (https://proton.me/blog/google-shows-more-ads). The author of the blog post even explains how google used its dominant position to create a strong network effect that gave it an advantage, an advantage which is not built on better product or services (as a healthy competition should in an economy), but an advantage it built sheerly based on its size.
Thus, I believe if google loses this case, and is forced to sell the ad business, it will actually force google to work on competing on the merits of its services, and actually develop something useful. Moreover, the rest of the industry does not have to fear anything, but the idea of building a defense purely on the basis of size of the firm, its platform or network effects. If the companies are successful because of innovative ideas and products (completely lacking from Google’s ad business in recent years), they do not have to fear antitrust challenges, as they would not be engaging in antitrust activities. It encourages companies to try to win by virtue of the quality of their product, and not simply merging, acquiring or enveloping competitors, as google mainly did.
Hey Oryna, nice post! I like how you used so much relevant topics discussed in the course Information Strategy. I agree that Google’s control over ad tech has created a challenging environment for competitors, but this also raises broader concerns about the power of platform monopolies. One relevant aspect to consider is the role of data privacy in this discussion. As Google collects vast amounts of user data across its services, its ability to target ads with precision is unmatched, which fuels both its market dominance and legal scrutiny. Antitrust laws may need to evolve to address not just monopolistic practices, but also the ethical concerns around data use.