Google faces increasing compliance pressure as a break-up becomes more likely: an interview with Thomas Höppner on US and EU antitrust cases
Horizont, a leading journal for the German-speaking marketing and advertising industry, interviewed Hausfeld partner Thomas Höppner on the antitrust cases against Google and a potential break-up of the company. The publisher allowed us to share an English courtesy translation of the interview, originally published on 22 August 2024 here.
Horizont editor Klaus Janke: Mr. Höppner, according to recent media reports, the US Department of Justice is considering demanding that Google be broken up. How likely is this to happen?
So far, break-ups in the USA have largely not occurred - even in the Microsoft case, where many had expected one. With Google, however, the situation is different. The USA has observed ten years of legal history in Europe, during which there have been several antitrust judgements against Google. These raise the question of whether pure behavioral obligations are sufficient or not. Thus far, the success of such obligations has been quite limited because Google has repeatedly succeeded in effectively undermining the obligations. They implemented minimal changes, but these have not had the desired effect. In view of this development, the USA will consider more far-reaching measures such as splitting off individual divisions in order to resolve conflicts of interest. They would not be alone in this: the EU Commission has also already mooted such a solution in the context of its recent proceedings against Google's practices in ad tech. As part of its sector enquiry into online advertising, the German Federal Cartel Office also came to the conclusion that imposing behavioral obligations on Google is probably not enough.
The US Department of Justice has also initiated proceedings on Google's advertising technology, which will begin in early September. Will this put even more pressure on Google?
It will have an impact simply because the design of a useful remedy will depend very much on the interactions between search advertising and non-search advertising. These will become clearly visible through the proceedings in September. It will be seen that Google's marketing and intermediation of non-search based online advertising is primarily a shield to protect search advertising from competition from other ad formats.
Admittedly, it can just as well be seen as a fully-fledged business area with which Google earns good money.
Search advertising still accounts for nearly 60% of revenue, with a margin of around 50 %. Revenues from ad tech intermediation only account for around 10% of sales, with a profit of just 10%. Search advertising is much more profitable. And to keep it that way, Google ensures that display advertising on third party websites is less attractive than search advertising. The targeting capabilities are limited and in this way more budget is channeled into search advertising. For this reason, Google is also against tracking systems on the open web - this has little to do with concerns about data protection.
If it comes to a break-up: Which area should be split off?
Apparently, in the US three options have been discussed: the Android operating system, the Chrome browser and Google Ads, i.e. the search ads. Splitting off Google Ads would make the least sense. Search is a business model based on the close integration of organic and paid results. A spin-off of Android wouldn't do much good either. It has proven itself as an operating system and has given many developers the opportunity to have a software foundation without their own development costs. Android is also an important alternative to Apple's iOS. It only became problematic when device manufacturers had to pre-install Google's services - this can be prohibited. A spin-off from Chrome, on the other hand, is more likely, especially because the Privacy Sandbox project is tending to move ad tech services into the browser. However, the most obvious structural remedy from my point of view has not even been sufficiently discussed in the USA.
Which would be?
A spin-off of the intermediation of non-search-based advertising, including the associated ad tech. It is unacceptable that Google is dominant in search advertising and at the same time effectively controls both the buy and sell side of display advertising on the open web. The resulting conflicts of interest are also a thorn in the side of the EU Commission. In addition to more competition for ad tech intermediation services, such a step would ensure that alternatives to search advertising can be developed more easily if Google no longer controls them.
But what would be the result of a break-up? You would have two or three somewhat smaller players, but they would certainly work very closely with their former colleagues. They would also remain dominant in their respective markets. An alternative search engine would not suddenly have more chances against Google because its search engine is no longer connected to the display network.
Of course. But we are not talking about divesture as an isolated measure. It would have to be flanked by far-reaching behavioral obligations. This includes, among other things, that there are no more contracts for default settings. All distribution channels must be open to alternative offers. It would also be consistent to make search data, including that obtained via the browser, available to other general search services in real time in anonymized form, as provided for in the Digital Markets Act. Numerous measures are conceivable, which is also due to the US legal framework.
Why?
In the EU, the relevant competition law is only about abusive behavior. If this is ceased, everything is fine. In the USA, monopolization of the market is prohibited as such. This means that the monopoly power found to be in violation of the law must be broken up or rendered impotent. In the case of Google Search, this means that not just the agreements on default settings in browsers must be terminated. Other illegal paths that have led to the consolidation of the monopoly structure can also be closed. To this end, all measures that the court deems necessary can be imposed.
Will the measures only be considered successful when Google's market share falls?
No. If, despite full transparency and a level playing field for all competitors, users decide in favor of Google’s search engine, then that's fine.
In your view, could this process also set a precedent for other large platforms, such as Meta or Amazon?
That is the compelling conclusion. In Europe, various proceedings have had the effect that similarly structured platforms have also had to change their behavior as a result.
How dangerous can it be for Google in Europe? How effective do you think the Digital Services Act (DSA) and Digital Markets Act (DMA) are?
European regulation is ten years ahead of American regulation. The USA will adopt key points of the DMA because it sets out sensible, specific requirements for gatekeepers. These have been well worked out and are already bringing benefits in practice. The gatekeepers are taking the new laws very seriously, even if there are proceedings for non-compliance. The focus is currently on Europe.
How do you interpret Google's decision to keep the third-party cookies alive? Was it also a question of not appearing even more dominant in the technology sector?
The decision is primarily a reaction to antitrust proceedings, in this case by the British Competition & Markets Authority CMA and the European Commission. In this context, it was understood that the deprecation of third-party cookies would reinforce a data imbalance in which Google would carry more weight than the open web due to its mass of first-party data. This could still happen if Google directs users to conveniently reject all cookies by means of a corresponding (scare-screen) opt-out design. But regardless of the future of cookies: Google wants to shift ad tech services, i.e. DSP and SSP, into the browser via the Privacy Sandbox project. Google would also occupy the buy and sell side here and continue to contribute to the shielding of search advertising. This problem is not solved by the fact that cookies continue to exist.
Data protectionists welcome a very simple opt-out for all tracking on the open web. Competition authorities, on the other hand, have concerns because it would strengthen the walled gardens. Will data protection and competition keep getting in each other's way?
No. They are ultimately pulling in the same direction, in the interests of the consumer. However, it is a misconception of consumer interests to want to prevent all tracking at the touch of a button - while the platforms continue to engage in microtargeting. A holistic view must prevail in the political and social debate. And we need a responsibly designed architecture for consent management. Otherwise, we will once again end up in a situation where after weighing up of all interests the legislator enacts a law, but a gatekeeper still says: That's not enough for me, I'll make my own regulations.
You have been representing companies and associations in proceedings against digital platforms for many years and are currently working for the ZAW. Are the current initiatives against Google and Co. coming too late?
Yes, a lot of time has been wasted. The dangers of monopolization should have been taken seriously much earlier. Unfortunately, the German Federal Cartel Office also played an inglorious role in this, failing to adequately implement stricter requirements for digital companies which the legislator had enacted.