Google proposes moving ad business to Alphabet to keep regulators at bay
Ron Amadeo / Hasbro
The US Justice Department is gearing up for a possible antitrust lawsuit against Google’s ad business, and a new report from The Wall Street Journal outlines a “concession” Google is proposing in response to the investigation. Google might split up some of its ad business and move it to Google’s parent company, Alphabet.
The meat of the WSJ report says: “As part of one offer, Google has proposed splitting parts of its business that auctions and places ads on websites and apps into a separate company under the Alphabet umbrella, some of the people said. That entity could potentially be valued at tens of billions of dollars, depending on what assets it contained.”
The goal of “splitting up” the ad division isn’t necessarily to make the whole ad division separate from Google but to weaken Google’s end-to-end ownership of the ad business. Currently the company serves as broker and auctioneer for advertisements—which is what the DOJ has a problem with. Google makes tools that cover both the “buy” and “sell” sides of the web advertising world, which naturally pushes advertisers using Google’s buy tools toward publishers selling ad space with Google’s auctioning system. Most online systems work similarly. Amazon has an interface where Amazon product sellers sell to Amazon product buyers, Uber has a system for drivers and riders, but the rules are different when you’re a monopoly, as opposed to just “very big.”
The proposed solution here would see the “sell” side of Google Ads move to Alphabet and the “buy” side stay with Google. The idea, presumably, is that this move would slightly open the door for Google to talk to ad systems other than Google’s, but it’s not clear if Google/Alphabet would be given a mandate to open up.
Is there a difference between “Google” and “Alphabet?”
In response to the report, a Google spokesperson told The Wall Street Journal, “We have been engaging constructively with regulators to address their concerns. As we’ve said before, we have no plans to sell or exit this business.” The spokesperson added: “Rigorous competition in ad technology has made online ads more relevant, reduced fees, and expanded options for publishers and advertisers.”
Lacking some kind of mandate to open up the ads business, it’s not clear what actual changes would be created by moving part of Google’s ad business from Google to Google’s parent company. Maybe casual observers would assume an Alphabet spinoff sounds like some kind of change, but most experienced Google-watchers, your author included, would struggle to point to any real-world difference between “Google” and “Alphabet.” In this situation, the head of ads would stop reporting to Google CEO Sundar Pichai and start reporting to Alphabet CEO Sundar Pichai. Google and Alphabet also have the same CFO and the same stock symbol, and no Google or Alphabet company would be a self-sustaining business without Google’s pile of ad revenue to throw around. Alphabet company leaders get the coveted title of “CEO,” but they still have to answer to Alphabet’s financial requirements and the Alphabet/Google CEO.
Pitching an Alphabet spinoff as some kind of a separation would certainly not match up with how Alphabet has worked in the past. Independent Alphabet companies frequently work together as a single unit. We often see it with Deepmind tech in “Google” branded products, with Google Fiber’s continued use of the “Google” brand, and with Alphabet’s “CapitalG” venture capital company, which comes right out and says, “As part of Alphabet, we have special access to Google’s insights and expertise.” Google would have a lot of work to do to explain what the Alphabet separation means beyond trivialities in an organizational chart.
