Reed Smith Attorney, Adam Snukal, quoted in Market Watch
Adam Snukal was quoted in an article which ran on CBS's Market Watch last week. The article, which discusses anti-trust trends within the mobile marketing space, can be accessed here.
Challenges Mount for Google / AdMob Acquisition
Earlier this year, AdLaw By Request wrote on the merits, concerns and overall likelihood of success of the Google / AdMob transaction that closed toward the latter part of 2009, pending the Federal Trade Commission’s (FTC) sign-off. Predicting (or perhaps foreshadowing) that the FTC would raise antitrust concerns over the pending transaction, Google went as far as creating a website entirely devoted to educating and explaining (i.e., swaying) to both the FTC and the public at-large why the acquisition of AdMob by Google should not be construed as anti-competitive.
Give Google props for a nose that knows… The FTC appears to be laying the groundwork for an antitrust challenge. Between assembling its A-Team of FTC litigators and asking several of AdMob’s competitors to testify under oath about the impact this prospective consolidation would have on the mobile advertising market, the FTC seems ready for the challenge.
The concern, again, is the potential dominance Google would have over both web and mobile advertising. AdMob is a leading supplier of graphic ads (essentially, an ad network) that run across more than 150,000 different mobile sites and applications within its network. AdMob was also among the first companies to sell ads that appear in mobile applications, such as games. By folding the AdMob mobile ad market share into Google’s existing business, the FTC is clearly concerned that Google would capture another front on the digital advertising landscape.
Earlier this week, Sen. Herb Kohl (D-Wis.), Chairman of the Senate Subcommittee on antitrust, wrote to the FTC, urging the agency to closely scrutinize the deal as it “raised important competition issues.” In contrast, Google continues to assert that the mobile advertising space is still in its infancy, and no one can predict if any single company will dominate it. In addition, Google points to Apple’s somewhat recent acquisition of Quattro Wireless, as evidence that the mobile advertising market has many players of varying sizes.
In an interesting twist to this developing story, the CEO of 4Info, Zaw Thet, sent a letter to the FTC claiming Google’s acquisition of AdMob would not impact his company’s ability to compete in the mobile space. 4Info is a direct competitor of AdMob, and considered by many to be the largest, or among the largest, mobile ad networks in the United States. Mr. Thet wrote in his letter to the FTC that he has “no concerns about my [4Info’s] ability to continue to compete effectively after the transaction closes.” He further comments that it will be “easy for me [4Info] to partner with large brand advertisers who wish to advertise on mobile devices and publishers who wish to monetize their mobile content.”
Why This Is Important: While mobile advertising is still relatively small ($416 million spent on mobile advertising in 2009, as compared with approximately $24 billion for online advertising during that same period, according to eMarketer), many believe mobile advertising will explode over the next several years. In fact, many analysts predict that more people will run searches on their mobile devices than PCs in the not-too-distant future, and that ad revenues from mobile advertising will similarly surpass those of PCs. Hence, the decisions made today by the FTC, Congress, and even the mobile advertising industry-at-large, will likely have long-standing implications in the not-to-distant future.
Déjà Google
Give Google credit that when it announced its acquisition of AdMob, a leading provider of mobile advertising services and technology, in November 2009, it proactively addressed the likelihood of a Federal Trade Commission (FTC) investigation into the transaction. Google even went as far as posting a web page that the media, regulators and other interested parties alike could access that explained why it believed the deal did not pose any “competitive” (note: antitrust) concerns. Whether it was a self-fulfilling prophesy or just an inevitable step whenever Google makes an acquisition in the digital advertising space, Google last week announced it received a second request for information from the FTC on the AdMob acquisition. This, however, is familiar territory for Google, which has been the target of government scrutiny over previous deals. The FTC held an eight-month investigation into Google's plan to buy DoubleClick Inc. in 2007 before approving that transaction, and last year Google walked away from a search deal with Yahoo after the U.S. Justice Department indicated that it would consider blocking the agreement and strategic alliance.
What Google may not have expected is the data privacy and consumer protection industry group backlash that has taken up the not-yet-completed transaction as a struggle to protect consumer data and the mobile advertising market. At least two prominent consumer groups reportedly approached the FTC, asking it to block the acquisition, arguing that a Google/AdMob combination would put “significant amounts of data for tracking, profiling and targeting” of U.S. mobile consumers into the hands of a single advertising network. Google and AdMob combined will form the largest mobile-advertising company, with 30 to 40 percent of the market, according to Karsten Weide, an analyst with researcher IDC in San Mateo, California. These groups want the FTC to consider whether Google's access to AdMob's technology will give it an unfair advantage in selling mobile advertising.
Understandably, Google has asserted that the economic/market impact of such an acquisition would be almost impossible to measure against the dozens of other mobile ad networks that compete with AdMob on a daily basis. Moreover, a spokesperson for Google has suggested the deal will provide users with more free mobile applications, in some cases as an alternative to pay-to-download apps, since it will allow developers to subsidize their products through better and more targeted mobile advertising.
One interesting issue that has arisen from this and other similar transactions over the past couple of years is whether and how consumer privacy fits into an FTC antitrust analysis. It is well documented that the FTC primarily rests its antitrust analysis on two categories: (i) agreements that are per se illegal, and (ii) agreements that are analyzed under the Rule of Reason. Types of agreements that have been held per se illegal include agreements among competitors to fix prices or output, rig bids, or share or divide markets by allocating customers, suppliers, territories, or lines of commerce. On the other hand, agreements not challenged as per se illegal are analyzed under the Rule of Reason to determine their overall competitive effect. A Rule of Reason analysis entails a flexible inquiry and varies in focus and detail, depending on the nature of the agreement and market circumstances. While this analysis still begins with a review of the primary agreement (e.g., merger, joint venture, license, etc.) driving the FTC’s analysis, it will then extend to other external factors.
Largely until 2007 and the Google/DoubleClick transaction, the issues and types of analysis described above were primarily centered on consolidations and combinations of goods and services, and not privacy or consumer information. During the FTC’s review of Google’s acquisition of DoubleClick, however, all five FTC commissioners who reviewed that transaction agreed that data privacy can constitute a form of non-price competition under a Rule of Reason analysis and, where/when appropriate, should be considered as one of many pieces in their study and review of a prospective transaction. In fact, the FTC, in its decision approving the Google/DoubleClick transaction, provided, “We investigated the possibility that this transaction could adversely affect non-price attributes of competition, such as consumer privacy.” At the core of the FTC’s review was whether, given the nature and economics of online and digital advertising, the concentration of user information that results from a Google/DoubleClick combination meant that no other company would be able to buy, target and optimize ads as profitably, thereby substantially reducing the ability of other ad networks to compete.
On what basis, then, is consumer privacy evaluated? Proponents have successfully argued that privacy harms can reduce consumer welfare, which is a principal goal of modern antitrust analysis. In addition, these same groups have argued that privacy harms can lead to a reduction in the quality of a good or service, which is a standard category of harm that results from excessive market power. On the other hand, those who oppose the incorporation of a privacy review in any antitrust analysis generally rest their argument on two points: (i) they disagree that privacy is a competition-related issue and point to precedents in which non-competition issues (like pollution) have not been traditionally factored into an antitrust analysis, and (ii) these transactions have proved themselves to create market efficiencies and improved offering/technology that ultimately benefit consumers with a more personalized online experience. This latter opinion may best be summarized in a Yahoo statement from 2008: “The advertising model has made Internet content and services available to millions of people in the United States and around the world—for free. The business model of relying on advertising revenue to fund websites has meant that vast amounts of information on the Internet has been fully accessible to people of all ages and income levels.”
Why this Matters:
Those who ignore history are doomed to repeat it. Our economy today is flush with companies that have been created to essentially trade in almost every aspect of behavioral advertising and consumer data. In fact, one might argue that consumer data has become a currency of sorts in the digital advertising and media industries. As consumer privacy becomes, on the one hand, increasingly protected by both legislation and self-regulatory initiatives (leaving aside the even more complex discussion of the implications of cross-border transactions and acquisitions where the same piece of consumer data may be subject to varying laws), and also a valuable commodity that is highly sought after, companies should be more aware of the legal implications associated therewith in all spheres of their business – including the arena of mergers and acquisitions. Whether one agrees that consumer privacy should be factored into an FTC antitrust analysis or not, it seems unlikely that the FTC will shift from the position it seems to have taken (as evidenced by the Google/AdMob transaction) over the past couple years, and therefore, companies that are contemplating mergers or acquisitions in the digital media and advertising arenas should at least consider the implications that consumer privacy may have on their deals.
