Google rested its case on Friday. Closing arguments are scheduled for Nov. 25 and a ruling is expected in the coming months. The trial began one month after a US judge ruled on Aug. 5 in the DOJ’s favor that Google had illegally cornered the online search market. Remedies in that case could be proposed as soon as December, while Google has said it plans to appeal the ruling.
On Sept. 15, Evercore ISI lowered its price target on Alphabet stock to $200 per share from $225, citing “probable medium-term uncertainty” around remedies to the search case, which could include breaking up pieces of business like Google’s Android mobile device operating system.
Compared with the potential business implications around the search case, the ad trial is a mere flesh wound, analysts said.
“The search case is the one that has the meat in terms of how much it could affect the business. This case is more headline,” said Scott Devitt, an analyst at Wedbush.
Advertising accounted for more than 75% of Google’s $307.4 billion in revenue for 2023.
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But the Justice Department’s case revolves around Google Network, a division of the business that manages its auction-style system that advertisers use to purchase digital ad space. The Network business comprised $31.4 billion of the company’s revenue last year, down from $32.8 billion the year prior. A September analyst note from Bernstein predicted that revenue in this segment would decline further over the next three years.
“As an investor, you buy Google stock because you believe in the search business,” said Bernstein analyst Mark Shmulik. “The network business is there, but for the last several quarters it’s been declining in revenue contribution. It feels like the old internet.”
That theme has been key in Google’s defense at the ad tech trial, where it has argued that the DOJ’s market definition fails to account for ads on streaming video and apps, where Google faces stiff competition.
Google declined to comment for this story.
The Justice Department is seeking, at a minimum, the divestiture of Google Ad Manager, a platform within the Network division.
Ad Manager represented 4.1% of overall revenue and 1.5% of operating profit in 2020, according to Wedbush research and analysis of court documents.
More recent figures were redacted from court documents.
“Even if Google loses the ad tech case and gets broken up, it probably would not have to divest all parts of its display advertising business – only some parts,” said Erik Hovenkamp, a professor at Cornell Law School. “I would expect its revenues to fall by less than 10%.” Indeed, first reported on Sept. 18 that Google itself offered to sell its advertising exchange, which is part of Google Ad Manager, to appease European antitrust regulators. Publishers rejected the proposal, sources said.
Ripple effects
If Google loses the ad tech trial, the most serious implication might be how the company manages the ripple effects of court-ordered remedies across other parts of its ad tech suite, said Nikolas Guggenberger, a law professor at the University of Houston. In theory, a DOJ win would make it easier for advertisers and publishers to switch ad tech platforms.
As such, Google’s interest in specific products in the Network division has less to do with their individual monetary value as with their contribution to the interconnected chain of its overall ad business, he said. The Justice Department is arguing that this chain is at the heart of Google’s ability to establish a monopoly.
“The analogy would be if Goldman or Citibank owned the NYSE,” wrote Jonathan Bellack, a former Google product director, in an internal email the DOJ cited in pretrial court filings.
“You have an informational advantage over all other market participants because you know which bets are being brought together, so you can behave strategically,” Guggenberger said.
Google’s critics say the case could have ramifications beyond advertising or financials, namely in setting precedent for monopolistic behavior in general.
“That precedent will have a domino effect showing that governments can and do hold tech giants accountable when they break the law,” said Sacha Haworth, executive director of The Tech Oversight Project.
Guggenberger cautioned it’s too early to predict the extent of impact, which would be contingent on a court ruling in favor of the DOJ, the resultant remedies and Google’s execution of its restructure.
“I can see a world in which long-term profits barely take a hit, and I can see a world in which it upends the whole advertisement stack,” he said. “I’m just not sure what probabilities I would assign to them.”
