Google’s bad year is getting worse

Jonathan Kanter holds up a document as he speaks alongside Attorney General Merrick Garland and Associate Attorney General Vanita Gupta at the Justice Department press podium with flags and a seal behind him.
Jonathan Kanter, head of the Department of Justice’s antitrust division, holds up the lawsuit he just filed against Google on January 24. | Anna Moneymaker/Getty Images

Layoffs, an AI threat, and now a massive antitrust lawsuit.

The Justice Department and eight states are suing Google over its digital ad business, accusing the company of using its dominance in the market to harm competitors and force ad buyers and sellers to use its products at less favorable terms for them than those another company might offer. Meanwhile, Google takes a healthy percentage off the top — at least 30 percent, the suit says.

“Website creators earn less, and advertisers pay more,” Attorney General Merrick Garland said in a press conference announcing the lawsuit.

That means, according to the DOJ, that websites that rely on digital advertising get less revenue from those ads than they otherwise would, which means less money to fund their offerings. Advertisers pay more than they should, and those costs are usually passed down to the customer.

The DOJ is seeking to force Google to sell or spin off parts of its digital ad arm so it will no longer have control over every side of the ad tech stack: the buyer side, seller side, and the exchange in the middle. Google earned about $169 billion in digital ads worldwide in 2022, but the vast majority of that revenue (as well as Google’s revenue, period) comes from search ads, which are ads that businesses place on user searches that might be relevant to them. This suit is targeting not Google’s search ad empire but rather the part of its business that places the ads on websites across the internet outside of Google’s properties. That’s a much smaller, yet still considerable, share of Google’s revenue.

In a rare move, the DOJ is also asking for monetary damages for the government, saying that Google’s anticompetitive inflated ad prices cost the government money through the $100 million of display ads it’s bought since 2019 to promote various agencies and services. Yes, the federal government is saying it, too, is a victim of Google’s bad ad behavior.

The lawsuit comes at a relatively grim time for Google, which has lost about 25 percent of its stock’s value in the last year and is in the process of laying off 12,000 people, which amounts to about 6 percent of its workforce. The DOJ suit is surely an unwelcome addition to Google’s woes. But lawsuits like this take years to make their way through the court system, and there’s no guarantee that the DOJ will win.

A more immediate threat to Google is that an additional fight with the government represents another distraction for a company that’s also pushing back against new regulations and contending with burgeoning competitive threats in some other areas. YouTube has had to introduce “Shorts” to keep up with TikTok. Microsoft is pouring billions of dollars into OpenAI, a company that rivals Google’s own AI efforts — and is threatening to use its ChatGPT chatbot to boost Microsoft’s search engine, Bing. Meanwhile, ad spending is down across the board, including for Google and its properties. Google’s ad business hasn’t been hit as hard as others, but its overall revenue is not growing by as much as it was before.

Google’s New York City office, with a red “Exit” sign prominent.
Eduardo Munoz Alvarez/VIEW press via Corbis/Getty Images
The exit at Google’s New York City office.

The DOJ has reportedly been preparing its case against Google’s digital ad business for years, even before the Biden administration. This latest suit also joins four other government antitrust lawsuits Google is already facing, including one DOJ suit from October 2020 over its search engine and search ad business and one filed by 38 state attorneys general in December of the same year, again over the search business. In July 2021, 37 state attorneys general sued Google over its Play app store, and 17 state attorneys general sued over the digital ad business in a similar case to what the DOJ is bringing now.

“Today’s lawsuit from the DOJ attempts to pick winners and losers in the highly competitive advertising technology sector,” Google said in a statement. Global ads vice president Dan Taylor said the lawsuit would harm the advertising industry and innovation, not help it, and that the government shouldn’t be able to force companies to unwind 15-year-old acquisitions that were once approved by regulators.

Google also pointed out that it’s in a crowded and competitive space. Google, Meta, and, increasingly, Amazon have the biggest shares of the digital advertising market in the US, with Google having the largest. The other antitrust enforcement agency, the Federal Trade Commission, has sued Meta and Microsoft, too, over acquisitions that it claims are anticompetitive.

The Chamber of Progress, a Google-funded Big Tech advocacy group, said in a statement that the case was “disconnected from economic reality” and that Google’s digital ad market share (estimated to be about 29 percent in 2022, giving it the largest share of any one company) was “at an all-time low.”

Antitrust advocates who have railed against Big Tech for years applauded the move. Kyle Morse, deputy executive director of the Tech Oversight Project, said in a statement that “Google is rightfully being held accountable for years of abuse in the online marketplace,” adding that Google’s rivals should take a lesson and rethink their own behavior. “Otherwise, you’re next,” Morse said.

The DOJ’s other antitrust lawsuit against Google — filed in October 2020 — is scheduled to go to trial in September 2023, which gives you an idea of how long it could be before the suit filed today sees the inside of a court. Google’s government troubles will likely stretch into the next decade, at which point there might be a totally new company dominating the internet.

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