Finally they investigate Google’s core business: Alex Webb

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(Bloomberg) – Let’s forget about the previous fines of $ 9 billion. They barely tickled him. This time, the research points to the very heart of Google.

On Tuesday, the European Commission announced a formal investigation into the search giant’s practices in online advertising. After years of antitrust investigations, this is by far the most important because it focuses on how Google actually makes most of its money.

Parent company Alphabet Inc. derives 81% of its revenue from online advertising. That amounted to $ 147 billion last year. By comparison, previous research on the California-based firm looked at practices that, while important, were simply adjacent to or helping to consolidate dominance of that core business. The European Union’s antitrust chief Margrethe Vestager is now targeting the money machine itself.

That means more is at stake. If the company is found to have abused its dominant position, the changes Google could be forced to make would have a more profound impact. When it was punished by the European Union in 2018 for forcing smartphone makers to install their search engine and web browser as default apps on their devices, the move had little perceptible impact on Google’s ongoing operations. After all, it had already beaten most of the competition on mobile operating systems, with the notable exception of Apple Inc.

Online advertising is different because Google plays a very dominant role on the web. The fact that it owns the largest search engine and video streaming website and the most email clients is not the main concern, but the fact that the finances of those three businesses are tied together. through the ads that pay for them.

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Online ads are a complex environment, where websites sell advertisers real-time access to their visitors. The best way to imagine this is to think of an auction house where brands constantly bid against each other to show their ads to web users. And Google is the largest auction house. So if I am in the business of selling yellow widgets, for example, I tell Google how much I am willing to pay to have my ad show to someone who searches Google or YouTube for yellow widgets or who enters a website that displays ads from the Google ad network. The next time a visitor shows up, my bid is compared in a split second to what others with a similar product are willing to pay, and then Google posts the highest bidder ad.

The problem is that Google has all the power. In the auction house analogy, the business is the buyer’s agent, the seller’s agent, and often the seller as well. You have the opportunity and incentive to a) overcharge advertisers who do not have visibility into the value of competitor offerings; and b) send more revenue to their own websites. You may decide to direct my ad spend to YouTube, rather than another video site.

The question is whether it uses these advantages, and that is what the EU is now investigating. The block builds on previous research from the UK Competition and Markets Authority (CMA) and the Australian Competition and Consumer Commission. The UK CMA determined in 2020 that “Google’s strong position at each level of the brokerage value chain creates clear conflicts of interest.”

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Of course, there is also a risk for the EU. It’s good that a major regulator is finally tackling the biggest question when it comes to Google’s huge role in browsing and the internet economy. But there is a possibility that the investigation will end up giving Google’s advertising practices a certificate of good health or recommending remedies that are inappropriate or ineffective.

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