Google and Microsoft's bitter and long-standing rivalry in the internet search and advertising markets is spilling over into Washington, where senior executives from both companies are scheduled to show up before a US Senate panel on Thursday.
The companies will argue their respective cases for why Google should — or should not — be allowed to purchase DoubleClick for $3.1bn (£1.5bn). The acquisition was announced in April but is still undergoing a review by the US Federal Trade Commission and regulators in Europe and Australia.
The hearing could mark a turning point in Google's relationship with Washington. It is the first time that the US Congress has seriously scrutinised the fast-growing company's business strategies, and the first time that a proposed acquisition by the company has encountered such concerted political opposition.
It also represents the result of months of private lobbying and public agitation against the merger by Google's most dangerous business rivals. No stranger to antitrust issues, Microsoft has ordered its legendary army of lobbyists to torpedo the deal, and AT&T, Yahoo and Time Warner have also expressed concerns.
During Thursday's hearing, Google is planning to stress the differences between text-based advertising (its speciality, of course) and graphical display ads (DoubleClick's forte). A second argument is that the companies participate in different parts of the advertising sales and delivery process and are therefore complementary.
"Our purchase of DoubleClick does not raise antitrust issues because of one simple fact: Google and DoubleClick are complementary businesses, and do not compete with each other," Google vice president David Drummond is expected to tell the panel, according to prepared remarks seen by ZDNet.co.uk's sister site, CNET News.com. "DoubleClick is to Google what FedEx or UPS is to Amazon.com. Our current business involves primarily the selling of text-based ads — books in our analogy. By contrast, DoubleClick's business at its core is to deliver and report on display ads."
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Drummond is stressing the difference because it matters to the Federal Trade Commission lawyers and economists who are reviewing the deal. If they eventually determine that Google and DoubleClick are in different enough lines of business, and their products are therefore not substitutes for one another, the purchase will receive less scrutiny.
Enhancing market power?
Ever since the early 1980s, the FTC and US Justice Department have tried to evaluate whether a proposed merger will unreasonably create or enhance market power by evaluating whether the merger will increase how concentrated the market is, whether it will have adverse competitive effects, and the presence or absence of serious competitors.
To make their arguments about market power, Microsoft and Google have hired not just lobbyists, but economists too. Stanford University economics professor Robert Hall has represented Google at public events, supplementing lobbyists in the Washington office of the law firm Brownstein Hyatt & Farber (including Makan Delrahim, a former top Justice Department antitrust official).
Microsoft and AT&T fired back with their own economists on the eve of the US Senate hearing. A paper written by Robert Hahn and Hal Singer and released on Wednesday says: "Google's proposed acquisition of DoubleClick would enhance Google's market power in the market for search and publisher-based advertising tools."
It also suggests that a mathematical calculation of the concentration of the market would be above the federal government's warning level. "The implication of such a finding is that a combined Google-DoubleClick would [be] likely [to] have an incentive to increase the price of DoubleClick's offering relative to a standalone DoubleClick, thereby harming online advertisers," the paper says.
Microsoft spokesman Jack Evans added in an interview on Wednesday, referring to the proposed merger: "We believe it raises some serious questions about the future of competition in the online advertising market. It raises concerns about consumer privacy, security and copyright protection."
After their own recent high-profile acquisitions, however, it's required some careful political sleight of hand for Microsoft and other Google rivals to argue…
