U.S. sues Google to break up ad unit in escalating antitrust fight

The U.S. Justice Department and eight states sued Alphabet Inc.’s Google, calling for the break up of the search giant’s ad-technology business over alleged illegal monopolization of the digital advertising market.

“The harm is clear: website creators earn less, and advertisers pay more, than they would in a market where unfettered competitive pressure could discipline prices and lead to more innovative ad tech tools that would ultimately result in higher quality and lower cost transactions for market participants,” the Justice Department said in the complaint, which was filed in federal court in Virginia. “This conduct hurts all of us.”

New York, California and Virginia were among the states that signed on to the complaint.

Google didn’t immediately respond to a request for comment.

Alphabet extended declines on the news, dropping as much as 1.4% toward a session low. The stock slid 23% in the 12 months ended Monday, underperforming the Nasdaq 100 Index.

The lawsuit represents the Biden administration’s first major case challenging the power of one of the nation’s largest tech companies, following through on a probe that began under former President Donald Trump. It also marks one of the few times the Justice Department has called for the breakup of a major company since it dismantled the Bell telecom system in the 1980s.

Google is the dominant player in the $278.6 billion U.S. digital-ad market, controlling most of the technology used to buy, sell and serve online advertising. The Justice Department said Google’s dominance allows it to keep at least $0.30 out of every dollar advertisers spend through its online advertising tools. A resolution in the case could be years away.

The lawsuit marks the DOJ’s second antitrust suit against Google and the fifth major case in the U.S. challenging the company’s business practices. State attorneys general have filed three separate suits against Google, alleging it dominates the markets for online search, advertising technology and apps on the Android mobile platform in violation of antitrust laws.

The allegations in the DOJ’s suit mirror those brought by attorneys general in 16 states plus Puerto Rico in 2020. That lawsuit is pending in New York federal court.

The Mountain View, California-based company is No. 1 in the $626.9 billion global digital ad market, according to 2023 estimates by research firm EMarketer, with the U.S. representing the biggest piece. Alphabet’s ad operations are expected to bring in $73.8 billion in U.S. digital ad revenue in 2023. Most of that, $58.50 billion, comes from Google’s search advertising business. The remaining $15.29 billion is from display ads. Google runs an ad-buying service for marketers and an ad-selling one for publishers, as well as a trading exchange where both sides complete transactions in lightning-fast auctions.

These exchanges operate like online stock-trading platforms with an automated bidding process. Competitors and publishers have complained that Google leverages parts of this vast network, like its ad exchange, to benefit other areas and kneecap rivals. Google alone is expected to generate some $65.7 billion in digital ad revenue in the U.S. this year, representing about 26.5% of the market, while YouTube represents another 2.9%, according to EMarketer.

Google argues that the market for online advertising is a crowded and competitive one. In court filings and congressional testimony, the company has noted its rivals include other major players in the ad tech market such as Amazon.