https://www.wsj.com/articles/google-girds-for-second-antitrust-battle-as-doj-targets-its-ads-business-11674707633

According to the Wall Street Journal, Alphabet is considering splitting off some of Google's ad business into a separate company that would be still owned by Alphabet. I think that if this were the primary result, I would consider this a NO, since it would still essentially be the same company with the same incentives but with some legal fiction saying that it's no longer part of Google.

How would you resolve this question if it ends with Google to changing their business practices and a large fine, but they're not split up?

@JeffKaufman If the change is essentially meaningless, that would be a NO. If it’s a significant change (say, ads in Google Search are from a third party ad network, or they no longer run an ad network for third party sites like AdSense), that would be a YES.

Alternatively, in 2021, Google’s ad revenue was $209 billion (https://www.statista.com/statistics/266249/advertising-revenue-of-google/), out of Alphabet’s $258 billion (https://www.statista.com/statistics/507742/alphabet-annual-global-revenue/), so 81% of revenue. For comparison, it was 80% in 2020, 83% in 2019, and 85% in 2018.

For an arbitrary cutoff, does a predicted decrease to half of revenue share make sense to you? If they made the same amount in non-ad revenue as they did in 2021, that would be equivalent to Google’s total revenue going down to about $98 billion (compared to $49 billion if the entire ad suite was sold and $258 billion now).

To determine that number, we could use either their official projections about revenue split OR wait until they release ad numbers for the following quarter after the lawsuit finished.

To summarize: A decrease to 50% or less of Alphabet revenue being from ads (and a general sense that this is because of the lawsuit, not the US government making ads illegal or Google self driving cars becoming huge or something like that) or the Search product not being able to run their own ad network or Google not being able to run an ad network for third party sites would count as YES. A smaller decrease and Search still having ads that Google runs and Google still having an ad network for third party sites would count as NO.

Does that make sense to you? It seems like a lot of possible ways to resolve YES, but I think they all would represent a huge change for Google where the Justice Department effectively gets what it wants in terms of breaking up what they see as Google’s monopoly power from Search helping its ad business.

In the second paragraph it should say “Alphabet’s total revenue going down to about $98 billion” instead of “Google’s total revenue going down to about $98 billion”

@Gabrielle It's unlikely that this case would lead to changes to ads in Google Search, since it's about Google's Display Ads business. Similarly, even if the court ordered Google to sell the Display Ads unit that wouldn't be enough (from memory, haven't checked financials) to bring Google's proportion of revenue that's from advertising below 50%, since Display Ads is just not that big a business. Revenue from selling ads on their own properties (especially Search, secondarily YouTube, other things tiny) is most of Google's revenue, and is unrelated to this suit.

"Google not being able to run an ad network for third party sites would count as YES" is also a little unclear: what if Google is allowed to keep AdSense but not AdManager? (The suit is mostly about AdManager, though (again from memory) not 100%.).

@JeffKaufman I haven’t read the entire legal document, and I’m not nearly as experienced with Google’s various ad properties as you are, so I guess I misunderstood the scope of the suit. Could you propose a different set of resolution criteria that matches the situation better?

@Gabrielle "Win" is a pretty tricky thing to pin down with this sort of suit. It's extremely likely that the government will get at least something they want, and unlikely that they get everything they're asking for. Most likely there's a settlement, and over a very wide range of outcomes the government would still call it a "win".

How about selling the AdManager business? Operationalized as doubleclick.net no longer being owned by Alphabet?

(I mean the literal domain doubleclick.net)

@JeffKaufman That sounds good, thanks. I'll add to the description:

"If a settlement results in Google selling the AdManager business (operationalized as the doubleclick.net domain no longer being owned by Alphabet), this will resolve as YES."

@Gabrielle That works, but I don't see the description updated?

@JeffKaufman I was waiting to make sure that it sounded fine with you. Just added it, thanks for following up!

@Gabrielle Thanks! I think maybe you added it twice, though?

For one piece of evidence, GOOG stock was down 1.98% today while the NASDAQ was down only 0.27%. To compare with other large tech companies, AAPL was up 1.01%, MSFT was down 0.22%, and META was down 0.09%.

If anyone has suggestions about how to clarify the resolution criteria, I'd be happy to change it to be more clear (but it should still be roughly the same).