Google, Microsoft Spar at Antitrust Hearing

But subcommittee members seemed not to care. Chairman Herb Kohl, D-Wis. and Ranking Member Orrin Hatch, R-Utah, were the only lawmakers to stay after opening remarks. Sen. Chuck Schumer, D-N.Y., made an opening statement on how important Google and DoubleClick are for his state’s economy, then left. Hearings on Internet matters are often attended only by the chairman and ranking member, but such hearings usually address highly technical and regulatory issues without broader consumer interest.

Ever the privacy hawk, Committee Chairman Patrick Leahy, D-Vt., warned in written remarks that an unconditioned merger could lead to a slippery slope. “Although data is often accumulated anonymously, tracking a user’s actions on the Web can build profiles that may be linked with personally identifiable information,” he said. Possibly referring to Google’s recently-adopted IP address truncation policy, less extensive that other search engines’, Leahy said that “when there is no longer a legitimate use for it, personally identifiable information should be deleted.” Listing Vermont companies that advertise online, Leahy said they “should not have to pay artificially high prices as a result of mergers.”

The “consolidation” of Google and DoubleClick “has profound consequences for all those who use the Internet,” said Kohl. Both companies collect “vast amounts” of information about users, prompting privacy concerns, he said. “What will happen to this treasure trove of consumer data once Google acquires DoubleClick?” he asked.

Google Chief Legal Officer David Drummond waved the flag for free speech, saying “online advertising benefits consumers, promotes free speech, and helps small businesses succeed.” Google’s acquisition of DoubleClick will protect consumer privacy and enable “greater innovation, competition, and growth,” he said. In fact, Google AdSense “promotes freer, more vigorous and more diverse speech,” by letting some bloggers write full-time, and in other ways. “For us, privacy does not begin or end with our purchase of DoubleClick. Privacy is a user interest that we've been protecting since our inception,” he said.

“We make privacy a priority because our business depends on it,” Drummond said. “If our users are uncomfortable with how we manage the information they provide to us, they are only one click away from switching to a competitor’s services.” The company is working on better notice, “crumbled cookies,” and other “innovations” in advertising to protect user privacy, he said. The acquisition doesn’t “foreclose other companies from competing in the online advertising space,” he said. “Google is to DoubleClick as Amazon is to FedEx,” in that Amazon sells books and FedEx delivers them. Google sells ads and DoubleClick delivers them.

Not so, because Google is already Amazon and FedEx combined, and now they're proposing to buy “the post office,” Microsoft General Counsel Brad Smith said. Online advertising is a $27 billion market, projected to double over four years, he said. While Smith admitted that, as a competitor, “Microsoft is not disinterested” in issues surrounding the merger, “it is absolutely clear to us that this merger raises serious questions that deserve serious answers.”

Google already dominates online search ads, and if the merger takes place, the company will also “obtain a dominant gateway position” over nonsearch ads, Smith said. Google and DoubleClick combined would account for 80 percent of spending on nonsearch ads, he said. The U.S. doesn’t allow phone companies to listen to conversations and use that information to create targeted ads, and similarly, software companies can’t record what people type, he said. “Google seeks to record almost everything you see and do on the Internet and use that information to target ads,” creating “a whole new meaning to the term ‘being googled.'”

Progress & Freedom Foundation’s Thomas Lenard said the merger “doesn’t threaten to be anticompetitive, but government interference in emerging markets could be quite harmful.” Standard antitrust arguments don’t wash because “these firms are engaged in different activities.” There is no evidence to support assertions that consumer privacy has been harmed or would be harmed, he said. Instead, the policies actually serve consumers by delivering only relevant ads. “The worst thing” government could do “would be to implement policies that prevent companies from getting too good at what they do,” he said.

Precursor President Scott Cleland, author of the Googleopoly white paper against the merger, said the merger is “uniquely anticompetitive and represents a watershed moment for anticompetition.” He said: “Google wants to be the world’s top information broker… to control and effectively corner the world’s information… I've never seen a merger that facilitates such extreme consolidation. If a business wants its content to succeed on the Internet, it would have no choice but to use Google-DoubleClick-YouTube.”

Lawmakers’ questions were variations on queries about whether Google and DoubleClick compete. Hatch asked how Drummond can say Google doesn’t control the “pipe” of online advertising when it could account for 80 percent of spending on nonsearch ads with DoubleClick. “That’s a made-up number,” Drummond said. “There is no pipe… with all of the data… Don’t be misled, there is no such thing,” he said. “When it comes to search, there’s a number of options.” Data collected through advertising is “going to be broadly distributed among” all participants in the ad-serving market, he said.

Google and Microsoft officials, seated side by side at a witness table, were quick to take not-so-subtle jabs at each other. “Microsoft has a lot more information than Google has… we need to put things a little bit more in perspective and look at the facts,” Drummond said. “We don’t have a… stranglehold on all the information out on the Internet. There are ample ways for others to come into this market. We hope that it will make us stronger in a field we've been fairly weak in,” which is display advertising, he said. “Microsoft and AOL are all going down the same path… in response to consumer demand.”

Drummond repeatedly cited aQuantive, recently acquired by Microsoft, as a similar operation and a potential competitor. That’s a terrible comparison, Smith said. “AQuantive had a business in single digits, DoubleClick had 50 percent and Google had 30 percent,” he said. Yesterday, Google “said they didn’t do delivery of ads. Today David [Drummond] said they don’t do delivery ‘very much.’ They have, in this business, a million customers. Microsoft has about 85,000.”

“Google likes to say they were the first to anonymize information,” Smith said. “But I don’t believe Google is anonymizing anything.” Microsoft said it would delete users’ IP address records entirely after 18 months, but Google said it would only remove some of the digits. Marc Rotenberg, Electronic Privacy Information Center executive director, agreed that “in context, it is very easy to recreate the address.”

“To be fair to Google, it’s very much a reflection of the Internet access architecture [that] some information needs to be accessed… by advertisers to respond to queries,” said Rotenberg. Google probably is “genuinely concerned about the information they keep… because they can always be compelled” legally to disclose the information and can subject themselves to breaches and hacks. But the merger presents the “ideal moment” to require substantial privacy protections, through an FTC consent order, he said.