All Things Digital

Google announced the first major layoffs in its 10-year history Wednesday - at DoubleClick, the online advertising company it bought last month for $3.24 billion. About 300 of DoubleClick’s 1,200 U.S. employees were sacked or reassigned to “transitional” roles. “As with many mergers, this review has resulted in a reduction in headcount at the acquired company,” a Google spokesman explained. “We are confident that our combined organizational structure, along with the skills and experience of our new colleagues, will allow us to continue to offer great products and services to our customers.”

Well, at least they’re describing it as “a reduction in headcount” and not a “rightsizing,” “resource realignment” or “shifting of jobs to lower-cost areas” …

In addition to releasing nearly a quarter of DoubleClick’s workforce back into the wild, Google is selling off the company’s Performics search marketing business. Performics facilitates ad placement within Google’s search results, so unloading it should put to rest concerns about potential conflicts of interest. “It is clear to us that we do not want to be in the search engine marketing business,” Tom Phillips, the Google director overseeing the DoubleClick integration (and former Spy magazine publisher), wrote in a post to the Google Blog. “Maintaining objectivity in both search and advertising is paramount to our mission and core to the trust we ask from our users.”

Microsoft (MSFT) may have no choice but to raise its “generous” $31-per-share hostile bid for Yahoo (YHOO) if it hopes to acquire the company without a messy proxy fight. This according to Citigroup (C) analyst Mark Mahaney, who in a research note to clients today said Microsoft is unlikely to walk away from the deal. “We believe that a YHOO sale to MSFT–at a price likely higher than the initial $31 bid–is the most likely outcome,” Mahaney wrote, suggesting $34 per share as an agreeable price for a company of such strategic value to Microsoft.

After all, the software giant does need Yahoo to compete with Google (GOOG) effectively in the online advertising market–especially now that the search giant has acquired DoubleClick. “Google’s share of U.S. online advertising has significantly increased and the DoubleClick acquisition could materially ramp its display ad biz,” Mahaney said, adding that only by acquiring Yahoo can Microsoft potentially address the scale/liquidity challenge of its ad platform.

We would be disappointed in 2008-2009 if we don’t have a very significant position in the display-ad marketplace.

- Tim Armstrong, Google’s North American president for advertising and commerce

Looks like Google’s informal corporate motto, “Don’t Be Evil,” was assurance enough for the European regulators reviewing the company’s proposed merger with online ad-serving vendor DoubleClick.

The European Commission this morning approved Google’s (GOOG) $3.1 billion acquisition of DoubleClick, clearing the way for the unprecedented combination of their advertising services, as well as their vast troves of data about consumer behavior on the Internet.

In a statement, the EC said the deal would be unlikely to have harmful effects on consumers and can proceed without conditions. “The Commission found that the merged entity would not have the ability to engage in strategies aimed at marginalizing Google’s competitors, mainly because of the presence of credible ad-serving alternatives to which customers (publishers/advertisers/ad networks) can switch, in particular vertically integrated companies such as Microsoft, Yahoo and AOL,” the EC explained. “The market investigation also found that the merged entity would not have the incentive to close off access for competitors in the ad-serving market, mainly because such strategies would be unlikely to be profitable.”

Less than two hours after the EU granted its approval, Google announced that the deal had closed. Google CEO Eric Schmidt declared himself “thrilled.” As well he should be: Shares of Google, which have lately been trading down, were up by as much as $18 this morning, or more than 4%, at about $431.

… For Google, privacy did not begin and does not end with our acquisition of DoubleClick. And we believe that privacy for legislators, regulators, privacy groups and other stakeholders shouldn’t begin or end with Google. Privacy is a serious issue that spans several industries from financial services to entertainment to e-commerce, and that ought to be addressed holistically in the interest of individuals throughout Europe and the world. One particular company–and certainly one particular merger–should not be singled out.”

–Peter Fleischer, Google’s Global Privacy Counsel

The Federal Trade Commission’s decision to approve Google’s proposed $3.1 billion acquisition of online ad-serving vendor DoubleClick without condition hasn’t exactly elicited resounding calls of huzzah! from the European Union. On the contrary, European parliamentarians seem out to spoil the deal.

At a hearing before the European Parliament’s Civil Liberties Committee to discuss the legality of search companies’ privacy policies, talk quickly turned to the acquisition and its potential impact on citizens’ online privacy. Seems a few of the EU’s top privacy regulators feel that IP, or Internet Protocol, addresses should be protected as personal information when they can be used to identify an individual on a computer network. Google, which uses IP addresses to identify users’ geographical location, among other things, disagrees.

After first upbraiding the committee for attempting to shoehorn a privacy case into a competition law review, Peter Fleischer, Google’s Global Privacy Counsel, pointed out that IP addresses aren’t always personally identifiable. “There is no black or white answer: Sometimes an IP address can be considered as personal data and sometimes not,” he said. “It depends on the context and which personal information it reveals.” And this is true to some extent, but becoming less so as we move toward Internet Protocol version 6 (IPv6).

Of course, were IP addresses to be categorized as personal information, Google would have a more difficult time delivering relevant search results and, more importantly, ads. Which, as Dutch parliamentarian Sophie in ‘t Veld pointed out is the real reason Google is arguing so vehemently against treating IP addresses as sensitive personal data. “The reason you want to have the data is because it gives you a competitive advantage,” she said. “It is business. I don’t think they can be completely disconnected. And we should discuss that side of things too. … Having that much information is market power.”

This proposed acquisition raises serious competition and privacy concerns in that it gives the Google DoubleClick combination unprecedented control in the delivery of online advertising, and access to a huge amount of consumer information by tracking what customers do online.”

–Microsoft General Counsel Brad Smith

The Federal Trade Commission isn’t going to let calls for the recusal of Chairwoman Deborah Platt Majoras or the concerns of Microsoft, AT&T and consumer advocacy groups at home and abroad get in the way of Google’s purchase of online ad-serving vendor DoubleClick.

The FTC today voted 4-1 to approve the $3.1 billion acquisition without condition. “After carefully reviewing the evidence, we have concluded that Google’s proposed acquisition of DoubleClick is unlikely to substantially lessen competition,” the commission’s majority wrote in a statement, adding that it planned to keep an eye on the company should it wield its market power unwisely. “The markets within the online advertising space continue to quickly evolve, and predicting their future course is not a simple task,” the commission continued. “Accounting for the dynamic nature of an industry requires solid grounding in facts and the careful application of tested antitrust analysis. Because the evidence did not support the theories of potential competitive harm, there was no basis on which to seek to impose conditions on this merger. We want to be clear, however, that we will closely watch these markets and, should Google engage in unlawful tying or other anticompetitive conduct, the commission intends to act quickly.”

One would hope so. In a lone dissenting opinion, commissioner Pamela Jones said the merger of Google’s data with DoubleClick’s is potentially quite problematic.

The transaction will combine not only the two firms’ products and services, but also their vast troves of data about consumer behavior on the Internet. … I acknowledge that behavioral targeting may create economic efficiencies that would–in the short run–be attractive to the parties’ advertiser and publishing customers (putting aside for a moment the potential impact on consumers on the privacy front). Still, marrying the two datasets raises long-term competition questions that beg further inquiry.

• In a post-merger online advertising market driven by the value of behavioral targeting, will Google/DoubleClick face meaningful competition?
• Will any other firm be able to amass a dataset of the same scope and size?
• Will any other company be able to overcome network effects and offer an equally focused level of behavioral targeting?
• If advertisers and publishers have to channel their online advertising through Google/DoubleClick in order to access the best dataset that supports targeted advertising, will any other firms have the ability or incentive to compete meaningfully in this market?

“… I am convinced that the combination of Google and DoubleClick has the potential to profoundly alter the 21 century Internet-based economy–in ways we can imagine, and in ways we cannot. I do not doubt that this merger has the potential to create some efficiencies, especially from the perspective of advertisers and publishers. But it has greater potential to harm competition, and it also threatens privacy. By closing its investigation without imposing any conditions or other safeguards, the commission is asking consumers to bear too much of the risk of both types of harm.”

The FTC’s ruling now leaves the final decision on the deal to the European Commission.

Ironic, isn’t it, that Google has played a key role in the investigation of the family ties that could prevent Federal Trade Commission Chairwoman Deborah Platt Majoras from voting on its proposed merger with DoubleClick.

Yesterday, the Electronic Privacy Information Center and the Center for Digital Democracy filed a petition with the FTC demanding that Majoras recuse herself from voting on the Google-DoubleClick deal because her husband is a equity partner at Jones Day, the law firm representing DoubleClick in the merger. Moreover, Majoras herself was once a partner at Jones Day as well. “A reasonable person with knowledge of the relevant facts would question the chairman’s impartiality in this matter,” the two consumer advocacy groups said in the filing (PDF). “The direct and predictable financial interest is on the spouse of the chairman, whose firm does not simply represent a party before the commission but who himself is directly responsible for the firm’s business development in Washington, D.C.” (In a statement issued by the FTC today, Majoras corrects what she calls “key factual errors” in the petition and lays out her case for fulfulling “the duties entrusted to me when I was appointed and confirmed.”)

Now, the FTC claims that Jones Day is advising DoubleClick only on the European Commission’s review of the merger. “We learned only yesterday that Jones Day is representing DoubleClick before the European Commission, not the (U.S.) Federal Trade Commission,” FTC spokeswoman Claudia Bourne Farrell told News.com. “Jones Day has not appeared before the FTC on this matter.”

But a page on Jones Day’s Web site seemed to say otherwise–at least until it was deleted. But while it may have disappeared from jonesday.com, it did not disappear from Google’s cache.

Jones Day is advising DoubleClick Inc., the digital marketing technology provider, on the international and U.S. antitrust and competition law aspects of its planned $3.1 billion acquisition by Google Inc. The proposed acquisition will combine DoubleClick’s expertise in ad management technology with Google’s Internet search and content platform. The transaction is currently under review by the U.S. Federal Trade Commission and European Commission.”

Now why would Jones Day pull that page (and beyond that, why would it be so ignorant of the dangers of Google’s cache)? It was “confusing,” the firm says. “The language in the posting apparently was confusing, since EPIC cites it as evidence JD is representing DC at the FTC, and we never have,” Jones Day partner Joe Sims told News.com. “So we took it down and will rewrite it to eliminate the confusion.”

The FTC is currently reviewing the matter with its ethics officer.

The Federal Trade Commission apparently has its own Evil Scale and Google’s proposed acquisition of DoubleClick doesn’t rank on it.

Sources involved in the merger review tell TechConfidential that the commission is close to approving the $3.1 billion acquisition–with no conditions. An announcement is expected as early as next week, with the deal likely to close soon afterward.

This despite the protestations of privacy advocates, Google rivals, and a faintly hysterical letter penned by two U.S. senators from Wisconsin and Utah.

Much as Google would like to think otherwise, the U.S. Senate isn’t quite ready to rubber-stamp its proposed acquisition of DoubleClick. The top two members of the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights–Democrat Herb Kohl of Wisconsin and Republican Orrin Hatch of Utah– sent a strongly worded joint letter to the Federal Trade Commission urging it take a particularly hard look at the proposed acquisition.

“The implications of this [deal] for the Internet advertising market–and for the Internet as a whole–are profound and potentially far reaching,” the Senators wrote. “A core part of Google’s business is placing contextual advertising–that is, text-based ads placed on third-party Web sites which are relevant to the content or to the likely reader of the Web site. Google has a dominant market position with respect to the placing of these contextual ads. DoubleClick has a leading market position in placing another form of Internet advertising–display advertising which also resides on third-party Web sites. Industry experts that we spoke to in the course of our inquiry raised serious concerns that combining these two companies’ leading positions in these two forms of Internet advertising could cause significant harm to competition in the Internet advertising marketplace.”

The acquisition is potentially problematic for reasons of privacy as well. “DoubleClick collects an enormous quantity of information on individual Web users’ preferences, and privacy advocates have expressed very serious concerns regarding the consequences of this data coming under the control of Google due to the fact that Google is the dominant Internet search engine and can also track individuals’ search requests,” the senators note. “Therefore, we believe that this deal raises fundamental consumer privacy concerns worthy of serious scrutiny.”

The senators’ arguments echo ones we’ve heard before–from the European Union and Microsoft, and from the Electronic Privacy Information Center, the Center for Digital Democracy and the U.S. Public Interest Research Group. Though, as Danny Sullivan notes over at Search Engine Land, they’re a tad bit more hysterical. Certainly, Microsoft’s $6 billion purchase of digital-ad firm aQuantive suggests the barriers to entry in the Internet advertising marketplace aren’t more than knee high. And as for privacy, well, Sun chairman Scott McNealy once said: “You have no privacy, get over it.”

Oh, they must be fighting back tears of laughter up in Redmond today. After subjecting Microsoft’s business practices to years of legal review, Europe’s antitrust regulators have turned their withering attentions to Google.

Yesterday, the European Commission refused to approve Google’s proposed $3.1 billion acquisition of online-ad company DoubleClick, opting instead to subject it to a full-scale review. “The [commission] will, in particular, investigate whether without this transaction, DoubleClick would have grown into an effective competitor of Google in the market for online-ad intermediation,” the EC said in a statement. “It will also investigate whether the merger … could lead to anticompetitive restrictions for competitors operating in these markets and thus harm consumers.”

News of the extended inquiry, which will conclude April 2, comes amid increased scrutiny of the DoubleClick deal in the U.S., where Microsoft, Microsoft-sponsored industry groups and other Google rivals have expressed concerns that the acquisition would give Google a stranglehold over the $40.6 billion global online-advertising market.

Suffice to say, Google wasn’t at all happy to hear it’s facing another four months of regulatory purgatory. “We are obviously disappointed by the European Commission’s decision to extend its review of our acquisition of DoubleClick,” Google CEO Eric Schmidt said in a statement. “We seek to avoid further delays that might put us at a disadvantage in competing fully against Microsoft, Yahoo, AOL and others whose acquisitions in the highly competitive online-advertising market have already been approved.”