[Infowarrior] - Leaked Microsoft Docs: DoubleClick Deal Monopolistic

[Richard Forno]

www.internetnews.com/bus-news/article.php/3718921

Leaked Microsoft Docs: DoubleClick Deal Monopolistic
By Stuart J. Johnston
December 28, 2007

Online advertising is crucial to Microsoft's burgeoning
"software-plus-services" initiative ­ it's the fuel for all the free
services the company is bringing to market.

It is no surprise then, that the approval earlier this month of the merger
of Google and DoubleClick by a 4 to 1 vote of the U.S. Federal Trade
Commission (FTC) was bad news for Microsoft -- not that it didn't try to
derail the deal.

A blogger for the New York Times last week obtained three confidential
Microsoft documents that the software behemoth had provided to the FTC this
fall. They were prepared in support of Microsoft's arguments that the merger
would harm competitors' ability to compete in emerging online advertising
marketplaces.

Microsoft officials independently confirmed the documents are bona fide.

"We believe this merger raises serious questions about the future of
competition in the online advertising market, as well as about consumer
privacy and copyright protection," Jack Evans, a Microsoft spokesperson,
said in an e-mail to InternetNews.com.

The leaked documents go into more detail.

"By combining the dominant network for sales of online advertising with the
dominant provider of ad-serving tools (which are the advertiser and
publisher 'portals' to the online advertising market), Google will obtain
dominant control over the 'pipeline' for online advertising," the
introduction to the main document, titled "Summary of Antitrust Analysis,"
states.

The company's high-level analysis?

"The transaction will put Google in a position to extract an increasing
portion of the money flowing between advertisers and publishers through the
pipeline. It will also enable Google to use its access to, and control over,
a predominant share of publisher 'inventory' (the ad space on a Web page
available to be seen by users) and valuable user information to impair its
rivals¹ ability to compete to sell and serve ads," the document continues.

The other two documents include a PowerPoint slide deck illustrating the
state of the online advertising business today and what Microsoft purports
it would look like if the merger goes through. It also includes a document
containing proposed alternative remedies that the FTC could have taken.

Obviously, the documents didn't carry the weight with the FTC that
Microsoft's legal and public relations teams had hoped. However, all is not
lost ­ not yet, at any rate.

That's because the European Commission (EC) is holding a meeting regarding
the proposed merger on January 21. The EC announced last month that it would
take a deeper look at the proposed $3.1 billion deal, after a preliminary
evaluation found that the combination would raise competition concerns.

While Microsoft officials would not confirm that the same or similar
documents will be or have been already filed with the EC, it seems apparent
that will be the case, with some tweaking to reflect differences in the EC's
laws and markets.

One of the lingering questions is whether the EC is still so ticked at
Microsoft for having dragged its heels for three years over the 2004
antitrust ruling against Microsoft that the company's arguments won't hold
much weight. 

That question is counterbalanced by another: whether the perceived threat of
another emerging potential monopoly will get the EC riled up enough to block
the merger outright.

Microsoft, of course, hopes that its arguments will resonate more clearly
with the EC than they did with the FTC.

"Google¹s acquisition of DoubleClick would result in Google controlling a
virtual monopoly share of the ad-serving capacity currently available to
third-party publishers and thus would raise barriers to entry/competition to
insurmountable levels (and require competitors to confront a rival that is
dominant in every component of the pipeline and that can manipulate network
effects to make entry even more difficult)," the documents state.

In its best "Help, I'm drowning" voice, the company warns that even the all
powerful Microsoft has been blocked from Google's main market ­ search
advertising.

"One need look no further than search advertising to see that despite
Microsoft¹s size, technical prowess, and strong incentives, it has been
unable to compete effectively with Google in search and that Google's lead
in search advertising has continued to grow because of network efforts."

In its pitch to the FTC's commissioners, Microsoft didn't just shoot for an
"all or nothing" approach, however. If the merger isn't blocked outright,
the company has several fallback positions it recommends, none of which were
chosen by the FTC, by the way.

Here Microsoft's documents echo some of the same concerns as European
consumer groups that argue the combination of the two online advertising
giants, along with their huge databases of users' behaviors, would not only
threaten users' privacy, but also drive up advertising rates for European
companies, and thus artificially raise consumer prices.

One of Microsoft's recommendations would be to force Google to divest itself
of key ad publishing tools it is acquiring with DoubleClick.

"Unless and until Google's competitors are able to obtain access to
competitively neutral and unbiased ad-serving tools like those currently
provided by DoubleClick, the ability of Google's rivals to create viable
alternative pipelines will be very difficult, if possible at all,"
Microsoft's analysis document states at one point.

Under other recommendations, in the remedies document, Microsoft calls for
"open access for competing ad networks," as well as prohibiting Google from
"discriminating in favor of DoubleClick in terms of the access that Google
affords ad-serving tool vendors to its networks."

These arguments did not sway the FTC. However, the EC has proven it takes a
different view of competition than U.S. governmental bodies, so the decision
could go either way.

Microsoft, meanwhile, has not been frugal about trying to compete
head-to-head with Google and DoubleClick. Last summer, it spent $6 billion
on ad giant aQuantive. As one sign of some success, Microsoft also this
month inked a deal valued at $500 million with cable giant Viacom, formerly
a DoubleClick customer, to serve ads on its content Web sites and to sell
left-over online advertising inventory.