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39–015 PDF 2007

S. HRG. 110–194

AN EXAMINATION OF THE GOOGLE-DOUBLECLICK

MERGER AND THE ONLINE ADVERTISING INDUSTRY: WHAT ARE THE RISKS FOR COMPETITION AND PRIVACY?

HEARING

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

SEPTEMBER 27, 2007

Serial No. J–110–25

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MICHAEL O’NEILL, Republican Chief Counsel and Staff Director 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

HERB KOHL, Wisconsin, Chairman 

PATRICK J. LEAHY, Vermont 

JOSEPH R. BIDEN, JR., Delaware 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

ARLEN SPECTER, Pennsylvania 

CHARLES E. GRASSLEY, Iowa 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

JEFFREY MILLER, Chief Counsel 

PETER LEVITAS, Republican Chief Counsel 

(III)

C O N T E N T S

STATEMENTS OF COMMITTEE MEMBERS

Page 

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 3

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin ............................ 1

prepared statement .......................................................................................... 164

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, prepared 

statement .............................................................................................................. 166

Schumer, Charles E., A U.S. Senator from the State of New York ..................... 18

WITNESSES 

Cleland, Scott, President, Precursor LLC, McLean, Virginia .............................. 11

Drummond, David, Senior Vice President of Corporate Development and 

Chief Legal Officer, Google, Mountain View, California ................................... 5

Lenard, Thomas M., Senior Fellow, Progress and Freedom Foundation, Washington, D.C. ........................................................................................................... 9

Rotenberg, Marc, Executive Director, Electronic Privacy Information Center, 

Washington, D.C. ................................................................................................. 13

Smith, Bradford L., Senior Vice President, General Counsel, and Corporate 

Secretary, Microsoft Corporation, Redmond, Washington ................................ 7

QUESTIONS AND ANSWERS 

Responses of David Drummond to questions submitted by Senator Kohl .......... 33

Responses of Thomas Lenard to questions submitted by Senator Kohl ............. 39

Responses of Marc Rotenberg to questions submitted by Senator Kohl ............. 42

Responses of Brad Smith to questions submitted by Senator Kohl .................... 47

SUBMISSIONS FOR THE RECORD 

AEI-Brookings Joint Center for Regulatory Studies, Robert W. Hahn and 

Hal J. Singer, Washington, D.C., report ............................................................ 51

Center for Democracy & Technology, Washington, D.C., statement ................... 102

Cleland, Scott, President, Precursor LLC, McLean, Virginia, statement and 

attachment ............................................................................................................ 104

Drummond, David, Senior Vice President of Corporate Development and 

Chief Legal Officer, Google, Mountain View, California, statement ................ 158

Lenard, Thomas M., Senior Fellow, Progress and Freedom Foundation, Washington, D.C., statement ........................................................................................ 167

Rotenberg, Marc, Executive Director, Electronic Privacy Information Center, 

Washington, D.C., statement and attachment .................................................. 173

Schmidt, Eric, Chairman of the Executive Board and Chief Executive Officer, 

Google Inc., Washington, D.C., letter ................................................................. 196

Smith, Bradford L., Senior Vice President, General Counsel, and Corporate 

Secretary, Microsoft Corporation, Redmond, Washington, statement ............. 198

(1)

AN EXAMINATION OF THE GOOGLEDOUBLECLICK MERGER AND THE ONLINE 

ADVERTISING INDUSTRY: WHAT ARE THE 

RISKS FOR COMPETITION AND PRIVACY? 

THURSDAY, SEPTEMBER 27, 2007 

U.S. SENATE, 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND

CONSUMER RIGHTS, COMMITTEE ON THE JUDICIARY, 

Washington, DC.

The Subcommittee met, pursuant to notice, at 2:30 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Herb Kohl, Chairman of the Subcommittee, presiding. 

Present: Senators Kohl, Schumer, and Hatch. 

OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR 

FROM THE STATE OF WISCONSIN 

Chairman KOHL. Good afternoon to you all. Our hearing today 

will examine the consolidation currently underway in the Internet 

advertising industry, including the planned acquisition of 

DoubleClick by the Internet giant Google. Advertising on the Internet is $17 billion business annually and is growing by about 30 

percent a year, an amount which will only continue to increase dramatically as more news and entertainment content is delivered 

over the Internet. With similar acquisitions announced by Microsoft, Yahoo, and AOL, the total value of merger activity in this industry does exceed $30 billion already this year. 

But much more than Internet advertising is at stake. This consolidation has profound consequences for all those who use the 

Internet and for all of those who sell products and services on the 

Internet. The Internet offers consumers an amazing array of information and entertainment choices. Best of all, beyond the fee consumers pay to access the Internet, this incredible wealth of information is available for free. But the companies that bring this content to consumers, recognizable names such as Google, Microsoft, 

and AOL, are not charitable organizations. 

Advertising is the fuel that drives the Internet. Search companies like Google sell advertisers the right to place advertising on 

their search result pages—advertising which is highly targeted 

based on the words used in the consumer’s search. And content 

companies like CNN.com or washingtonpost.com make money by 

selling graphics which display ads on their websites. These display 

ads are closely related to the content of the Web page and the demographics of the audience that views the Web page. 

2

The leading company placing Internet display ads on behalf of 

advertisers and on behalf of website owners is DoubleClick. Currently under review at the FTC is Google’s planned acquisition of 

DoubleClick. For literally hundreds of millions of Americans and 

consumers around the world, the name Google is synonymous with 

a quick, easy, and reliable way to access a wealth of information 

and entertainment choices. Not even in existence a decade ago, 

Google has become universally known as the best and the fastest 

way to search the Internet. In harnessing the power of Internet advertising, Google has developed into one of the wealthiest and most 

profitable corporations in the world, with a current market capitalization of $170 billion in its very short corporate life. 

Google now seeks to acquire DoubleClick. The acquisition of the 

leading server of display ads—DoubleClick-by the dominant seller 

of search-based text ads—Google—obviously warrants close examination by the antitrust regulators at the FTC. Well, advertisers 

and Internet publishers have no choice but to deal with Google, 

giving Google a stranglehold over Internet advertising and the 

power to raise ad rates. Once these two companies have joined 

forces and combined their gigantic information resources, will the 

barriers to entry for a new entrant into the marketplace simply be 

too high? On the other hand, will the likely benefits to the advertising market and consumers by improving the targeting and precision of Internet advertising outweigh the potential damage to competition arising from this merger? 

But this merger and the ongoing consolidation in the Internet advertising industry as a whole raises equally important issues of 

consumer privacy. Google collects an enormous amount of information on computer users’ search history and Internet preferences. 

DoubleClick also collects a vast amount of information regarding 

consumers’ Internet preferences. While DoubleClick assures us 

today that this information is shared with no one other than the 

advertiser or the website carrying the advertising, what will happen to this treasure trove of consumer data once Google gains control of DoubleClick? Do consumers need to worry about the security 

and use of their privacy personal information as Google continues 

to grow more powerful? 

Some commentators believe that antitrust policymakers should 

not be concerned with these fundamental issues of privacy and 

merely be content to limit their review to traditional questions of 

effects on advertising rates. Respectfully, we disagree. The antitrust laws were written more than a century ago out of a concern 

with the effects of undue concentrations of economic power for our 

society as a whole and not just merely their effects on consumers’ 

pocketbooks. No one concerned with antitrust policy should stand 

idly by if industry consolidation jeopardizes the vital privacy interests of our citizens so essential to our democracy. 

So we express that we have not reached a conclusion with respect to any of the vital questions that we will be exploring today. 

We have an open mind, and we have a need to examine these 

issues closely as the stakes for our society and the increasingly 

Internet-based economy are very high. We look forward to the testimony of our distinguished witnesses here today, and before we call 

3

on you for your statements, we turn to the Ranking Member on 

this Committee, the very distinguished Senator Orrin Hatch. 

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 

THE STATE OF UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. We welcome all 

of you to the Committee. I want to thank you for scheduling this 

important hearing. Let me see. Do I have this on? As always, it is 

a pleasure to be with you. 

I would also like to thank our distinguished panel of—for some 

reason, this is not working very well, is it? 

I want to thank our distinguished panel of witnesses today and 

thank them for agreeing to testify. And I especially want to welcome to the Committee and thank David Drummond and Brad 

Smith for appearing before us today. I appreciate all of you doing 

it. I realize being the general counsel and chief legal officer of a 

large corporation is a demanding job, and I am grateful to you both 

for taking the time to come and testify. 

The purpose of this hearing, as with all previous mergers under 

Senator Kohl’s chairmanship, is to properly define the market in 

question and then discuss how the law applies. In the case of this 

specific hearing, we will also explore the legitimate questions of 

privacy. My goal for that portion of the hearing will be to have a 

frank discussion of the facts so that consumers are informed about 

the products offered by the corporations involved in this merger, 

because I believe many consumers do not fully understand the 

amount of data being collected about them and how it is used by 

these businesses. 

Accordingly, I anticipate that we will touch on a number of topics 

during this hearing, but the fundamental question remains: Does 

the Google-DoubleClick merger violate our Nation’s antitrust laws? 

The first question to be asked then is: What type of merger is 

proposed? Now, I ask this question because Google argues in information provided to the Committee that they are not a competitor 

of DoubleClick. Now, is this then a conglomerate merger where we 

will explore the legal concepts of reciprocity and entrenchment? Is 

it a vertical merger? Or is this a merger between two competitors 

competing for a portion of the Internet advertising market? If this 

is the case, then the question of market power has to be addressed. 

Market power has been defined as ‘‘the ability to profitably maintain prices above competitive levels for a set price without a resulting decrease in consumer demand.’’ Google competitors have argued that if the transaction is finalized, then in addition to the 70 

percent of the text-based advertising that Google currently controls, 

the combined firm will account for nearly 80 percent of display ads. 

This poses the question: Can any firm, even one with the resources 

of Microsoft, overcome such a market position? 

Then there is the question of privacy. I believe that Google’s intent is to act in a responsible manner with the information that it 

collects. However, I also believe the American consumer must be 

made fully aware of the fact that when they use search engines or 

click on an advertisement, whether it is a text or display ad, there 

is a strong possibility that personal information is being collected 

4

and stores. It is then up to the consumer to decide if that consumer 

wishes to use the services offered by these companies. 

Now, Mr. Chairman, these are important questions. I look forward to learning the thoughts and conclusions of this august panel 

of witnesses that you have invited to be with us today. And, again, 

I welcome all of you here, and I am going to be extremely interested in this particular hearing. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thank you very much, Senator Hatch. 

We would now like to introduce our distinguished panel of witnesses. The first witness today will be David Drummond. Mr. 

Drummond is the Senior Vice President for Corporate Development 

and Chief Legal Officer at Google. In this role, Mr. Drummond 

works with the management teams at Google to evaluate new business opportunities, including alliances and mergers. 

Our next witness will be Brad Smith. Mr. Smith is the Senior 

Vice President and General Counsel for Microsoft. While at Microsoft, Mr. Smith has played a leading role in the company’s intellectual property, competition, and other public policy issues. He is 

also serving as Microsoft’s Chief Compliance Officer. 

Following him we will have Dr. Thomas Lenard. Dr. Lenard is 

currently a Senior Fellow at the Progress and Freedom Foundation. 

He will be leaving that organization at the end of the week to join 

a new think tank specializing in high-tech issues. Dr. Lenard has 

also served as the Office of Management and Budget, the Federal 

Trade Commission, and the Council on Wage and Price Stability. 

Following him we will have Scott Cleland. Mr. Cleland is the 

founder and President of Precursor, a consulting firm specializing 

the technology and telecommunications industries. Before founding 

Precursor, Mr. Cleland was Senior Policy Adviser for the Secretary 

of State in the first Bush administration, as well as Director of 

Legislative Affairs for the Department of Treasury. 

Finally, we will have Marc Rotenberg. Mr. Rotenberg is Executive Director of Electronic Privacy Information Center, a public interest research center focusing on protecting privacy and civil liberties. Mr. Rotenberg chairs the ABA Committee on Privacy and 

Information Protection, and he teaches privacy law at Georgetown 

University Law Center. 

We thank you all for appearing at this Subcommittee hearing 

today, and now I would ask you all to stand and take the oath and 

raise your right hand. Do you affirm that the them you are about 

to give before the Committee will be the truth, the whole truth, 

and nothing but the truth, so help you God? 

Mr. DRUMMOND. I do. 

Mr. SMITH. I do. 

Mr. LENARD. I do. 

Mr. CLELAND. I do. 

Mr. ROTENBERG. I do. 

Chairman KOHL. Thank you. 

Mr. Drummond, we will take your statement. 

5

STATEMENT OF DAVID DRUMMOND, SENIOR VICE PRESIDENT 

OF CORPORATE DEVELOPMENT AND CHIEF LEGAL OFFICER, GOOGLE, MOUNTAIN VIEW, CALIFORNIA 

Mr. DRUMMOND. Chairman Kohl, Ranking Member Hatch, members of the Subcommittee, it is my pleasure to appear before you 

this afternoon to discuss recent developments in the online advertising world. Thanks for inviting me to testify here. 

Chairman KOHL. Is your button on? 

Mr. DRUMMOND. Sorry. The online advertising business is complex, but my message to you today is simple: Online advertising 

benefits consumers, promotes free speech, and helps small businesses succeed. Google’s acquisition of DoubleClick will help advance these goals while protecting consumer privacy and enabling 

greater innovation and greater competition. 

Now, in our experience, users value our ads because, like our 

search results, they connect them to the information, the products, 

and the services that they seek. Our online advertising promotes 

freer, more vigorous, and more diverse speech. We know that many 

bloggers and many website owners actually can afford to dedicate 

themselves full-time to that endeavor because of online advertising. 

In fact, last year, we paid $3.3 billion in advertising revenue to our 

website partners, and it is a great satisfaction to us that we are 

able to help this proliferation of online speech and activity. 

Now, our advertising network also helps small businesses connect with consumers that they otherwise would not be able to reach 

and to do so affordably, efficiently, and effectively. Let me give you 

an example. Allen-Edmonds, the shoemaker in Wisconsin, is a 

great example of how this works. Allen-Edmonds has frequently 

appeared as a sponsored link or ad to people searching for terms 

like ‘‘men’s dress shoes.’’ Now, according to Allen-Edmonds’ marketing director, the company’s online sales rose 40 percent in 2005 

because of the type of advertising that Google does. Mr. Chairman, 

there are thousands of other companies throughout America—most 

of them very small businesses—that also advertise with us. 

Now, we believe our acquisition of DoubleClick will help us provide even more benefits to consumers, support even more free 

speech, and help drive the success of even more small businesses 

throughout the country. 

By combining our advertising network with DoubleClick’s display 

ad serving products and technology and by investing the resources 

in the display ad business, we think we will be able to provide better and more relevant advertising to consumers and to help publishers and advertisers generate more revenue. All of this new economic activity will fuel the creation of more rich, more diverse content on the Internet, which, of course, benefits consumers and society at large. 

Now, let me address the issue of competition. We are confident 

that our purchase of DoubleClick does not raise antitrust issues because of one simple fact: Google and DoubleClick do not compete 

with each other, despite what some might be saying. DoubleClick 

does not buy ads, does not sell ads, does not buy or sell advertising 

space. What it does do is provide technology tools that enable advertisers and publishers to deliver and manage ads once they have 

6

come to terms, and there are many, many others who do these 

sorts of things. 

The simplest way to look at this is by using an analogy. Google 

is to DoubleClick what, say, Amazon is to FedEx. Amazon sells 

books; FedEx delivers them. And, by analogy, we sell ads; 

DoubleClick delivers ads. Two different businesses. 

Our acquisition of DoubleClick does not foreclose other companies from competing in the online advertising space. Recent acquisitions in the space by Microsoft, $6 billion acquisition of 

aQuantive, which was a competitor of DoubleClick, acquisitions by 

Yahoo, AOL, and others are strong signals that the market believes 

this space has a lot of room for growth and a lot of room for competition. Beyond the recent acquisitions, there are thousands of 

companies that are competing in selling online ad space. 

Now, despite what they are saying here today, Microsoft actually 

appears to agree with this. Brian McAndrews, who is Microsoft’s 

Senior Vice President of the Advertiser and Publisher Solutions 

Group, and before that the CEO of aQuantive, recently commented 

that the online advertising space is, and I quote, ‘‘in the first or 

second inning of a long game here.’’ He goes on to say that, 

‘‘There’s no monopoly on innovation. I don’t think you’re going to 

see two or three big players and then game over. There will continue to be a broad range of companies.’’ 

We certainly agree with that, and if it were one stray comment 

in an unguarded sort of moment by a Microsoft executive, it would 

be one thing. But we have compiled a lengthy list of similar statements from Microsoft senior executives all made after the announcement of the DoubleClick transaction and after the 

aQuantive transaction, and they completely contradict what Microsoft is saying here today. 

Really, it seems like the only place that Microsoft is making 

these arguments about fear of declining competition in the online 

spaces here in Washington. I would be happy to discuss this list 

of quotes during Q&A or to submit it following the hearing, with 

your permission. 

Now, my final point today is that Google will continue to protect 

its users’ privacy. For us, privacy does not begin or end with our 

purchase of DoubleClick. Privacy is a user interest that we have 

been protecting since our inception, and we will continue to innovate in this area. We spend a lot of time designing our products 

on the principles of transparency and choice—transparency about 

what information we collect and how we use it, and user choice 

about whether to provide us with any personal information at all. 

We were the first leading Internet company to decide to anonymize 

IP addresses and cookies in our server logs after 18 months. Most 

of our products allow people to use them anonymously and do not 

use any personally identifiable data unless we fully disclose that 

use in our privacy policy. We support Federal privacy legislation 

and the development of global privacy standards that can help 

build consumer trust and confidence in the Internet. We will also 

participate in the FTC’s upcoming Town Hall on privacy in online 

advertising, which we think is a great vehicle for further examination of this subject. 

7

In looking to innovate in this area, looking ahead, we are approaching our entry into the ad serving business with a fresh eye. 

Here are some examples of the privacy protections and innovations 

we are working on in third-party or this ad serving business. 

We will be included an opt-out mechanism so that people can 

choose not to have an advertising cookie place on their computer, 

and our industry-leading decision to anonymize logs data after 18 

months will also cover any log data generated in our ad serving 

programs that we are testing now. 

We are exploring the use of what we are calling ‘‘crumbled cookies’’ so that user data is not stored just in one cookie, which I know 

concerns some people. 

And we are working on better forms of notice within as so that 

users can better understand who is behind the ads that they see. 

Now, some of these ideas are experiments, and like all experiments, they may or they may not work out. But we are excited to 

start innovating in this area for our advertising customers and for 

our users to deliver better ads for them. 

Now, as I conclude my testimony, I will note that a lot of this 

activity—it seems like a lot of activity, and you may wonder why 

we focus on it. For one reason, protecting privacy is really part of 

the Google culture, and it is also a priority because our business 

simply depends on it. If our users do not trust us with the way we 

manage their information, they simply will not use us, and they 

are one click away from switching to any other competing product. 

I appreciate the opportunity to discuss these issues with you in 

the question session, and thank you for allowing me to testify. 

[The prepared statement of Mr. Drummond appears as a submission for the record.] 

Chairman KOHL. Thank you, Mr. Drummond. 

Mr. Smith? 

STATEMENT OF BRADFORD L. SMITH, SENIOR VICE PRESIDENT, GENERAL COUNSEL, AND CORPORATE SECRETARY, 

MICROSOFT CORPORATION, REDMOND, WASHINGTON 

Mr. SMITH. Well, thank you, Mr. Chairman, for the opportunity 

to provide Microsoft’s perspective on these important issues this 

afternoon. 

We believe that the future of the Internet will be decided by developments in online advertising. As you noted, Mr. Chairman, online advertising is rapidly emerging as the fuel that powers the 

Internet and drives the digital economy. We estimate that online 

advertising spending is already a $27 billion business, and it is projected to double to $54 billion in the next 4 years alone. To put that 

in perspective, that will be roughly the same size as the television 

and radio industries in this country today combined. 

These changes, as you noted, Mr. Chairman, are not only of tremendous economic importance, they have serious societal implications as well. Online ads increasingly provide the economic foundation for a free press and for political life more broadly. 

Now, I will be the first to admit that Microsoft is not disinterested when it comes to this issue. Competitors never are. But I 

do think we are in a good position to help identify the right questions. We know this market well, and it is absolutely clear to us 

8

that this merger raise serious questions that deserve serious answers. I would like to address two questions myself very briefly. 

The first one is this: What are the economic implications of allowing the largest Internet company in online advertising to acquire its most significant competitor? While there are millions of 

websites on the Internet and many, many advertisers, as David 

notes, there are actually a very small and declining number of 

intermediaries—intermediaries that provide the tools and services 

that connect advertise and website publishers together. These 

intermediaries play a gateway or a middleman role, if you will, 

much like the natural gas pipelines that connect refineries to distributors and ultimately to consumers in their homes. 

If you are a website operator and you want to sell ad space on 

your site, or if you are an advertiser and you want to display your 

ads, you have to work with and through one of these intermediaries. 

Now, already Google is the dominant company for one of the two 

main types of online advertising: search online ads. Roughly 70 

percent of global spending on search-based advertising today flows 

through Google’s ad words service. If Google is allowed to proceed 

with this merger, it will obtain a dominant gateway position over 

the other main type of online advertising: non-search ads—the nonsearch ads that are displayed on websites that we visit. 

Today, Google and DoubleClick are the two largest competitors 

in this area, and as I hope we will discuss more, they are competitors in this area. And yet, combined, Google will account for nearly 

80 percent of all spending on non-search ads served to third-party 

websites. In short, if Google and DoubleClick are allowed to merge, 

Google will become the overwhelmingly dominant pipeline for all 

forms of online advertising. 

Now, this merger will undoubtedly result in higher profits for the 

operator of the dominant advertising pipeline, but we believe it will 

be bad for everyone else. It will be bad for publishers, it will be bad 

for advertisers, and, most importantly, it will be bad for consumers. 

This leads to the second question I would like to address. What 

are the antitrust and privacy implications of giving a single company sole control over the largest data base of user information the 

world has ever known? Online ads are typically served based on 

user information, user data. As consumers, we give up this data, 

often without knowing it, in exchange for access to free content and 

services. 

Today, it is generally believed that Google and DoubleClick have 

amassed the two largest data bases of online user data in the 

world. This country does not permit the phone company to listen 

to what we say and use that information to target ads. The computer industry does not permit a software company to record everything we type and use that information to target ads. Yet with this 

merger, Google seeks to record nearly everything you see and do 

on the Internet and use that information to target ads. Indeed, one 

question is whether this merger will create a whole new meaning 

to the term ‘‘being Googled.’’ 

These privacy issues, in fact, have antitrust consequences. Given 

the nature and economics of online advertising, this concentration 

of user information means that no other company will be able to 

9

serve ads as profitably. In short, it will substantially reduce the 

ability of other companies to compete. 

I appreciate that the technology and business models are new 

and dynamic, and I fully agree that the Internet is continuing to 

change very rapidly. Yet, amidst constant change, it is worth bearing in mind that one rule of the road has remained constant in the 

117 years since the Sherman Act was adopted: We are all encouraged to work hard; we are all encouraged to earn our way to success. But no one is permitted to buy a dominant position by acquiring its single largest competitor. 

That principle has served this country well through generations 

of new industries and technologies. The question for this Congress 

and, indeed, for the Federal Trade Commission and this country is 

whether we want to abandon that principle now. 

Thank you very much, Mr. Chairman. I look forward to answering your questions. 

[The prepared statement of Mr. Smith appears as a submission 

for the record.] 

Chairman KOHL. Thank you very much, Mr. Smith. 

Mr. Lenard? 

STATEMENT OF THOMAS M. LENARD, SENIOR FELLOW, 

PROGRESS AND FREEDOM FOUNDATION, WASHINGTON, D.C. 

Mr. LENARD. Thank you, Mr. Chairman. Thank you very much 

for the opportunity to present my views on the important competition and privacy issues raised by the Google-DoubleClick merger. 

Although I haven’t done the detailed economic analysis that is 

often part of a merger review, from what I do know I do not believe 

that this acquisition threatens to be anticompetitive or harmful to 

consumers’ privacy. I do think, however, that Government interference with this evolving market, which is still very much in its 

infancy, could be quite harmful to consumers. 

Google’s purchase of DoubleClick is part of a spate of recent acquisitions in online advertising where companies are adding new 

capabilities in order to better serve their customers and better compete with each other. 

The FTC is doing a careful review of the Google deal, as it 

should, but these reviews are much more difficult when the markets are changing rapidly, as they clearly are here. 

In many ways, Google epitomizes the digital revolution. As you 

indicated in your opening remarks, Google’s business model was 

difficult to envision just a few years ago—an illustration of the fact 

that the digital revolution is not just a technological revolution, but 

it is also very much a revolution in the design of business models 

and in the evolution of markets. When technologies and markets 

are changing rapidly, it is much more difficult to avoid policy mistakes. 

Policymaker should do everything possible to create an environment in which both the Googles and the DoubleClicks of the future 

can emerge and thrive. For many entrepreneurial ventures, acquisition by another company is a major way to generate capital and 

pay off early investors. The most likely acquirers are larger firms 

in the same or related sectors. And it would not go unnoticed by 

early investors if antitrust enforcement were to make it more difVerDate 0ct 09 2002 09:00 Dec 03, 2007 Jkt 039015 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\39015.TXT SJUD1 PsN: CMORC
10

ficult for the ventures in which they invest to be acquired. Such a 

policy would raise the hurdle for investment in these firms, with 

potentially adverse effects on innovation in this critically important 

sector of our economy. 

Opposition to the Google acquisition has focused on two arguments, both of which I think are flawed. The first argument is the 

standard antitrust claim—that both Google and DoubleClick have 

a large share of the activities that they undertake, so a merger 

would create market power problems. But I believe these firms are 

engaged in different activities, and so that even if we believed that 

Internet advertising was a market in antitrust terms, which is debatable since it still comprises only about 5 percent of all advertising, the firms will not gain market power from this merger because they don’t have business in common. 

Google sells text ads mainly on their own websites and search result screens. DoubleClick sells the technology that delivers display 

ads from advertisers to websites and evaluates the effectiveness of 

the ads. DoubleClick does not sell advertising space or control any 

websites. Thus, even if we believe that Internet advertising is a 

market (which itself is highly debatable, since even with its growth 

it still comprises only about 5 percent of all advertising) the firms 

will not gain any market power from this merger since they do not 

have any business in common. 

The second argument concerns privacy where privacy advocates 

allege that Google’s and DoubleClick’s conduct ‘‘has injured consumers by invading their privacy.’’ But there is no evidence to support any assertions that consumers have been harmed or would be 

harmed. 

The great appeal of the Internet as an advertising medium is the 

ability to target ads to consumers much more precisely than can be 

done through other media. Using information from a variety of 

sources, including sometimes the past history of Internet browsing, 

Internet advertisers can develop an understanding of consumers’ 

interests, deliver ads that are most useful to them, and avoid delivering those that are of less interest. More information can facilitate 

more precise targeting, and all of this serves consumers well. 

In addition, the revenues from online advertising support a variety of valuable services provided to consumers at no charge by the 

companies represented here as well as many others, such as search 

services, free e-mail, and content that is customized to the individual. Internet advertising firms also provide customized advertising to smaller websites that use the revenues to support themselves. 

In my view, antitrust and privacy are really separate issues, but 

some people have tried to connect the issues by arguing that the 

aggregation of data serves as a barrier to entry. The argument 

seems to be that the aggregation of data would enable Google to 

provide a better service and do so more efficiently and, therefore, 

it would be more difficult to compete against the company. Whether or not that is true, we need to approach such arguments with 

great caution because they go the heart of what we want our competitive economy to do, which is provide consumers with better 

goods and services at lower cost. 

11

The worst thing antitrust enforcers or any other policymakers 

could do is to implement policies that prevent companies from getting too good at what they do because it makes it harder to compete against them. That might be helpful to some competitors, but 

the goal of the antitrust laws is to help consumers and not competitors. 

Thank you. 

[The prepared statement of Mr. Lenard appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Mr. Lenard. 

Mr. Cleland? 

STATEMENT OF SCOTT CLELAND, PRESIDENT, PRECURSOR 

LLC, MCLEAN, VIRGINIA 

Mr. CLELAND. Mr. Chairman, thank you for the opportunity and 

the honor to testify. I am Scott Cleland, President of Precursor 

LLC. The views expressed by me in this testimony are mine alone 

and not the views of any of my clients. 

The online advertising market is rapidly consolidating and becoming highly concentrated. Yahoo has bought Right Media, Microsoft bought aQuantive, Google has bought YouTube, Ad Scape 

Media, DoubleClick, Feed Burner, and others. 

Now, I have done the in-depth work on this and on the facts of 

the case, and of all the recent mergers, I believe GoogleDoubleClick is uniquely anticompetitive and really represents a 

watershed moment for Internet competition. I think it is clearly 

one of the most far-reaching, least understood, and most important 

mergers this Subcommittee will ever review. 

The biggest challenge here, Mr. Chairman, is to see the forest for 

the trees. Online advertising is the only proven business model for 

monetizing Internet content. Also, the Internet is the ultimate network of networks, so in antitrust terms, it also creates the ultimate 

network effect of network effects. Essentially, network effect is the 

positive feedback loop where the looter extends one’s lead. 

Now, in a nutshell, this merger creates an exponential network 

effect in that the merger expand Google’s network of viewers, advertisers, website publishers, and data. 

Now, the biggest risk for Congress and the FTC is missing the 

critical importance of the essence of online advertising, and that essence is the exceptional interconnectedness and interrelated segments—networks, people, products, services, and technology. They 

are all webbed together. 

Now, the traditional concept in antitrust wants to have separate 

markets, and I would argue be careful here because, arguably, separate markets are the least applicable and most artificial and contrived when they are applied to an Internet business. Now, listen. 

I know others have said we are separate markets, we do not compete. Be very wary when they say they are separate when they are 

heavily interrelated by the same viewers, the same advertisers, the 

same websites, and the same core data. 

Now, the analogy I would like to use is to argue that search and 

display are separate markets and do not compete is like saying 

your eyes and your ears do not compete for the brain’s attention. 

It makes no sense. Of course they compete. 

12

This merger should also concern you, Mr. Chairman, because 

every politician understands that information is power, and Google 

openly aspires to be the world’s most powerful information broker. 

Listen to Google’s on uniquely monopolistic public vision in its wellknown mission statement: to organize the world’s information and 

make it universally accessible and useful. No other entity in the 

world currently has such a naked ambition to control and effectively corner any world commodity, let alone the world’s information, both public and private, and have the wherewithal—infrastructure, technology, capacity, expertise, and acquisitions—to actually pull it off. 

What I ask you is: What checks and balances would exist to 

Google-DoubleClick’s web of market power over the world’s information? The combined Google-DoubleClick merger would have little accountability to consumers, to competition, to regulators, or 

even third-party oversight. 

So what is my recommendation? Oppose the merger. This is not 

a hard antitrust call, in my view. In my 15 years of relevant experience, I have never seen a merger that facilitates such extreme 

global concentration, both horizontally and vertically simultaneously, generates more powerful and cumulative network effects 

or increasing barriers to entry, tips so many sub-segments to substantially less competition. Let’s talk search, text ad serving, contextual ad serving, graphic display ad serving, rich media video ad 

serving, consumer behavior data, ad publishing analytical tools, 

cross-market performance analytics, ad brokering, and ad exchanges. I have never seen anything like this. I have never seen 

anything that accelerates a dominating platform effect so quickly 

and so completely where dominance in one segment can be crossleveraged to dominate related segments. And, finally, I have never 

seen anything that forecloses more actual and potential competition. 

Another thing. Conditions will not work here. They would prove 

futile and they would prove counterproductive, and I actually think 

it would result in the worst of all scenarios, which would be a slippery slope toward Internet regulation. 

So why should you oppose this merger? Very simply, bottom line, 

if a business wants its content to succeed on the Internet, it would 

have no choice but to use the Google-DoubleClick-YouTube online 

advertising platform. No real competitive choice. 

Now, I have said a lot of things in my short remarks here. I do 

have six charts that, if it pleases the Chairman, in Q&A I can go 

into in depth and explain the Internet choice paradox, the extreme 

concentration, the extreme media concentration, the tipping point 

that this creates, the bottleneck this creates, and then, last, the extreme market power it creates. 

Thank you. 

[The prepared statement of Mr. Cleland appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Mr. Cleland. 

Mr. Rotenberg? 

13

STATEMENT OF MARC ROTENBERG, EXECUTIVE DIRECTOR, 

ELECTRONIC PRIVACY INFORMATION CENTER, WASHINGTON, D.C. 

Mr. ROTENBERG. Mr. Chairman, thank you very much for the opportunity to testify today, in particular for considering the privacy 

implications of the Google-DoubleClick Merger. There is no question that the merger has enormous economic consequences for the 

two companies and its partners, but I think the greatest consequences will be felt by Internet users around the world whose 

privacy interests will be clearly implicated by whatever outcome we 

see. 

EPIC, my organization, has played a significant role at the Federal Trade Commission over many years trying to establish strong 

privacy safeguards for consumers and for Internet users, and what 

I would like to do this afternoon is briefly summarize some of the 

key cases that we have been involved with as the basis for the reason that we challenged the Google-DoubleClick merger. I think it 

will help explain the significance of the merger, the privacy interests at stake, and also the FTC’s authority to act. 

I would like to begin by describing for you the fact that we challenged a similar merger in the late 1990’s when DoubleClick 

sought to acquire a company called Abacus. At that time 

DoubleClick was the Internet’s leading advertiser, and we were 

very impressed by the company. They made a point of saying that 

they did not collect user-identified information, that it was not necessary to make online advertising work, and they represented in 

their privacy policy, as well as in the privacy policies of all their 

partners, that there was no collection of personal information taking place. It was on this basis that many people accepted the 

DoubleClick business model. 

It, therefore, came as a surprise to us when we learned that 

DoubleClick proposed to acquire a data base marketing firm called 

Abacus, which had large profiles on American consumers, and 

DoubleClick proposed to merge the anonymous Internet profiles 

with the detailed customer profiles contained in the Abacus data 

base. 

We filed a complaint to the Federal Trade Commission. We alleged that the company had engaged in an unfair deceptive trade 

practice. It was the first time, in fact, that the Section 5 authority 

of the Commission had been invoked in the context of consumer 

privacy. 

The Commission undertook an investigation. There was a modest 

settlement reached. DoubleClick agreed to abide by certain privacy 

principles. Frankly, we were not very happy at the time, but it was 

significant that it demonstrated that the Commission could act on 

privacy matters. 

Now, the second case which I will tell you about, which I think 

is in some respects even more interesting, involves a complaint we 

brought to the Commission in 2001 regarding Microsoft. Microsoft’s 

identity management system, Passport, proposed a single sign-on 

for the Internet that would essentially become the gateway for access to Internet content. And we said that the privacy and security 

issues implicit in the Passport proposal were substantial and implicated the privacy rights of Internet users. 

14

The Commission undertook an investigation and ultimately 

issued a consent order, which Microsoft agreed to, and Microsoft, 

since the time of that case has been bound by significant privacy 

obligations because of the concerns about the Passport system, 

even though it was not necessary for the Commission to find in 

that case actual harm. 

I will mention briefly we also brought the ChoicePoint case to the 

Commission. That involved a large data broker. It engage in lax 

business practices. The Commission found in our favor and ultimately issued a $15 million judgment, the largest judgment in the 

Commission’s history. 

So when we decided earlier this year to file our complaint at the 

Federal Trade Commission, along with the Center for Digital Democracy and the U.S Public Interest Research Group, it was based 

on our familiarity with the FTC’s authority to act under Section 5. 

It was based on our concern about the privacy interests that would 

be implicated in this merger. And it was based on the information 

that we were able to obtain about Google and DoubleClick’s business practices. 

Since the filing of our complaint, nothing has happened that has 

led us to a different conclusion. In fact, all of the information that 

has been revealed since April indicates that there are greater data 

collection practices planned than were originally proposed, and that 

our instinct about the privacy interests implicated in the deal is 

something that others who look at these matters also share. 

For example, after the filing of our complaint, the Consumer Protection Board in New York State wrote to the Federal Trade Commission and expressed support for what EPIC said, said the deal 

should be blocked. We learned that the FTC itself had issued a second request in this merger review, which we know from the Chairman’s own analysis indicates a strong presumption that the deal 

will either be blocked or modified. And now we are seeing regulatory authorities around the world—the European Commission, 

Australia, and Canada—moving to undertake investigations of the 

privacy implications of this deal. 

Simply stated, it is our view that unless the Federal Trade Commission imposes substantial privacy safeguards by means of a consent order, this merger should not go forward. The privacy interests are simply too great. The safeguards are not there. This is 

going to be a real problem for the Internet if it is allowed to stand. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Rotenberg appears as a submission for the record.] 

Chairman KOHL. Thank you very much. 

Mr. Cleland, Google argues that DoubleClick does not really compete with Google with respect to Internet advertising. Google further argues that while Google actually sells the ads appearing on 

its search results pages, DoubleClick does not sell any advertising. 

It just provides the technology to place ads for advertisers on 

websites. 

Doesn’t Google have a point, Mr. Cleland? And if so, how could 

this merger harm competition or lead to higher rates? 

Mr. CLELAND. They certainly do compete, and basically what we 

are talking about is how ads get served to a screen. And Google 

15

serves those screens as text ads in a search bar and as contextual 

ads. DoubleClick serves them in display, which is a banner ad, or 

in video. 

Now, those are the exact same function and technology that is 

going that serves 1’s and 0’s from different companies through a 

network and has them appear in different formats on the screen 

that you see. They are doing exactly the same thing, and they compete for the same ad dollars. 

As I said before, they have the same audience, they have the 

same set of advertisers they work with, they have the same 

websites they work with, and they have basically similar data. 

The analogy is a very powerful one. What I am trying to say here 

is these are interrelated markets. It is like trying to say that since 

my eye and my ear are separate body parts, they do not have any 

interaction with my brain and they do not compete with my brain 

for information. Of course, I may hear something, I may see something, and we both know that you can see and hear completely different things, and the brain must sort out which is superior. 

It is classic. What we are talking about is Google is going to create a brain where it controls all the major networks. Let’s look at 

each one of these segments that I keep repeating. It would take the 

Internet viewer audience from 65 percent to about 90 percent. It 

would take the 90 percent of Google’s share, according to William 

Blair, of the advertiser community and add 1,500 of the top global 

customers that DoubleClick has, hundreds that Google does not 

have. 

Then if we talk about websites, Google has about a million 

websites, and it would add 17 of the top 50 from DoubleClick. And 

as other witnesses have described, the two biggest online data 

bases of consumer behavior would be added to, by far, what would 

be the world’s largest. 

And so what I see here is to argue that they are separate markets is preposterous. It is artificial, superficial, and basically arbitrary distinctions, because also, let’s look at it here, this whole time 

Google explains and represents themselves as working for consumers. Consumers do not pay Google a dime. Now, generally we 

would think that the people who pay you are the ones you work 

for. Google says they are just one click away of losing a customer. 

That is not a customer. It is a user, and the user pays their privacy 

in order to use search. 

So I do not buy Google’s argument. They are competitors. 

Chairman KOHL. Mr. Drummond, in a minute I am going to give 

you, and perhaps you, Mr. Lenard, a chance to respond. But just 

to add on a little bit, Brad Smith, you said that DoubleClick is the 

most significant and the largest competitor to Google. 

Mr. SMITH. Yes, absolutely, and we believe that. 

Chairman KOHL. Do you want to amplify that a little bit? 

Mr. SMITH. Sure. 

Chairman KOHL. Because Mr. Drummond does not think that is 

true at all and Mr. Lenard does not think that is true at all. 

Mr. SMITH. I disagree with the premise in the first instance that 

Google is only in the business of selling ads and not in the business 

of delivering them or serving them. I just went to Google’s website 

myself at lunchtime today, and this is all about their AdSense netVerDate 0ct 09 2002 09:00 Dec 03, 2007 Jkt 039015 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\39015.TXT SJUD1 PsN: CMORC
16

work. And if you go to google.com/adsense, the first thing you are 

going to see is this. It says, ‘‘AdSense for content automatically 

crawls the content of your pages and delivers ads. You can choose 

both text or image ads.’’ 

And you can see this not only on Google’s site. You can see it on 

a number of other sites. I will show you a chart of a website that 

we took a snapshot of the day before yesterday. It is a popular social networking site called friendster.com, and you can see on this 

page on the right two ads. The top ad is delivered by DoubleClick, 

and the ad directly below it is delivered by Google’s AdSense Network. 

To the best of our knowledge, if you buy an ad through AdSense, 

it may sometimes be delivered by DoubleClick, but it is also sometimes delivered by Google AdSense directly itself. And what is 

more, if you look at what DoubleClick was doing before this merger 

and what Google was doing before this merger, they were each 

building out all of the pieces in the pipeline, the piece that connects 

with publishers, the piece that connects with advertisers, and this 

electronic exchange in the middle. 

So I am not persuaded myself by Google’s analogy. I think a better analogy is this: Google is already Amazon and is already 

FedEx. Now they are proposing to buy the post office. I think if 

that happened, not only Barnes & Noble but every book buyer in 

the country would have a real problem. 

Chairman KOHL. Mr. Drummond, would you like to take those 

two arguments and rip them into shreds, please? 

[Laughter.] 

Mr. DRUMMOND. Sure. I will give it my best shot, but first I 

guess I have to express a little bewilderment. I keep hearing that 

DoubleClick is our single largest competitor over and over again, 

and when I heard single—I showed up at a hearing about a 

DoubleClick transaction, and it appears to be a hearing about our 

acquisition of Microsoft. 

There is a lot of rhetoric being thrown around here, but we have 

got to be clear, and I can even use Brad’s prop here to make the 

point. 

We are very different than DoubleClick. We have never sat 

around the boardroom and talked about our competition with 

DoubleClick. It is a very different business. 

We sell ads—we sell largely search ads. We do not actually participate in this display ad segment very much. We very much 

would like to, and that is part of the reason we purchased 

DoubleClick because of their tools. 

DoubleClick does not sell any ads. When you see an ad from 

DoubleClick, all they do is deliver it. The buyer of the ad, the seller 

of the ad have already gotten together and done the deal together. 

DoubleClick has nothing to do with that, and all they do is deliver 

the ad. 

Conversely, we do not sell any ad serving products. Yes, we have 

our own fleet of trucks, but we don’t operate any truck delivery 

services to anyone else. So these comparisons are quite specious. 

They are very different markets, and they simply do not overlap. 

This notion that DoubleClick is our biggest competitor seems 

strange in light of the total revenues that DoubleClick generated 

17

in their ad serving tools business—about $143 million in revenue 

last year in North America. That hardly seems like the kind of 

business compared to Google and compared to Microsoft and others 

that would serve as our biggest competitor. 

I think you need to think about it a little differently. What seems 

to be being said here is that because the DoubleClick tools are used 

by some sellers of ads and some buyers of ads, that, therefore, 

DoubleClick controls and dominates this market, that is not true. 

It is no more true than a delivery—a company that delivers trucks 

from, say, the dock to the dealer, or cars, you know, controls the 

car or the truck market. It does not. It is an enabler, and that is 

all. So I think we need to be a little bit more precise with what 

we are talking about here. 

I also want to address this data base notion that is being tossed 

about. The information that DoubleClick has is standard Web information. It is not personally identifiable information, that all 

Web companies, including Microsoft, and others, have and collect. 

It is a very standard thing. DoubleClick cannot use that data for 

anything else, and this data is not—this is not a unique situation 

that gives Google some leg up. Obviously, lots of companies are in 

this space. They are competing in this space. Microsoft just acquired aQuantive, which does all of the same things. They are now 

saying that aQuantive is the leading ad serving company, bigger 

than DoubleClick, so it is somewhat surprising to hear them say 

now that DoubleClick has this vast trove that is greater than any 

other data that anyone else has. And DoubleClick cannot do, by 

contract with its customers, it cannot do all these things with this 

data. And so it is just not something that we need to worry about. 

And I do need to say that, you know—I am not saying this to 

say that this is not something that we should be looking at in 

terms of, you know, the data that ad companies have, and we are 

going to participate in the FTC Town Hall on this issue, and we 

believe that that is the right way to go rather than attempting to 

make this a single-company issue, which it clearly is not. 

I mean, when you look at the information—let’s just unpack this 

notion of Google having, you know, the biggest data base or having 

this treasure trove of information. Microsoft already has what it 

claims is the biggest ad serving company. It is, with the acquisition 

of a Quantive, in addition the largest purchaser of online ads. It 

has a destination site with hundreds of millions of users, e-mail 

with 280 million or so users, $1 billion or so in revenue from display advertising compared to Google’s very small amount. And this 

is not even talking about any of the other products that Microsoft 

has. 

I think they are pretty well poised—they have a lot more information than Google has and, quite frankly, have announced many, 

many new initiatives with behavioral targeting and the like. 

So I think what we need to do here is put things a little bit more 

in perspective and look at the facts. Thanks. 

Chairman KOHL. Senator Schumer from New York has joined us, 

and I would like to call on him for remarks and questions. 

18

STATEMENT OF CHARLES E. SCHUMER, A U.S. SENATOR FROM 

THE STATE OF NEW YORK 

Senator SCHUMER. Thank you, Mr. Chairman. 

First, I want to thank you for holding these hearings. You are 

always right there when there are issues that are of importance in 

antitrust and other related areas. So I thank you for holding the 

hearing, because given the high stakes and important issues on all 

sides, it is appropriate to look at the antitrust and other implications of mergers in this sector. 

I am concerned about consumer privacy as these companies 

which hold vast amounts of information do consider merging. And, 

of course, Mr. Chairman, it has been amazing to watch computer 

technology develop. It was not long ago when nobody had personal 

computers. I remember in college I learned about computers, and 

we had all these punch cards, and it took about days to write a program and more days to punch in the cards, and then it did not 

work. These big, huge machines like you used to see in the movies 

in the 1960s, and now, of course, we can hold them almost in the 

palm of our hand. 

Of course, each of these new innovations brings new challenges. 

They are all to the good. But there are challenges. One of these is 

the complicated by interesting issue of online advertising that 

brings us here today. 

We cannot ignore the fact that an increasing portion of the advertising dollar around the world is going to online advertising, 

text or picture ads that show up every time we do a search or go 

onto an ISP like AOL or Google. The companies at issue here are 

some of the largest and most profitable in America. It is my sincere 

hope that as they continue to grow, they will use their expansions 

for the good of consumers. 

But I want to make sure three things are addressed in the online 

advertising deals, particularly this one, which has relevance to 

New York: first, antitrust laws, as you are carefully watching over, 

Mr. Chairman; second, privacy; and, third, jobs in New York. 

On the antitrust side, there are certainly questions about what 

impact a merger such as this will have on the advertising market. 

Those questions should be answered by this Committee, Justice 

Department, and the FTC as they review this merger. 

In addition, I have some concerns on the privacy side. As the 

Internet expands, the amount collected about our personal life 

grows. Some of it is collected to better target ads to each of us. 

So because of my concerns, I met with the Google CEO, Dr. Eric 

Schmidt. I asked for a specific commitment from Google that it will 

protect privacy following the merger given the increased abilities 

and power that they have. And at this time, Mr. Chairman, I would 

like to place into the record a copy of a letter from Dr. Schmidt to 

me that lists some of the steps Google tells me that it will take to 

protect privacy. 

Chairman KOHL. Without objection. 

Senator SCHUMER. Thank you, Mr. Chairman. 

Google is looking for ways to provide users with better forms of 

notice to help users understand what is behind the ads they see. 

Google is looking into ‘‘an opt-out mechanism’’ in the future so that 

individuals can choose not to have cookies placed on their comVerDate 0ct 09 2002 09:00 Dec 03, 2007 Jkt 039015 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\39015.TXT SJUD1 PsN: CMORC
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puters. And it is also experimenting with new privacy protection 

features. For instance, they are looking into the idea of using crumbled cookies so that the user data is not stored in any one single 

cookie, one single place. 

Mr. Chairman, these steps I think are important measures toward addressing my privacy concerns, and I thank Google and Dr. 

Schmidt for doing them. I am hopeful that Google will take these 

steps as part of this merger and part of an ongoing effort to protect 

privacy, because that is going to make customers happy, so it is in 

your interest and everyone’s interests. 

Google has also talked to me, Dr. Schmidt has, about commitments of jobs in New York. Obviously, DoubleClick is a New York 

company. Google has hundreds and hundreds of their top researchers in New York, a lot of them at, I think it is, 111 Eighth Avenue, 

which is one of our high-tech buildings, and we are very interested 

in growing a high-tech industry in New York as best we can. And 

Dr. Schmidt has assured me that as a net effect of the merger, the 

number of jobs is going to grow in New York, which matters a 

great deal to me as well. 

These commitments I think are significant and meaningful. I 

thank Google for responding to my requests in this way. And, Mr. 

Chairman, I thank you for having the hearing and thank the witnesses for coming. 

Chairman KOHL. Thank you very much, Senator Schumer. 

Mr. Cleland, most analysts agree that as a result of all these 

Internet advertising deals and the Google-DoubleClick merger in 

particular, advertising will becoming more targeted to a customer’s 

interests and, therefore, more efficient. Customers will get ads for 

products that they are more interested in; advertisers will get access to people more interested in their products; and websites will 

be able to sell their ad space at the best possible prices. 

Now, wouldn’t you say that this is a good result for consumers 

and for the economy as a whole? 

Mr. CLELAND. I think what this does is it brings to mind the 

Internet content paradox, and if you can put up the first slide here, 

what I really want to do here is I think there is a lot of misdirection that is going on of trying to get—you know, have people talk 

about—oops, not that one. I am sorry. The first one. It would be 

the one on the other—the other side. It’s called the ‘‘Internet 

Choice Paradox.’’ 

The point I am making here is that Google represents itself as 

working for consumers and gets everybody to focus on the consumer side. You know, and that is a smart thing for it to do. But 

it is not in the business, it is not being paid by consumers not one 

dime. It serves advertisers. 

And so what I would like to do is get people to understand that 

the consumer side has many choices—free access to reach any content. But on the business side, there is very little choice, and there 

is, you know, a bottleneck for that access. 

And so how I would answer your question is that when you talk 

about consumers, that is where they would like to take this. But 

this is an antitrust hearing. This is competition. This is talking 

about where is the competition. They say they are one click away 

20

from somebody using another search engine. They did not get paid 

dime one by that user that is leaving them. 

Now, on the other side, you know, they would be worried about 

losing a big competitor, and what is going on with Facebook right 

now, there is a fight between Google and Microsoft over who will 

get access to that traffic, that large website. That is where the action is. It is on the business side. And all this talk about the consumer side in an online advertising model where consumers do not 

pay for the service I consider a huge misdirection. And that is why 

I put together this slide to focus people: Competition issues are on 

the right side on the bottleneck access to online advertising. 

Did that answer your question? 

Chairman KOHL. Somewhat. 

[Laughter.] 

Chairman KOHL. Mr. Drummond, after Google’s deal to acquire 

DoubleClick was announced, Google Deputy Counsel Nicole Wong 

stated that Google hopes to ‘‘integrate the two companies’ non-personally identifiable data’’ in order to provide ‘‘better and more relevant ads for consumers.’’ This makes perfect sense. As you gain 

more and more information about consumers, you will be able to 

do a better job of targeting ads. Both Google and DoubleClick collect a huge amount of information on consumer preferences, including what websites they search and what advertising they view online. How could any new entrant without such access to consumer 

information possibly be able to compete with the combined GoogleDoubleClick? Doesn’t the tremendous amount of information that 

will be held by the combined Google-DoubleClick after the merger 

constitute a barrier to entry to any new rival entering this market, 

a huge barrier to entry? And isn’t, in fact, that one of the goals that 

you wish to achieve? 

Mr. DRUMMOND. Let me address. No, that is not true. We do not 

have a unique—or a stranglehold on all of the information out on 

the Internet for purposes of—for online advertising purposes. There 

are many—there are other competitors in this space; aQuantive is 

a big competitor to DoubleClick, has the same kind of data. There 

is simply no way for us to—there are ample ways for others to 

come into this market. 

Again, if you look at the data that Microsoft has— 

Chairman KOHL. But I just want to be sure we—isn’t it true that 

one of the offshoots of this merger is that it will make you a much 

stronger player in the whole field? 

Mr. DRUMMOND. Well, we hope that it will help make us stronger 

in a field that we have actually been fairly weak in, and that is 

in display advertising. You know, one of the things we hear from 

customers is that they would like all of us to offer more integrated 

solutions that have an ad serving component, that have the ad 

placement components, as well as selling and placing—selling the 

ads. 

Now, Microsoft and Yahoo and AOL are all going down the same 

path, and it is really in response to a customer demand, and that 

is why you are seeing a lot of these transactions in the marketplace. 

So, yes, we definitely want to be a stronger competitor in display 

advertising where there is enormous, enormous competition. There 

21

are some incumbent larger players, such as MSN, such as AOL, 

such as Yahoo. We are not one of them. But there is a lot of competition in that space, thousands of sites that are selling advertising space. So we think it is a great space. And all of the companies are moving forward with ideas about better targeting to create 

better ads. And, yes, that uses some of the data that is created in 

the process. 

But I have to tell you that when people come here and say that 

DoubleClick is the only place that has this data, it is just not true: 

aQuantive has this data; lots of other folks involved in ad serving 

have this data as well. So this is not a barrier-to-entry issue. 

Chairman KOHL. Mr. Cleland? 

Mr. CLELAND. Could I reply to that? Could you pull up the chart 

that says ‘‘A Tipping Point’’? Let’s look at the world from a competitor’s standpoint, and look at what this does. 

What do people want when they buy advertising? They want an 

audience, and they will pay for a larger amount if they have a larger audience. So in this instance, Google’s—you know, 65 percent of 

Internet viewer share would be—they would get 25 percent of the 

share that they do not have, up to about 90 percent, according to 

my estimates. And if you are a website, what do you want? You 

want to have access to lots of advertisers, and you are willing to 

pay for that, and that is what you seek. 

Well, they have got 90-percent share of the advertisers, and this 

is going to give them hundreds of the ones they do not have. So 

once again, if you are a website, who are you going to turn to? You 

are going to turn to Google because they are the only game in town 

that can give you access to all of the world’s advertisers. If you are 

an advertiser globally and you want to reach all of the consumers, 

you have got to go to Google because they have gone from 65 to 

90 percent. And Microsoft, Yahoo, and the others? Baby stuff relative to those numbers. 

Then if you look at the consumer data that they combine, remember, these are network effects upon network effects. And it is 

acquisition. If you deconstructed this and asked Mr. Drummond 

how long would it take them to replicate organically what 

DoubleClick has, it would take them years. And ask them if 

DoubleClick could ever catch Google. They would say no, you know, 

it is ridiculous. 

So when you realize that what Google will get through buying it 

instantly, they will own this market. They will control it via acquisition. 

Now, that is what the law—at least the way I understand it, it 

says you cannot via acquisition substantially lessen competition. 

And there is a tipping point here, and then in the next slide—I will 

not talk about it, but what I would do is explain very clearly that 

it facilitates a bottleneck, and it talks about many of the same 

points I just made, but in a different dimension. 

Chairman KOHL. Yes, Mr. Smith? 

Mr. SMITH. Yes, if I could address that. I would not be here if 

we did not believe that this merger does create two very important 

barriers to entry. And I go back and say think of this as a pipeline 

and think about it as something that, in fact, is not all that different from other kinds of delivery channels, even like the passive 

22

shipping issues that you have been addressing, Mr. Chairman, in 

other contexts. 

This pipeline has advertisers on the one end and website publishers on the other. And the pipeline itself principally has three 

broad components: there is a component that serves the publishers, 

there is an exchange that is electronic that is in the middle, and 

there is a component that serves the advertisers. 

Now, David keeps talking about aQuantive, but what is important to keep in mind is aQuantive’s business was principally on the 

side of addressing the needs of the advertisers. When you go to 

serving the publishers, the third-party publishers on the Internet, 

aQuantive had a business that was in single digits, DoubleClick 

has a business that was at about a 50-percent share, and Google 

had a business that was about a 30-percent share. 

And keep in mind, yesterday Google was saying that they were 

not in the delivery business at all. Today they have a fleet of 

trucks. Yesterday they were saying they did not do delivery of ads, 

and today when David answered your question, he said they do not 

delivery very much. 

The fact is they are in not only the business of selling advertisements to publishers but delivering those ads. They have in this 

business, this pipeline business, they have a million customers who 

advertise. Microsoft has 85,000 or thereabouts. The businesses are 

really not comparable today. 

And so there is, on the one hand, this barrier to entry that consists of what you might think about as the advertising inventory 

barrier to entry. There are all of these ads. There is also a barrier 

to entry that consists of this massive accumulation of user information. And it all comes together not only on these two ends, but in 

the middle. 

In a lot of ways, this merger is like the—it would be like combining the New York Stock Exchange and the Nasdaq. You know, 

if the New York Stock Exchange and the Nasdaq were to combine, 

somebody could build an alternative exchange, but would anybody 

go there to take their company public? It is hard to believe that 

would be the case. That is the kind of thing that will result here. 

Chairman KOHL. As I understand it, Mr. Drummond is suggesting that these businesses are dissimilar and that there really 

is not much synergy between one and the other. Are you suggesting 

that he is being somewhat disingenuous here today? 

Mr. SMITH. I am not going to second-guess his motives. Off the 

basketball court, we can be friendly. But I do respectfully disagree 

with what he is saying. 

Chairman KOHL. Are you a basketball player? 

Mr. DRUMMOND. I am not. I do not know where that came from. 

Mr. SMITH. Only when they are playing in Wisconsin. 

[Laughter.] 

Chairman KOHL. Mr. Drummond, go ahead. 

Mr. DRUMMOND. I am not sure where that came from, but I have 

to say, I did not say that these were completely dissimilar. They 

are certainly complementary businesses. We would like to have an 

integrated offering that includes the kinds of things and the kinds 

of ad serving tools for display advertising, which Google does not 

have, and we would like to add that to our product suite. The same 

23

reason why Microsoft wanted to add aQuantive, that product to 

their product suite. 

But it still is the case that we are not in the ad—we have not 

been in the ad serving business to date, and just to say that we 

deliver our own ads is not saying that we are in the ad serving 

business. Every website—many websites have ways to place ads 

independent of DoubleClick, of Atlas, aQuantive, or anything else. 

So the fact that we happen to deliver ads does not put us in the 

business. 

No advertiser, no publisher, in evaluating their choices for these 

ad serving tools, will sit down and think, Well, should I purchase 

from DoubleClick, from Atlas, or from Google? Google is not into 

the conversation because Google does not have a product. So when 

you talk about competitors, you need to talk about firms that are 

choices for a consumer. And there is no choice here. They operate 

in completely different markets. And the same goes on the advertising sales side. If you are an advertiser and you are looking to 

sell ads on websites, you do not come to DoubleClick to do that, because DoubleClick does not sell any space. You go to websites. 

Many websites have their own direct sales forces. You can go to advertising networks such as Microsoft’s ad center, Yahoo, to Google, 

and lots of places like that. But the place that you would not go 

is to DoubleClick or to an ad serving company. You would use an 

ad-serving company perhaps, but you would not—and you have 

many choices there, but you would not use Google. And I think that 

is being lost over here, but it is clearly the case that these are very 

different, complementary but very distinct businesses. 

Chairman KOHL. Senator Hatch? 

Senator HATCH. Thank you, Senator. 

Mr. Drummond, with respect to the broadband service market, 

Google seems to contend that consolidation harms consumers and 

‘‘downstream’’ application service providers. At least that is the 

way I have interpreted it. Yet the Google-DoubleClick merger represents a much more significant concentration of Internet advertising market share. 

Now, why are there too few players in the broadband service 

market, but why won’t the Google-DoubleClick transaction create 

too few players in the Internet advertising market? 

Mr. DRUMMOND. Well, Senator, I would be happy to address that. 

These are very different businesses, very different markets. I think 

in the broadband sector, it is apparent to all of us that we have 

very few choices for our broadband service. In many markets, you 

have two choices, and in many, many markets you have just one. 

That is simply not the case in online advertising. In the markets 

that—in the sale of ads, which is what Google does, there are 

many, many choices. There are display ads; there are search-based 

ads; there are many, many outlets to get those ads. And so we simply do not have that same dynamic. 

This acquisition changes that not at all. As I said, by acquiring 

DoubleClick it does not reduce the choices of anyone who is looking 

for ad serving technology products. It does not reduce the choices 

of anyone who is looking to buy or sell ads because DoubleClick 

simply does not do that. So these are very different markets. You 

are talking about one market where there are few players that the 

24

customers, the consumers can touch, and one in which there are 

multiple players. And they are only growing, not shrinking in many 

ways. 

Senator HATCH. OK. Mr. Smith, for as long as I can remember, 

Microsoft has stated that an entrepreneur operating from a garage 

could put your company out of business, astounding as that sounds. 

But I understand what you are saying. 

Whether or not that is true, it strikes me that a similar statement could be made of Google. If someone writes a better search 

algorithm, Internet users will merely jump to the entrepreneur’s 

site and perform their searches there. Simply put, if Google does 

not have Internet users using its search engine, then it does not 

have anyone to advertise to. In addition, DoubleClick’s percentage 

of the overall Internet advertising market is much smaller by comparison. 

So I think we have to ask: What is the concern? If Microsoft or 

another company comes along and creates a better search engine, 

Google might not be as dominant a player in the market as it is 

today. Now, if that is true, again, where is the this problem? Why 

not just build a better product? Have you not just purchased a 

DoubleClick competitor? This is a lot of questions and I— 

Mr. SMITH. That is a very good question, Senator, and if we believed that this was a market where better technology or better 

value by itself could carry the day, I would not have come here 

today. But that is not the market that we are dealing with. 

Indeed, if that were this market, Microsoft would not have paid 

an 83-percent multi-billion-dollar premium to acquire a Quantive, 

and I do not think that DoubleClick would have sold for the premium that it sold for. This market is consolidating. And we certainly believe that when this consolidation is finished—and it is 

going to be finished very quickly—we are either going to have one 

company that provides the pipeline for online advertising, or we 

will have two, or maybe we will have three. I cannot imagine more 

than three. I am skeptical that we will even have as many as 

three. 

And once we reach that point, I do not think that better technology or better value can make a difference. The barriers to entry 

created by the accumulation of all of the inventory in the ads and 

all of the user information is too great. It really is, as I was saying 

before, Senator, it is like the combination of the New York Stock 

Exchange and Nasdaq. Somebody could offer a better stock exchange, but if that one exchange were to come into existence and 

had all of the brokerage relationships and all of the purchasers in 

the country, why would anybody take their company public anywhere else? That very much, I believe, is analogous to this situation. 

Mr. CLELAND. Senator, could I also answer that question? 

Senator HATCH. Sure. 

Mr. CLELAND. One of the most preposterous notions I have heard 

is Google saying that, you know, any day a new search engine 

could come and knock them out. Let’s break that down. 

What Google has is the world’s largest infrastructure and a parallel processing grid. It is a supercomputer. There are a million 

customized servers that Google has bought and dispersed around 

25

the country, and those million servers copy every single page, at 

least reported by the New York Times, every single page of the 

Internet every day and keep it stored and recovered. That is how 

you can get, you know, a very quick response. 

They also have a million advertisers, or a million websites they 

deal with. They have 90 percent of the advertisers. They have 650 

million users and 80 percent of the data on consumers’ usage patterns in order to do targeted advertising. 

Now, I would say the accumulated aspect of two guys or one guy 

in a garage, it would require, you know, tens of billions of dollars 

and years and years for them to replicate something that could 

compete with Google. It is not just what search engine you have. 

If that was true, ask.com would be really—you know, they made 

some tweaks to their engine, and they would be improving. Or 

Yahoo, when it tweaked and improved its search engine, which it 

used to outsource to Google, it would be better. But the cost, the 

barriers to entry, are just enormous about what Google does. 

Hopefully that was helpful. 

Senator HATCH. It was. 

Mr. Smith, much has been made about how Google and 

DoubleClick maintain information to their users. With your acquisition of—is it a Quantive? 

Mr. SMITH. Yes. That is right, a Quantive. 

Senator HATCH. What other types of information will you store, 

for how long, and what are Microsoft policies to maintaining the 

privacy of Microsoft’s users? 

Mr. SMITH. I think there are two things to think about, Senator, 

in the context that you raise. They are both quite important. 

First, I would say that we need to think about this in the context 

of this merger. This merger, in our opinion, is about creating a single pipeline that has virtually all of the user information on the 

Internet. And if things go in this direction, we will no longer as 

consumers live in a world where our user information is divided 

and held by a variety of different companies. It will all be in the 

hands of a single company. And so I think you are quite right to 

ask, OK, well, what are the policies and practices of us when it 

comes to protecting user information? 

We announced new privacy principles in July. We built on privacy principles that we have had in the past, and I believe that 

they are—I would have to say I believe they are the best principles 

that you can find in this industry. We said, for example, that we 

will anonymize all user information, for example, all of the IP addresses, after 18 months. Now, Google likes to say that they were 

the first to anonymize information. In fact, I do not believe that 

Google is anonymizing anything, and I say that with respect, because, you know, all of our computers basically have the equivalent 

of a phone number. It is the IP address. It is basically nine digits. 

What we announced at Microsoft is that after 18 months we 

would delete that IP address, that phone number, in its entirety. 

What Google announced was that they would take that IP address 

after 18 months, and they would delete the last few digits. 

This very much reminds me of when I moved to Paris in 1993. 

I quickly found that when you get a phone bill in France, you get 

the list of phone numbers that were called from your house, but the 

26

last four digits have been deleted. Apparently it was considered socially awkward for spouses to be able to know who was being called 

from their house. And yet any good divorce lawyer in France can 

tell you that they can still figure out quite a bit. It may make it 

harder, but it does not make this information anonymous. 

Mr. ROTENBERG. Senator, may I speak to this issue? 

Senator HATCH. Yes, sir. 

Mr. ROTENBERG. I did not raise earlier some of the privacy concerns that we identified in Google’s practices, but I think it is appropriate now, and I think it is particularly important because 

Google has made a number of representations to this Committee, 

and I sense that as well in Senator Schumer’s remarks, regarding 

what it will do to safeguard privacy. But it uses these terms such 

as ‘‘anonymize’’ very loosely. 

Mr. Smith is correct. When Google says that it is anonymizing 

the Internet protocol address, it is much like taking the last two 

digits off a telephone number. In context, it is very easy to re-create the identity of the computer tied to the Internet. It is very similar with a cookie as well, and we have actually put together an 

analysis, and our simple conclusion is that what Google describes 

as non-personally identifiable information, which is the information 

that it retains on every single search query—and that is the Internet protocol address, the cookie information, the date and time of 

the query, the query search term. They describe all of that as nonpersonally identifiable. That is actually a remarkable claim because 

in so many different respects, that information is uniquely tied to 

the Internet user who made the search query. In fact, it is the reason that the Department of Justice, for example, goes to search 

companies and requests those files precisely to identify Internet 

users. 

And I will say further I have recently had an exchange with Dr. 

Schmidt, the CEO of Google. In the pages of the Financial Times, 

he described his proposal to safeguard privacy for Internet users. 

I published a response and explained that many of the safeguards 

that Google is recommending will not adequately safeguard the privacy interests of Internet users. And this is precisely the reason 

that the pending complaint of the Federal Trade Commission is so 

important. We need a much clearer description of what the business practices will be of this merged entity to ensure that the privacy interests of Internet users will be protected. 

Senator HATCH. Thank you. 

Dr. Lenard, as you well know, one of the major concerns about 

antitrust law is the creation of or enhancement of market power. 

In the context of sellers of goods or services, market power may be 

defined as ‘‘the ability to profitably maintain prices above the competitive levels for a significant period of time.’’ 

Now, market power may be exercised, however, not only by raising price but also by reducing quality or slowing innovation. Therefore, how can one argue that a standard antitrust claim cannot be 

made if Google already controls 70 percent of the search advertising and if the merger is permitted, Google-DoubleClick will account for nearly—well, I guess nearly 80 percent of the non-search 

ads or display ads. 

27

So I would like your opinion, and then I would like to give other 

members of the panel an opportunity to respond as well. 

Mr. LENARD. Thank you, Senator. There are several responses to 

that. The first one, I think, is the one we have been talking about 

a lot, that these really are not—this is really not a merger between 

direct competitors, really for the reasons that Mr. Drummond said. 

I mean, you do not—if the price of the ad space that Google is selling goes up, you cannot substitute for that by going to DoubleClick 

and buying, you know, ad serving capabilities. They are just not direct substitutes for each other. Obviously, what DoubleClick provides is an input into the Internet advertising market, but it is not 

by any means a direct substitute for what Google is supplying. 

You know, the second thing gets to this—and this has not been 

talked about that much. I mentioned it a little bit in my statement. 

What we really are talking about here is providing better quality 

for consumers. All of these companies are integrating with other 

firms in an effort to provide a better product for consumers. And 

the notion that—there is this notion that maybe if Google acquires 

DoubleClick, the product will be too good and it is going to be hard 

to compete against. Well, as I said, I think that is really a risky 

proposition to go down that road because we do not want to—you 

know, we do not want to hold—you know, grab onto the belt of 

somebody who is in the race and say, well, everybody, let’s make 

them run a little bit slower so everybody can catch up a little bit. 

That would just provide all sorts of bad incentives to the system. 

The other thing I think that has not been mentioned in this so 

far is the customers, the people who buy—the firms who buy advertising services. A lot of them are very big companies. They are very 

sophisticated. They are very price-sensitive. They buy from multiple suppliers. And if somebody starts raising the price on them, 

they are going to go someplace else very quickly, and that is going 

to discipline the market. 

Senator HATCH. Anybody else? 

Mr. DRUMMOND. If I may, this notion of 80 percent of all advertising keeps getting tossed around here as if it is some kind of a 

fact. It is a made-up number. We have not seen any support for it. 

I do not think there is any. And it relies on this premise, which 

is utterly false, that DoubleClick somehow controls some major sector of spending on display ads. It does not control it. It does not 

get any—no one pays DoubleClick to place an ad. 

So to say that somehow there is this control or domination of the 

display advertising business because as part of our products we 

now have ad serving technology is just—is crazy. Again, Brad talks 

about a $27 billion market potentially this year in online advertising. Of course, a big chunk of that is display advertising. And 

the entire market for ad serving companies is about $300-some million. Those are the revenues of the companies, you know, Atlas, 

DoubleClick, and everyone combined. 

How can it be that one participant in a $300 million market controls and dominates a multi-multi-billion-dollar market? It is impossible. 

So, you know, I urge you not to be misled by some of these numbers that are being tossed around today. 

28

Mr. CLELAND. I have to reply to that. If Google is representing 

that this is the online advertising market, they are going to have 

a very hard time making that case, because as you know, the Congress for years has media ownership limits that it restricts how 

much you can control a certain media, and online is clearly a separate media. And Google—and there are just reams and mountains 

of evidence of how Google has explained how online advertising is 

better, because it is targeted, it is relevant, and it is measurable; 

and that, therefore, people should move ads off of TV, radio, and 

newspaper, and move it online. 

Now, if that is not different markets, I do not know what is, because where the other advertising is just kind of general, this is 

stuff that you can target to an individual user, you can measure 

it, and they can argue that the consumer might save more. That 

is relevant. 

Now, the other point you made about extreme market power, if 

you could put up that slide, what you have here is extraordinary. 

You cannot just say these guys do not compete. What we are talking about is an ecosystem, OK? They are going to corner this market. Now, let’s look—remember, online advertising is an indirect 

market. Consumers do not pay a dime to Google. There is a threeway transaction here. So you have to understand it as a three-waysided market. You have got users, content providers’ websites, and 

advertisers. Once again, this merger adds the No. 1 and No. 2 

Internet viewer audiences, the No. 1 and No. 2 best Internet content website networks, and the No. 1 and two best advertiser networks. And what it does, because this is the brains of the Internet 

and the brains of online advertising, what it will allow them to do 

over time is on this platform cross-leverage, and as ads to more to 

ad brokering and as ads go more to ad exchanges, whether it is a 

pipeline, whether it is a bottleneck, whatever we call it, they are 

almost all going to have to go through Google-DoubleClickYouTube. 

And so this notion that there is lots of choice, a big advertiser, 

if it wants to reach the world audience, it has got to go to GoogleDoubleClick. If a website wants to reach all the advertisers out 

there, it has one choice. It has got to go to Google-DoubleClick. 

Thank you. 

Senator HATCH. Brad? 

Mr. SMITH. If I could just make two points, Senator. I do think 

it is helpful to be clear about what we are not talking about and 

what we are talking about. We are not talking about, in my opinion, whether Google should continue to have the opportunity to innovate and develop a better product and service. And I say hats off 

to Google. They have done a lot of good innovation, and we have 

all benefited from that this decade. 

What we are talking about is not that but, rather, whether 

Google can buy its way to what we regard as a dominant market 

position. And also, we should be clear we are not talking about 

buying up this entire $300 billion market for all of the advertising 

in the world or even all of the $27 billion online advertising business. We are talking about this pipeline. And there are a lot of 

markets that are characterized by these concerns about passive 

shipping or pipelines, for example. 

29

The very first antitrust case ever brought against Standard Oil 

was brought at a time when there were lots of different oil wells 

owned by different people in the country. There were lots of different people that were distributing oil to customers. But what 

Standard Oil was accused of doing was basically solidifying and 

monopolizing the railroad network and, thereby, the pipeline for effectively moving oil downstream in the economy. That is analogous 

to what we are talking about here. 

I do believe that when you look at this pipeline, it is absolutely 

fair and it is absolutely accurate to say that if this merger is approved, Google will account for 80 percent of the ads that are 

served to publishers. 

Mr. DRUMMOND. We will not account for that. The 80 percent—

simply because some portion of online, of display advertising is delivered using a tool from DoubleClick when there are many other 

tools available does not mean that Google accounts for. Again, no 

control over the advertising, no ownership of the data that comes 

with that that is collected in the process of the advertising. That 

data is owned by the customers, publishers and advertisers, and 

DoubleClick or Google cannot do anything with it. 

It is simply not true that by doing an acquisition like this there 

is some control of this display advertising market. 

Senator HATCH. Well, this has been a very interesting hearing. 

I am sorry I have been in and out, but I have been on the floor 

all day and had to go back and forth. I have a lot of other questions, but I think I will submit them, Mr. Chairman, so that we 

do not keep these folks too long. But a very interesting set of questions. You have very interesting two companies here, and other 

companies involved, and I am absolutely fascinated by your industry. We will just have to see where we go from here. 

Chairman KOHL. Thank you very much. I quite agree, Senator 

Hatch. 

One more question, Mr. Rotenberg, to you. Should there be Federal laws to ensure that customer information from searches and 

that from advertising information be kept separate? Should we put 

conditions on this deal to ensure that information be kept separate? What other conditions would you propose in terms of this 

merger? 

Mr. ROTENBERG. Thank you, Senator, for asking that question. 

One of the things that we have done in the various filings that we 

have made to the Commission regarding this merger is to propose 

a number of different remedies that the Commission, we believe, 

could enforce through a consent order. I think the most simple and 

most direct one is to say that there should be enforceable privacy 

standards that safeguard the information that is being collected, 

ensure that it is not being misused. 

Google has in various ways said that it shares that goal; it is prepared to do that. Our view is that if that is the company’s position, 

this is the perfect opportunity, perhaps even a unique opportunity, 

to get that in writing through a consent order at the Commission 

and we would like to see it happen. 

There are, in fact, I think in our three different filings, between 

20 and 25 different recommendations we have made. One of the 

recommendations concerns this very interesting issue of data retenVerDate 0ct 09 2002 09:00 Dec 03, 2007 Jkt 039015 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\39015.TXT SJUD1 PsN: CMORC
30

tion, and as you may be aware, there is a lot of controversy today, 

particularly among users of the Internet, about the amount of information that is being collected and retained by these companies. 

Now, to be fair to Google, it is very much a reflection of the 

Internet architecture that some information needs to be accessed 

by any Internet advertiser, generally speaking, to respond to a 

query. That is basically—because of the stateless nature of the 

Internet, if the Internet user was, in effect, a new entity every time 

they went to a website, it would be almost impossible to interact. 

Now, there are ways to get around that, but, generally speaking, 

we understand why Internet advertisers collect a little bit of information. The question is: Why do they keep it for so long? Why is 

it necessary, after they have answered the search request, after 

they have provided the advertising links that their business partners provide so that there is a successful business model, why do 

they need to keep the information as long as they do? 

So with respect to that issue, we actually think there is a very 

good opportunity here as well for the Commission to enforce much 

more sensible limits on the duration of information that is kept by 

the search companies to protect the privacy interests of Internet 

users. And we actually believe that over the long term—the companies may not admit this publicly, but I will be willing to bet they 

would say so privately—they will protect themselves against some 

downstream risks if they were not sitting on so much data, because 

I can tell you several scenarios under which both Microsoft and 

Google are genuinely concerned about the amount of information 

they keep: one, a security breach. These are companies that have 

brilliant people; the top computer security experts in the world 

work for these companies. And, nonetheless, you know, before this 

hearing, we happened to do a little search because I thought you 

might ask me a question about Google’s security flaws, so I did a 

Google search. There are over 2,200,000 Web pages on the topic of 

Google security flaws. The top ten all describe very serious 

breaches that that company has experienced. That is one reason, 

I suspect, they are genuinely concerned about the information they 

keep. 

The other, of course, is in the legal context. They can always be 

compelled to produce information to someone else under circumstances that they might otherwise choose not to disclose that 

information. Now, we applauded Google last year when they opposed a broad subpoena that the Department of Justice sent to that 

company. We thought it was unnecessary, we thought it was excessive. Google did the right thing by opposing it. But we also said at 

the time that there was an ongoing risk, as long as this company 

kept so much information on Internet users, that the Department 

of Justice or anyone else with legal process could come back in the 

future. 

And so, you know, in answer to your question, Senator, we think 

this is the ideal moment, the unique moment to enforce meaningful 

privacy standards to limit the collection of information on Internet 

users to make these business models work, but also to ensure trust 

and confidence in our new economy. 

Chairman KOHL. A last comment, Mr. Smith? Or second to last 

comment, then Mr. Drummond. 

31

Mr. SMITH. I would second Mr. Rotenberg’s call for Federal privacy legislation. We have been endorsing that for some time. I have 

come here a number of times myself to encourage Members of Congress to adopt Federal privacy legislation. 

But I also think it is a mistake to think that as consumers our 

personal information can be protected by law and regulation alone. 

And in that context, I think one of the fundamental issues in this 

merger is whether the marketplace and competition will continue 

to play a role as well. 

I think it is very disconcerting to think about a future where all 

of our user information flows through only one data pipeline, because if that pipeline is breached, the consequences are enormous. 

If you look at the information that is now flowing, it includes not 

only the simple things like where we live and our date of birth, but 

it includes increasingly medical health records, it includes our financial records, it includes everything we are interested in on the 

Internet, what we are looking for, what we are thinking. The 

amount of information truly is quite substantial. We should not 

have to rely on a single pipeline. Not only is there the danger of 

what happens if there is such a breach, but we would lose the role 

that competition plays. 

One of the reasons we are having this dialog is because Google 

and Microsoft and Yahoo and AOL and many others have an incentive today to compete to offer consumers better privacy. Competition is, in effect, the guardian of consumer privacy needs today. 

And yet if this merger is approved, the ability of that guardian to 

play this role in the future will be dissipated quite substantially. 

Chairman KOHL. Mr. Drummond? 

Mr. DRUMMOND. Thank you. Let me just say that I agree with 

Brad’s call for Federal privacy legislation. We are on the record on 

that. We also believe there should be some global standards so that 

there is not a patchwork of privacy laws around the world that are 

very difficult to work with and make it very confusing for consumers. So we are all for that. 

We do not think that there should be conditions placed here. This 

is an industry issue, and we think it should be addressed, and we 

should be thinking about ways in which we can make sure that 

there is continued confidence in protecting user data while at the 

same time allowing the companies to innovate and to deliver better 

services to users, which is what—you know, users want those and 

users benefit from them, as do advertisers and websites. That is 

why we think the upcoming FTC Town Hall is so important, because it provides a great forum for us to sit down and really work 

these issues out. That is how these issues should be worked 

through, not in the context of one deal in a big industry with many, 

many players, where there are many other deals going on. We 

ought to look at this in a more holistic manner. 

And let me just close by saying one thing. There is no pipe. You 

keep hearing about this pipeline, this single pipeline with all of the 

data. Please do not be misled. There is no such thing. When it 

comes to search, there are a number of options for users. We all 

know that. We have been successful because we have delivered a 

great service. There are other good search engines, and they have 

been pretty successful, too. And it is absolutely true that any user 

32

can, at a moment’s notice, go use another one, and they do all the 

time. 

On the advertising side, whether it is ad serving or whether it 

is display ads, there are all kinds of choices. And any data that is 

collected through advertising, whether it is from a technology 

maker or from a website itself, that is going to be broadly distributed around the thousands of participants in this market, the 

many, many participants in this ad serving technology market, of 

which the No. 1, according to Microsoft, is owned by Microsoft. 

So I just want to be clear. This pipe that is being talked about 

is very much a fiction. 

Chairman KOHL. Well, gentlemen, we want to thank you so 

much for coming today. The Internet is enormously powerful in our 

world today and will become even more so in the years to come, 

and this deal obviously will have an impact on that, as well as 

other deals, and the rules and regulations that will govern the 

Internet. These are very important questions in our society, and I 

think we are privileged to have had such strong, well-informed 

both advocates and objectors here today. It has added a lot to the 

dialog, and I am sure there will be additional rounds before this 

heavyweight fight is settled. 

So we thank you all for coming, and this hearing is adjourned. 

[Whereupon, at 4:16 p.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follow.]

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