Summary of Commission Decision of 11 March 2008 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.4731 — Google/DoubleClick) (Text with EEA relevance)
Date: 2008-07-22
Institutions: European Commission
Subjects: Internet, advertising, competition law, economic concentration, merger control, network server, restrictive-practice authorisation, service

C 184/10

EN

Official Journal of the European Union

22.7.2008

Summary of Commission Decision

of 11 March 2008

declaring a concentration compatible with the common market and the functioning of

the

EEA Agreement

(Case COMP/M.4731 — Google/DoubleClick)

(Only the English text is authentic)

(Text with EEA relevance)

(2008/C 184/06)

On 11 March 2008,
the Commission adopted a Decision in a merger case under Council Regulation (EC)
No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1) (the EC Merger Regu-
lation), and in particular Article 8(1) of that Regulation. A non-confidential version of the full Decision can be found
in the authentic language of the case on the website of the Directorate-General for Competition, at the following
address:

http://ec.europa.eu/comm/competiton/index_en.html

I. INTRODUCTION

IV. THE RELEVANT PRODUCT MARKETS

1. On 21 September 2007, the Commission received a notifi-
cation of a proposed concentration pursuant to Article 4
and following a referral pursuant to Article 4(5) of Regu-
lation (EC) No 139/2004 (‘the Merger Regulation’) by
which the undertaking Google Inc. (‘Google’, USA) acquires
within the meaning of Article 3(1)(b) of the Merger Regu-
lation control of the whole of the undertaking DoubleClick
Inc. (‘DoubleClick’, USA) by way of purchase of shares.

II. THE PARTIES

2. Google operates an Internet search engine and provides
online advertising space on its own websites as well as on
partner websites
‘AdSense’
network). More recently, especially via the acquisition of
YouTube, Google started to provide content. Google derives
almost all of its revenues from online advertising.

(affiliated to the Google

3. DoubleClick mainly sells ad serving, management and
reporting technology worldwide to website publishers,
advertisers and advertising agencies. It is also launching an
intermediation (ad exchange) platform.

5. Google is active mainly in the provision of online adver-
tising space. The widest possible relevant product market
considered in the Decision is the overall market for online
advertising. The Commission has assessed whether this
market may have to be subdivided further on the basis of
the various forms of online advertising (text v non-text
(display) ads and/or search ads v non search ads) or on the
basis of different sales channels (direct sales v intermediated
sales through ad networks and ad exchanges). However, the
exact definition of the relevant product market has been
left open in the Decision as the transaction would not give
rise to competition concerns under any possible product
market definition.

6. DoubleClick is active in display ad serving. The market
investigation has shown that display ad serving technology
constitutes a separate market from ad serving technology
for text ads. Within the market for display ad serving tech-
nology a further subdivision has to be made between the
provision of such services to advertisers and the provision
of such services to publishers.

V. THE RELEVANT GEOGRAPHIC MARKETS

III. ARTICLE 4(5) REFERRAL

4. The proposed transaction lacks Community dimension
within the meaning of Article 1(2) and (3) of the Merger
Regulation. However,
following a referral request under
Article 4(5) of the EC Merger Regulation, the concentration
is deemed to have a Community dimension.

(1) OJ L 24, 29.1.2004, p. 1.

7. The Decision defines the overall online advertising market
as geographically divided alongside national or linguistic
the
borders within the EEA. As regards intermediation,
Decision concludes that this hypothetical market is at least
EEA wide in scope.

8. Finally, the Decision defines the markets for the provision
of display ad serving technology for advertisers and
publishers to be at least EEA wide in scope.

22.7.2008

EN

Official Journal of the European Union

C 184/11

VI. COMPETITIVE ASSESSMENT

6.2. Horizontal effects

6.1. Position of the parties in the relevant markets

9. Google is currently active in the online advertising market
(i) as a publisher, with its own search engine web page
Google.com (and its national web pages such as google.fr,
google.it etc.), and (ii) as an intermediary with its ad
network (AdSense). Through these direct and indirect chan-
nels, Google is the leading provider of online advertising,
and in particular of search ad space in the EEA with market
shares of between [25-35 %] and [60-70] % depending on
the exact market definition.

10. Google's main competitors in search advertising are Yahoo!
and Microsoft with market shares of up to [10-20] % at the
worldwide level and at least [0-10] % in the EEA for Yahoo!
and approximately [0-10] % for Microsoft both at
the
worldwide and the EEA-wide levels. In non search interme-
alia TradeDoubler, Zanox
diation in the EEA,
(belonging to Axel Springer), AdLink,
Interactive Media
(belonging to Deutsche Telekom), Advertising.com and
Lightningcast
and Tomorrow
Focus are active (about [10-20] % market share in the case
of TradeDoubler, [0-10] % in the case of Zanox and about
[0-10] % for each of the other players).

(both AOL/TimeWarner)

inter

11. DoubleClick is a provider of ad serving technology. On the
advertiser side, DoubleClick is the leading player in the EEA
ad serving market together with aQuantive/Atlas (recently
acquired by Microsoft). They each have about [30-40] %
market share in the EEA. On the publisher side, the market
investigation points to DoubleClick leading with around
[40-50] % market share in the EEA, followed by 24/7 Real
Media/OpenAdStream (recently acquired by the advertising
agency WPP) with less than [20-30] % and AdTech/AOL
(less than [10-20] %).

12. Despite these relatively high market shares, DoubleClick's
market power is limited because DoubleClick faces signifi-
cant competition from rival suppliers of ad serving tools, to
which customers could switch in case of a price increase.
While the market
investigation provided mixed answers
regarding the theoretical level of switching costs, there is
evidence that a large number of publishers and advertisers
have actually switched from DoubleClick to other service
providers (and vice versa) in the past years. The fact that the
ad serving market is currently competitive is also evidenced
through a
significant price decline of DoubleClick's
products for advertisers and publishers, during a period of
increasing demand.

13. DoubleClick is also launching a new ad exchange. This ad
exchange commenced beta testing in June 2007. The
number of transactions it has conducted so far is negligible
and, in any case, it has not yet achieved full commercializa-
tion.

14. Currently Double Click is not present in the market for the
provision of online space and Google is not providing ad
serving tools on a stand alone basis. Therefore, there is no
actual competition between both companies.

15. The Decision also concludes that the proposed transaction
does not give rise to competition concerns with a view to
the possible elimination of potential competition between
Google and DoubleClick. DoubleClick's ad exchange has
not yet developed any significant market position, but it
cannot be ruled out that DoubleClick, if it stayed indepen-
dent, could develop into an important player in the inter-
mediation market. However,
it is likely that there would
remain a sufficient number of other competitors which
would maintain sufficient competitive pressure after the
merger so that competition would not be significantly
impeded. In particular, as compared to other players active
in this market, DoubleClick does not appear to have any
significant advantages in competing with Google in the ad
intermediation market.

16. As regards potential competition from Google in the ad
serving market, the Decision examines the fact that Google
is currently developing a new ad serving product for both
advertiser- and publisher-side display ad serving, but
dismisses any concerns relating to the possible elimination
of potential competition because there is no indication that
Google's new products would have been better placed to
compete with DoubleClick's respective products than the
numerous players already present in the market.

6.3. Non-horizontal effects

6.3.1. Foreclosure based on DoubleClick's market position in ad

serving

17. The Commission investigated a number of exclusionary
strategies based on DoubleClick's market position in ad
serving that the merged entity might engage in. These stra-
tegies include: (a) increasing the price of DoubleClick tools
when used by publishers or advertisers with competing ad
networks or selectively increasing the price of DoubleClick
tools to customers less likely to switch to other ad serving
(b) degrading DoubleClick tools' quality
tools suppliers;
when used with competing ad networks;
(c) bundling
DoubleClick tools with Google's intermediation services
(either through pure or mixed bundling); (d) ‘tweaking’ the
in favour of
ad arbitration mechanism to serve ads
AdSense; and (e) input foreclosure (i.e. refusal to sell or
raising rivals' costs) regarding the sale of ad serving tools to
competing ad networks.

C 184/12

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Official Journal of the European Union

22.7.2008

18. The Decision dismisses all of these concerns. Firstly, the
market investigation revealed that the merged entity would
not be able to successfully foreclose its rivals in the ad
serving market because DoubleClick faces a number of
competitive constraints and is unlikely to be able to exercise
any significant market power.

for

online

advertising

costs/revenues

19. Secondly, the merged entity's incentives to engage in the
described strategies also appear to be limited. Price varia-
tions (even significant) for ad serving tools are unlikely to
trigger significant switching between ad networks because
the costs of ad serving represents only a small proportion
of
advertisers
and publishers. This is likely to reduce any incentive to
offer DoubleClick's display ad serving technology to
publishers at a lower price (or even for free) when used in
combination with AdSense (i.e. mixed bundling). Pure
bundling (i.e. bundling DoubleClick's display ad serving
technology with intermediation through AdSense) is likely
to be unprofitable in view of
the switching this might
entail. The ‘tweaking’ strategy would constitute a breach of
the merged entity's contractual obligations
its
customers, which, if carried out on any meaningful scale,
would probably be detected.

vis-à-vis

20. Finally, even if all or any of these strategies were to be
successfully implemented,
the transaction would still be
unlikely to have a negative effect on competition since the
merged entity would continue to compete with a number
of financially strong, vertically integrated rivals (including
Microsoft, Yahoo!, AOL and WPP) which offer the same
product combination.

6.3.2. Foreclosure based on Google's market position in search

advertising and ad intermediation services

21. In view of Google's strong position in the provision of
search ads, Google might also try to leverage this position
into the market for display ad serving by requiring users of
its search ad (intermediation) services to use DoubleClick's
products for serving all or part of their inventory. The Deci-
sion dismisses also these concerns.

22. Already the ability to foreclose rivals by engaging in such a
strategy seems to be limited because there is a very limited
pool of common customers which use both search ads or
search ad intermediation services and display ad serving
technology. Apart from that, on the advertiser side, there
may be practical difficulties because the two relevant parts
of the bundle are not sold or priced simultaneously.

23. Moreover,

the market

investigation has shown that

the
merged entity would not have an incentive to adopt such a
strategy because that strategy would most likely not be
profitable.

24. However, even if all or any of these strategies were to be
successfully implemented,
the transaction would still be
unlikely to have a negative effect on competition since the
merged entity would continue to compete with a number
of financially strong, vertically integrated rivals (including
Microsoft, Yahoo!, AOL and WPP) which would be unlikely
to be foreclosed.

6.3.3. Foreclosure

based
DoubleClick's assets

on combination of Google

and

25. Finally, the mere combination of DoubleClick's assets with
Google's assets, and in particular the databases that both
companies have and could develop on customer online
behaviour could allow the merged entity to achieve a posi-
tion that could not be replicated by its competitors. As a
result of this combination, Google's competitors would be
progressively marginalised which would ultimately allow
Google to raise the prices for its intermediation services.

26. However,

the market

investigation has

revealed these
concerns to be unfounded. DoubleClick's contracts with
advertisers and publishers currently allow DoubleClick to
use the data created through its ad serving technology only
to the benefit of the respective customer. There is no indi-
cation that the merged entity would be able to impose
contractual changes on its customers which would allow
the cross use of their data in the future. In addition, the
combination of data about searches with data about users'
web surfing behaviour is already available to a number of
Google's competitors today (e.g. Microsoft and Yahoo).

VII. CONCLUSION

27. The Decision therefore concludes that the proposed concen-
tration will not give rise to competition concerns as a result
of which effective competition would be significantly
impeded in the Common Market or in a substantial part of
it. Consequently, the Commission declared the transaction
compatible with the Common Market and the EEA Agree-
ment, in accordance with Article 8(1) of the Merger Regu-
lation and Article 57 of the EEA Agreement.