Google Adtech Trial: Analysts Say It Should Be Split As B Corp

• The US Department of Justice and 17 attorneys general are seeking to break up Google’s adtech business.
• Arete Research analysts suggest turning Google’s adtech into a B Corp instead.
• According to analysts, it could become a company with a market capitalization of $150 billion.

The U.S. Department of Justice and 17 state attorneys general are seeking to break up Google in a landmark ad tech antitrust lawsuit.

Final arguments are expected to be delivered in November, and a decision is expected next year. The government hopes that the judge will force Google to divest all or part of its adtech activities.

But closing or splitting Google’s adtech business “could cripple publishers,” according to analysts at Arete Research, who wrote in a note last week that Google’s adtech business should instead be spun off into a B Corp of public utility.

Companies receive B Corp certification from the nonprofit B Lab if they meet standards regarding their social and environmental performance, as well as other areas of transparency and accountability.

The complaint against Google alleges that the tech giant used anticompetitive acquisitions and ad auction tactics, and linked its various adtech elements to build an illegal monopoly of the digital advertising market. The case focuses on the “open web display” digital advertising market and the tools that power ad auctions that take place in the milliseconds it takes for a web page to load. Google owns the tools that publishers use to sell ads, the software that advertisers use to buy ads, and the ad exchange that connects them.

If the judge were to rule in favor of the government, many experts say the likely outcome of the case would be to order Google to split up or get out of the so-called “sell side” of the adtech business. Here, Google operates an ad server that helps publishers manage their ads as well as the Google Display Network, where it lets advertisers buy ads on millions of third-party websites that it doesn’t own.

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A disruption or abrupt shutdown of parts of Google’s sales activities could have unintended consequences for publishers, Arete analysts wrote. They argue that almost all publishers rely on Google’s adtech tools and that separating its ad server from its Ad Exchange would be very disruptive at a time when publishers are already struggling due to changes to other platforms and expenses advertisers.

A publisher tech executive shared his own concerns with Business Insider about a possible breakup of Google’s adtech business earlier this month. And executives who had worked at publishers such as News Corp. and The Daily Mail took the stand at the antitrust trial this month to testify that switching Google’s ad technology to a rival would have cost them millions of dollars in lost revenue a year.

A Google spokesperson declined to comment for this story, but pointed Business Insider to a blog post published Friday. In it, the company claims its changes over the years have benefited competitors and lowered prices for publishers and advertisers. He says the adtech market remains extremely competitive.

NetworkB – the public interest adtech company

Enter “NetworkB”, Arete’s hypothetical name being Google adtech B Corp.

Arete suggests that Google parent Alphabet should spin off its entire Networks business, which generated $31.4 billion in 2023 (down slightly from the previous year). Some analysts have predicted that the unit will likely shrink further in coming years, regardless of any antitrust enforcement, as Google prioritizes its own properties over third-party sites.

Arete is proposing that Google Network become a B Corp with a capped profit margin it could extract from its customers, known in the industry as a take rate. Currently, adtech industry players keep between 8% and 42% of the advertising dollars flowing through their pipelines, according to Arete estimates.

The spinoff would free Google from accusations of self-preferencing and unfair ties within its adtech stack, while charging lower fees than rival adtech companies, Arete said. This would ultimately mean publishers would be paid more, Arete analysts wrote. And, as a standalone company unrelated to YouTube, Network B could expand further into other areas like connected TV advertising, they said.

Arete calculated that while such a move would mean Google would forgo about $29 billion in Google Network revenue this year, it would only be expected to generate about $3.5 billion in EBITDA, or earnings before interest, taxes, depreciation and amortization.

The B-Corp solution would be attractive to Alphabet shareholders, who would end up owning the largest adtech intermediary with a potential market capitalization of between $120 billion and $150 billion – a conservative estimate, according to Arete analysts. Meanwhile, Alphabet itself would become a smaller company but with higher margins and fewer antitrust risks.

“Google could shed its lower-margin unit, end its regulatory burden and increase the value of its O&O inventory, all while helping publishers around the world,” the analysts write. O&O refers to owned and operated inventory, such as Google Maps and Gmail, where its proprietary data about its logged in users is valuable to advertisers.

Arete founder Richard Kramer told Business Insider that the antitrust case uncovered “surely unwanted disclosures” for Google, but also for other adtech players, such as the actual financial data of adtech operations and how they charge advertisers and publishers.

“As analysts, we were excited about this trial because it just opened a window into cost structures that had historically been opaque and hidden,” Kramer said.