Google’s divestiture dilemma

Friday 30 June 2023

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Exploring implications of a forced divestiture of Google’s ad tech business amid EC & DoJ antitrust complaints.

  • Regulators may try to force Google to divest its ad tech business.
  • The financial impact of a forced divestiture is small.
  • Google could further reduce the impact by selling just the EU portion of the ad tech business, but would likely be unable to withhold its own inventory from the ad exchange following a sale.
  • The ad tech business could be worth up to US$100 billion, and potential acquirers include other big tech, telecom companies, traditional advertising firms or even a consortium of buyers.
  • The case is likely drag on for years, and Google has many other opportunities to drive share price growth.

A cloud of uncertainty hangs over the long-term future of Google’s ad tech business due to an antitrust complaint lodged by the European Commission (EC) and a lawsuit from the US Justice Department (DoJ). The resolution of both cases could significantly alter the digital advertising landscape, and it is worth considering what the potential outcomes could mean for Google and the broader tech ecosystem.

The EC summarises its complaint in the following paragraph:

“The Commission preliminarily finds that, in this particular case, a behavioural remedy is likely to be ineffective to prevent the risk that Google continues such self-preferencing conducts or engages in new ones. Google is active on both sides of the market with its publisher ad server and with its ad buying tools and holds a dominant position on both ends. Furthermore, it operates the largest ad exchange. This leads to a situation of inherent conflicts of interest for Google. The Commission’s preliminary view is therefore that only the mandatory divestment by Google of part of its services would address its competition concerns.”

The EC also provided this graphic to illustrate its preferred remedy

The complaint asserts Google abuses its dominant position by self-preferencing in certain ad deals. While we do not believe this to be the case, we agree there is an inherent conflict of interest in owning both demand and supply-side platforms as well as the exchange. So rather than defend Google’s position we thought it would be more constructive to examine the implications of breaking up Google’s ad tech business.

Forced divestiture

The first question to consider is, “How would Google be impacted by the forced divestiture of the ad tech business?” We categorise the impact in two ways: financial and operational.

The financial impact would be insignificant. Google’s ad tech revenue, which includes AdMob, AdSense and Google Ad Manager, is included in the network properties revenue line and reached $32 billion in 2022, contributing about 12% of total gross revenue. However, taking account of estimated traffic acquisition costs (TAC), net revenue was $10.2 billion or 4% of total net revenue. Furthermore, this contribution is in decline as ad spending on Google-owned properties grows faster than on network properties.

The operational implications depend on the details of a forced divestiture and are therefore speculative. If Google’s ad tech infrastructure underpins other parts of its business, the company may need to either build or acquire replacement technologies. However, if forced to sell half the business as the EC graphic depicts, we believe it would relinquish the ad exchange (AdX) and supply-side platforms (Google Ad Manager and AdSense, depicted in the graphic as DFP), and retain the advertiser platforms, which are more important from a technology standpoint to selling ads on its own properties.

Could it sell just the EU portion of the business?

Separating the EU ad tech business from the remaining global business could cause several complications. Google’s ad tech systems are highly integrated worldwide, which makes it difficult to extract only the EU portion. Additionally, many of Google’s advertising customers operate globally, and such a move could disrupt their ability to manage advertising campaigns effectively.

Nevertheless, we acknowledge it is not an impossible task. Unfortunately, the lack of global regulatory standards has created this situation, and while it is regrettable advertisers would be adversely impacted, we understand the decision may be necessary.

Could Google remove its own ad inventory from the exchange?

It is doubtful Google would remove its own inventory from a divested ad exchange, and there are several reasons for this. The regulator may force Google to continue to provide access to its inventory through the exchange. Additionally, removing it might create problems for current advertisers and negatively impact their relationship with Google.

However, the most significant reason for not removing the inventory is that AdX would be considerably less valuable to a potential buyer without it. If Google is forced to sell the business, it makes sense to leave its inventory there to achieve the best possible sale price.

Who could acquire it?

There are multiple potential buyers for Google’s ad tech business. Companies such as Amazon and Microsoft are growing their own ad tech businesses and would be keen to expand them. They have the financial capacity to acquire Google’s business, which could be valued between $50-$100 billion. However, both would face rigorous regulatory scrutiny and the deal is unlikely to be approved easily.

Telecom companies, traditional advertising firms, private equity firms, large retailers, or e-commerce platforms are also potential acquirers who may express interest.

Due to the size and complexity of the deal, it is also possible a consortium of buyers may appear. This would potentially address antitrust concerns by ensuring the business is not controlled by a single entity.


Although antitrust issues garner headlines, we do not consider this case to be of great importance in the bigger picture for Google. Typically cases take years to resolve, and we do not anticipate this one will be different. Instead, we are directing our attention to more significant opportunities for Google including AI, growth in the cloud sector, potential efficiency gains in operations and a general rebound in the advertising market.

About the Author
Swell Investment Team

Swell Investment Team

Members of the investment team contributed to this article.