USA: New law to restrict advertising business of Google and Meta

Our Internet is unimaginable without the help of Google. After all, the company has always been considered more than just a search engine giant. Recently, the U.S. tech company has become probably the most successful provider of online advertising on the World Wide Web. But the close link between search engine service and advertising provider, as demonstrated by Google, is a major thorn in the side of many insiders. In the U.S., some senators are now teaming up to ban the corporation from its business with advertising on the Internet.

Google is the market leader for online advertising

The business of online advertising is growing and thriving. This is by no means surprising. Especially with the global triumph of the smartphone, this branch of the economy got another huge boost. After all, consumers could be supplied with the right advertising at any time. The two largest providers in the area of advertising on the World Wide Web are well-known tech companies from the USA. Still above Facebook, Google is considered the top earner worldwide when it comes to online advertising. Lawyers with expertise in the field of competition law have considered Google’s advertising business in particular to be highly questionable for quite some time. But politicians have now also gotten involved. A group of senators in the U.S. now wants to take action against Google’s business in online advertising.

Unanimity between Democrats and Republicans

A two-party system prevails in the USA. Thus, the Democratic Party on one side and the Republican Party on the other hold the political fortunes in their hands. It is therefore not surprising that the two parties usually have significantly different opinions on social issues. It is all the more surprising that politicians from both camps are equally behind the “Competition and Transparency in Digital Advertising Act”. In particular, familiar faces like Democrat Amy Klobucher and Republican Ted Cruz make it clear that the CTDA must finally end Google’s anti-competitive role.

Competition lawsuit as trigger

The initiative to write out a new law does not come out of nowhere. Rather, it can be understood as a consequence of a lawsuit filed by some U.S. states against Google. Texas in particular accused the search engine giant of violating competition law. Google, for example, was exploiting its almost ubiquitous presence on the Internet to gain a dominant market position. With the help of the revenue generated in the area of online advertising, the company is also improving its quarterly figures. Google’s questionable position ensures that other providers of advertising services cannot even establish themselves on the market.

This is where policymakers want to intervene, so that small advertising companies can also profit from the growing demand in the future. Just as Google would exploit its dominant position in its own search engine, Facebook does so in a comparable way in its own social network. Accordingly, the new law is intended to affect not only the search engine giant, but also other comparable tech groups. At the latest here, clear parallels to the Digital Markets Act (DMA), which is soon to come into force in the EU, stand out.

Law applies to high earners

In order to ensure that small or medium-sized advertising companies do not have to suffer under the CTDA, the drafting is based quite simply on the income generated by the advertising business. A certain gradation is applied here. The first threshold is a revenue of 5 billion U.S. dollars. In the smallest level of the CTDA, companies have to be more transparent. This is particularly because it is precisely the opaque advertising deals that make it difficult for smaller companies to survive in the market. The revenue regions in which Google finds itself, however, are in a completely different league. In the first quarter of 2022, the group was able to generate nearly $40 billion in advertising revenue. Since the CTDA’s limit, which comes with the biggest penalties, is 20 billion US dollars, Meta is likely to be affected as well as Google.

As important as the new law may be for healthier competition on the advertising market, its implementation appears to be complex. After all, according to experts, there is still a lot of fine-tuning to be done on the CTDA so that it can be successful in a final vote in parliament. In particular, the issue of transparency will have to be rethought, for better or worse. After all, the right of market participants to more insight into the advertising business of large corporations collides with the data protection of affected consumers. If the CTDA were to require Google and Meta to disclose their advertising customers, the most sensitive data could be disclosed here. That cannot be the purpose of the law. Accordingly, the CTDA will need some fine-tuning. Nevertheless, it is a step in the right direction and for more fairness in the market.

Advertising could become more expensive

It is not only data protectionists who are putting the brakes on U.S. senators a bit when it comes to enforcing the CTDA. There are also definitely negative voices from the business community about the new law. Industry associations fear that the entire advertising industry, and not just Google and Meta, will suffer from the effects of the law. One of the reasons they give is that the companies have perfected online advertising to an extent that no other provider has. In particular, tailored advertising based on so-called “profiling” has been a gigantic step for the entire industry. This involves creating profiles of each individual user. The end result is that they only receive ads that match their interests. You can hardly advertise more effectively.

The big advantage for the advertiser is that, based on profiling, the focus is no longer on quantity, but on quality. Thus, a few ads have a similar effectiveness as many ads, if only they are forwarded to the right people. In the course of this, many companies will no longer be able to avoid going back to the classic route of advertising in bulk. In many cases, this is likely to be accompanied by far higher prices. Google also brings up these arguments and asks politicians to refrain from the new law. We are curious to see whether the senators will be influenced by this or whether they will continue to work on a final version of the CTDA. Since companies will soon be threatened with comparable regulations in the EU with the Digital Markets Act anyway, it might not be such a bad idea to create a global standard.