Tech Industry

On Capitol Hill, Google and Microsoft spar over DoubleClick

Senators say both sides made good arguments but don't say whether the proposed $3.1 billion deal should be blocked.

WASHINGTON--U.S. senators on Thursday injected themselves into a high-stakes dispute between Google and Microsoft over whether the search giant's proposed acquisition of display advertising company DoubleClick presents antitrust or privacy concerns.

But after the hearing, which lasted almost two hours, it was still unclear where most of the senators stood. The top Democrat and top Republican on the Senate panel seemed more interested in asking questions than adopting the common congressional tactic of forcefully arguing on behalf of Google or Microsoft.

Sen. Herb Kohl (D-Wisc.), the subcommittee's chairman, said at the outset that he would approach the topic with an "open mind," and by the time the hearing ended, that apparently hadn't changed.

"Both sides made very powerful arguments," he told reporters following the proceeding. "What the balance is, myself, I'm not sure."

Sen. Orrin Hatch (R-Utah), the committee's ranking member, was equally hard to read. He repeatedly referred to the online advertising sphere as "very interesting" and said he would have additional questions in writing for fans and foes of the merger.

The lack of political grandstanding meant the bulk of the hearing allowed the well-documented and long-standing rivalry between Microsoft and Google to play out yet again--this time, albeit, in a wood-paneled committee room on Capitol Hill. The companies compete in a wealth of markets, including advertising, search, office applications, instant messaging and mapping.

Seated side by side at a long table facing the mostly empty seats of politicians (it wasn't a lack of interest, Kohl claimed afterward, just a "complicated issue" and a "very busy" day for most of the subcommittee's 11 members), Google chief legal officer David Drummond and Microsoft general counsel Brad Smith outlined a now-familiar set of arguments for and against the estimated $3.1 billion deal announced in April.

"We don't have a unique stranglehold on all of the information out on the Internet for online ad purposes. There are other competitors in this space, (such as) Aquantive, that have the same kind of data."
--David Drummond, Google chief legal officer

In contrast to the lackluster participation from politicians, the public turned out in droves, with scores of men and women in suits forming a line snaking down two hallways. After the limited number of seats rapidly filled up, the committee permitted two rows of people to stand at the back of the room.

Much of the back and forth focused on two major issues: whether Google's acquisition of DoubleClick would diminish competition in the online ad space, potentially raising ad rates, and whether the merger would put Google in possession of massive stores of data on Internet users, thereby posing privacy concerns and stifling other ad companies' abilities to target ads as effectively.

Drummond repeatedly said the deal does not pose antitrust concerns because DoubleClick is not a rival to Google but a complementary business. He said that's primarily because DoubleClick is not in the business of buying and selling ads--rather, it simply provides the tools for displaying them--but Google is. Google's primary motive for purchasing DoubleClick is to strengthen its position in display advertising--that is, serving graphical ads--to supplement its already-dominant position in the text-based advertising market, he said, echoing earlier statements by CEO Eric Schmidt.

Repeatedly making comparisons between his company's proposed merger and Microsoft's $6 billion buyout of Net advertising firm Aquantive, Drummond urged Kohl, who was frequently the only senator present at the hearing, to look at the online advertising space more "holistically."

"We don't have a unique stranglehold on all of the information out on the Internet for online ad purposes," Drummond said. "There are other competitors in this space, (such as) Aquantive, that have the same kind of data."

Microsoft general counsel Brad Smith, for his part, said he sharply disagreed with the assertion that Google and DoubleClick don't compete with each other. He displayed for the committee a poster showing a screenshot of the social-networking site and noted that a single page contained ads delivered both by Google's Adsense network and by DoubleClick.

Google has argued that DoubleClick, with its ad-serving technology, provides the same services to its business that shipping companies such as FedEx or UPS do for Smith countered by arguing that "Google is already Amazon and is already FedEx, and now they're proposing to buy the post office."

Smith also compared the deal, should it go through, to allowing the New York Stock Exchange and the Nasdaq to combine. "Somebody could build an alternate exchange, but would anybody go there to take their company public?" he asked.

When given a chance to respond, Drummond argued that Smith's statement is "no more true than (the statement that) a company that delivers trucks from, say, the dock to the dealer controls the car or the truck market. It doesn't."

But there were few testy exchanges during the hearing. At one point, Kohl asked Smith whether he was implying that Drummond was not being entirely honest, to which Smith replied, "I'm not going to second-guess his motives," and patted Drummond on the shoulder in a way that suggested he wasn't trying to hurt his rival's feelings.

Smith, who admitted at the start that his company was not exactly a disinterested party, also endured some questioning about Microsoft's practices. Hatch asked him what the company plans to do with the data it will have access to through its purchase of Aquantive, and the Utah senator also questioned why Microsoft was so concerned about Google's buy, given its similarities to the Aquantive deal.

"What is the antitrust problem?" Hatch asked Smith. "Why not just (create) a better product? Have you not just purchased a DoubleClick competitor?"

Smith said: "If we believed this was a market where better technology or better value by itself could carry the day, I wouldn't have come here today. But that's not the market we're dealing with."

The only other senator to show up at the hearing was Sen. Chuck Schumer (D-N.Y.). In a roughly five-minute appearance, he said he had met personally with Google CEO Eric Schmidt and asked for his commitment that the post-merger company would protect privacy. Before exiting the hearing room, Schumer said he was encouraged by a follow-up letter from Schmidt outlining the steps Google plans to take in the privacy realm--and by Schmidt's assertions that the number of New York-based jobs would grow following the merger.

Google's representations about its plans to protect privacy still raise numerous questions and demand more details, Marc Rotenberg, executive director of the Electronic Privacy Information Center, told the politicians.

The FTC needs to set in a legally binding format "enforceable privacy standards to make sure information being collected is not being misused," Rotenberg said. "Google has said in various ways it shares that goal and is prepared to do that...this is a unique opportunity to get this in writing."

EPIC and two other consumer advocacy groups have filed a joint complaint with the FTC, arguing that Google hasn't been forthcoming enough about its post-merger data collection and storage plans and requesting a public privacy plan.

Both Kohl and Hatch said it's important to assess the potential privacy implications of the Google-DoubleClick transaction and indicated plans to continue examining the issue.

The congressional audience could end up playing a role in whether the deal is cleared if the subcommittee ultimately issues any formal recommendations to the FTC or Justice Department about where to come out on their reviews. But Kohl said he hadn't yet decided whether the committee will take that step, as it's still in the information-gathering stage.

Before Kohl adjourned Thursday's hearing, he remarked, "I'm sure there will be additional rounds before this heavyweight fight is settled."