Google Adtech lawsuit: Analysts say it should be defunct as a B Corp

• The US Department of Justice and 17 state attorneys general are looking to crack down on Google’s adtech business.
• Arete Research analysts instead suggest spinning off Google’s ad tech as a B Corp.
• It could become a business with a market capitalization of $150 billion, analysts said.

The US Department of Justice and 17 state attorneys general are trying to take down Google in a landmark adtech antitrust lawsuit.

Final arguments are due in November, with a ruling expected next year. The government hopes the judge will force Google to divest some or all of its adtech business.

But closing or splitting off Google’s tech business “could cripple publishers,” according to analysts at Arete Research, who wrote in a note last week that Google’s ad tech should instead be turned into a B Public utility body.

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

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

Should the judge rule in favor of the government, many experts believe a likely outcome of the case would be to order Google to spin off or exit 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 allows advertisers to buy ads on millions of third-party websites that it doesn’t own.

A break or brute-force shutdown of parts of Google’s sales business could have unintended consequences for publishers, Arete analysts wrote. They argue that nearly every publisher relies on Google’s adtech tools, and that separating its ad server from the ad exchange would be highly disruptive at a time when publishers are already struggling with changes to other platforms and changes in advertiser spending .

A publisher technology director shared with Business Insider his own concerns about a potential breakup of Google’s adtech business earlier this month. And executives who had worked at publishers, including News Corp. and The Daily Mail, took the stand in an antitrust lawsuit this month to testify that switching from Google’s technology to a rival would have cost it millions of dollars in lost revenue a year.

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

NetworkB – the public interest technology company

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

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

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

The spinoff would free Google from accusations of self-preference and unfair tying within its technology stack, while charging lower fees than rival companies, Arete said. That would ultimately mean publishers getting paid more, Arete’s analysts wrote. And as a standalone business not attached to YouTube, Network B could still enter other areas such as connected TV advertising, they said.

Arete calculated that while such a move would mean Google forgoing about $29 billion in Google Network revenue this year, it is expected to generate only 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 but higher-margin business with fewer antitrust risks.

“Google could divest its lowest-margin unit, end its regulatory surplus and increase the value of its O&O inventory while helping publishers globally,” the analysts wrote. O&O refers to owned and operated inventory, such as Google Maps and Gmail, where its proprietary data on its connected users is valuable to advertisers.

Arete founder Richard Kramer told Business Insider that the antitrust case revealed a “certainly unwelcome revelation” for Google, but also for other adtech players, such as the actual financials of adtech operations and how advertisers and publishers charged.

“As analysts, we were excited about the trial because it just opened a window on cost structures that have always been opaque and hidden,” Kramer said.