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Microsoft to senators: Google-DoubleClick deal is bad for America

Wednesday night, my colleague Anne Broache and I posted our article previewing the U.S. Senate hearing Thursday where Microsoft and Google will face off regarding the search company’s attempt to purchase DoubleClick.

The hearing is about to start and can be watched via Webcast. Anne is there and will be writing about the hearing later Thursday.

That article previewed Google’s arguments. Now we have a copy of Microsoft’s prepared remarks by Brad Smith, the company’s general counsel, and we’re sharing this excerpt. Smith, no newcomer to antitrust fights, says the merger would be bad for publishers, advertisers and consumers–the “bad for America” argument:

I will be the first to admit that Microsoft is not disinterested in this issue; competitors never are. But I do think we’re in a good position of identifying important questions. We know this market very well. And it is absolutely clear to us that this merger raises serious questions that deserve serious answers.

I would like to address two of those questions briefly:

First, what are the economic consequences of allowing the largest company in online advertising to acquire its most significant competitor?

While there are millions of Web sites and advertisers on the Internet, there are actually a very small number of “intermediaries” that provide the tools and services that connect them. These intermediaries play a gateway or middleman role if you will, much like the natural gas pipelines that connect refineries to distributors and to consumers in their homes. If you are a Web site and want to sell ad space on your site, or if you are an advertiser who wants to display your ads online, you have to work with them or one of their intermediaries.

Already Google is the dominant company for one of the two main types of online advertising–namely online search ads. Roughly 70 percent of global spending on search-based advertising today flows through Google’s AdWords.

If Google is allowed to proceed with this merger, it will also obtain a dominant gateway position over the other main type of online advertising: non-search ads. Today Google and DoubleClick are the two largest competitors in this area. Combined, Google will account for nearly 80 percent of all spending on non-search ads.

If Google and DoubleClick are allowed to merge, Google will become the overwhelmingly dominant pipeline for all forms of online advertising.

This merger will almost certainly result in higher profits for the operator of the dominant advertising pipeline, but it will be bad for everyone else. It will be bad for publishers, bad for advertisers, and most importantly, bad for consumers.

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