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Why The Google Ads Fine Is A Big Deal

Why The Google Ads Fine Is A Big Deal
 
Google, like so many other tech giants before it, has discovered the special legal scrutiny that comes with massive growth. In the latest manifestation of regulators’ concerns over Google’s actions, the company faces fines from the EU over antitrust allegations. 
 
According to CNBC, the European Union fined Google 1.49 billion euros on March 20, 2019 in a development linked to the allegations. According to the European Commission, represented by commissioner Margrethe Vestager, Google breached antitrust guidelines by, among other actions:
 
  • Constricting competition in the online advertising industry in favor of its Google Adsense program
  • Requiring exclusivity from website owners in order to limit rivals’ ad networks from having their inventories shown
  • Preventing rivals from competing fairly
  • Using anti-competitive contractual restrictions
 
Importance Of Google Ads
 
The importance of these accusations against Google is underscored by the magnitude of the fine, which amounts to around 1.69 billion in US dollars. This case is one of multiple brought by the EU against Google. 
 
Previous cases focused on Google Shopping as well as Google’s Android mobile operating system. These technologies from Google have all had an impact on the way we shop, which makes the antitrust legal cases of particular interest to retailers.
 
In the world of Google services, Google Adwords, now renamed to Google Ads, remains a key component of Google’s income-generating business. Bloomberg lists the Google Ads business as contributing roughly 20% of revenues for the company, a share that has been declining in recent years. 
 
According to eMarketer, Google still commands the biggest share of online advertising revenue, with a 36.2% market share. Second-placed Facebook commands about 19.2 % of the online advertising market. This makes Google Ads not just important for the company, but for the global online advertising marketplace.
 
 
Who Wins And Who Loses
 
While the fine targets Google directly, there are other losers and winners in this case. First, for Google’s online advertising competitors, this fine and the action of the EU Commission will be welcome news. Facebook is a competitor that might benefit, but so are plenty of up and coming online advertising platforms with a presence in the EU. These include companies like Admachine, ExoClick, and PubGalaxy
 
Google’s investors are among the losers, as this type of legal action will likely negatively impact not just the stock price but Google’s reputation in the future as well. However, this fine is smaller than the $5 billion EU fine against Google for Android, so Google has survived this kind of pressure before.
 
 
Is Google Playing Unfairly With Google Ads?
 
Given that Google Ads routes a significant share of online advertising, Google’s actions have an impact on retailers of just about any specialty, from consumer technology to packaged goods. To see how true it is that Google Ads has been unfair, it helps to know how the ad platform works.
 
 
How Google Ads Works
 
Google Ads works as a self-serve platform. A retailer or other business will open an account then identify relevant keywords to target in organic Google searches by likely buyers. 
 
The business then enters a piece of creative to display on the ad. When Google displays the organic search results to a user, it also displays the ads in slots just above the organic search listings.
 
In the past, Google has faced other accusations of unfair practice, including closing publishers’ accounts, ignoring its own guidelines, and forcing third party sites to prioritize ads from Google’s ad network.
 
 
In Google’s Defense
 
While the arguments against Google’s actions in Google Ads are clearcut, Google has deployed a variety of arguments to defend itself against such lawsuits. Here are some of the arguments used by Google:
 
  • Reiterated its commitment to fair online competition - In the wake of the current ruling, a Google representative has said the company is committed to fair online competition. This implies that the anti-competitive actions might have been committed involuntarily.
  • Abuses by third parties on its platform are not directly Google’s responsibility - Google made this argument when Rosetta Stone sued it for ignoring copyright infringing advertisers who sold fake Rosetta Stone software.
  • Google has refunded advertisers for fraudulent traffic - The Wall Street Journal documents how Google has complied with rulings in the past to give refunds over ad fraud.
 
 
Parsing The Reaction Of Google Investors And Shareholders 
 
Despite news of the fine, Google’s stock hardly suffered. As CNBC reports, the company’s stock rose 2 percent on the day of the fine. This is partly explained by the fact that the fine coincided with Google unveiling its new video game streaming platform, called Stadia. However, investors have other reasons to be optimistic.   
 
 
Google Already Changing Google Ads  
 
Unlike in the past, when Google fought tooth and nail with the EU Commission, this time it has indicated that it is fully on board with the stated goals of the ruling, which is to spur competition. Google has indicated that it has already started making changes to Google Ads in order to bring the product in line with the EU Commission’s recommendations.
 
 
Google’s Overall Prospects Better Than The Fine Suggests
 
In addition, Google’s overall business prospects, outside the ruling, are still pretty good. This is indicated by CNN Money coverage of analyst ratings on Google’s stock. According to CNN Money, the company remains a solid buy, with the majority of analysts expecting the company to do well and its stock to rise significantly over the next 12 months.
 
 
How The EU Fine Affects Retailers
 
Google might be changing Google Ads for now, but the effect for retailers looks minimal, especially in the short term. Google’s updates to Google Ads include moves that, as WordStream notes, are likely to benefit advertisers, such as more efficient bidding for video ads. 
 
Beyond that, retailers can continue relying on Google Ads while beginning to look at other ad platforms.
 
 
Will Advertising Costs For Retailers Go Up?
 
Advertising costs most likely won’t go up as a direct result of the EU fine on Google Ads. However, there are certain long-term trends at play in the ad market that will likely raise costs over time.
 
As Search Engine Land reports, the average cost per click (CPC) on Google Ads has tended to go up significantly over the years. This has seen CPC averages going up by as much as 20% in some industries since 2010. 
 
In the future, therefore, we can expect rising advertising costs for retailers, but the pace of change will likely be gradual.
 
 
Should You Migrate Your Ads To Other Networks?
 
While there is no urgent need for retailers to migrate from Google Ads in the short term, in the long term the situation is more complex. There are reasons to try other ad networks due, for example, to the gradual rise in Google Ads costs. 
 
You might be able to see cheaper traffic from channels like Facebook Ads, LinkedIn Ads, and other ad platforms outside of Google Ads. Investing in new ad platforms will help your business stay competitive when conditions change.
 
    
Significance Of The Google Ads Fine
 
On the whole, the Google Ads fine from the EU Commission will lead to changes in the competitive landscape for online advertising. Google’s smaller competitors in online advertising, especially in the European market, will likely do better as a result. For retailers, it’s almost business as usual but there are reasons to start looking at alternative ad networks. For example, you may be able to save on advertising costs or get access to new buyers from other ad platforms. 
 
 
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