Privacy concerns dog Google-DoubleClick deal

November 14, 2007, 10:03 PM UTC

By Yi-Wyn Yen

The European Commission on Tuesday declined to greenlight Google’s $3.1 billion acquisition of ad network DoubleClick because of competitive concerns. But the issue that could cause Google trouble with United States regulators is privacy.

Analysts point to the opposition the deal has generated because DoubleClick, which tracks individuals’ online activities to serve them display and banner ads, can provide Google (GOOG) with much more detailed data on what people do on the web.

“There’s plenty of room in the advertising space, and personally, I think it’s very hard to come up with a market definition to prevent this acquisition,” says Michael Cohen of Pacific American Securities. “There are, however, a lot of privacy issues here.”

The Internet search giant has faced resistance since it announced its plans to buy DoubleClick in April. Three public advocacy groups — the Electronic Privacy Information Center, the Center for Digital Democracy and the U.S. Public Interest Research Group — have filed petitions urging the Federal Trade Commission to reject the deal. They cite 49 potential privacy violations, such as Google being allowed to retain a user’s search information indefinitely. The FTC, which also is reviewing competitiveness implications of the acquisition, expects to issue a decision on the deal by the end of the year.

Google makes most of its revenue through AdWords, which displays text ads tied to keyword search. DoubleClick runs targeted ads based on how consumers navigate the web. Rivals like Yahoo (YHOO), which bought ad startup Right Media for $680 million in April, and Microsoft (MSFT), which acquired Aquantive for $6 billion in May, claim a DoubleClick deal would stifle competition.

Analysts say that all depends on how one defines the advertising marketplace. “If you look at the online display advertising market, Google has a very, very small share. If you’re talking about text based advertising, it’s much more dominant,” says UBS analyst Ben Schachter. “If you’re just talking about its share in advertising, then this case is irrelevant. You have to define Internet advertising first in order to frame the issue.”

Said Google CEO Eric Schmidt in a statement: “We are obviously disappointed by the European Commission’s decision. We will continue to work with the Commission to demonstrate how our proposed acquisition will benefit publishers, advertisers and consumers.”

The European Commission said it will issue a decision on the acquisition and make a decision by April 2.