Yahoo Finance’s Dan Howley and Alexis Keenan break down the DOJ’s second antitrust lawsuit suit against Google and how it could affect the company’s ad business.

Video Transcript

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BRAD SMITH: The US Justice Department has slapped Alphabet's Google with another antitrust lawsuit regarding its dominance in the digital advertising market, with the DOJ aiming to break up Google's branches of businesses. What would a shake-up mean for Alphabet? Yahoo Finance's Dan Howley and Yahoo Finance's Alexis Keenan join us now to break it all down. So, Alexis, let's start with you. What can you tell us about this from a legal standpoint.

ALEXIS KENNAN: Yeah, so this is a lawsuit. It's a federal one. It's an antitrust suit. It's brought by the Department of Justice, along with eight US states. They're going after Google's online ad market, saying that the company is illegally using its monopoly in that space, or at least trying to, in order to block competitors from entering. The complaint says that "Google has thwarted meaningful competition and deterred innovation." The analogy they give here is saying that it's like having Goldman Sachs or Citibank own the NYSE.

So let's talk about the size of this ad market, this online ad market. It's approximately $278.6 billion. And Google, for its part, is the top dog here controlling most of the technology to buy, sell, and serve advertisements online. In 2021, Google's annual revenues in this space, $209.5 billion. And in the third quarter of last year, revenue reached $54 billion.

Now as a fix, the DOJ and the states, they say they want this alleged illegal behavior to be repaired by forcing Google to divest certain of its ad tech entities. Specifically, they say, at a minimum, they want Google to divest its Ad Manager suite, and that would include its publisher ad server DFT, also known as DoubleClick or GAM, and also its ad exchange AdX.

Now, one challenge that Google faces here, a major challenge at least, is that the DOJ now has multiple antitrust actions, as you mentioned, against the company. They're already facing a suit from the DOJ on its search business in that market. And also, though, a challenge on the other hand for the DOJ and for the states here is that-- one that's come up in multiple antitrust suits that have been brought by both the Trump administration and the Biden administration is that it's really difficult to show that victims are being harmed when services are free.

So in the case of Search, we all know that to be a free service that Google/Alphabet is providing. But maybe they'll have a little bit better chance here, the DOJ and the states, in that the ad market does have dollars exchanging hands. So they might have a little bit more of a leg to stand on, or at least in getting courts to accept some of these arguments that are novel ones at that.

JULIE HYMAN: Yeah, it's always tricky to figure it out, although the saying is the product is us, right? It's not really free. Dan, let's turn to you. You know the company well here. What-- so we're not talking about a breakup here of the different distinct businesses, really, of Alphabet. That's not really what we're talking about. So what would a breakup look like in theory?

DAN HOWLEY: Yeah, it's basically the ad business side of things. And if we do get a breakup of that side of the business, we could see lower revenues for Alphabet, Google over time. And when you look at a company like Google, the vast majority of its revenue obviously comes from that advertising business. It's-- you know, lack of a better word, it's an ad company. And so they use that revenue to basically subsidize a number of features that they offer, whether that's investments in its self-driving car business or its hardware business.

So they may end up having to cut back on some of those if their ad business does end up being forced to break up, as the DOJ is seeking. So, you know, this isn't a huge breakup of YouTube's getting split up, Google Search is getting split up, Android. It's not that. But it does cut directly to the heart of Google's business. And so that's why it could be troubling for them.

BRIAN SOZZI: Dan Howley, Alexis Keenan, thanks so much. Appreciate it.