The U.S. Department of Justice and several state attorneys general believe Google has too much of the online advertising revenue in America. In many ways, it is a standard antitrust investigation, like the one that triggered the breakup of AT&T in 1984. Google and its parent, Alphabet Inc. (NASDAQ: GOOGL), will need to defend Google’s 90% market share of search and its 37% of U.S. online ad spending.
Google’s ad revenue is broken into two major pieces. One is its search engine revenue. The other is YouTube, the world’s largest video site. The government’s most direct path to lowering Google’s immense power is to make YouTube an independent company.
In the first quarter of this year, Google’s search ad revenue totaled $24.5 billion. YouTube ads were $4 billion. While YouTube’s figure is much smaller, it takes advertising away from a number of other video companies that run from other online video platforms to TV. YouTube is also growing to the point that it could overtake Google’s search revenue in places such as India, China, Japan, Indonesia and South Korea.
YouTube has 1.3 billion visitors a year and has a pay-TV streaming service, which is a rival to Netflix and Amazon.com Prime video. However, without its ties to Google’s search technology, its ability to hold its market would fall off. Google’s algorithms are critical to targeting ads on YouTube.
Regulators could come up with a number of creative ways to break up Google. The most direct one, however, is to spin out YouTube.
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