Senate Hearing To Examine Emerging Google-opolySenate Hearing To Examine Emerging Google-opoly

This Thursday's Senate hearing on the Google-DoubleClick deal could portend more government scrutiny of the online search company and even imperil the entire targeted online-ad model, according to some experts.

Announced last April, the $3.1 billion agreement to purchase DoubleClick -- the New York City-based online ad-placement service -- represents the strongest evidence to date of Google's intentions, and ability, to dominate online advertising. The deal has raised antitrust concerns in the United States, where the Federal Trade Commission is scrutinizing the deal, as well as in the European Union and Australia. Titled "An Examination of the Google-DoubleClick Merger and the Online Advertising Industry: What Are the Risks for Competition and Privacy?", Thursday's hearing will focus at least as much on privacy issues as on the anti-competitive aspects of the acquisition, according to a spokesman from the office of Sen. Herb Kohl, D-Wis., chairman of the Senate Judiciary Committee's sub-committee on Antitrust, Competition Policy and Consumer Rights.

UBS Internet analyst Benjamin Schachter is among those who believe that Thursday's hearing could lead to a round of questions surrounding Google's market might and its business tactics.

"Given the high profile of the DoubleClick deal, ongoing net privacy concerns, and upcoming elections, investors should anticipate increased scrutiny," wrote Schachter in a research note to investors Monday morning. While we think the deal will ultimately be approved, headline risk, delays, or possibly legal battles with either U.S. or European regulators could pose problems."

Since targeting ads to specific customer segments based on information gleaned from online behavior is a key element of "virtually all online ad models," Schachter adds, increased regulatory oversight, in fact, could hamper the long-term growth of the online advertising market -- and thus of Google itself.

(That hasn't dampened Schachter's enthusiasm for Google stock, though: in the same note he re-affirmed his buy rating and a target share-price of $655. Google stock was up slightly Monday afternoon at just under $567.)

"Online advertising is a relatively new industry, and policymakers understandably have questions about the acquisitions that Google, Microsoft, Yahoo, AOL, and the WPP Group are making in this space," the company said in a statement released after the hearing was announced. "We're looking forward to talking with Congress about how our acquisition of DoubleClick will benefit both competition and privacy, and we are confident that the acquisition will ultimately be approved by the FTC."

Senior VP David Drummond, Google's chief legal officer, is expected to testify at the Thursday afternoon hearing. Joining him will be Brad Smith, senior VP and general counsel for Microsoft, which has been vocal in its opposition to the DoubleClick purchase. The Wall Street Journal on Monday reported that through its public relations firm Burson-Marsteller, Microsoft has been waging a campaign to foment opposition to the deal, saying it endangers "fair and free competition" on the Internet.

The hearing comes at a time when Google has been linked in the press to various efforts to expand its role beyond that of an online search service and purveyor of targeted ads to a controller of the means of distribution of online content and advertising. Besides a possible bid in the upcoming FCC auction of valuable spectrum in the 700 MHz band, Google also is said to be looking at investing in a new undersea fiber optic cable called Unity that's expected to be laid across the Pacific Ocean seafloor in the next two years. In an e-mail to information last week, Google spokesperson Barry Schnitt declined to confirm or deny those speculations.

"Additional infrastructure for the Internet is good for users and there are a number of proposals to add a Pacific submarine cable," Schnitt said. "We're not commenting on any of these plans."

Google is investing heavily to expand its network and interconnect its data centers, Schnitt noted, adding, "Our connectivity needs are global, because we have users and data centers all over the world."