US bill could see Google, FB spinning off ad biz, may have India impact too

The bill would effectively put an end a company's ability to act as a broker for a buyer or seller of ad space while simultaneously owning the exchange on which the ad space is traded

A new bill proposed in the US senate by a group of Republicans and Democrats may force tech giants Google and Facebook to spin off their digital advertising business in order to ensure transparency, reported a Wall Street Journal report. This, industry experts and the legal fraternity, believe may have an impact in India, which has seen its contribution rise in their advertisement pie.

Legal experts in India are terming this as one of the most aggressive attempts till date by lawmakers to rein in big tech. “Effectively the bill would put an end to a company’s ability to act as a broker for a buyer or seller of advertising space while simultaneously owning the exchange where advertising space is traded. The bill could potentially deal a multibillion-dollar blow to Meta and Google’s current model, which is often criticised as allowing such companies to charge unfairly high commissions,” said Salman Waris, managing partner at law firm TechLegis Advocates and Solicitors.

He added, “Meta would likely have to divest large portions of its ads operations as well in a move that could have long-term implications for both Meta and Google entities operating in India and their advertising business here in India as a spin-off of the parent entity would obviously lead to similar changes in Indian subsidiaries. Ultimately affecting the digital advertising space in the country leading to more transparency around pricing and strengthening consumer interests.”

An email sent to Google and Meta India teams remained unanswered.

Digital media and advertising experts point to a few key implications of the bid to break up Google's and Facebook ad business by the US Senate.

"Data privacy and transparency has been a key issue for lawmakers worldwide when it comes to tech platforms such as Google and Facebook," says Rajiv Dingra, formerly founder and CEO of Dentsu WatConsult and now an independent entrepreneur.

"This bill in my view hits Google harder than Facebook. This is because Google is present in many parts of the digital advertising business including search and display ads, programmatic advertising and an advertising exchange where it aggregates inventory and helps in price discovery. The third part (advertising exchange) gives it significant leverage, which lawmakers have been concerned about," Dingra says.

Google's total advertising business worldwide is pegged at $150 billion, of which search and display contributes 40 per cent globally, programmatic buying and advertising contributes 25 per cent and 35 per cent comes from running its advertising exchange.

Facebook's parent firm Meta said in its Q1 2022 results that it has witnessed good supply tailwinds in terms of ad impressions growth in India. According to filings, for FY21 Facebook India Online Services had revenues of Rs 1,481 crore and a profit of Rs 128 crore. Facebook’s gross ad revenues from the Indian market grew to Rs 9,326 crore, recording a year-on-year growth of 41 per cent.

For Facebook India, these revenues consist primarily of ad revenues generated by displaying impression-based ads on Facebook, Instagram, Messenger, and third-party affiliated websites or mobile applications.

In India, the digital advertising market is estimated to touch Rs 48,603 crore by the end of 2022 from Rs 36,554 crore in 2021, according to a GroupM report on the market. It says that digital advertising will corner 45 per cent of the total advertising market in India by the end of 2022 from 41 per cent last year.

Experts say that Google and Facebook corner 60 per cent and 20 per cent of the digital advertising market in India. So, India could face the heat of the global bid to split Google and Facebook's ad business. 

"I see two implications here. One is that contextual advertising will grow versus cookie-led, targeted advertising. And second is that advertisers will have to build their first-party database. Third-party databases will not work, since the digital world will have to move to a cookie-less universe when it comes to digital advertising," Sajal Gupta, chief executive officer of media consultancy Kiaos Marketing, says.  

Unny Radhakrishnan, chief executive officer, Digitas India, part of the Publicis network of advertising agencies, says that Google and Facebook would have to restructure their businesses in the event the bill gets passed in the US Senate. 

The bill proposes to ban companies processing more than $20 billion in advertising business annually from participating in more than one part of the digital ad process.