← The Monopoly Report
The Monopoly Report
Episode 3: Terry Kawaja on the impact of the FTC on M&A and a potential Google spin-out
00:41:22
Loading summary
Transcript70 lines
- [00:01]
Eric
This podcast is brought to you by Chalice. Chalice is the leading AI application for brands applying their own data and analytics in the real time decisioning of ad buys. And now Chalice can deploy custom AI as a pmp. We're talking real time curation at page level to drive any outcome. Learn more about AI that's yours at Chalice AI. That's Chalice AI.
- [00:26]
Terry Kawaja
Foreign.
- [00:38]
Alan Chappelle
Welcome to the third episode of the Monopoly Report. The Monopoly Report is dedicated to chronicling and analyzing the impact of antitrust and other regulations on the global advertising economy. If you are new to the Monopoly Report, you can subscribe to our weekly newsletter at Monopoly Market. Alan I'm Alan Chappelle and I'm taking over the reins of the Monopoly Report. I'm joined by ad tech influencer Harry Potaro, who is of course our esteemed leader here at marketecture. Hey, Harry.
- [01:04]
Eric
Hey, Alan. Thanks for taking over and doing this intro. I'm really bad at intros and outros, so I'm really excited to have you be doing this. We have a great guest today. So we have Terry Kawaja. Probably everyone knows we don't really need a big intro. Terry's been a guest on the Market Podcast and he's very outspoken about all things M and A running Luma Partners, the investment bank that specializes in this area. You may not know this, but we have a. We got a tip that Terry's also big into curling. So it's not just Andrew Kraft that's the curler, probably part of the Canadian heritage. They learned that in school. So we want to hear a little bit about that. But today we're talking about antitrust and Terry's going to give us more of the business perspective on the ftc, Department of Justice, what they're doing in M and A, how it's affecting his job as someone who wants consolidation and acquisitions to happen. And then we want to talk about, specifically about a potential double click spin out and what that might mean from a financial perspective. So, Terry, thank you so much for being here.
- [02:01]
Terry Kawaja
Hey, great to be here, Ari. Not only with a podcast host, but a client. So there you go.
- [02:08]
Eric
Am I still a client or am I a former client? I mean, once, you know what, once.
- [02:11]
Terry Kawaja
You'Re a client of Luma, you're always a client.
- [02:13]
Eric
Is it true about the curling?
- [02:15]
Terry Kawaja
It is. I mean, you know, how bizarre. It's an esoteric sport, obviously. But I born and raised in Canada, where curling is actually a much more substantial sport on the global stage. Canada is the strongest country in the world in that sport. I'm pretty sure that's the only sport where Canada can claim a hegemony in. But yeah, I was, I had the good fortune of being part of a bit of a dynasty, our family. My brother is the real curler. He is a two time world champion, which is pretty impressive. He's on the Olympic coin in Canada, so he's the real star. I just won, you know, the provincial championships for universities and, and the funny thing is, you know, I, I came to New York and, and pretty much, you know, hung up my slider. It's not skates, it's a slider. Hung up my slider. And I hadn't played in so long in about eight or ten years in. Someone finally convinced me to enter a tournament. We call them bonds bills. And I said, okay, fine, but I haven't curled in like eight or 10 years. And we won it. And then I didn't curl again for another 10 years, entered a bond field, we won it. And then finally Andrew had me come down to playing field to enter a tournament when my dad was here, which is so much Fun My, my 80 year old that we wanted. So the funny thing is I have curled three times in 30, 35 years and I'm undefeated.
- [03:46]
Eric
And Andrew Kraft just won't stop talking about curling. But you're just the quiet, the quiet champion. Don't bring it up, but you know, just win, put, put the points on the board. Anyway, let's talk about, let's talk about what we're here to talk about.
- [03:58]
Terry Kawaja
Sure.
- [03:59]
Alan Chappelle
So first, some background for the audience. So the FTC is a regulatory agency whose mandate is to protect consumers. And they do that in a number of ways. First, they, they act as sort of the privacy and consumer protection police. And second, the FTC along with the Department of Justice are in charge of supporting and enforcing competitive landscape. So most of what we're going to be talking about today is the FTC and the DOJ role in antitrust enforcement and more specifically, the impact of, we'll say a more active FTC on the health of the digital media landscape, essentially by creating friction around M and A activity. So I've heard from both of you guys that the FTC's focus on disrupting mergers is, you know, I'm going to do an air quote here is bad, so help me unpack that. Why is it bad?
- [04:48]
Terry Kawaja
Antitrust enforcement is not bad per se. And I would go ahead and argue that there are certain aspects of this more active, perhaps even virulent antitrust enforcement by both the DOJ and the FTC that are quite good. You know, this is, as a country we've been lacking in, in terms of active enforcement. And you know, it's one thing for the legacy industries of, you know, transportation and energy and those, those are pretty mature industries. And so there's really not a lot of dynamics around companies both becoming controlling in those aspects, nor the importance of control of those. You tend to get see the most ink in the press around media and in particular tech. And there's a reason for that. Tech is growing as a percentage of the economy. Point number one and point number two is, you know, anything around media and communications has an implication around, you know, information and disinformation and truth and elections and democracy. So it, it almost has like a bare and social media influence on children. So it feels like it has an, a higher import. So I think it warrants scrutiny. And by the way, I could clearly make a case, I mean right now the, the, the DOJ and FTC have actions against almost all of the big tech companies. There are actions of some sort against Apple, Amazon, Meta and many against Google. And I think the intent of that is not wrong. It is notes the growing control, the import that I mentioned earlier, why these companies in these sectors have far more control and influence over our lives in America and the relative sort of concentration of power of these big tech companies. So I think that scrutiny is right and just and good. The issue that I and others have noted about it is that sadly the effect of this more virulent intervention into some of these moves has had the opposite effect of the intention. The intention was to limit big tech and try to create a more competitive, more equal playing field of a landscape. And it has had the opposite effect whereby it's created a pall on M and A activity across the board writ large. And the problem is when you have half a dozen companies that have enormous power in the marketplace, essentially you need to have freedom to do M and A for players numbered 7 through 50, so that they can garner the scale and capabilities sufficiently necessary to compete against the big six, say. And the problem is when you limit their actions, that is to say the players in seven through 50, all it does is strengthen one through six. And that gap, that unfair advantage that the big guys have gets exacerbated in a time frame like we're in now where AI, the latest sort of innovation of technology development requires like never before seen levels of capital expenditures which only benefits the biggest guys. So I'm afraid the bad of antitrust enforcement is a function of the net effect of what they've done, not the intent.
- [08:50]
Alan Chappelle
No, I think that makes sense. But, but can we specifically, what, what is it that the FTC is, is doing? So how are they limiting M and A activity? Are they, is it, are they creating like an EU style, There's too much paperwork. Are they just, you know, shooting down particular mergers? Like, how is this manifesting itself?
- [09:10]
Terry Kawaja
So it's the latter. It's, it's deal blockages. So the antitrust challenges and blockages of deals have grown substantially in the last, in 2022, there were 50 enforcements. That's up from usually, you know, it's about triple the sort of run rate for the prior five years. In 2023, it's even higher. So they're just stopping all kinds of deals. And it's great. If you want to say, you know, Google and Amazon and Meta and Apple can't do M and A, that's one thing. But Adobe Figma, they're blocking small deals that arguably don't add to the acquirer's, you know, hegemony or monopoly power. They're also blocking basically yesterday's antitrust challenges. They're stopping traditional media deals. I, I, my head spun when I read in 20, late 2022, two years ago that the DOJ blocked the Penguin Random House $2 billion acquisition of Simon and Schuster. I'm like, oh yeah, let's by all means prevent book sellers, book publishers, that so important channel of media. I mean, give me a break. It's, it's, it's like they're applying, you know, monopoly situations from, from the 1950s. It just seems to not make sense. They've gone too far.
- [10:46]
Eric
There was that one case, I forget the name but where Meta was going to buy a pretty small fitness app for VR. Fitness app, and it was blocked. Is it the case that these big guys just can't acquire anything?
- [11:00]
Terry Kawaja
That has been the effect. Like, it seems crazy that like Amazon can't buy iRobot or Meta. Meta has attempted to buy Giphy and actually that one went through. That Giphy go through.
- [11:13]
Eric
No, Giphy went through and then got spun out like they got a redo, which was not great for anybody.
- [11:19]
Alan Chappelle
Yeah.
- [11:20]
Terry Kawaja
So I think you need to stop the ones that are problematic. But that's not everyone. But the net effect has been not just for big tech. Big tech can't buy anything. Like when, when we talk to clients, we're like, and, and you know, it's, it kills me when you get A founder going, well, Google's a bias. I'm like Jesus, really? I mean have you not, do you not read the news? But, but it's worse than that. It's what I say. It puts a pall on all activity. Here's the problem. Let's, let's take a, a tech company that's not in that sort of top six that wants to do an M and A deal. Well today their consideration will be, well, if we pursue this, there's a decent chance the DOJ or the FTC moves to block it. If that happens, that puts us in limbo for two years. It takes a long time for these things to wind their way through the court and that puts them in the penalty box. It's really difficult to announce other M and A while you've got a major deal pending. And so it's not good for the target, it's not good for the acquirer. And it has had the effect of them saying nah, let's just, let's just, let's stay focused on, on our own for now because it's, it's too risky an environment to even pursue an M and A deal.
- [12:41]
Eric
And also the IPO window is closed.
- [12:43]
Terry Kawaja
Yes, the IPO window is closed. And so, so that's something bad for like the entrepreneurs of the, of the growth companies. But let's take a wider lens. People listening to this may be saying oh boo hoo, M and A lawyers and bankers can't make as much money because the deals are not going through. Let's all shed an enormous tear for that cohort. No, we're not talking about the intermediaries. The reason why you need to have a vibrant M and A marketplace is because it is the lifeblood of innovation. The way tech works, things move fast. They're very complex, they move fast. There's always new technology innovations and the largest, even the largest companies with the, with the largest R and D budgets and the biggest group of, of engineers can't figure out every new better mousetrap. And so the beauty of our system as it stands is they don't have to, they don't have to. All of these independently venture backed startups are like a petri dishes of innovation that occur in thousands of companies. And then the big guys can just sit there and wait and see something that getting length, that's got product market fit, that innovates or anticipated a move in the, in the market and they go great, we'll buy it. Look, that's great for the entrepreneurs, it changes their lives financially. But forget that it instills a necessary part of innovation. And then by the way, after two years in and around there, the the founders leave. Let me know when this story starts sounding familiar and they found another company and the innovation cycle starts again. So years. Yes, there's a component here where founders get financial paydays. That's great. There's a component here where intermediaries get well paid. Fine, but who cares? The broader implication for our capitalist world is that it is this incredible flywheel of innovation. It's one of the reasons why America does so much better than other countries. Yes, we attract smart people. Yes, we have venture capital funding that provides the necessary dollars to innovate. But also, let's not forget, it's the M and A that creates this flywheel and keeps this thing humming. So we do better when we have that flywheel working. And right now, the flywheel for the last 18 of the last 24 months, the flywheel stopped. So this increase that I mentioned in blockages and virulent antitrust action also happens to coincide with the lowest M and A deal activity in over a decade. Those two are not coincidences.
- [15:44]
Alan Chappelle
It makes sense when I tend to think about how our government operates. It's a series of pendulum swings. And arguably we, and I think this is a good thing, but we operated in a very laissez faire environment, certainly in privacy and, and competition in the States for a pretty long time. But one of the things that we've covered here on the monopoly report is the Google Ad tech case. And so looking back, would you still have recommended some of the acquisitions that led us to the place we are right now?
- [16:16]
Terry Kawaja
Let's be honest, the one that would have warranted the most scrutiny was the DoubleClick acquisition, because the subsequent acquisition of Invite media that was 81 million, Admiral was 400 million and AdMob was 750 million each of those capabilities. So a DSP, an SSP and a mobile ad network, one could argue there was no concentration. There was, if you recall, think about a Lumascape, you know, mobile ad networks, there were hundreds of them. So the Google's acquisition of one of them would not necessarily have drawn scrutiny. I think it, it was the double click acquisition that probably would or should or could have the holy trinity of regret, cause for antitrust actions to say, wait a second, you're buying these capabilities that are essentially the middleman plumbing, but you, Google, operate one of the largest sources of inventory and a huge network. So already maybe some bells should have been going off Saying, wait, isn't that a vertical integration in a way that would give you an unfair advantage because you're the marketplace and the seller? I mean, you know the, the analogies have been made to the finance industry and you just sort of, you just can't have those kinds of conflicts in other industries. So that one is the one that seems the most glaring.
- [17:45]
Eric
So in some of the documents that were not presented at the trial but were in evidence was an expert witness account from 2008 that literally ended with a paragraph saying we cannot imagine any scenario in which Google would dominate display advertising based on this acquisition. So that tells you how much expert witnesses can be counted on. But I want to follow up on one thing you mentioned. Admld, you just breezed right over and that actually is a really big part of the DOJ's case that they say that the Admiralt acquisition was specifically designed to thwart competition and to not let publishers have the ability to yield, manage and things like that. What's your thought on that?
- [18:23]
Terry Kawaja
So I have an informed view on that since I advised on Invite and Admo Invite. I pitched Google in November of 2009. They had just launched ADEX for the very first time. And my pitch to Google was look, you just announced a marketplace, you have all the supply in the world to create liquidity, but for a marketplace to work, it's a two sided, unique demand and you make, you need to make it easy for people to buy on this. Remember nascent notion of programmatic buy. Right. So, so those are the early days. It seems like a duh obvious now but back in the day this was new. And I said, so I would argue you should buy what I described generically as an on ramp to your exchange. And they said okay, and what would that look like? I said like a DSP and and then we went through, retreated a number of names and because of its size and recency of technology platform Invite was the, was the target. By the way, it was so funny. A week later Invite, having received an inbound from Adobe, you know, contacted me and said we're going to interview half a dozen bankers to who will advise us in this, how, you know, can you. And I showed up at that meeting and I said look guys, I have a blue book just like all the other investment banks that say the same thing. We're great, we've done a bunch of deals in this space, we know what we're talking about, but let's forget about the book, throw the book away. Let me tell you about my conversation with Google. And when I finished that, Matt Turner turned to Zach and said, cancel the other meetings. Let's just get to work.
- [19:57]
Eric
I was on the deal team at Google and we had no idea what we were buying or why we're buying it. That acquisition was really out of confusion and fear that we didn't really know what we were doing, which was true. And Neil Mohan specifically told me, our biggest customer on the buy side is ebay. They're starting to use this thing and we don't know why. And those dollars are not going to come to us anymore. We have to do something. That was basically the rationale for Invite.
- [20:22]
Terry Kawaja
And when those talks started, you know, Invite had a net revenue of 1.5 million. It was approaching 10 by the time we closed the deal. So it was growing fast. But my point, so then we, as we do the deal, get the deal closed in June of 2010. In September of 2010, I have breakfast with Neil Mohan, the author of that strategy, and he says to me, wow, he said, you know, 81 million seemed like a lot of money at the time. I think it's worth about 250 now, three months later, because the thing was just growing like a bad weed. And he said, so that was a great idea. What else you got for me? And I said, well, I'll be honest, this is exactly what I said. I said, well, you got the on ramp now to demand. And I said, you got your own supply, but in terms of third party supply, you could consider an SSP on the, on the other end. And honestly, it's very different from the rationale of buying Invite on the demand side. I said, on the SSP you could buy it and just shut it down. And he said, yeah, that's a good idea. So then we did that.
- [21:35]
Eric
Why weren't you testifying? That's a pretty damning testimony we've got here. We've got an exclusive on the Monopoly report.
- [21:41]
Terry Kawaja
I mean, that's what I told him. I'm not saying whether he headdonnered or disagreed, but, but I pitched it again. That was my, that was my pitch to him, was you could just shut it down, by the way, they largely shut it down.
- [21:55]
Eric
Well, the email, the email, he said, we will park it. That was an email he sent internally that was in evidence and he suggested parking. It didn't mean parking it. Parking had meant just like keep it. Okay. And while we build other stuff. And the prosecution or the DOJ did not buy that anyway, we're getting totally off topic.
- [22:13]
Terry Kawaja
Amen. The trial Closed. I did not get subpoenaed, thank God.
- [22:20]
Alan Chappelle
So Terry, jumping in with a little bit different direction. I saw the write up on your keynote at New Digital Age and you were kind of talking that the industry as part of the, the ongoing road to maturity really needed further consolidation. And I'm wondering if you'd just help me unpack that. Is there a specific, like what parts of the industry need to be consolidating or how should we be thinking about that?
- [22:41]
Terry Kawaja
First of all, you know, I'm conscious of the fact that an M and a banker calling for more consolidation is like, you know, when your hammer everything looks like a nail. I get that sort of conflict. But, but I can, I think I can very credibly make the case that objectively that is the case. Most industries go through a phase of new company formation, maturity and then rationalization, consolidation and usually the apex of any particular industry sector, the number of companies will be enumerated in dozens, maybe, maybe 100. In this industry, it's completely there in Thousands. Right? There's 5,000 companies across the lumascape or more than 5,000. Well, let's just call it 5,000 to keep it specifically on ad tech. And so we've never, never ever in any industry in the history of capitalism have seen a level of fragmentation like we have in that it is unique. It was one of the reasons why I made that chart was to sort of get a handle on this crazy fragmentation, how it all worked. There's nothing wrong with fragmentation per se, but there's several issues associated. One is the fragmentation creates dark corners and dark corners allows for what I describe as shenanigans. And there's so many shenanigans. And there's a, there's a spectrum of, of shenanigans that range from absolute nefarious fraud to to just sort of mischaracterization, you know, calling out, stream video in, you know, there's just a, there's a whole range of shenanigans. ID bridging, like the list goes on and on and on. And I believe that those shenanigans are a function of the, ultimately a function of the fragmentation. There's just places to hide in the ecosystem. And now if you think about the proliferation of all these different channels, there's search, there's display, there's social, there's commerce, there's CTV video. These poor bastards at the, at the brands. I mean, how do you keep up with, with all that stuff? I have been predicting that we're going to see a Vendor culling by the brands and by the agencies where, you know, if they have, if you look at any of the JavaScript on websites, it's ridiculous how many different people have JavaScript on there or how many vendors are on a particular ad call right there. There can be 50 vendors in any particular category. Why 50? You don't need that. I gotta believe that anything past number 10 doesn't get you any more marginal yield or better ROI on the demand side. So it seems like, and I think this is part and parcel of this sort of recent, fairly recent attention to just how complex, over numbered, overpopulated and perhaps murky the supply chain is. People have said, well, for sustainability reasons or for these other shenanigan reasons, we should probably rationalize the supply chain. And I think that. I agree with that. I've been calling for that for years now. And so when I say consolidation, look, yeah, there's just too many players, there's too many places to hide and we have a very, very wasteful supply chain. And by the way, almost every other industry starts this way, starts fragmented, complex and wasteful where, where there's a lot of, you know, take rate coming out of the flow of dollars. But then it rationalizes to a situation where you tend to have fewer players doing higher volumes at lower take rates with better quality. Those four attributes tend to be if you so, so by the way, apply them to any industry. Railroads, well, you know, turns out railroad tickets are pretty cheap. Airline tickets are pretty cheap. Why is that? There's half a dozen airlines. And you see what I mean? You can apply it to almost every other industry. This one, 20 years or 15 years into really the rise of programmatic, and we still have crazy take rates. There's four or five, three or four vendors all looking for their 20% out of the media spend, whether it's on the supply or demand. And one would have thought we'd have rationalized it better and sooner by now. Television, which is 80 years old, it, you know, takes 2 to 3% out of the flow of dollars. We are still taking, you know, 50%.
- [27:32]
Eric
So we've seen most of the consolidation happen on the sell side like kinetics, JW just happened and EMX dropped out, etc. The buy side seems like it's somewhat resisting. I mean, you. Math aside, do you agree with that kind of general.
- [27:46]
Terry Kawaja
Yeah, I think, I think there's been. Well, I mean, because we have. Because they can hold that. Because, because the, the, the demand side has been a stronger business model. The supply side has had Any number of challenges. I mean, you think about the supply side. It's like the rules change every. Every couple of years. I mean, header bidding fundamentally reach, you know, change the supply side. SPO is now changing the supply side. And I think we're just getting started on this notion of horizontality is a concept that I borrowed from Martin Sorrel to describe companies. Basically, their approach to rationalizing this complex and overpopulated supply chain is to build capabilities and pipes that run from demand to supply. You're seeing that manifest with Trade Desk. And now the supply side has responded and I think that's ultimately where we go in order to rationalize this ecosystem.
- [28:43]
Eric
Makes sense. So I want to talk dollars. So you did a video, and I've speculated about this in my newsletters and things like that, about what would the economics of a double click spin out be if Google's forced. So as a background Google, the antitrust trial about ad tech is under deliberation. We expect a judgment by maybe the end of the year and then remedies will take a while. But the main remedy the DOJ is asking for is a spin out of the sell side of DoubleClick, meaning GAM and ADEX. But there could be other spin outs. So give us your hot take. How much money are the bankers going to make?
- [29:24]
Terry Kawaja
Oh, so you cut right to the heart of the matter. So I was sitting around, you know, watching the trial and reading your excellent reporting. I was very impressed by. So I was, before the trial began, I was like, why is not more people talking about this? I mean, it's probably the most consequential piece of litigation that has ever occurred in our industry and there wasn't a lot of ink spilled on it. But of course, once the trial got going, it seemed it was, it was like you couldn't look away. It was like fascinating. And especially I think because the trial was closed. I actually think that was, that was better that the trial was closed because then people had to summarize and report on it. Seemed more. There was more mystique and we knew it was going on, but you couldn't actually see it. I mean, no one would want to watch that testimony. But it was wonderful to see the excerpt and you all again did a fantastic job. So I thought, and all this talk about, oh well, they're going to have to sell it and who's going to buy it. I'm like, what are you talking about? So I wanted to, I produced that video to a dispel these sort of inappropriate sort of notions of what the remedy might look like. And I said all right, well let's, let's do some analysis. And I had been working on that analysis sort of privately and I said, yeah, I'll just share it, I'll just share it. So I made the video where I walked through the importance of the trial, maybe some of the rationale given it, putting it in context of the government's activity. And then I went said okay, so what are we talking about here? And the answer is we don't want know exactly how the government might seek to enforce some kind of action, but we do know the component parts that make up constituency of the totality of what they could probably go after. And there are, you know, six divisions. And so again, I don't know if all of those would be forced to be spun. And by the way, I say spun because you can't sell this. It's too large to sell to any one company. All of private equity is, even the biggest private equity firms couldn't afford it and no strategic is going to buy it. So the form it would take would be a spinoff to Alphabet shareholders and that would create an independent company and it would trade on its own and it would have obviously a high dependency on Google which would have to be manifested in third party contracts. And then over time one would expect that dependency to wane as they started doing business with other firms. So I took a look at the component parts and did evaluation based on available data. Right. We only have 2020 data so I had to grow it to 2024. And then I applied a series of multiples, the conclusion of which was this thing is worth, I don't know, 75 to 100 billion depending upon what components are put in it, which would make it the single most valuable independent ad tech company. About double the size of the trade desk.
- [32:23]
Eric
So is that everything or is that just the sell side?
- [32:25]
Terry Kawaja
That's everything.
- [32:27]
Eric
That's what Google calls the network business. You're taking spin the whole thing?
- [32:31]
Terry Kawaja
Yeah. CM360DV360 Google Ads, AdMob, AdSense and Google Ad Manager. So it ranges from demand tools to supply tools.
- [32:40]
Eric
And what's the most valuable parts?
- [32:42]
Terry Kawaja
The most valuable parts are going to be Google Ads and gam by far.
- [32:47]
Eric
So how big is gam?
- [32:49]
Terry Kawaja
Well, gam was has about 10 billion of ad spend. It's got, it had about a billion 6 of, of net revenue in 2020. So grow that by 40%, you're talking about 3 billion in net revenue. So you know, you can sort of get, give it a 10x multiple. That's a $30 billion business.
- [33:12]
Eric
When you say net revenue, GAM is like comprised of SaaS fees plus the take rate on ADEX. That's one thing, right? So one question I had, and maybe this is beyond the scope here, is let's say they just spin GAM and adx. They don't spin Google Ads. Right? So the supply side gets spun to the buy side, doesn't the asset would actually I think be worth a lot less than it would be as part of Google because the demand from Google, Google Ads would no longer be tied to it and you would effectively get, have an immediate revenue and margin hit by being decoupled.
- [33:49]
Terry Kawaja
Well, so it would, would be tied to it because you wouldn't get a divestiture without transfer price without, without a contract. Remember, they don't need a contract right now because it's the same company but as a separate company. They, they would, they would contract. And by the way, Google has no choice but to use, we'll call it DoubleClick, at least out of the gate. Right? So for the first couple years and then competition will either inform pricing or they could switch vendors over time.
- [34:16]
Eric
One of the big accusations is that Google Ads supports adex, basically. So the demand from Google Ads almost exclusively goes to ADEX. You spin it out and suddenly it goes from 80% ADEX to 50 to 40 to 20, et cetera. And they also take a higher margin because it subsidizes ADEX 100%.
- [34:36]
Terry Kawaja
So then I said, okay, so it's worth about 75 to 100 billion depending on your assumptions. It's going to be a spin out and then you know, who are the winners and losers. And I went through a list of 1, 2, 3, 4, 5, 6, 7, 8 constituencies, well, seven plus a joke and analyzed whether it was good for them. And it turns out it's a clean sweep. It's great for Google shareholders because they always win when some of the parts is greater than the whole. It's good for ad tech, Google Ad tech management, you know, being, getting options and, and shares in a, in a, in an independent $100 billion company is never a bad thing. It's great for the edtech ecosystem because it oxygenates the market. Great for advertisers and publishers and consumers because increased competition means either higher yield or better ROI or more choice. And then as a joke I said it's of course better for edtech focused investment makers. But, but going back to Google, they're fighting this. So people said, well, isn't this bad for Google? I'm like, well, I don't know. This unit business unit is their lowest growth, lowest margin business. That's the highest source of biggest source of their government headache. So I would argue if this would enable them to focus on their own o businesses of, you know, search and cloud and YouTube. I mean, I think Google would be better off. So they're fighting it because it's almost like a knee jerk reaction. But the reality is, I think, I think you have a stronger Google in the back end. And by the way, they're going to need that focus because they're facing some existential challenges for the very first time coming from AI and its implications in terms of how consumers will navigate the web.
- [36:19]
Eric
My theory is that they do want to spin it, but they want to keep it as a chip. They're waiting. They want the other antitrust trials to get a little bit further along so that they could use this as a bargaining chip.
- [36:29]
Alan Chappelle
Yeah, this is all a negotiation.
- [36:31]
Terry Kawaja
Not disagree with that.
- [36:33]
Alan Chappelle
Yeah, we talked a bit about the spin off. What's the likelihood of this happening and what's the timing? I mean, I'm not sure Lena Khan and Cantor are even going to be here in a year.
- [36:42]
Terry Kawaja
Oh, they definitely won't be there. Lina Khan won't be there on November 6th. I mean, I'm joking, but her fate will be sealed, I think.
- [36:51]
Eric
Hold up, Terry, you got to explain that. Do you think, Kamala, is that a Trump reference or an either way?
- [36:57]
Terry Kawaja
No, no, I think it's either way. I'm of the view that regardless of who wins on the fifth, and you know, on the fifth or the weeks or months thereafter, large, it's, it's not a date certain anymore. It's like, well, election starts on the Fed, we'll see when it ends. I think whoever wins, we are likely to see a more pro business environment. So I think you'll see some changes take place with Kanter and Kahn at the, at the DOJ and the ftc. And Lina Khan in particular, I think because of her. I'm going to describe it as sort of not a pragmatic approach, a dogmatic approach towards her day job. And you know, listen, this is not a personal attack on her. She is, she's a person of high integrity. Oddly going on a save my job media tour right now, which is kind of funny, but I think Lina Khan's dates are numbered.
- [38:00]
Alan Chappelle
Yeah, I don't see the Harris administration being willing to carry the political water that would be required to keep her on. And I don't think there's a chance in hell that she gets makes it through a Senate confirmation because she would need to ultimately be reappointed.
- [38:14]
Terry Kawaja
Correct. And look, if my read on Kamala Harris is she's a pragmatist, self interested pragmatist. Joe Biden's a little bit more of an idealist. So the game theory here, the true politician in her would say, win the election and pivot to the center and then you'll box out Trump or any other Republican that comes after Trump because the majority of the country is in the center. Biden has appeased the far left in an annoying way. And when I say annoying, annoying to a lot of common sense people in the center that, you know, it sadly is going to raise a real chance that Donald Trump is our next president.
- [38:58]
Alan Chappelle
Well, that's fair enough. I think that the reason we have Lina Khan is there is sort of a backroom deal. If everybody remembers when just about all of the Democratic opponents to Biden magically left the race, except for Bernie, there was a bunch of deals struck. And one of the deals was struck was with Elizabeth Warren. And Elizabeth Warren pushed Berlina Kahn and a couple of other things. And I think that that deal has expired.
- [39:23]
Terry Kawaja
By the way, here's the crazy point. I love the fact that the FTC invokes legislation and regulations to protect consumers. The consumer protection side of the ftc. I love it. And by the way, she's been great on that front. There's all these scams and bullshit. In fact, she's done everything except stop political fundraising texts. There's no way to stop.
- [39:47]
Eric
There's no way to stop, apparently.
- [39:49]
Terry Kawaja
But, but. So I applaud that. And I think the M and A aspect should be removed from the ftc. Just in other words, because right now we have either the DOJ or the ftc. It's ridiculous that we have two government agencies pursuing the same thing. Just leave that with the DOJ and let the FTC do what it was initially intended to do, which is to protect consumers.
- [40:12]
Eric
All right, I think we're going to cut it off there. This was an amazing conversation. We covered politics, we covered finances. Lina Khan, just a lot to think about. So, Terry, thank you so much for coming on here.
- [40:26]
Terry Kawaja
Great to chat with you both. Keep it up.
- [40:28]
Alan Chappelle
Thanks, Terry.
- [40:29]
Terry Kawaja
We need more attention on these issues.
- [40:31]
Alan Chappelle
I agree. And one of the reasons I came on to this is I think that we're lacking in literacy on these types of topics throughout our industry, and I think that's to our detriment.
- [40:42]
Eric
We have a bunch of more episodes coming up of the Monopoly Report Podcast. If you're interested in being a guest or have a suggestion for a guest, just hit us up online. We're very easy to reach. Both Alan and I could be reached by dm. Also, please subscribe to our newsletter at Monopoly Market and subscribe to our podcast on Spotify, Apple, YouTube, or wherever. As a reminder, if you're subscribed to the Market Podcast, which obviously is quite popular, you're not automatically going to get these shows. So you have to also subscribe to the Monopoly Report podcast. So once again, Terry and Alan, thank you for being here.
- [41:17]
Terry Kawaja
Thanks, Eric.