Google’s $168 billion ad revenue is at risk in Supreme Court case

(Bloomberg) — The US Supreme Court is ready to hear a case that could threaten the Internet’s most profitable business: online advertising.

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The Gonzalez v. Google case will be heard on Tuesday and will focus on whether internet companies are responsible for the content their algorithms recommend to users. The tech industry says it is protected by a legal shield contained in the communications law known as Section 230.

Much of the discussion surrounding the case has centered on the cost to online companies if a court decides they are legally responsible for the hundreds of millions of comments, videos and other content posted by users every day. However, such a decision could also strike at the heart of the automated advertising that Meta Platforms Inc.’s Facebook and Alphabet Inc.’s Google rely on for most of their revenue.

In fact, social networks see this case as an existential threat.

“This case could negatively impact the entire advertising ecosystem,” said Mark Beckman, chief executive officer of DMA United, an advertising firm that regularly uses Google and Facebook tools to target ads to potential customers around the world.

Google is being sued by the family of Nohemi Gonzalez, a 23-year-old US citizen who was among at least 130 people killed in coordinated Islamic State attacks in Paris in November 2015. The family argues that YouTube should be held accountable. for automatic Islamic State video recommendations.

Websites and ad networks automatically target ads based on the information they collect about users, including their location, browsing history, topics they follow closely, and more. Ads are placed on websites using online tools without human intervention.

Google declined to comment on this case. But in his Supreme Court memo, he said he was concerned about the impact the case would have on the economy, including on advertisers. Meta believes Section 230 protects the company from liability for all content from third parties, including advertising, and the social media giant is concerned that the court could weaken that protection, a spokesperson for Meta confirmed.

According to experts, the Supreme Court’s sweeping decision could effectively destroy the online personalized advertising business and bring online advertising back to the early 1990s. It could also force platforms to sue a wave of lawsuits over the millions of ads they target users, leading to exponential legal costs for smaller ad networks and exchanges.

• QuickTake: Why “Section 230” became the subject of controversy due to online speeches

“If we don’t target ads, we’re back to the old ’90s ‘watch who bites’ model,” says Jess Meyers, legal counsel for tech-funded group Chamber of Progress. Myers previously worked at Google.

Together, Google and Facebook generate nearly 50% of all digital advertising revenue worldwide. Companies that call the “duopoly” of online advertising collect a lot of data about their users in order to show them relevant ads – a business that makes both companies billions of dollars a year. In 2022, Google generated $168 billion in ad revenue, while Meta generated $112 billion, according to Insider Intelligence. Google is projected to reach $73.8 billion in revenue this year in the US alone, while Meta’s revenue is $51 billion. The Supreme Court ruling will only apply to the US, but it will be technically difficult for companies to advertise in their largest market differently than elsewhere in the world.

Companies are already facing legal challenges because of the ads they run, especially those that deal with sensitive issues like health care, politics, job opportunities and more. With few exceptions, Facebook and Google have been successful in getting most of the cases that would have held them liable thanks to Section 230.

That could change quickly if the Supreme Court decides to narrow down Section 230. While the shield protects companies from lawsuits over content created by ordinary people, Katie Gellis, a California attorney who has represented tech companies in online speech cases, said, that ads can be classified as “user-generated content” if the Supreme Court’s decision is broad.

• More: Google’s Supreme Court case risks upending the Internet as we know it.

The digital advertising industry is already under fire as governments around the world crack down on companies collecting too much information about people without their consent and violating their privacy. Privacy rules in countries, including the European Union, that limit the amount of data companies are allowed to collect about users, have already placed a huge strain on the digital advertising ecosystem, Beckman said.

“As an agency, we are already implementing new marketing initiatives to not only combat what we think will happen if 230 is restricted, but in the face of these new third party data privacy restrictions,” Beckman said. He said the era of “beautiful” and distinctive advertising may be returning as advertisers can no longer rely on the hyper-personalized and cheap ad networks they’ve become accustomed to. While targeted advertising has allowed firms to effortlessly reach targeted audiences, moving away from algorithmic recommendations may require advertisers to do more to capture attention.

Myers said it’s likely that Google and Facebook will face the brunt of the lawsuits, which the court is easing in Section 230. But smaller ad agencies and ad networks will face a “trickle down” effect.

Online advertising is so important to Meta and Google’s business models that it’s likely they’ll try to challenge it in court, said Gellis, a California attorney. They will try to deal with legal fees and see if they can win cases on the merits. “Everyone will try to get out as best they can,” Gellis said.

According to some critics of technology companies, moving away from targeted advertising on the Internet could benefit some of the Internet’s most vulnerable users. Children’s advocacy group Common Sense Media and Facebook whistleblower Francis Haugen argued in a Supreme Court briefing that Google’s video and ad recommendations could create a “feedback loop” that sends kids and teens down rabbit holes that could revolve around eating disorders, self-harm and extremism. In their opinion, Google and Facebook should better control the ads they show to younger audiences.

The case could come as “a shock to many businesses,” said Eric Goldman, a professor of law at Santa Clara University School.

“There are so many ads being delivered dynamically right now,” Goldman said. “If this dynamic evaluation is an algorithmic recommendation that disqualifies the ad network for 230 protection, then the ad industry should do something else.”

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