Can Anyone Stop Google’s Illegal Monopoly?

It took four years of arduous preparations for the U.S. Department of Justice (DoJ) to secure a broad antitrust lawsuit against Google’s dominance in internet search, and what this will ultimately mean will depend on the next steps, writes FT.

The same judge who declared Google a ‘monopolist’ this week, Amit Mehta, will now decide what measures to take, from limiting the ability to enter into agreements, which were key to the case, to possible forced breakup of the company.

These measures could transform the business that has elevated Google’s parent company, Alphabet, under CEO Sundar Pichai, among the most valuable companies in the world. However, the measures could also be too weak and too late to stop Google’s dominance, whose name has become synonymous with internet search.

The last major antitrust victory for the DoJ against Microsoft highlights the slow and often political nature of antitrust regulation. That ruling from 2000 ordered the breakup of Microsoft for illegally stifling competition, but it was later overturned on appeal. Microsoft later reached a settlement with the new, business-friendly administration of George W. Bush.

Breaking Up the Company

The DoJ has not yet confirmed what measures it will seek against Google, but the most ambitious would include breaking up the company or spinning off its Chrome web browser or Android mobile operating system. Such structural measures are rarely undertaken and approved, but experts say that Jonathan Kanter, head of the DoJ’s antitrust division, known for vigorous law enforcement, may consider proposing them.

Simpler penalties would include banning or reducing Google’s ability to pay smartphone manufacturers like Apple and Samsung, or browser developers like Mozilla, to position itself as the default search engine.

– Google has good lawyers and will not sit idly. Our message to investors is not to draw final conclusions because we suspect that things are not as bad as they seem – said Ben Reitzes, a technology analyst at Melius Research.

According to Mehta’s ruling, nearly 90 percent of all searches in the U.S. in 2020 were conducted via Google, while on mobile devices that percentage rises to 95 percent. This means that Google truly has no competitors, as the closest, Microsoft’s Bing had only a 6 percent share of the search market.

The advertising business that Google has built around its search engine generates enormous revenues. Last year, $175 billion came from advertising, more than half of the total $307 billion in company revenue. The company has spent lavishly to protect its key sources of revenue: Mehta stated that Google’s total payments to Apple and Mozilla to set it as the default search engine exceeded $26 billion in 2021.

EU and Digital Markets

The European Commission has been trying for years to rein in Google’s market power, but despite imposing fines worth billions of dollars, the search giant has maintained its dominance in the region.

Following the Commission’s ruling in 2018, which found that Google abused its dominant position in the smartphone market, Android manufacturers must offer European users a choice of search engines when first using the device.

The EU’s new Digital Markets Act, which came into force in March this year, imposed new rules on ‘choice screens’ on mobile devices and prohibited Google from favoring its own services in search results.

However, Brussels’ interventions have not significantly affected Google’s monopoly. According to online activity tracking data from Statcounter, Google still held over 90 percent of the search market share in Europe in July.

– It is clear that both Europe and the U.S. share concerns about the abuse of Google’s dominant position. However, what the Digital Markets Act has shown so far is that it is very difficult to reintroduce competition once it has been stifled… The U.S. will now have the opportunity, in collaboration with the district court, to devise creative measures that could break Google’s illegal dominance – said Bill Baer, who led the DoJ’s antitrust division during the Obama administration.

Federal agencies in the U.S. acted slowly while Google built its empire. The FTC spent two years investigating Google for allegedly favoring its own content in search results, but the case was closed in 2013 due to lack of evidence. Since then, Google’s share of searches in the U.S. has only grown, offering poor prospects for large tech and startup competitors that could invest in developing alternative products.

By the time measures are determined and all appeals are exhausted, ‘the central argument of the case may no longer be pragmatically relevant, as was the case with Microsoft two decades ago,’ said a former Google manager who now works for a competing company.

– The real effect on Google currently is the slowing down of executives who have to manage these issues – which creates real opportunities for other startups – added.

However, an attorney specializing in antitrust law disagreed, arguing that Mehta could impose ‘temporary measures while appeals are ongoing.’

In responding to arguments from the Microsoft case, the DoJ compared Google’s exclusive agreements to those Microsoft made with PC manufacturers to promote its Internet Explorer browser and destroy rival Netscape. Some point out that Google’s case is backward-looking, given the threat that the emergence of generative artificial intelligence and chatbots could pose to traditional search engines.

AI is Coming

OpenAI is developing a prototype search tool called SearchGPT to compete with Google, funded with $13 billion through a partnership with Microsoft and billions more from venture capital. The startup has also signed a deal with Apple to integrate ChatGPT into Siri to answer questions, which could reduce the number of searches within the Google-powered Safari browser. Other rapidly growing AI search engines include Perplexity and You.com, although their threat to Google is still not significant.

– The way SearchGPT develops will have a significant impact on the final resolution of this case and on how the industry manages the potential rise of new disruptive offerings – added the former Google manager. – It can be argued that nothing in the last 20 years has really disrupted Google – he concluded.

Whatever measures are chosen, Mehta’s conclusions emphasize how the American political backdrop for enforcing antitrust laws has turned its back on big tech companies. For years, American antitrust policy tolerated the growth of corporations as long as consumers were not harmed by higher prices.

However, Donald Trump broke with the more lenient antitrust approach of his Republican predecessors. The investigation into Google’s search engine began during his administration before moving to the jurisdiction of Joe Biden’s administration, which has set up a progressive team of antitrust litigators, including Kanter and FTC Chair Lina Khan.

Kanter’s DoJ will face Google again next month in a separate trial over digital advertising, and there is another ongoing case against Apple. The FTC is pursuing lawsuits against Meta and Amazon. Mehta’s ruling is a ‘tailwind’ for those efforts as it shows that the government can win.

There is no guarantee that a second Trump administration, if it wins the elections in November, would be more favorable to tech giants — and the fight against the power of these companies has proven to be a popular stance among both political parties.

This has forced tech companies to defend cases that threaten their empires. One source familiar with Google’s thinking described the current American approach to antitrust laws as ‘Calvinball’ – a reference to the Calvin and Hobbes comic strip, in which a six-year-old makes up the rules of the game as it goes along, constantly changing them.

In the current AI frenzy, large tech companies are also changing their deal-making strategy. Google, Microsoft, and Amazon have recently been conducting so-called ‘acqui-hire’ acquisitions of employees from promising AI startups, which critics say are designed to circumvent antitrust rules.

According to Baer, Mehta’s ruling ‘strengthens the principle of American antitrust law that, while you can become big because you came up with a better idea or were first to market… you cannot then take steps that prevent anyone else from challenging you and succeeding in that market.’