Featured Article : Google in Monumental Monopoly Ruling
Four years on from Google being sued by the US Department of Justice over its control of about 90 per cent of the online search market, a US judge has ruled that Google acted illegally to maintain a monopoly on its online search and the associated advertising.
Building and Defending a Search Monopoly
Following a ten-week trial, in a 277-page opinion, US District Judge Amit Mehta, said: “Google is a monopolist, and it has acted as one to maintain its monopoly.” Following this landmark ruling, the judge laid out his reasons for finding Google guilty of violating antitrust laws through building and defending a monopoly. He highlighted how Google had spent spending billions of dollars to secure exclusive agreements with developers, carriers, and equipment makers to be the default search engine. For example, the judge said Google had done this using:
– Exclusive agreements. Google spent billions of dollars to secure agreements with phone/device manufacturers, carriers, and browser developers to make Google the default search engine on various platforms. As the judge put it, “The default is extremely valuable real estate. Because many users simply stick to searching with the default, Google receives billions of queries every day through those access points.” Underlying this is the basic assertion by the judge that if Google search were not the default (which it paid to be), or there was another search engine as the default, users would not end up using Google.
– These deals by Google effectively locked-out competitors (with much smaller budgets) from gaining market share in the search engine industry. For example, Google paid billions of dollars annually to Apple, Samsung, Mozilla, and others (typically paying a massive £7.8bn a year) to be pre-installed as the default search engine across platforms (see below).
– Pre-Installation on devices. Google ensured that its search engine was pre-installed and set as the default on a wide array of devices, including mobile phones, through agreements that required manufacturers to do so in exchange for access to the Google Play Store and other Google services. This strategy helped to reinforce Google’s dominant position by making it very difficult for consumers to switch to alternative search engines, thereby shutting out competitors and limiting choice.
– Restricting competitors. The judge’s ruling also highlighted how Google restricted competitors from gaining traction, i.e. by preventing other search engines from being easily accessible or discoverable on devices that carried Google as the default option. These tactics were seen as deliberately designed to suppress competition.
– Manipulating market outcomes. Judge Mehta also pointed out that Google’s extensive financial resources and strategic partnerships enabled it to manipulate market outcomes in its favour, thereby further entrenching its monopoly power. The judge argued that by maintaining control over key distribution channels, Google was able to secure and sustain its dominance in the market.
Dominance
The level of dominance Google has achieved is made clear at the beginning of the Judge’s ruling statement where he highlighted how Google’s dominance has gone unchallenged for well over a decade. For example, the statement highlights how, in 2009, “80 per cent of all search queries in the United States already went through Google” and by 2020, “it was nearly 90 per cent, and even higher on mobile devices at almost 95 per cent”. The statement also illustrated the gulf between Google and its competitors, saying “The second-place search engine, Microsoft’s Bing, sees roughly 6 per cent of all search queries—84 per cent fewer than Google”.
Money Spent On Agreements Vs Finacial Return
The recent case has exposed how Google maintained its monopoly by spending billions on exclusive agreements to be the default search engine on devices and browsers but did so because the returns from its search advertising would be so much greater.
For example, the payments it made included both direct deals with companies like Apple and revenue-sharing arrangements that incentivised partners to prioritise Google over others. The financial return for Google came through its highly profitable search advertising model. In short, by ensuring it was the default option, Google maximised the volume of searches conducted on its platform, leading to a vast number of ad impressions and clicks (seeing and clicking on the ads shown on its search engine results pages.
The revenues from search advertising significantly outweighed the costs of these agreements, making this strategy extremely profitable for Google. This was a key aspect of the judge’s reasoning, illustrating how Google’s investments in maintaining its monopoly paid off financially.
Search Innovation Has Suffered
In ruling that Google acted to build a monopoly to the point that “There is no genuine ‘competition for the contract.’ Google has no true competitor”, the judge also highlighted how this situation may have affected the evolution of search. For example, the judge made the point “The distribution agreements have caused a third key anticompetitive effect: They have reduced the incentive to invest and innovate in search.”
Win For The People?
The US Justice Department, which brought the case against Google, was clearly happy that the outcome was not just a victory for its Antitrust Division, but as Attorney General Merrick B. Garland said: “This victory against Google is an historic win for the American people”. Mr Garland also made the point that “No company – no matter how large or influential – is above the law” and that “This landmark decision holds Google accountable. It paves the path for innovation for generations to come and protects access to information for all Americans.”
Defence
Some of the key arguments put forward by Google’s lawyers in its defence centered around:
– Google’s innovation and competition. For example, Google emphasised that it faces significant competition from other tech companies including Amazon and TikTok, which serve different user needs. They argued that the company’s success is due to its continuous innovation and improvements in search quality, i.e. making it legitimately the best search engine, not simply anticompetitive behavior.
– Consumer benefits. It was also argued that the agreements Google made to be the default search engine actually benefited consumers by providing a superior search experience. They argued that these practices led to better products and services for users.
– Lawful agreements. The defence contended that the agreements Google secured with device manufacturers and other partners were lawful business practices, common in competitive markets. They insisted that these contracts were not designed to stifle competition but were part of standard industry practices.
It’s worth noting also that even the judge appeared to acknowledge at least Google’s efforts over the years to reach its dominant position, saying: “Google has not achieved market dominance by happenstance. It has hired thousands of highly skilled engineers, innovated consistently, and made shrewd business decisions. The result is the industry’s highest quality search engine, which has earned Google the trust of hundreds of millions of daily users.”
Structural Relief
The outcome of the judge’s ruling that Google acted illegally to maintain a monopoly on its online search is that it could pave the way for ‘structural’ remedies in the future, i.e. ‘structural relief’, especially if Google’s anticompetitive practices are not curbed through other means.
In antitrust law, structural relief essentially refers to remedies that involve altering the structure of a company to restore competitive conditions in a market. This could, for example, include breaking up a company into smaller entities, divesting certain business units, or making changes to the company’s ownership or operations to reduce its market power. It should be noted, however, that Judge Amit Mehta, did not immediately mandate such measures in this case.
What Now?
Google is, of course, expected to appeal the ruling. The legal process has already taken several years, and the appeal is likely to extend the case further. However, following the ruling, what structural relief could actually mean for Google and its Search could include:
– Breaking Up Google as we know it. This most extreme option could involve splitting Google into separate entities, such as divesting the search engine from other services like Android and YouTube.
– Ending default agreements. Google may be prevented from paying companies like Apple to be the default search engine, possibly encouraging the development of rival search engines.
– Introducing user choice screens. One interesting idea is that users may end up being presented with a choice of search engines when setting up devices.
These changes could impact both Google’s market dominance and user experience, although significant shifts like this (and the appeal) are likely to take quite some time.
What Does This Mean For Your Business?
This monumental ruling against Google appears to mark a pivotal moment not just for the tech giant but for the entire digital ecosystem. For Google, the immediate future involves navigating legal appeals while potentially reassessing its business strategies that have long hinged on securing default positions across devices and platforms. Should structural remedies be enforced, Google’s operations could undergo significant transformations, possibly leading to a more fragmented corporate structure and altering how its services are integrated across products.
For competitors, this ruling could open a gateway to previously inaccessible markets. For example, search engines like Microsoft’s Bing, DuckDuckGo and other emerging players may now stand a chance to gain traction, especially if default agreements are dismantled. This could invigorate innovation in search technologies, offering diverse experiences and features that cater to varied user preferences. The potential for increased competition might also drive down advertising costs, presenting new opportunities for businesses to diversify their digital marketing strategies.
Companies that had agreements with Google, such as device manufacturers and browser developers, may now find themselves at a crossroads. The lucrative deals that once ensured Google’s default presence could be scrutinised or prohibited, compelling these companies to reevaluate their partnerships and possibly explore collaborations with alternative search providers. This shift could foster a more competitive bidding environment, benefiting these companies through diversified revenue streams and partnerships.
The market, in response, may now be poised for a renaissance of competition and innovation. The dismantling of monopolistic practices may lead to a more leveled playing field, perhaps encouraging the emergence of niche search services tailored to specific industries or user needs. This diversification could stimulate advancements in search algorithms, user interfaces, and integration with other digital services.
For businesses that rely heavily on search engine marketing, this ruling could have far-reaching implications. As the dominance of Google faces potential dilution, companies may need to adapt their SEM strategies to account for a broader array of platforms. This could mean diversifying ad spend across multiple search engines, learning to navigate different advertising ecosystems, and potentially even adjusting key performance indicators (KPIs) as new competitors enter the market.
The potential increase in competition among search engines might lead to more competitive advertising rates, which could be advantageous for businesses looking to optimise their SEM budgets. However, this could also introduce complexity, requiring businesses to manage and optimise campaigns across several platforms rather than focusing solely on Google. The need for specialised knowledge in multiple search engine algorithms and advertising models will likely increase, necessitating further investment in digital marketing expertise.
