In September 2023, internet search engine giant Google announced its artificial intelligence chatbot Bard being integrated (with a ‘pull information’ capability) with the tech venture’s other apps like Gmail, Google Docs, YouTube and more.
However, this is not the news the world is interested in, as the Sundar Pichai-led venture is facing the steepest challenge of its 25-year-old operational history, in the form of an antitrust case being filed by the United States Justice Department.
So What’s The Deal Here?
The Joe Biden government argues that from 2010, the tech venture started using ‘anti-competitive tactics’ to maintain its search engine monopoly. These tactics were drawn around Google’s expertise in default settings, internal communication strategies, and consumer impact.
The US Justice Department has accused the venture of using the “power of defaults” to strike deals, ensuring its prominence in web browsers and operating systems. Google allegedly secured agreements with Apple and Mozilla Firefox to make Google the default search engine in Safari and Firefox. The arrangements also made the Android manufacturers prominently feature a Google search widget on their phones.
Google, meanwhile, has approached the European Union’s top court, as it faces an antitrust fine of 2.42 billion euros (USD 2.6 billion), imposed in 2017 for market abuse related to its shopping service.
Google has been defending its advertising auctions tweaking (increasing ad prices by 5%-10%) as a mechanism to meet revenue targets.
In fact, a top executive of the United States-based telecom giant Verizon testified that his company did not seek other bids before sealing a recent Google deal to be the default search engine on its smartphones.
Brian Higgins, the individual under the spotlight here, helped negotiate Verizon’s deals with Google from 2017 to 2023. As he failed to disclose the reason behind the telecom giant not opening the bidding process for other tech companies, it could support a key argument for the DOJ’s charge of Google paying a hefty amount of cash to secure crucial default status for its search engine and drive more users away from its rivals.
Google has credited its 90% market share for being a superior search platform, as its users can easily switch to rival search engines even if it’s the default.
However, Antonio Rangel, a California Institute of Technology economist, countered it by stating that Google’s defaults discourage users from switching to another search engine. Rangel also cited an example where switching to Bing from Google on an Android 12 phone required 10 steps.
The DOJ also revealed that Apple intended to provide users with a choice screen to select between Google and Yahoo as their search engine. However, Google rejected this proposal with the statement “no default placement, no revenue share.”
DOJ’s lead attorney Kenneth Dintzer termed Google’s action as a monopolistic one, apart from stating the fact that the search engine pays USD 10 billion a year to maintain its default status.
Google counter-argued by stating that it indeed faces competition from rivals like Amazon, Microsoft’s Bing and Yelp, but the challenge is an ‘inferior one’.
Chris Barton, who worked for Google from 2004 to 2011, informed the US court that negotiating deals to make Google the default search engine on mobile devices was a top priority during his time at the company. In return for the ‘default status’, phone service providers and manufacturers were guaranteed a portion of Google’s ad click revenue.
Do DOJ’s Allegations Hold Water?
Since its formation in 1998, Google has carved out 90% of the search markets in the United States and other parts of the world (except China).
In 20005, Google took over Android, followed by digital ad vendors DoubleClick (2007), AdMob, Invite Media, Admeld, Applied Semantics, and Sprinks.
In 2010, Google paid USD 700 million for ITA Software, which licensed a tool for finding flight deals to travel search engines. Google used the deal to develop Google Flights, which is now used for searching for travel deals.
Now be it finding travel deals or web searches in general, Google has become an all-encompassing digital domain, comfortably outpacing its contemporaries like Yahoo and Microsoft, through the above-mentioned mergers and acquisitions.
Smartphones have been the fastest-growing source of global internet search traffic, accounting for about 60% of all searches. Android runs on seven out of every 10 mobile devices, thereby helping Google to secure deals with smartphone ventures to establish itself as the default search engine on most of the world’s devices.
In exchange for preloading Google apps onto their devices and making Google the default search engine, smartphone manufacturers reap the benefits of Google’s generous revenue-sharing agreements. Google is the default search engine on all Apple devices, and it accounts for 15-20% of the tech giant’s revenue.
Google also uses web crawlers, software that looks for and indexes publicly available web pages.
“Creating and maintaining such a search index would require an upfront investment of billions of dollars, and hundreds of million dollars in maintenance costs per year, effectively shutting out smaller competitors from entering the market,” alleged the DOJ lawsuit.
This alleged monopolization of search also amplifies Google’s ability to maintain a superior product, the lawsuit further stated.
Google, as per the experts, ensures its domination by the ability to collect massive volumes of data and then use these larger data sets to create more accurate algorithms, which in turn results in better search results targeted to each individual user. According to the DOJ, this practice helps Google to unfairly protect itself from the competition.
The online search advertising industry, which is currently a USD 50 billion market, sees advertisers paying around USD 40 billion to Google on a yearly basis.
The Road Ahead
Google admitted to ‘frequently changing’ the terms of the auctions it uses to sell search ads, apart from increasing the cost of ads and reserve pricing by as much as 5% for the average advertiser. Sometimes that ratio goes up to 10%, stated Google Ad executive, Jerry Dischler, during the federal antitrust trial, while adding that his company “does not inform the advertisers about pricing changes.”
As per the analysts, this admission can strengthen the Justice Department’s case against Google, as it can argue that “increased competition could have addressed other issues, such as privacy standards, in the search industry.”
The ball is in the court of District Judge Amit Mehta, who may issue a verdict only by early 2024. Even if DOJ’s charges are proven, another trial will be required to decide the steps against Google.
If the verdict goes in favour of the DOJ, it will ensure that Google won’t be the automatically installed default search engine on smartphones. It will open the digital space for competition in the United States (with far-reaching consequences in other parts of the world as well).
Will the above scenario emerge? To get the answer, we need to wait for a few more months, if not years.