Google’s Great Divide

Will the government shatter the search giant?

Google’s recent antitrust setback marks a watershed moment in the regulation of US megatech, raising questions about the future of one of the America’s most powerful companies—and possibly innovation in the United States. The last thing America needs in the competitive global economy is an own-goal setback from its Justice Department.

Let’s dig into what happened, and what it means.

Google Loses Its Antitrust Case

On August 5, Google (GOOG $162 +15% YTD) lost its antitrust case with the US Department of Justice.

Judge Amit P. Mehta of the US District Court for the District of Columbia wrote in his ruling that “Google is a monopolist, and it has acted as one to maintain its monopoly.”

He ruled that Google illegally maintained its monopoly over internet search services and search advertising, and violated Section 2 of the Sherman Antitrust Act by engaging in anticompetitive practices, especially through exclusive distribution agreements, which, the court found, locked out competitors and snuffed out innovation. Such practices helped cement Google in place atop the market.

Judge Mehta wrote: “Google’s distribution agreements are exclusive and have anticompetitive effects. The court also finds that Google has exercised its monopoly power by charging supracompetitive prices for general search text ads. That conduct has allowed Google to earn monopoly profits.”

Google will appeal. Its global affairs president Kent Walker wrote in a statement: “People are increasingly looking for information in more and more ways, we plan to appeal. As this process continues, we will remain focused on making products that people find helpful and easy to use.”

The DOJ is considering several remedies.

One is preventing Google from making its search engine the default on various platforms, such as Apple’s Safari and other browsers. Another is—gulp, for Google—breaking up the company. It’s possible that Google will be forced to divest its Android and Chrome units.

An Odd Monopolist

But if Google is a monopoly, it’s an odd one that’s easy to escape.

Ask yourself: How hard is it to switch, right now, to a different search engine? One click away, yours for the taking, await the likes of Bing, DuckDuckGo (powered by Bing), Entireweb (powered by Bing and Yandex), Mojeek, Yahoo (powered by Bing), and the growing cohort of AI-driven search engines, currently led by Perplexity.

For a visual of major non-AI search engines, see the Search Engine Map. You might be surprised by the plethora of choices—and it’s easy to make any of them your default, as explained by Make Use Of.

These alternatives are good, too. Google is better at some things, but not all, and most professional researchers known to me (and including me) routinely switch among multiple engines to get a complete picture of what’s available online. Even casual searchers, however, may end up preferring results from, say, Bing.

For example, when you’re searching for a specific restaurant, Bing presents a profile complete with photos, address, phone number, website, review summary, and other mainstays of a business profile—just as Google does. In each engine’s results, key elements are clickable, such as the website and phone number.

Search results are becoming a commodity in the sense that much of what each one needs to provide is obvious. What else would you hope to find when searching for a restaurant than what each engine gives you?

If it’s easy to switch to any search engine, and all of them deliver the basics pretty well, then where is the consumer harm in Google’s supposedly monopolistic behavior?

It’s hard to see any, but the DOJ remains focused on curbing what it perceives as Google’s excessive market power, regardless of consumer behavior.

We could say that Google is better at certain search capabilities, maybe maps. Google Maps is one of my favorite mapping applications. Others have come a long way but Google Maps is more complete and universal, and its navigation is top-notch. Is this because it manipulated its way to being great or because it invested a lot, worked hard, and became the best? I submit the latter, combined with smart business strategy, such as paying to make itself the default search engine in various places.

Judge Mehta acknowledged Google’s quality, writing: “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.”

If so, why is it surprising that it’s by far the most popular? According to Judge Mehta, 90% of searches go through Google. There’s a reason it became a verb, after all.

Is the purpose of antitrust law to punish companies that innovate their way to the top? I didn’t think so.

“Monopolist” should equal a company that unfairly blocks competition, not one that becomes so good that everyone wants its product over others. There’s nothing unfair in that. Has Google restricted consumer choices or engaged in price gouging? Given that it’s easy and free to switch to other search engines, and all search engines are free, I don’t see how. Have you been harmed by Google’s search prowess?

The DOJ seems to be accusing Google of being too good at what it does, to the detriment of no users. Competitors hate it, sure, but that’s because it’s so good. No searcher is harmed by the existence of Google.

Apple Dislikes This Ruling

Google is engaged in a number of exclusive distribution agreements with smartphone makers, browser developers, and other companies.

These are seen as monopolistic to the DOJ, but Google pays for them, and the resulting out-of-the-box default to Google is easily overridden, as mentioned above. If you don’t like Google being your default search engine, take all of one minute and three steps to select an alternative. Even after Google pays billions to be the default, you can easily go your own way.

Guess who would be unhappy if Google were forced to stop paying to be the default? Apple, among others. It’s the biggest partner in Google’s default search deals, and receives an undisclosed percentage of Google’s ad revenue from searches on iPhones and Apple’s Safari wherever it’s used. In 2022, Google paid Apple $20B from this arrangement. The amount has probably grown since then.

If the DOJ compelled Apple to choose a different search provider, where would it go? Nobody but Microsoft could afford to compete with Google, and it’s been accused of being a monopoly itself. Many other search engines, such as DuckDuckGo, already partner with Microsoft’s Bing for their results, which would make it hard to determine revenue sharing with them without including Microsoft. But in what world is justice served by punishing megatech Google to help megatech Microsoft? Microsoft’s world, presumably, but that’s the only one.

Maybe the conclusion would be that Apple can’t get paid by anyone to become the device maker’s default search engine. Objections, anyone? Is that Apple I see raising its hand in the back?

What If Choice Equals … Google?

Maybe the European Union’s approach is best. In 2021, the EU forced Google to present European users of Google’s Android phone operating system with a choice of default search engines during the setup of their phones.

And the winner was—drumroll, please—Google.

StatCounter reported that more than 90% of search engine market share in Europe stayed with Google, exactly as it is everywhere else in the world, whether Google is the default or not. Imagine Apple’s reaction if, after DOJ meddling, Google were forced to stop paying Apple to remain its default, only to see 90% of Apple users continue using Google anyway. The only difference from Apple’s perspective would be that it no longer received $20B+ each year from Google. Thanks, DOJ.

No Matter, Rip Google Apart

The New York Times reported earlier this week that the “most extreme” proposal is to amputate a substantial part of Google’s business: “That could mean the company would have to spin off Chrome, its web browser, or Android, its software for smartphones. Both of those products use Google as the automatic search engine, which helps fuel the company’s dominance, Judge Mehta said.”

Small wonder that competitors offer ideas for reining in Google.

For example, DuckDuckGo, which says it has been harmed by Google’s dominance, suggested that Google’s exclusive default search engine arrangements should be banned. Instead, rivals should receive Google’s search and ad data to create a level playing field, and users should see search engine selection screens when setting up devices and browsers, and shown how to pick a new search engine.

Well now, that would be convenient for Google’s rivals, but didn’t the EU already try this? I would like to see Google call this bluff. “All right, no more paying for exclusive defaults. Go ahead, everyone, make your search engine choice screens and educate the public all you want. Just spell our name right and use our logo, and we’ll be fine maintaining our 90% market share for free.” This is what happened in the EU.

That would beat being broken up, wouldn’t it?

After all, Google already aced out rivals more than two decades ago. I switched to it from the likes of AltaVista, Lycos, and HotBot because it was better. It kept getting better. It’s still better at much of what it does. When it’s not better, I take the requisite two seconds to switch elsewhere.

America Should Not Handicap Its Winners

In a world of global competition, maybe America should stop handicapping its megatech treasures.

Chopping off Android and Chrome from Google could bring bad implications for consumers, ironically in terms of market competition and innovation.

Chrome, like many web browsers, operates on razor-thin margins and relies on Google’s financial support to remain a viable alternative to Microsoft’s Edge and Apple’s Safari. Without this support, Chrome’s future as an independent entity would be precarious, potentially leading to it being gobbled up by another megatech or its outright disappearance. That would reduce consumer choice in the browser market, which is already dominated by a few key players.

Android’s fate would likely mirror that of Chrome. The development of Android is heavily subsidized by Google, which has a vested interest in maintaining a competitive counterbalance to Apple’s iOS. Should Google end its involvement, the burden of development would fall to companies like Samsung in the near term. However, Samsung’s incentive to share innovations with competitors would be minimal, leading to higher costs for alternative mobile operating systems. Smaller phone manufacturers could be driven out of the market, which would stifle innovation and lead to less diversity in consumer options—until China sensed opportunity and filled the vacuum left by Google’s take down.

The DOJ’s well-intentioned efforts to protect consumer choice may paradoxically lead to less competition and innovation.

Apple and Google could end up the biggest losers in this deal, and foreign competition the biggest winners. Just what America needs in the global economic competition.

Two decades ago, Intel was accused of anti-competitive practices and fined by the EU. This weakened Intel and contributed to enabling Taiwan Semiconductor to capitalize on Intel’s challenges, which also included strategic missteps, such as underestimating the growth potential of the mobile and custom silicon markets.

Google has made no such major strategic missteps, with the possible exception of allowing OpenAI to take the AI lead. If the US government scores an own-goal by weakening one of America’s premier technology companies because its innovation success led to market dominance, it may not only discourage further innovation and global competitiveness at Google, but all American firms.

The unwitting message could become: “Don’t do too well, or Uncle Sam will destroy you. Less excellence, please, America.”