This article first appeared in The Edge Malaysia Weekly on August 12, 2024 - August 18, 2024

IF you want to know what a big global monopolist looks like, look no further than Google. The search behemoth hands out over a whopping US$50 billion every year in “traffic acquisition cost” payments to device makers like Apple and Samsung Electronics, US wireless carriers AT&T, Verizon and T-Mobile as well as browser developers such as Mozilla, Opera and UC Web — which compete with its own Chrome and Apple’s Safari — to secure default status for its eponymous search engine. Court documents recently revealed that Apple alone receives more than US$20 billion every year to make Google the preferred search engine on its devices. Google also disincentivises counterparties from dealing with competitors because it requires placement of Google apps in prime device positions.

On Aug 5, the US District Court for the District of Columbia ruled that Google, a subsidiary of Alphabet Inc, had violated Section 2 of the Sherman Act, which prohibits monopolies. In an extensive 286-page ruling, DC Judge Amit Mehta found that Google had used its monopoly to strengthen its position through exclusive deals with Apple and others to be the default search engine on iPhones and devices running on Google’s own mobile operating software, Android. He ruled such deals as illegal because they helped Google maintain a monopoly. Google is appealing the ruling.

For its part, Google has long argued that its 90% dominant share of the search market is because it is a superior product — not because it has financial deals with Apple or other device makers that give it an unfair advantage over rivals. Google argues that it should not be penalised for making its product easily available. The search engine giant highlighted that the default inclusion of rival Microsoft’s Bing on the Windows operating system has not significantly helped Bing’s market position over the years. Mehta in his ruling agreed that despite being a “monopoly”, Google has had by far the best search engine on earth and had spent a lot of money every year to keep improving it, something that monopolies are loath to do.

Google adopts two distinct strategies to foreclose distribution to rival search engines. To gain search exclusivity on Android phones, Google “bundles” its proprietary software Chrome browser, Google Maps, Google Pay and YouTube with its search. Phone makers like Samsung and LG or Chinese and Indian firms that licence the software are forced to use Google search as default. To gain exclusivity to Apple devices, Google pays the iPhone maker over US$20 billion every year.

It is a chicken-and-egg dilemma. Foreclosing distribution puts up a barrier to entry for competing search engines like Yahoo, Bing or Duck, Duck, Go. Because they don’t have effective distribution, they are denied the scale that is necessary to compete. Moreover, since the complex search algorithms are constantly learning, an adequate scale is necessary for high-quality search results. As a dominant search engine, consumers have become attached to Google. Even though switching appears to be relatively easy, consumers’ reluctance to switch itself has become a formidable barrier for competitors.

While Google was deemed a monopolist in general search, Judge Mehta found that the global giant did not have a monopoly in search advertising, thanks to the presence of Meta Platform, Amazon and predominantly bricks-and-mortar retailers like Walmart which have emerged as formidable ad market players in their own right. The ruling could upend Google’s legacy search monetisation model. Its parent Alphabet is the world’s fourth-largest enterprise, behind Apple, Microsoft and AI chipmaker Nvidia, and now has a market capitalisation of US$1.9 trillion.

In 2000, a similar antitrust ruling stymied software giant Microsoft for nearly a decade, allowing Google to become undisputed leader of the internet era and later paving the way for social media giant Meta to get the reach it has now. Over 40% of people on earth use one of Meta’s Instagram, WhatsApp, Facebook or Messenger every day. Will the latest ruling weigh on Google the same way and facilitate generative artificial intelligence (AI) players like OpenAI to overtake Google? Regulators have also accused Meta, Apple and e-commerce pioneer Amazon of violating antitrust laws, including stifling competitors’ products or buying out challengers to strengthen their own monopolies.

Founded by Stanford University students Larry Page and Sergey Brin, the holding company now called Alphabet has grown into an internet behemoth that is expected to rake in US$350 billion in revenue this year, up 13% from last year. The bulk of it comes from search advertising but Google is also the No 3 cloud infrastructure player behind Amazon’s AWS and Microsoft’s Azure. Through Waymo, it is also the leader in robotaxis, a market that billionaire Elon Musk’s Tesla Inc still has not cracked. Americans rely on YouTube for 40% of their video streaming. I cancelled my Pay TV subscription last year and now only subscribe to YouTubeTV, which gives me access to more than 100 channels of filmed entertainment, news and sports.

Google’s controversial advertising technology (adtech) business was not subject to the latest ruling. That case goes before a trial judge on Sept 9, with a ruling most probably by early next year. Clearly, the adtech case against Google is much more serious than the case on monetising search. If Google loses that adtech case, the judge could rule that the company be broken up, just as the judge in Microsoft’s case ruled nearly 24 years ago. Even though that ruling was ultimately overturned, it caused Microsoft to lose a lot of ground. It took the software firm two decades to get its mojo back.

The search engine monopoly lawsuit now moves to a remedies phase next month, after which appeals would take place. The plaintiffs in the Google search case could ask for drastic structural measures, such as a breakup of the search giant from its Android or Chrome or ask that the court simply enjoin Google from its alleged anticompetitive practices. “The court could require Google to offer choice screens, where users select which search engine they want to use,” notes Tessie Su, an antitrust economist in San Francisco. “Or Google could be required to share its search and click-stream data with rival search engines, that is, the data collected from users while they browse.”

Moreover, Google’s traffic acquisition contracts with Apple and Samsung would need to be renegotiated in accordance with whatever the court defines as “acceptable device placement” agreements. Here is how that will work: Your iPhone or your Galaxy tablet will prompt you to pick a search engine that you like as your preferred search engine. If you want to search on Duck, Duck, Go then Google and your phone maker — Apple, Samsung, Xiaomi — would be obligated to make it easy for you to use it as your preferred search engine.

In Europe for several years now, Google has also been forced to give consumers a choice of “default” search engines when they first set up a new phone. So far, the policy has had little impact on its search market share on the continent. Earlier this year, Google announced changes to its “choice screen” on Android devices to comply with new tougher European rules. Regulators will continue to move the goal posts but Google is smart enough to adapt and work within the new framework.

Most people are fundamentally lazy. They don’t like to change things like the web browser or search engine on their smartphone, tablet or laptop when a new one that is 10% or 20% better becomes available. I will bet that most people would still pick Google even if they were enticed with multiple search engine choices, which is what happened in Europe when regulators there forced Google to make changes and allow Europeans to switch to any search engine they preferred. Google is the devil they know and has so far worked well for them.

Oh, one more thing: Google would rather not take any chances, with Apple. Google’s internal modelling a few years ago projected that it could lose between 60% and 80% of its Apple’s iOS search query volume if it were replaced as the default search engine on Apple devices, resulting in a net revenue loss of U$28 billion to US$32 billion per year. Nearly a decade ago, Apple switched the default map app on the iPhone from Google to its own designed Apple Maps app. Though a free Google Map app was available in the App Store, it took Google more than four years to reach 40% market share on the iPhone while the Apple Maps app retained 60% even though, at least initially, Apple Maps was seen as inferior to Google Maps.

Some analysts I have spoken to say we could see something akin to what happened to Google Shopping seven years ago. Back then, European regulators forced the search engine giant to open up its Google Shopping space to third-party Comparison Shopping Services, which were granted a 20% discount on cost-per-click to ensure they could fairly compete with Google’s own service. Google could introduce Comparison Text Advertising Services to the Google text ad market, thereby dismantling its monopoly in the text ads.

It will be several years before the appeal process on both the major Google cases is exhausted. Microsoft’s antitrust verdict was eventually reversed on appeal in 2002 for a case that began in 1998. Antitrust lawyers say it is likely that Google’s case will be dismissed on appeal as well. The other thing to note is whether former US president Donald Trump returns to the White House next year or his rival the incumbent Vice-President Kamala Harris somehow squeaks in, the new US administration will have a more relaxed attitude about regulating Big Tech firms compared to the hardline approach of President Joe Biden and his Federal Trade Commission chief Lina Khan.

Some analysts believe that the US states that sued Google and Judge Mehta do not understand how monopolies work in the tech world. How can Google be monopolistic if it is paying Apple US$20 billion? Monopolistic power is wielded by not having to pay much for anything. Indeed, massive payments to Apple show that Google truly has to compete hard for distribution against rivals like Microsoft which did not have to pay billions to distribute Internet Explorer when it was deemed to have monopolistic power.

Eventually, technology, not regulation or judges, will resolve the search monopoly issue. OpenAI recently announced SearchGPT, which is still in its experimental beta phase. Google has been testing its own voice-based AI search for months. It will be a couple of years before voice-based AI search becomes ubiquitous and is fully integrated into the iPhone or Samsung Galaxy phone. But unlike the text-based search, which was ad-supported and free, voice-based search from OpenAI will, at least initially, have no ads and you will have to pay for a subscription. The way we search online, and pay for it, is changing. Microsoft was branded a monopolist. It was a laggard for a decade until it reinvented itself first as a cloud player and more recently as an AI player. Google could use a similar playbook.

Assif Shameen is a technology and business writer based in North America

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.