The U.S justice department is in the process of filing an anti-trust lawsuit against Google. These cases represent the biggest challenge to date to Google’s dominance in online advertising. Its most lucrative domain. The new millenium is the right place to find the answer to this lawsuit. That’s when regulators were making their first major effort to rein in the power of big tech and with some success in 2002 the justice department won an anti-trust lawsuit against Microsoft for monopolizing its market.
Bill Gates offered an argument. Other tech titans would later echo. As we notice the pattern now, this decision matches the reality of the high technology industry. We witness a new moment when federal regulators are willing to step up and pursue these cases.
Firefox come online five years later state and federal anti-trust enforcers accused Microsoft of failing to comply with the settlement and this time a tech insurgent named google alleged that Microsoft’s operating system was anti-competitive.
Google complained it was unfair of Microsoft to only allow customers to do desktop searches using windows software. Microsoft relented and allowed in rival search engines but Google’s own regulatory issues would soon emerge in 2008. The justice department’s anti-trust division scuttled a proposed partnership between google and yahoo.
Federal investigators said it would give google too much power in online advertising and so regulators intervened and said the subtext here is it looks like that this is going to disincentives yahoo from investing in its yahoo search which should be a competitor to google search. Yahoo struck a deal with Microsoft the following year to handle sales of search ads for both companies.
But combined Microsoft and Yahoo accounted for less than half of Google’s share of searches as a global tech. Google didn’t only have to worry about U.S regulators.
In 2010 google became the European union’s premier corporate target. The EU zeroed in on the company’s core search and advertising businesses. The investigation would take years to unfold.
The FTC which had spent nearly two years probing google decided not to bring charges. It concluded that there was insufficient evidence to support complaints that the 15-year-old company favours its own services and search results. Google agreed to make voluntary changes to its search practices.
With today’s action by the FTC, google can refocus on its business and its products but with a clear understanding that it too must do so while competing fairly. So the FTC decided against pursuing the case but they did state very explicitly that they would keep an eye on this industry and they would return to it as the cases developed. The following year google scored another victory it reached a deal with European commission regulators to tweak the way it presents search results.
Google agreed to give rival services comparable prominence but that wasn’t the end of the story far from it just three years later we start with the breaking news that the internet giant google has been hit with a record 2.42 billion euro fine for breaching EU competition rules.
The EU concluded that Google’s search is dominant and that meant google was violating European law by putting its own product ads on top of search results from other sites that offered the same products a little more than a year later. European regulators slapped google with another fine. This time the EU ordered google to pay 5 billion for abusing the dominance of its android mobile platform.
Back in the US, big tech’s political fortunes were also turning a republican-controlled white house in congress, viewed these companies growing power including in the marketplace of ideas with suspicion. To say there is no political bias in google is either being dishonest or politically biased. Google’s CEO since 2015 Sundar Pichai staunchly refuted these accusations in his first congressional appearance.
Its annual ad revenue had surpassed a hundred billion dollars when the wall street journal broke the news that the justice department was preparing an anti-trust investigation of Google. Just a few months later google took another blow. Today 50 attorney generals from different states and territories are launching an investigation into Google’s potential monopolistic behaviour. It was against the backdrop of these investigations that Pichai and his tech CEO peers testified remotely this summer before congress.
Legal scholars observe that since the 1970s anti-trust enforcement has focused on harm to the consumer. It’s going to be difficult to prove consumer harm. How it could be done might be demonstrating that advertising prices are higher and that has some knock-on effects.
But experts say the cases against google could signal a new era in enforcement and curtailing the power of big tech companies a Google spokesperson said the company would continue to engage with ongoing investigations and that its services enable increased choice and competition.
Google today is a monopoly gatekeeper for the internet and one of the wealthiest companies on the planet with a market value of one trillion dollars and annual revenue exceeding 160 billion dollars. For many years google has used anti-competitive tactics to maintain and extend its monopolies in the markets for general search services, search advertising and general search text advertising- the cornerstone of its empire.
So the department of justice is saying google is a super large rich company that is using its power and abusing its power to stop competitors from entering the search market. It goes on and says for years google has entered into exclusionary agreements including tying arrangements and engaging in anti-competitive conduct to lock up distribution channels and block rivals. Google pays billions of dollars each year to distributors including popular device manufacturers such as Apple, Motorola and Samsung all right here is the crux of the lawsuit.
In my opinion the department of justice is saying that google is using these contracts these agreements with various device manufacturers including apple Samsung, etc. And through these agreements they’re blocking out other search engines from possibly becoming a competitor to google.
What is surprising is that there’s no mention of google kind of manipulating search results so that the advertised results are actually similar to the actual search results and there doesn’t seem to be mention of companies who feel forced to buy search ads because other people are buying search ads against their own company.
What the centrepiece of this lawsuit seems to be is the agreements that google has with apple and other device manufacturers but also with cell carriers as well all of these agreements the justice department claims are blocking out competitors and stifling innovation.
Here’s one more key section of lawsuit it says google has wilfully maintained and abused as monopoly power in search advertising through anti-competitive and exclusionary distribution agreements that lock up the present default positions for search access points on browsers, mobile devices, computers and other devices require pre-installation and prominent placement of google apps tie google search access points to google play and google apps and other restrictions that benefit google at the expense of search advertising rivals.
Google is much more than just a search engine. They offer many services to both consumers and to enterprise businesses and google has worked for many years to diversify its product offerings as well and probably the biggest growth story for google is YouTube.
YouTube is exploding like crazy not just with usage but also with revenue and so the story about google going forward really isn’t about search but it’s about how google can expand its other various consumer products and enterprise products how google can expand YouTube and make it into perhaps their number one revenue generator over time.
After the lawsuit was announced this morning the markets actually reacted positive to google stock. Google was up two percent today on the news that they’re being sued by the us government. So what’s the deal with that. For investors it’s more of a sideshow it’s important we’re taking it serious but we don’t believe it’s going to have an impact on stock.
If you look at the stock today, it’s up two and a half percent and I think that’s a reflection of what investors learn watching the Microsoft case and number two it’s for our legal advisors. It’s a narrower and more traditional case as described.
So it’s not a very broad case and so we think ultimately the legal help that we’re getting to effectively analyse this suggests that a breakup would likely not be possible underneath the current scenario.
The lawsuit is actually more narrow in scope than anticipating meaning. Because of the lawsuit’s narrow scope, it’s meant to more restrain on the activity and the behaviours of google rather than break it up and because of that you see kind of a positive reaction or muted reaction to the lawsuit with today’s stock market price and because when they look at the lawsuit the chances of google being broken up is actually pretty slim.
Now this poses a few questions going forward first what are the ramifications for other tech companies that are perhaps under investigation and might face possible department of justice anti-trust action for example you have Facebook and you have Amazon and perhaps even Apple.
I think actually when other companies look at this google lawsuit they’ll actually be a little bit relieved because of the narrow set of actions that this lawsuit contains. Now it’s entirely possible that this lawsuit actually broadens because there are several states that are still investigating and can bring broader claims and expand the lawsuit against google.