Monopoly on search: Nuances of Google case and its impact on Internet future

Google has become a monopoly, and many don't like it

Pressure on Google has been mounting for several years, stemming from a global consensus about its dominance in the market. After the European Union imposed a $2.73 billion fine in 2017 for anti-competitive practices in promoting price comparison services, regulatory pressure has only increased.

In the subsequent years, the EU issued new fines for requiring Google apps to be pre-installed on Android devices and for unfair conditions imposed on developers using the AdSense search service.

The United States took action against the company in 2020 when a coalition of states filed a lawsuit, accusing Google of maintaining an unlawful monopoly in the online advertising business. The federal government joined the lawsuit, alleging that the company engaged in a series of multi-billion-dollar deals to achieve this.

Photo: Google is accused of monopolizing the search and search advertising market (Getty Images)

The deals have secured Google's monopoly in the search and search advertising market. The latter involves contextual advertising, where the choice of displayed ads is influenced by the user's search query.

In other words, Google maintains its status as the number one search engine through allegedly unfair practices. The U.S. Department of Justice is concerned that companies like Apple, LG, Motorola, Samsung, and telecom operators were paid significant sums to have google.com set as the default search engine on smartphones with browsers like Safari, Firefox, and others.

The accusation holds that these deals allow Google to control about 90% of the search market and gain an unfair advantage over competitors. It also creates insurmountable barriers for potential new entrants. For example, in early 2023, the Neeva search engine, once valued at $250 million, shut down.

In mid-September, the legal proceedings finally began. The trial will last a total of 10 weeks, with two weeks already completed. The U.S. Department of Justice seeks to prove Google's abuse of power in the advertising technology space. The lawsuit, spanning 139 pages, calls for the divestiture of the Google Ad Manager package along with the Doubleclick for Publishers ad exchange platform and the Google AdX ad service.

The most significant case in over 20 years

Key figures such as Google CEO Sundar Pichai and representatives from Apple and other companies are expected to testify during the trial. According to American media reports, the court's verdict could impact not only Google's policies but also the future of the entire Internet. However, it is equally likely that the tech giant will continue to operate as it wishes.

At the same time, a loss in this case would mark the beginning of a new phase in antitrust legislation, as the Department of Justice and the U.S. Federal Trade Commission initiate reviews against nearly every major tech company.

Photo: As expected, Google CEO Sundar Pichai testifies in court (ec.europa.eu)

According to The New York Times, the current case is the most significant since the government sued Microsoft in 1998 for the monopolistic integration of the Microsoft Explorer web browser into the Windows operating system. That case became a cultural event and dominated headlines for several months.

However, the case against Google is likely much quieter. Firstly, browser issues at the dawn of the Internet era were a more critical problem than search engine settings. Secondly, the arguments presented by the U.S. government against Google may not be as compelling.

Key arguments from Google

One strong advocate for Google's position is Kent Walker, Senior Vice President for Global Affairs. His argument is as follows: Google invests billions in its distribution, which are standard marketing expenses.

According to Walker, these expenses are not much different from food product manufacturers paying for shelf placement closer to the supermarket checkout. Furthermore, the fees for having google.com set as the default search engine finance browser development. For example, Mozilla uses these funds to support Firefox and other projects.

Another point Walker makes is that if a user doesn't like Google, they can change the default search engine in just four clicks or less. However, he acknowledges that most people still end up using Google with browsers featuring a different search engine.

"The majority of people searching on Windows devices use Google. Defaults matter, but they’re not determinative," he added in an interview with The Verge.

Walker also disagrees with the notion of complete domination in the search and search advertising sphere. According to him, at the very least, Amazon is already introducing competition. In its latest financial report, the company claimed a 22% increase in ad revenue compared to the previous year.

The essence of the accusations and how Google counters them

At the start of the trial, the prosecution questioned former Google employee Chris Barton. From 2004 to 2011, he was responsible for negotiations with phone carriers.

According to him, he conducted negotiations to persuade potential partners to set Google as the default search engine. In return, a share of the revenue generated from clicks on search ads was offered.

The prosecution argues that Google's default status eliminates competition. The company disagrees, stating that users are not restricted, and they can easily switch to a competing search engine in two clicks.

Photo: Attorney John Schmidtlein says Google became search engine #1 because it's a great product (wc.com)

Antonio Rangel, an expert from the California Institute of Technology specializing in behavioral economics, disagrees. Speaking on behalf of the U.S. Department of Justice, he states that due to default settings, users do not explore alternative options.

He also disagrees with the ease of switching to another search engine. In court, he noted that he purchased an Android 12 smartphone, and changing the default search from Google to Bing required him 10 steps.

"Defaults have a powerful impact on consumer decisions," he said.

As an example, the expert cited the organ donor system in Europe. In Germany, people must decide for themselves whether to be posthumous donors, and only 12% agree to it. In neighboring Austria, organ donation is an opt-out option, resulting in a rate of 99%.

According to Chris Barton, he convinced potential partners that the Google search engine would bring more ad clicks and therefore more revenue, even if operators agreed to a nominally lower percentage.

Google's lawyer, John Schmidtlein, cross-examining Rangel, pointed out cases where the majority of search queries went through Google, even when another search engine was set as the default. For instance, users of BlackBerry smartphones with Bing as the default search engine chose Google in 91% of cases.

According to him, the company did not use deals to eliminate competitors but merely offered a "great product."

The prosecution argues that nobody uses Bing because Google made it impossible. The company's lawyers insist that nobody uses Bing because it is inferior. They also argue that Microsoft has ample resources to compete, yet PC users on Windows still prefer Google.

If Google was deprived of the ability to compete, it would not accelerate Yahoo or DuckDuckGo, said Schmidtlein about competitors.

Justice Department attorney Kenneth Dintzer claims that Apple intended to provide customers with a choice screen between Google and Yahoo, but Google only guaranteed revenue as the default option. According to him, this can also be viewed as a monopolistic action.

"This wheel has been turning for more than 12 years. It always turns to Google's advantage," he emphasized.

He adds that one day Google referred to the potential loss of default status on Apple as a "code red situation." This fact shows that the company realizes the value of such settings.

Did Google monopolize the online advertising market?

The second week of the trial was dedicated to advertising - the actual source of Google's search revenue. The prosecution believes that abuses in this area allowed Google to become a monopolist in certain aspects of online advertising.

As reported by Bloomberg, Google's Vice President of Advertising Products, Jerry Dischler, confirmed testimony from 2020. This included information about the company making changes to auctions for search ad sales to achieve revenue targets by increasing ad prices by a full 5%.

Photo: Google raises advertising prices without advertisers' knowledge (Getty Images)

The case against Google has entered a new phase, with a focus on advertising practices. Specifically, it involves advertising bids that appear at the top of search results in response to a user's query. Jerry Dischler, Google's Vice President of Advertising Products, testified that changes included increasing the cost of advertising, and typically, Google does not notify advertisers about these changes.

"We tend not to tell advertisers about pricing changes," he added.

In one of the emails, Dischler and his team discussed making changes to advertising auctions to help Google achieve quarterly revenue targets, as reported by Ruth Porat, the company's CFO.

During the trial, Dischler explained a method to earn more without favoring the largest participant in the auction. For instance, when presenting search results to advertisers, the ad that secured the first position was swapped with the second. Otherwise, Amazon, the biggest player, always won. Dischler doesn't know if this led to higher ad prices, but it certainly increased Google's revenue.

A representative of Google declined to comment on Dischler's testimony.

What is happening now, and how will the Google case impact the future of the Internet?

Last week, Google's lawyer, John Schmidtlein, requested that the court proceedings be closed to the public during the discussion of advertising prices. However, this was only possible after a complaint was made regarding the U.S. Department of Justice publishing all the evidence related to the case on its website.

District Judge Amit Mehta was surprised by this, as the Department of Justice had not informed him before the publication. Kenneth Dintzer, the representative of the prosecution, apologized, and as a result, all the documents were removed from public access. This incident led to a scandal in the media.

Since then, the hearings have been conducted behind closed doors. Neither Google's representatives nor the prosecution are responding to requests for comments. Currently, there are no rulings regarding access to evidence or the admission of the press to the courtroom. It is known that John Giannandrea, Senior Vice President for Machine Learning and AI Strategy at Apple, testified, but no details have been provided.

It is expected that the trial will continue until November, but reports in the media suggest that the judge may not deliver a verdict until early next year. So, why could this case change the Internet?

If the court determines that Google violated antitrust laws, the district judge will need to decide how to resolve the dispute. Specialized news agencies lean towards two possible options. The first is that Google will no longer be set as the default search engine. The second is that the company will be forced to split its advertising business and sell off a portion of its assets.

The division of the company could jeopardize its status as the number one search engine. But more importantly, it could have consequences for other tech giants. The current case could set a precedent for disputes involving large companies regularly accused of acquiring or stifling competitors.