Google Search and Ads Monopoly
A federal judge ruled that Google violated US antitrust law by maintaining a monopoly in the search and advertising markets.
“After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly,” according to the court’s ruling, which you can read in full at the bottom of this story. “It has violated Section 2 of the Sherman Act.”
Judge Amit Mehta’s decision represents a major victory for the Department of Justice, which accused Google of illegally monopolizing the online search market.
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Mehta rejected Google’s arguments that its contracts with phone and browser makers like Apple were not exclusionary and therefore shouldn’t qualify it for liability under the Sherman Act. “The prospect of losing tens of billions in guaranteed revenue from Google — which presently come at little to no cost to Apple — disincentivizes Apple from launching its own search engine when it otherwise has built the capacity to do so,” he wrote.
Google has a search market share of around 95 percent on smartphones, in part due to the money that it pays.
In 2022, Google paid Apple $20 billion, an amount that incentivizes Apple to stick with the status quo.
Apple doesn’t let users configure custom search engines in Safari.
We face a number of challenges simply letting our paying customers change their search engine:
- On iOS the list of allowed search engines is simply baked into OS, we have a fiddly extension that hooks outbound calls to /search and redirects them but I wish we didn’t need to.
- On Chrome, we use an extension to change the default search engine and enable search auto-complete etc, but Google has a policy that such an extension can do one thing and one thing only, and recently removed our extension on account of that. We rebuilt it to meet their needs but had a lot of back-and-forth because we included ‘search by image’ on a context menu item and the first reviewer felt that was a bridge too far. You’ll note that Chrome provides such a context menu item for Google Image search out of the box.
- On Chrome for Linux, the default search engine API is not available, so Linux users have to configure it manually through a series of silly steps. This is at least in keeping with most Linux experiences.
There are other issues, but I say all this to highlight how surprisingly difficult it is to change this setting in a practical, consumer friendly way. It is most certainly this difficult by design, that’s a lot of revenue to protect.
In a 277-page ruling, Judge Amit P. Mehta found that the massive payments that Google makes to Apple, Mozilla, and other companies to be the default search engine on their devices and browsers represents an unfair restriction on competition.
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In his ruling, Mehta found that Google has an 89.2 percent share of search generally, and 94.9 percent of search overall. Google has used its monopoly to charge advertisers higher prices than they would in a more competitive market, he wrote.
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The case now moves to a new phase, where Mehta will hear arguments about what remedy should be implemented to address the monopoly. But no major changes to the web are imminent; one law professor told the Associated Press that he expects the appeals process to take five years.
Fifteen years after it was first investigated, search giant Google is finally going to be held accountable for unfairly thwarting competition. In this piece, I’m going to discuss the complaint against Google, why it lost, the next steps, and what this case means for American business going forward.
The verdict will likely come as a shock to Google, which had long argued that punishing Google for being the best in search would be “unprecedented” and frequently pointed to the DOJ’s lack of direct evidence. However, Mehta found the limited direct evidence compelling, especially “Google’s admission that it does not ‘consider whether users will go to other specific search providers (general or otherwise) if it introduces a change to its Search product.’”
The opinion is full of details about the precise nature of how Google search and its ads work together, Google’s relationship with Apple and other third parties, and how its business has changed over time. For example, the judge notes Google adjusted ad pricing to maintain a specific growth target, and increased it incrementally to mask it in the typical fluctuations of ad costs.
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But two things can be true: Google can be the best search engine for most people, most of the time, because it is very good; and, also, Google can have abused its market-leading position to avoid competition and maintain its advertising revenue. Those are not inconsistent with each other. In fact, per the judge’s citation of how long it would take for Bing to amass the same information about user activity as Google does in a year, it is fully possible its quality and its dominance are related, something the judge nods toward. In fact, Google’s position is now so entrenched “it would not lose search revenue if were to significantly reduce the quality of its search product”.
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Notably, Mehta did not sanction Google for failing to preserve evidence in the case[…] “Not because Google’s failure to preserve chat messages might not warrant them. But because the sanctions Plaintiffs request do not move the needle on the court’s assessment of Google’s liability.”
The one thing that I am really curious about is what exactly that $20 billion-ish per year that Google pays Apple to be the default search engine in Safari is for. If Google really is what everyone wants to use, then way pay to achieve what customers would choose anyway? Is part of the deal that Apple won’t make their own search engine as long as Google keeps paying?
Genuinely, let’s say 2025 rolls in, Apple execs are expecting Google to write their annual mega-check like they have for years, and Google just says no. What happens? Does Apple leave Google the default since it’s what customers want? Does Apple make something else the default? If so, what? Does Apple fast track their own search engine?
Apple’s about to lose a quarter of its services revenue 🤪
While Su suggest the revenue sharing would stop, I imagine it would just change. No more paying for default placement in lump sums and instead perhaps paying out a share for actual usage. The argument here might be that this would still give Google too much power because they could afford to pay more than anyone else, but an equalized market rate would incentivize product over payment.
Regardless, the Occam’s razor read of such a remedy suggests a situation that would perhaps not change all that much. Because it wouldn’t dictate that Android phone makers or Apple make another search engine the default, it would likely instead lead to more pop-ups asking people to explicitly make a choice. And Google would still have a huge market advantage there, simply thanks to brand awareness, if nothing else. And if companies were allowed to bid on placement in such a screen, the effect would likely be even more muted.
It’s worth a reminder that under U.S. antitrust law, having a monopoly is not in and of itself illegal. It’s just that monopolies must operate under different rules, and Mehta has ruled that Google broke (and continues now to break) those rules.
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One possible outcome is that Apple winds up paying a bigger penalty, effectively, than Google. Let’s say the remedies include Google being banned from paying for traffic acquisition. Then Apple changes Safari from making Google the default search engine to prompting users with a choice for default search, and 90 percent of Safari users choose Google — the search engine they’ve been using since forever ago, and for many people the only one they even recognize by name. Now Google gets that search traffic for free and Apple gets bupkis.
This ruling might actually work out financially for Google since few people will choose Bing as default.
Jason Del Rey (via Slashdot):
Mozilla, the non-profit behind the Firefox browser, faces an uncertain future following Monday’s landmark antitrust ruling against Google. The decision, which found Google illegally maintained its search monopoly, puts Mozilla’s primary funding source at risk. In 2021-2022, Mozilla received $510 million from Google out of $593 million total revenue, according to its latest financial report.
Previously:
- Only Google Can Crawl Reddit
- DOJ Investigating Apple-Google Default Search Engine Deal
- Apple’s Q2 2024 Results
- Effects of the DMA’s Browser Choice Requirement
- Google Pays to Be Default on Samsung Phones
- Cue Testimony in US v. Google
- Dischler Testimony on AdWords Fraud
- Unlimited Kagi Searches
- Google Accused of Violating Retention Obligations
- Frustration With Google AdWords
Update (2024-08-07): Ben Thompson:
I find Mehta’s opinion well-written and exhaustive, but the decision is ultimately as simple as the Sherman Act: Google acquired a monopoly in search through innovation, but having achieved a monopoly, it is forbidden from extending that monopoly through the use of contractual arrangements like the default search deals it has with browser developers, device makers, and carriers. That’s it!
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Most importantly, has it been good for consumers? This is where the Apple Maps example looms large: Apple has shown it can compete with Google if it puts resources behind a project it considers core to the iPhone experience. By extension, the entire reason why Google favored Google Maps in the first place, leaving Apple no choice but to compete, is because they were seeking to advantage Android relative to the iPhone. Both competitions drove large amounts of consumer benefit that continue to persist today.
I would also note that the behavior I am calling for — more innovation and competition, not just from Google’s competitors, but Google itself — is the exact opposite of what the European Union is pushing for, which is product stasis. I think the E.U. is mistaken for the exact same reasons I think Judge Mehta is right.
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This is why, ultimately, I am comfortable with the implications of my framework, and why I think the answer to the remedy question is an injunction against Google making any sort of payments or revenue share for search; if you’re a monopoly you don’t get to extend your advantage with contracts, period (now do most-favored nation clauses). More broadly, we tend to think of monopolies as being mean; the problem with Aggregators is they have the temptation to be too nice. It has been very profitable to be Google’s friend; I think consumers — and Google — are better off if the company has a few more enemies.
“I don’t believe there’s a price in the world that Microsoft could offer us,” Cue said at another point. “They offered to give us Bing for free. They could give us the whole company.”
For Google, this is a sign that they’ve earned their default status (which, incidentally, they pay Apple gobs of money to maintain). Judge Mehta says that this is an indication that the “market reality is that Google is the only real choice as the default GSE [general search engine].”
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One Google analysis estimated “a query loss of 10–15% of Safari traffic and a revenue loss of 4–10% of iOS Safari revenue based on Apple Suggestions.” The new 2016 contract includes a specification that “Apple’s implementation of the Safari default must ‘remain substantially similar’ to prior implementations” so that Apple “could not expand farther than what they were doing,” lest Apple “bleed off traffic.”
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Apparently, Apple has calculated that “it would cost $6 billion annually (on top of what it already spends developing search capabilities) to run a GSE.” Meanwhile, in “late 2020, Google estimated how much it would cost Apple to create and maintain a GSE that could compete with Google.” Apple would have to spend something “in the rough order of” $20 billion in order “to reproduce [Google’s technical] infrastructure dedicated to search.”
Update (2024-09-18): Ashley Belanger (Hacker News):
On Monday, the US Department of Justice’s next monopoly trial against Google started in Virginia—this time challenging the tech giant’s ad tech dominance.
The trial comes after Google lost two major cases that proved Google had a monopoly in both general search and the Android app store.
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In its complaint, the DOJ argued that Google broke competition in the ad tech space “by engaging in a systematic campaign to seize control of the wide swath of high-tech tools used by publishers, advertisers, and brokers, to facilitate digital advertising.”
One consequences was that Google charged high prices, keeping between 30-50% of every advertising dollar that went through its system. That take rate was bad enough. But Google also acquired surveillance capacity over every publisher and advertiser. It was as if every night Google could break into the offices of the Wall Street Journal and take its subscriber list, and then go to its own advertising clients and tell them that it could sell them access to Wall Street Journal readers for much cheaper rates when those readers opened Google owned and operated properties, like Gmail, YouTube, search, and so forth. In doing so, Google gained the ability to direct ad revenue away from third party publishers to itself.
To buttress its ability to target, in 2016 Google violated a promise it made when it bought DoubleClick. It had told enforcers it would guard user privacy and segment data. Instead, it decided to combine all data across all its different services, from Gmail to YouTube to search, into detailed dossiers of each user. Google now had a machine, where it could spy on users across the open web, and then use that data to manipulate ad auctions, both charging high prices when display ads went on third party sites, and simply moving broad ad demand to its own properties instead of third party sites.
Kagi:
The point here is that competitors can build competing cycles, but challenging a flywheel once it has gathered full momentum is very difficult. In Amazon’s case, they can be challenged by factors like price (which is non-zero), better choice, and user experience. However, with Google, the challenge is significantly harder because the nominal price is “zero,” while users pay in other currencies - personal data, attention, and changes in behavior. As a society, we are only beginning to recognize the importance of these currencies and the impact they have on our lives.
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A fair observer must acknowledge that being the default search engine within the Apple ecosystem holds substantial economic value - a value determined by fair market forces, with Google agreeing to pay that price. This may come as a surprise, but from our standpoint as a search market participant, this arrangement between Google and Apple is acceptable. (and interestingly what is more problematic is that Apple users cannot choose Kagi as their search engine at all, which consumers see as a hinderance - that said, this issue is beyond the scope of this article).
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Usually a relationship between a user and service provider is direct and the objectives of each are in alignment. In this case there are three parties involved – Google, the Advertiser and the user. Because of the three parties being involved, the objectives are misaligned. This misalignment arises because of the business model being used where Google and the Advertiser are aligned on pushing more ads to the users to generate more revenue while users would prefer to see fewer ads (or no ads) and information in their best interest.
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Since search is a critical but essential resource for all users, the solution that can be considered is allowing fair access to the Search Index or take it a step further into known precedents, consider treating the Search Index as an “Essential Facility”.
See also: Nick Heer.
