Analysis: Will the US govt antitrust lawsuit dent Google's search domination?

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The US Department of Justice has filed an antitrust lawsuit against Google for allegedly unlawfully maintaining monopolies in the markets for general search services, search advertising and general search text advertising in the US through anti-competitive and exclusionary practices.

According to the recent lawsuit seen by MARKETING-INTERACTIVE, the case described Google to be "a monopoly gatekeeper for the Internet".

General search engines are distributed primarily on mobile devices and computers. These devices contain web browsers and other "search access points" that call on a general search engine to respond to a user's query. The lawsuit said that for years, Google has entered into exclusionary agreements, including tying arrangements, and engaged 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, LG, Motorola and Samsung; major US wireless carriers such as AT&T, T-Mobile, and Verizon; and browser developers such as Mozilla, Opera and UCWeb - to secure default status for its general search engine and, in many cases, to specifically prohibit Google's counterparts from dealing with Google's competitors," the lawsuit added. According to the lawsuit, some of these agreements also require distributors to take a bundle of Google apps, including its search apps, and feature them on devices in prime positions where consumers are most likely to start their Internet searches.

Google's exclusionary agreements cover just under 60% of all general search queries, the lawsuit said, and nearly half the remaining queries are funneled through Google-owned-and-operated properties such as Chrome. In recent years, Google has accounted for nearly 90% of all general search engine queries in the US, and almost 95% of queries on mobile devices.

Meanwhile, the Wall Street Journal also reported that Google's partnership with Apple is the core of the lawsuit. It is a known fact that Google is reliant on search traffic from iPhones and the lawsuit said that Google Chrome is the preset default on Apple's Safari phone browser and, more recently, other search access points on Apple's mobile devices. Google is the default search provider for both Apple Safari (55% share) and Google Chrome (over 35% share), which together account for over 90% of the browser usage on mobile devices in the US.

This means that when consumers search a term on their phone, they are automatically shown Google search results and related advertising. According to WSJ, Apple CEO Tim Cook and Alphabet CEO Sundar Pichai met two years ago to discuss how both firms could collaborate to drive search-revenue growth.

This lawsuit comes decades after US sued Microsoft for anti-competitive practices in 1998. Like Google, Microsoft also required preset default status and made software undeletable, the lawsuit explained. Meanwhile in 1974, the US also sued American telco AT&T for monopolising telco service and equipment in the US. This resulted in the breaking up of the Bell System.

In response to the lawsuit, Kent Walker, SVP of global affairs, said the lawsuit is "deeply flawed", adding that consumers use Google because they choose to, not because they are forced to, or because they cannot find alternatives.

"This lawsuit would do nothing to help consumers. To the contrary, it would artificially prop up lower-quality search alternatives, raise phone prices, and make it harder for people to get the search services they want to use," Walker said.

Walker added that the Department of Justice "relies on dubious antitrust agreements to criticise [its] efforts to make Google Search easily available to people".

"Like countless other businesses, we pay to promote our services, just like a cereal brand might pay a supermarket to stock its products at the end of a row or on a shelf at eye level. For digital services, when you first buy a device, it has a kind of home screen 'eye level shelf'. On mobile, that shelf is controlled by Apple, as well as companies like AT&T, Verizon, Samsung and LG. On desktop computers, that shelf space is overwhelmingly controlled by Microsoft," he explained.

Hence, the company negotiates agreements with many of those companies for eye-level shelf space. However, Walker said its competitors are readily available too, should consumers want to use them. He added that its agreements with Apple and other device makers and carriers are no different from the agreements that many other companies have traditionally used to distribute software. "Other search engines, including Microsoft’s Bing, compete with us for these agreements. And our agreements have passed repeated antitrust reviews," Walker added.

According to him, Apple features Google Search in its Safari browser because the company says Google is “the best". This arrangement is not exclusive, however, and competitors Bing and Yahoo! pay to prominently feature, and other rival services also appear, Walker explained. "The bigger point is that people do not use Google because they have to, they use it because they choose to," he added.

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Despite the lawsuit, Bloomberg reported that shares of Alphabet Inc, Google's parent company, increased 1.4% to close at US$1,551.08. Bloomberg explained that the lawsuit had "few major surprises and many elements that investors expected". They include Google's search default deals being the Department of Justice's focus. While the pandemic took a slight hit in Google's earnings during the second quarter of 2020 ended 30 June, it still amassed a revenue of US$38,297 million, with Google advertising forming the majority share at US$29,867 million. In particular, Google search and others amassed US$21,319 million in revenue.

The lawsuit also comes months after Pichai testified in Congress during an antitrust hearing in June. In his opening statement, Pichai said its engineers are helping America remain a global leader in emerging technologies such as AI, self driving cars, and quantum computing. Leadership is not inevitable, Pichai said, adding that Google’s continued success is not guaranteed.

"New competitors emerge every day and today users have more access to information than ever before. Competition drives us to innovate, and it also leads to better products, lower choices, and more choices for everyone," he said.

Nonetheless, it seems that the lawsuit did not catch industry players by surprise either. Lotame's COO Mike Woosley said there is a great reason that the Department of Justice's suit is focused on search and search marketing. He explained that currently in the digital media industry, Google has "set itself up superbly" to dominate not only just the vertical adtech chain, but also ownership of consumer identity. Google has done it in a way that makes the company "impervious to regulation", whether it be GDPR or California Consumer Privacy Act, Woosley said.

That said, he explained that Google’s market concentration creates "a direct threat to the viability of a voice for independent digital media".

"That is a direct threat to the accessibility of unbiased news and information. Lotame does not advocate 'trust-busting' because that process has a long history of failure and unintended consequences. In this case, the Department of Justice aimed for the entirely wrong target," he said.

He added that the reason this type of accident happens is that the Department of Justice uses arcane and dated market concentration measures to build its cases, for example the Herfindahl-Hirschman Index.

According to the Department of Justice's website, the Herfindahl–Hirschman Index, is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers.

For example, for a market consisting of four firms with shares of 30%, 30%, 20%, and 20%, the HHI is 2,600 (30² + 30² + 20² + 20² = 2,600). Woosley said the department takes this approach because there is a long legacy of case law built on targeting this metric of concentration. The measurement dates back to 1945 and points the Department of Justice "to pursuing victory in the 'case of the last century'".

Meanwhile, Bharad Ramesh, former head of digital for PHD US with over a decade of experience in Asia's advertising industry, said since Google's services are free to consumers, the question of monopolies hurting consumers by increasing their costs is "a little hard to make". However, this could mark a turning point when consumers' attention and their data is treated as currency.

"The question is after all this is done, what happens to the power of Google Signals enabling advertisers to target people better in a cookie-less world? It could lead to an erosion in the power of the Walled Garden. We may well see YouTube being available on other demand side platforms, for example. All of this is an opportunity for other competitors in the space," he said. For example, Ramesh said Amazon is already taking up an increasing share of retail search and privacy-oriented individuals are switching to browsers such as DuckDuckGo.

Given the government intervention against the power of the tech giants was or is inevitable, Ramesh said: "The US government is saying that Google is using its market position to lock out competitors by striking exclusive deals that lock out competitors. In this specific case, it is the agreement with Apple, and these cases can take years to resolve."

That said, at best, the government action will make Google cautious or slow down in terms of acquiring new companies, or rolling out new features that tightly integrate the Google suite of apps into users' and advertisers' lives. One possible outcome could be that Google is not the default search engine in Android and iPhones and consumers will have to explicitly opt-in. "The truth of the matter is that if it was easy to beat Google in search, someone would have done it. When given a choice, most consumers do trust and prefer Google to make their daily lives easier. This is not a lawsuit about Google using its dominance to promote its own products and services," he added.

Similarly, an industry player in the search advertising scene told MARKETING-INTERACTIVE on the condition of anonymity that since the lawsuit is specific to search, impact on the overall ecosystem will be limited in case of a judgement against Google. Bing and DuckDuckGo which are minor competitors to Google might get additional balance in usage and eventually ad revenues. According to the industry player, new engines might spring up around vertical search - travel, finance and consumer goods. He explained that data-driven marketing relies on single user ID for targeting and addressability. While search is somewhat reliant on it, ads are targeting more around queries rather than profiles or IDs.

That said, he explained that this lawsuit is not specifically disputing the monopoly power, but rather investigating practices Google followed and if it violated antitrust law.

"Google has been undisputed and unchallenged as a monopoly in search advertising. The case is heavily subjected to the search marketing business of Google. Google has more than 90% of the market in the United States, and over 95% globally. Only in China, South Korea, and Czech Republic are those numbers lower.

Offering search results free does not preclude the possibility of having a monopoly. Radio is free to listen to. Broadcast TV is free to watch.

The beginning of more severe regulations?

If the US government were to win the lawsuit, this could be the beginning of more severe regulations against the other tech giants, Shufen Goh, co-founder and principal of R3, said. For example, regulations against Amazon for its alleged use of third-party seller information to better compete in its own market place, Apple for its alleged use of control over the app store to disadvantage competitors, and Facebook for its purchase of Instagram and WhatsApp to allegedly reduce competition in the social media space.

"For a while, it seemed like Facebook would be the first target of such antitrust action by the US, especially given the political issues emerging from the platform in a US election year and the more obvious breakup route of spinning off Instagram and/or WhatsApp. But it is clear now that Google is where this is starting. And it certainly will not stop with Google," Goh said.

While it is too early to speculate how the lawsuit will pan out, if successful, the antitrust action will likely benefit publishers. Reason being, Google will likely end up ceding some control over how it directs search traffic and there may even be revenue upsides as search or even display competition increases in the longer run. On the other hand, advertisers may end up with less data for targeting if the outcome of the lawsuit restricts Google from using data from its other products for search targeting, Goh argued.

"Alternatively, if the outcome mandates that Google share the data it uses (that is currently unavailable to Google's search competitors) that might benefit advertisers with better targeting on non-google inventory," she added.

Will this trickle to Asia?

While a storm might be brewing for Google in the US, industry players told MARKETING-INTERACTIVE that the impact on Asia remains to be seen. R3's Goh said Asian countries have come to view big tech more positively than their Western counterparts. China has even been incubating its own local giants to rival the West. Hence, it is hard to say how exactly this will play out in Asia.

Asian governments may see this as an opportunity to further boost the growth of their local tech companies as global giants are regulated by the West, or could follow the US and EU's lead in ramping up regulations themselves.

Likewise, Ramesh believes it is unlikely it will trickle to Asia. With Asia being an Android market more so than the US, he said consumers might not have alternatives to Google as their search engine, especially since Google allows users to search in different Asian languages.

The industry player who spoke to MARKETING-INTERACTIVE anonymously also said that South Korea and China might not be that impacted while rest of Asia might see local search engines spring up, just like the early 2000’s. Australia is also pushing Google and Facebook for their monopolistic practices so next 12 months might bring more balance in the digital marketing game across the world if cases prevail, he added.

Photo courtesy: iStock

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