Don’t Punish Google for Making a Search Engine That Is Actually Good…
Calls to regulate large technology companies are now omnipresent. Not a day goes by without a mainstream media article or a prominent politician calling to reign in the so-called infamous GAFAM (Google, Apple, Facebook, Amazon and Microsoft). It seems the golden days of Silicon Valley, during which startups were overwhelmingly perceived as a boon to society and the economy, are now long past.
The year 2018 undoubtedly marked a turning point, as the population’s general optimism towards the tech industry, if not naivete, was lost. In the aftermath of the American Presidential Election that saw Donald J. Trump elected, it was revealed that British company Cambridge Analytica had harvested over 87 million Facebook users’ data and used it to influence voters’ opinions through targeted content. Additionally, it also appeared that Russia has used Facebook’s paid content sponsoring features to meddle in the election. The numerous public hearings, both in Europe and the US, that followed and the implementation of the GDPR contributed to direct further the public’s attention and anger towards technology companies’ data privacy abuses.
But recently, the focus of the debate on regulating large tech companies seems to have shifted from its symptoms to what is presented now as the core problem, the lack of competition in the industry. In 2019, Elizabeth Warren made it part of her presidential platform to “break up Big Tech”, as the US government had once done to oil companies over a century ago. For instance, she suggested undoing Facebook’s past acquisition of Instagram and Whatsapp. The idea is that through predatory behaviours these companies stifle competition which hurts consumers in the long run. Far from losing traction, the idea of regulating large tech companies has perpetuated. On the 6th of October 2020, the US House of Representatives’ Judiciary Antitrust Subcommittee released an extensive report, the culmination of a 16-months long investigation. It concluded that Amazon, Google, Apple and Facebook all maintain monopolies in their specific markets and that the federal agencies tasked with enforcing antitrust laws, the DOJ and the FTC, had failed to do so effectively.
The timing roughly coincides however with the US Department of Justice announcement on the 20th of October 2020 that it was filing a suit against Google for using illegal practices to maintain its dominant position in the search market. This case presents the most significant challenge to any technology companies’ continued dominance in a generation and could pave the way for a new era of regulation. It will therefore be the focus of my present article. I will argue that while new regulations of the tech industry, and specifically Google, should be welcomed, using this case to do so would be a mistake. Traditional American antitrust laws ultimately fail to grasp the special nature of tech companies and this case, therefore should not be used to regulate Google.
The United States v. Google Inc: what is this all about?
During a presidential election and a global pandemic, the U.S. Department of Justice filed a long-awaited lawsuit against Google Inc, under the Sherman Antitrust Act (1890) and the Clayton Antitrust Act (1914). To the surprise of most, the suit turned out to have a rather narrow scope, targeting specifically the cornerstone of Google’s empire, its search engine. Indeed, the DOJ also investigated Google’s position in the online advertising market as well as its past acquisitions but concluded that the search case was the strongest. It alleges that Google resorted to illegal anti-competitive behaviours to protect its dominant position in online search, or what it goes as far as to call a monopoly, ultimately decreasing competition and eventually harming consumers as a result.
The crux of the suit pertains to Google allegedly signing exclusive deals with partner companies, such as Apple, to use its search engine as the default option on their devices (for instance the iPhone) in exchange for vast sums of money (alleged to be north of billions of dollars). Google is also said to have entered contracts with smartphone makers that use its Android operating system, requiring them to install its search engine as the default.
Developing a search engine is described in the filings by the Department of Justice as a financially and technically expensive enterprise. By shunning out new entrants from means of distribution and access to consumers, it greatly diminishes incentives for investments as the potential for profits becomes unlikely. In turn, Google uses its allegedly illegally-gained dominance to harvest user data and captivate attention to fuel its search-based advertising business, which along with Facebook forms a duopoly in the US conext. More competition from other search engines is intended to force Google to go at greater lengths to please its users, such as by enforcing better consumer protections on data privacy, where DuckDuckGo has been making strives but struggling to break through.
Naturally, Google and its legal team have pushed back hard against the allegations made by the DOJ. In a blog post, Kent Walker, the chief legal officer, argued that ‘People use Google because they choose to, not because they’re forced to, or because they can’t find alternatives’. Google will undoubtedly fight this suit in court. After all, it has been tested by regulators before, battle-tried by its Google Shopping case against the European Commission.
In order to succeed, the Justice Department has to prove two things: that Google is dominant in online search and that its above-mentioned exclusive deals really does stifle competition to the extent that harms consumers. This case could take years to settle, which means that we should not only question whether it is the best use of DOJ resources but also not lose sight of the quickly evolving nature of the industry.
Déjà vu: What can we learn from the Microsoft Case?
Pundits and tech veterans have been quick to draw parallels between the Google and Microsoft cases. Indeed, in a suit that began in 1998 and was settled in 2001, the DOJ accused Microsoft of also engaging in illegal anti-competitive behaviours under Section 2 of the Sherman Antitrust Act of 1890. Back in the 1990s, Microsoft was one of the most influential technology company in the world. In 1998, its operating system Windows ran over 90% of all personal computers. Smelling the opportunity that the burgeoning Internet presented, it leveraged its dominant position to bundle its Desktop OS with its new web browser, Internet Explorer, and used exclusive deals with PC makers to stump the growth of competitors, such as Netscape. Ultimately, Microsoft was originally found guilty and ordered to be broken up into two separate entities, one responsible for its operating system and the other for its other software. However, the company won its appeal and the DOJ later abandoned the idea of a breakup, settling for less stark antitrust sanctions, basically boiling down to having to implement a friendlier approach to competing web browsers. The ramifications of the case are still heavily debated to this day, with some arguing that it had no effect whatsoever and others that it acted as a deterrent for both Microsoft and other companies to engage in overly anti-competitive behaviours. Unfortunately, the comparison between the Microsoft and the Google cases does not give credence to the latter but, as we will see later, acts instead as a cautionary tale.
Given its market share of over online search, respectively 94% on mobile in the US and 82% on computers, there is no doubt Google is dominant, if not even a monopoly.
The question is rather whether it engaged in illegal anti-competitive behaviours to attain its position, and more specifically if its exclusive contracts with phones and software makers fall under that purview, and if they hurt consumers. To answer this question it is worth looking first at a particularly striking passage of Google’s blog post in response to the DOJ’s suit :
‘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.
So, we negotiate agreements with many of those companies for eye-level shelf space. But let’s be clear — our competitors are readily available too, if you want to use them…
The bigger point is that people don’t use Google because they have to, they use it because they choose to.’ — Kent Walker, the chief legal officer
This is where the comparison between the Google and the Microsoft cases, or rather what happened after the latter, gets interesting because it helps us answer how important defaults are in tech, or in other words what is the real added value of the exclusive deals for which Google is paying.
When Google was founded in 1998, Internet Explorer had a 45% share of the browser market, culminating at an all-time high of 94% in 2002. To this day, Microsoft stills makes its proprietary web browser, once Internet Explorer, but now called Edge, its default on its Windows desktop OS, since the DOJ was unable to restrict them from doing so. In the same way, Apple makes Safari its default on its own desktop OS X. One would therefore naturally think that these two companies have an incredible advantage over Google’s own browser, Chrome. Their respective share of the US desktop operating system market amounts to 76% for Windows and 18% for Apple, yet Chrome still managed to gain 60% of the US desktop browser market the as of October 2020. Additionally, Microsoft also bundles its browser Edge with its proprietary search engine, Bing, as default. In spite of that, Google still managed to maintain an 82% share of the US desktop search market as of October 2020. If all it took to achieve dominance was to have some priority shelf space and to throw a lot of money at the problem, then how can one explain that Microsoft never managed to counter the rise of Google’s search engine and browser.
Furthermore, the DOJ alleges that Google’s exclusive deals with Apple and other phone makers to make its search engine the default have also stumped the rise of smaller players, such as DuckDuckGo. However, it seems that to have never fared better, as its global traffic is currently experiencing exponential growth.
If anything, DuckDuckGo owes part of its success to the existence of Google, as it has positioned itself as a privacy-oriented alternative, for which without the latter, there would be no real need. On top of that, new competitors in search are likely to emerge in the future, as Apple itself is rumoured to be working on its own search engine. It seems as far timing goes, the DOJ’s is a little off.
What would happen if competitors were given an equal playing field you ask? In August 2017, the Russian competition authority forced Google to add a search engine choice screen to Android, its mobile OS, in which it had previously bundled its own engine. Regulators were hopeful this would help foster competition once again but to their dismay, Google and Yandex’s market shares respectively went from 51% and 45% in 2017 to 66% and 32% today. In 2020, Google agreed to also add such a choice screen to its android devices for users based in EU countries, but competitors have so far been disappointed with such a remedy as they know it is unlikely to yield positive results for them.
Thus, we are left with the perhaps disappointing conclusion to some, that Google’s search engine just is better, at least as far as consumers’ preferences go. Then Google’s exclusive agreements with Apple and others are just what they seem, perfectly legal commercial dealings between private companies in an open market. Prohibiting them would incur a loss of revenues for the contractee with likely little to no impact on competition in the search market. While Google’s search engine is undisputedly a monopoly, it is not currently mesureably harming consumers. But regulating it could actually do so.
Should we just let Google off the Hook? Not necessarily
Having concluded that Google should not be punished for its search engine’s success does not mean that it should be not regulated at all. But rather in the eventuality that the DOJ’s case be successful in court, it should not be used as a blueprint for regulating a new generation of technology companies. Instead, new antitrust laws that encompass their special nature should be drafted, and subsequently ratified. While I do not agree with all of it, I find the Judiciary Antitrust Subcommittee of the US House of Representatives’ recommendations more promising and a step in the right direction.
Echoing the views of Ben Thompson, I believe that it is first essential to ask how tech companies, including Google, attained monopolies over their respective markets in the first place. One fundamental difference between traditional monopolies and tech companies’ is that, as laid out previously, consumers actually often quite like their products. This is no accident because as opposed to physical goods or services, it is quite easy for consumers to switch to another product (setting aside lock-in effects). As Larry Page used to say ‘Competition is only a click away’. Tech companies know their users will not hesitate to leave if they fail to meet their expectations. Having integrated that fact into their framework, they work extremely hard to make the best product imaginable to not be disrupted in the foreseeable future. This scenario is quite possible, as has happened many times before. Two decades ago, Google beat Yahoo, the incumbent in search at the time, thanks to its superior user experience, even before it started relying on user data to improve results.
There are cases where tech monopolies employed anti-competitive behaviours that do end up hurting consumers. One example of that is Facebook, who did not achieve its dominance over social media through superior experience alone. When it identified potential challengers in the past, such as Instagram and Whatsapp, it went out of its way to acquire them. In my opinion, such acquisitions should not have been approved and perhaps should even be undone today. One can imagine that Facebook would have been strongly incentivised to handle its users’ data privacy better if it had faced a credible threat that they could leave in droves for alternatives. However, I do not think that such calls for regulations apply to Google as it has not acquired any competitors that could have been a viable alternative to its search engine recently. Additionally, acquisitions of companies to improve one’s technological infrastructure or product do not necessarily hurt competition, as they often are a key way for startups to have a positive financial exit.
Finally, one should not confuse antitrust regulation with economic one. Any society would be well within their right to refuse to leave tech monopolies unchecked, including the US with regards to Google search’s dominant position. But instead of punishing it for its success and harming consumers by deteriorating its product, I think it would be more appropriate for the government to dedicate resources to supporting and building up alternatives.
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