Will the government break up Google?
Full disclosure: I own stock in Alphabet, Google’s parent company.
While COVID-19 is still killing Americans and protests are rocking most American cities, big tech is consolidating its power. While companies in other industries were begging for government help, Google was thriving. The company stock price is higher now than it was at the beginning of the year.
But there’s bad news for Google brewing on the horizon. Reports say that the Department of Justice is preparing to file an antitrust case against Google. Let’s talk about whether Google is a monopoly, what steps the Department of Justice might take, and what this all means for Google.
Is Google a natural monopoly?
The most common argument that you’ll hear when people say that Google doesn’t need to be broken up is that it is a natural monopoly, even if they don’t use that exact language. They might say something like “I don’t want a punish a company for being successful.”
The definition of a natural monopoly is a “type of monopoly that arises due to natural market forces”. In order words, it’s a monopoly that comes about for a good reason. For example, if a company simply has the best product, and consumers freely decide to go with it, it’s a natural monopoly.
Search engines get better every time someone uses it. The data that you give Google every time you make a search helps make its algorithm deliver better and more relevant results. Obviously, as a consumer, you want to go to the search engine that gives you the best results. More users lead to better data and a better product, which again leads to more users. Therefore, it seems like search engines would naturally trend towards one company dominating the market.
Of course, that doesn’t necessarily mean that Google is totally innocent. A company could start off as a natural monopoly and then use that position to act anti-competitively. While Google might have started out with a great search engine, they may have leveraged that position to unfairly hurt competitors in other areas.
Google has been accused of doing this in the past. Google has been fined three times by the European Commission for antitrust violations. From 2006–2016, Google was forcing publishers to sign exclusive contracts, meaning that they were not allowed to run ads from other sites when they ran ads on Google’s Adsense platform.
More recently, Google has been accused of hurting its competitors in the travel industry. When somebody searches for something like “hotels in Copenhagen”, Google seems to favor results from its own travel service, Google Trips. That forces their competitors like Expedia to buy Google Ads in order to survive.
Plus, there’s the concern that Google could be using mergers & acquisitions to act anticompetitively. A company like Google or Facebook could eliminate the competition simply by buying them before they get too big. Some argue that this is what Facebook did with Instagram. The government seems to be looking at this issue separately. Just a few months ago, the FTC announced that it would review past mergers by big tech companies.
Microsoft and the Department of Justice
This isn’t the first time that the Department of Justice has filed a case against a big tech company. The most notable example is the DOJ’s case against Microsoft back in 1998. Microsoft was accused of using its dominant position with PC operating systems to hurt companies that offered competing browsers like Netscape.
The case went on for years but didn’t actually lead to any real changes. Microsoft didn’t actually end up having to spin off any of its subsidiaries and ended up only having to make token reforms.
However, that doesn’t mean that there was no point in the case. Defenders of the Department of Justice say the case against Microsoft helped to slow them down. Maybe in an alternate universe where this case never happened, Microsoft would’ve put down Google as a threat by simply acquiring it. Of course, Microsoft was under so much regulatory scrutiny that they simply couldn’t do this. So it’s very possible that these antitrust actions from the DOJ have a real impact.
Should big tech companies get broken up?
Right now, both sides of the aisle seem to be out for blood when it comes to big tech. Unfortunately, that might mean that it’s harder to effectively regulate these companies.
The Trump administration has used antitrust in order to hurt entities that aren’t friendly. Conservatives have long been angry at big tech companies for perceived anti-right bias and it’s possible that this lawsuit by William Barr’s Department of Justice is just a way to intimidate Google.
While Democrats don’t seem to be using intimidation to achieve unrelated goals, they’ve fallen short when it comes to effective proposals for regulation. This proposal by Elizabeth Warren was probably the most detailed plan to break up the tech giants that I’ve ever seen. Unfortunately, many of the solutions just didn’t make any sense.
I don’t have space here to go through every single problem with Warren’s plan, but this article does a great job breaking it down. I’ll say one thing about it: Warren’s plan proposed splitting up Google’s ad business and Google’s search business. I have no idea how this would work because Google’s search business only makes money because of ads. The proposal doesn’t go into more detail about this.
I’m not saying that these companies shouldn’t be regulated at all. In particular, acquisitions made by Google and other big tech companies should be looked at closely to make sure that they aren’t killing competitors in the womb. But because of our current political climate where everything has to fit into a simplistic good vs evil narrative, I’m not hopeful that our government will be able to handle these complex issues with any kind of nuance.
What does this mean for the tech giants?
Does this Department of Justice case mean that Google’s reign is over? The answer is most likely no.
This lawsuit may be going to be a big distraction for Google going forward. That being said, the company is still going to be the biggest search engine in the world. The worst case for Google is that it would be forced to spin off subsidiaries like YouTube, but this is something that’s probably going to take many years and tons of money in legal fees if we’re using the Microsoft case as a precedent.
I’m not selling my Google shares. All the effects of this are going to happen many down the line. In the meantime, I can’t see Google losing its dominant position in search anytime soon.
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