What Will Happen To Google?
Determining whether the U.S. government will (and should) break up the tech giant
I have long been a critic of too much economic concentration. Companies like Alphabet, owner of Google, can throw their weight around and prevent upstarts from gaining market share even when those upstarts have superior products.
As I have also argued in past essays:
[L]ess competition arguably leads to worse working conditions, less wage growth, and numerous other undesirable economic and societal outcomes beyond any impact to consumer pricing.
So while I am generally a strong proponent of proactive antitrust enforcement, the recent U.S. Department of Justice (DOJ) actions against American big tech firms and the latest ruling against Google have given me pause.
Is the toothpaste not out of the tube already? Why did the DOJ allow these firms to grow so big in the first place?
Is it really the best use of taxpayer money to have DOJ lawyers assessing whether Apple’s CarPlay functionality is anti-competitive? Or whether Google Search is too dominant after simply being the best search engine for the past two decades?
I am still working through the judge’s 200+ page monopoly ruling in the Google case; the case that may spell doom for the future of Google as it could lead to a complete breakup of the company. If Google is lucky, they might end up like Microsoft in the early 2000s and escape with only a consent decree.
Ask Bill Gates how Microsoft fared during that period. Gates stepped down as CEO. Microsoft lost out on social media, mobile, and numerous other internet innovations. They basically had a hall monitor watching and critiquing their every move. They had limited freedom to innovate.
This week I will come out with a full analysis of the monopoly ruling against Google and whether it should follow a similar course of action, or whether the remedy should be even more strict (as in, a complete break up of Google).
That analysis will be behind the paywall here and on Medium, so please consider becoming a paid subscriber if you would like to read it.
In the meantime, let’s discuss my initial reactions to this case against Google and what I think will happen to one of the most successful technology firms in history.
Forced divestiture of Google businesses
Unlike Microsoft in the early 2000s, Google has multiple business units that could operate as independent companies. When Microsoft was under intense antitrust scrutiny in the late 90s and early 2000s, they only really had three core products: their operating system, Microsoft Office, and Internet Explorer.
Google in 2024, by contrast, has Search, AdWords (advertising program for Search), Android (mobile operating system), Chrome web browser, YouTube, Waymo, and more.
Point being — Google is far more massive than Microsoft was in the early 2000s ($2.02 trillion vs $230 billion in market cap).
In some respects, it makes sense why the U.S. government would want to break up Google. Smaller players could compete and innovate more easily.
But my initial read is that a breakup remedy is unlikely and undesirable. It would not get to the core of what the judge’s monopoly ruling against Google was all about — limiting or restricting exclusionary contracts for search.
Google paid $26 billion to Apple in 2021 alone
If there’s anything that comes from the monopoly ruling against Google, it’s likely preventing Google from paying Apple to be their default iPhone search engine. For years, one of the greatest revenue streams for Apple has been this lump sum annual payment from Google.
In exchange for some $20 billion per year, Apple makes Google the default search engine on all iPhones through the Safari browser. While consumers can change their default search engine, few do (most of us can’t be bothered).
This exclusionary contractual arrangement between two tech giants destroys any chance of competition in mobile search. It doesn’t even account for the fact that Google is the default search engine on all of its Android-powered devices too (it doesn’t have to pay billions for that, however, since it owns the operating system).
Therefore, my initial take is that Google, as a monopoly, will be prohibited from entering into exclusive contracts like this one moving forward. That’s assuming they lose on appeal.
Weighing the costs and benefits of potential remedies for Google as a monopoly
If the monopoly decision stands and Google is forced to remediate its monopolistic practices, then the court and DOJ will have to decide what’s best for consumers, market efficiency, and overall competition.
Forced divestiture of some or all of Google’s business units?
Prohibitions on certain contractual arrangements that are deemed anti-competitive, particularly exclusive search contracts?
A consent decree, similar to what happened to early 2000s Microsoft, that monitors Google’s practices to ensure they’re not anti-competitive?
Some combination of all of the above?
If you’re interested in reading a detailed analysis of these issues this week, consider a paid subscription. This case against Google, like the Microsoft one from a couple of decades ago, will have historic implications.
We must get it right.
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