The Journal. - Judge Rules ‘Google Is a Monopolist’

Episode Date: August 7, 2024

In a historic decision this week, a federal judge ruled that Google acted to illegally maintain a monopoly in online search. The case was the first of several antitrust lawsuits the U.S. government has brought against some of the nation’s leading tech companies, and the ruling marks a major victory for its efforts to reign in big tech. WSJ’s Miles Kruppa explains how this decision could shake up Google’s business and potentially change how we search the internet.  Further Reading: -Google’s Antitrust Loss Set to Reshape Search and Mobile Industries  -Google Loses Antitrust Case Over Search-Engine Dominance  Further Listening: -Why the DOJ Is Suing Google Again  Learn more about your ad choices. Visit megaphone.fm/adchoices

This week, a landmark ruling is shaking up big tech. Breaking news this hour, a federal judge has just ruled against Google. Google was found in violation of U.S. monopoly laws by a judge in D.C. Our colleague Miles Krupa covers Google from San Francisco. — The judge in his decision, he wrote pretty straightforwardly, quote, Google is a monopolist, and it has acted as one to maintain its monopoly. — Google is in violation of antitrust laws. — Google created an illegal monopoly to become the world's default search engine.

— Today's ruling could upend how Americans get their information online and fundamentally change the way that big tech companies operate. — This is a huge win for the 38 states and territories that were on this suit. — Now Google vows to appeal. — The Justice Department and state attorneys general from across the country went after Google's biggest money maker, its search engine. And this week's ruling raises questions about what's next for Google and the way we use the internet.

Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, August 7. I'm Jessica Mendoza. It's Wednesday, August 7th. Coming up on the show, a historic ruling against Google. How do stop losses work on Kraken? Let's say I have a birthday party on Wednesday night, but an important meeting Thursday morning.

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CA dash PRU dash disclaimer for info on Kraken's undertaking to register in Canada. So, Miles, this case against Google started four years ago in 2020, and it was filed by the Justice Department and nearly 40 attorneys general. Why did they bring this case forward in the first place? Yeah, so it actually started under the Trump administration. There was a lot of anti-tech sentiment at the time. There was this movement in general that we've seen over the past five to 10 years to try to rein in big tech, you know, This theory that basically the big tech companies of today are the standard oil of yesteryear

and that it is our duty to go after these companies to ensure that there's a fair competitive playing field in America. And so a bunch of state attorneys general and the Justice Department evaluated multiple different cases and they decided this one was the best one to bring first. Google has dominated the search engine space for a long time. Today it has 90% of market share. In comparison, its primary competitor, Microsoft's Bing, holds around 4%. The case went to trial last fall, and the arguments centered on Google's position as

the default search engine on nearly every device. When we say default search engine, what do we mean? Yeah. So, we are all sort of subconsciously beholden to these default settings that come on our phones, that come on our computers. We all have the experience of typing something into a Safari browser, if we use iPhones, or typing something into what they call a search widget, if we use Samsung phones, and having that sort of magically take us to Google. And it's like, why does that work that way?

It works that way because Google pays for it to work that way. Apple, Samsung, and other companies get tens of billions of dollars to make Google's search engine the default for users. And over the course of the trial, the judge looked a lot at the relationship between Google and Apple in particular. As far back as 2005, Google and Apple saw an opportunity to partner, basically. Google, you're making the best search engine. We're making the best mobile phone.

Let's get you on here and find a way to share the benefits. Right, let's combine our powers. Let's combine our powers. There is a famous quote in the Justice Department's original complaint, quoting an email after a meeting between Google and Apple executives, saying, we should work together as one company. There were points of tension. Google created its own mobile phones, created its own mobile operating systems, but for many, many years they've enjoyed a fairly friendly relationship.

Friendly and also lucrative. During the trial, it came out that Apple gets a cut of what Google makes through ads when people use Google search on Apple products. That amounted to 20 billion dollars for Apple in 2022 alone. The government argued that these kinds of deals are anti-competitive, that by paying to be the default search engine, Google is able to preserve its dominance and box out other competitors. Google argued that companies want Google as the default, because it has the best search engine.

Court documents revealed one example, when Microsoft proposed giving Apple 100% of its search ad revenue in exchange for making Bing the default. In comparison, Google pays Apple 36%. But Apple decided to stick with Google because it thought Google's search engine was so much better that it would make more money that way. And what became clear from the trial is that as Google enjoyed this default status on iPhones,

and iPhones especially, which have become the dominant mobile device for affluent people in the Western world who spend the most on consumer products and thus click on the most ads and are the most valuable consumers, Google's benefits from being placed automatically in front of those people have just compounded over time. They've been clicking on more ads, which gives Google advertising revenue, which it can then use to invest in the search engine and other stuff. It gives them user data, which it can use to improve the service. The benefits just create this kind of flywheel.

Flywheel? I knew you were going to say flywheel. As they like to say in Silicon Valley, it's a total flywheel. Flywheel, meaning when one small win turns into another, and then those successes keep propelling you forward. I'm trying to make the connection, I guess, between like becoming the default search engine and then as a result becoming the best. Like which came first, I guess, is the question? Yes. It is a bit of a chicken and an egg. It may have been

okay at one point, but now that Google is so dominant, it's not okay. And that's all it has to take for a judge to rule against it. And it became really clear in the trial, even a company like Microsoft that has all of these resources didn't have the goods to convince Apple to switch the default to Bing. it couldn't offer the same kind of monetary value to Apple that Google could. And that is a result of Google's scale. It's a result of Google's resources.

It's a result of being the default for many, many years. And so it's this cycle just, it kept feeding on itself and it resulted in basically an unlevel playing field that nobody could reset. In making his decision, the presiding judge, Judge Amit Mehta, looked closely at how Google came to dominate the search engine market. The question that kind of hung over everything was, Google, if your search engine is so good and people would use it anyway,

why are you paying so much money to Apple in particular and Samsung and these other device makers? He was trying to get to the bottom of what benefit do you get and to what degree does it benefit you in terms of the data you collect? To what degree does it benefit you from a marketing standpoint? And on Monday, the judge answered those questions pretty clearly. — He found that Google held monopolies in two different markets, online search and text advertising alongside search results, and that Google had used these contracts to illegally abuse its monopoly power. So basically, the U.S. government sued Google, and it's won.

Google plans to appeal the decision, but the impact of this ruling could change how the company operates and have ripple effects well beyond Google. That's next. Later this fall, Judge Mehta will decide what Google needs to do to get rid of its monopoly over search. So what are some of the options that are on the table? If you could talk about them from like the most to the least extreme. Yeah.

So there's a wide range. On the most extreme end, the judge could force Google to sell off parts of its business. Some potential candidates would be the Chrome web browser, which also contributes a very large volume of search traffic. Google is the default search engine, of course, in its own browser. Or it could be forced to sell off Android, the division that created the mobile software that is kind of the carrier for these deals with Samsung and other phone makers that rely on Android software. Those are two potential really big, but probably unlikely, remedies.

On the more likely end, most people I've talked to think that the judge will issue an injunction or force in some way Google to stop paying for default placement on any device other than obviously its own where it doesn't have to pay to be the default. How much revenue could Google lose as a result of something like that, of having its default partnerships taken away? Right. of having its default partnerships taken away. Right, so it turns out Google did a projection back in around 2020 of what would happen if it lost the default to another search engine on Apple devices. And Google found basically they would lose 60 to 80% of search volume on Apple devices,

which could result in revenue losses in the $30 billion range per year. So that's assuming that another search engine such as Microsoft's Bing replaces Google in that default position, but it's possible that longer allowed to pay for default placement, it would likely take years for a competitor to gain significant market share in search. The more immediate impact could be on Apple. What could this ruling mean for Google's partnership with Apple? It could mean it's over. Kaput's, you know, I don't expect that their ties will be severed entirely, but in many ways this agreement is kind of the central piece of their relationship.

Would Apple be the bigger loser though in that scenario than Google? It's definitely possible that Apple will be a bigger loser here. in that scenario than Google? picky user base, maybe not. Maybe it has to spend the billions it takes to build its own search engine. So on top of losing billions in free revenue, it now has to spend billions. One company that could benefit from Google losing its place as the default search option is Microsoft through its search engine Bing. And so would you say that this ruling provides purely opportunity for Microsoft? I think it's purely opportunity. It's possible that if Google isn't allowed to pay for the default position,

neither will Microsoft. So that maybe reduces the opportunity for them. But I just think in general it will open up the search market and even if it opens it up just a fraction, Microsoft sits at 3%, 4% market share and is especially not as good on mobile. Just any share it can gain is basically pure upside. There are other potential impacts too. AI companies moving into search could benefit from a more competitive marketplace, as could other smaller search engines. What kind of effect could this decision have for users?

You know, in the end I think it's just going to draw attention for consumers to the fact that we use all these things without even realizing them all the time. Yeah. use all of these things without even realizing them all the time. That contributes to, in some ways, the dominance of many of these tech companies. And if what happens at the end of this is that we all get a nudge to make a choice or just to think for a second about what we're using as a search engine, what we're using as a browser, that can have really huge effects on the way we all navigate the internet and how much control we feel over the way that we interact with technology.

Right. It's almost like a reminder for us that we give up choice in the name of convenience a lot when it comes to tech. But if you're confronted with the choice right away, you might actually make a different one than comes to tech. But if you're confronted with the choice right away, you might actually make a different one than what the tech companies are saying you should do. Exactly. And you know what? It's possible that people would still choose Google

70, 80, 90% of the time. Right, right. Judge Mehta in his decision said multiple times that Google is the highest quality search engine on the market. It's hard to disentangle that from all of the advantages multiple times that Google is the highest quality search engine on the market. It's hard to disentangle that from all of the advantages it's accumulated over the years that have allowed it to maintain the best search engine on the market.

But it's still possible that people will be using Google in the same volume, in the same ways, they'll just be made to actively choose it more than they already do. Do you think we're going to have to change the verb Googling when we talk about search? I don't know. I mean, for 20 years we've been calling it Googling. It's so ingrained that I think even if chat bots or Bing or some other challenger comes up, it might be the case that it's like it's become the all-encompassing verb for web search. Right.

You know, it's been that dominant, that habit-forming for this many years that there's no going back from Googling. That's all for today, Wednesday, August 7th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Jan Wolff. Thanks for listening. See you tomorrow.