“The Google of today is a monopoly gatekeeper for the internet,” said the United States government, in its antitrust lawsuit against the technology giant filed on Tuesday, beginning perhaps the biggest monopoly case of this century. The lawsuit accuses Google, with a market valuation of $1 trillion (a figure that dwarves the economies of many countries), of using anticompetitive tactics to maintain and extend its monopoly. The US Department of Justice (DoJ) and eleven states (all run by Republican administrations) have accused Google of monopolistic practices in the markets of search engines and digital advertising. The DoJ is asking for the break-up of Google as a measure to foster competition in the market.
The investigation against Google has been long underway, and is a part of the larger scrutiny by the US government into Big Tech — a popular term used to refer to companies like Google, Amazon, Facebook, Apple and Microsoft. The legislative branch of the government has questioned Big Tech CEOs in high-profile hearings in recent months. Subsequently, the House Judiciary Committee had recently called for a radical overhaul of antitrust law in the country.
Exclusionary deal for Search with Apple kills reach of rivals
The suit alleges that Google expanded the reach of Search with its exclusive deal with Apple, which has not developed its own general search engine. Per the deal between the two companies, Apple makes Google Search the default on its Safari browser; on its artificial intelligence (AI) assistant Siri and selection-based search feature Spotlight.
“Although it is possible to change the search default on Safari from Google to a competing general search engine, few people do, making Google the de facto exclusive general search engine. That is why Google pays Apple billions on a yearly basis for default status.” — Lawsuit against Google
The suit alleges that the Safari default status means a great deal to Google, as it provides it access to Apple’s “massive consumer base”. It is because of the fear of losing this status, Google pays Apple billions of dollars every year: “In short, Google pays Apple billions to be the default search provider, in part, because Google knows the agreement increases the company’s valuable scale; this simultaneously denies that scale to rivals.”
The suit claims that the Google-Apple agreement covers 36% of all general search queries in the US, including mobile devices and computers. “Google estimates that, in 2019, almost 50 percent of its search traffic originated on Apple devices,” it says. Since Google pays Apple a considerably sum for this exclusivity, the company has set a high barrier for market entry by any rival search engine. Even if a rival willing to make no money in return for distribution on Apple devices, the suit indicated that Apple would be unwilling to forego the deal due to its financial incentives in the status quo.
Google pursues exclusivity for Search on Android devices
Google controls the Android mobile operating system distribution channel, even though the OS itself is open source. The suit alleges that google has used Android to protect its search and search advertising monopolies through “anti-forking agreements, preinstallation agreements and revenue sharing agreements” .
- Anti-forking agreements: Forking of an OS — in this case, Android — means the development of an offshoot. For instance, Amazon’s Fire OS is a “forked” version of Android. The suit alleges that Google forces manufacturers and distributors to not use forked versions of Android, ensuring they are “beholden to Google’s version of “Android”.
“Distributors know that any violation of an anti-forking agreement could mean excommunication from Google’s Android ecosystem, loss of access to Google’s must-have GPS and Google Play, and millions or even billions of dollars in lost revenue sharing.” — Lawsuit against Google
Google also has a final say over whether a device is compatible with its specifications for Google Mobile Services (GMS). Due to these agreements, Google essentially creates a reluctance among Android distributers to support alternative versions of Android, creating barriers of entry, says the suit. Even a major player like Amazon is being denied entry into the market because of Google “anti-forking” agreements:
“Google’s anti-forking provisions and policies limited the growth of Amazon’s mobile phone, and of Fire OS, because major manufacturers declined to support Amazon’s phone out of fear doing so would risk their lucrative deals with Google.” — Lawsuit against Google
Google pushing its ‘core’ apps using preinstallation agreements
The suit alleges that Google forces manufacturers to give premium placement on GMS devices using preinstallation agreements. Even if a manufacturer wants just one of Google’s key apps, Googles forces the installation of the whole bundle with six “core apps” — Google Play, Chrome, Google’s Search app, Gmail, Maps and YouTube.
“Manufacturers must preinstall the core apps in a manner that prevents the consumer from deleting them, regardless of whether the consumer wants them […] The preinstallation agreements provide Android device manufacturers an all-or-nothing choice” — Lawsuit against Google
Google apps eat up storage space: The suit indicates that storage space on mobile devices is valuable real estate, and the ability to delete unwanted apps allows users to install their own preferred ones. However, Google doesn’t allow the uninstallation of its core apps, thereby disincentivising consumers installing alternatives. The suit also flags Google’s mandate of putting its Search widget on phones’ home screens. “This locks up another search access point, as it would be impractical for a manufacturer to preinstall two search widgets on the same home screen.”
Google Assistant getting unfair advantage: Google’s AI feature Assistant is mandatory for manufacturers to bake into their devices. Google forces rival assistants like Alexa from being the preset default assistant. “Even Google Assistant’s chief rival—Amazon’s Alexa—is unable to navigate these disincentives to get significant preinstallation or functional integration on Android devices.”
Revenue sharing agreements with manufacturers
Google gives Android distributers a considerable portion of its Search advertising revenues to make Google Search the default search engine on their devices. At the same time, the suit alleges, these revenue sharing agreements contain exclusivity provisions prohibiting the preinstallation of other rival search engines. One Google executive reportedly noted: “our philosophy is that we are paying revenue share in return for exclusivity. These agreements are really important because otherwise Bing or Yahoo can come and steal away our Android search distribution at any time.” (Emphasis theirs).
This exclusivity essentially leaves competitors with no alternative channels of distribution since consumers are likely to use whatever comes on their devices, and not download or use other general search services.
Google uses agreements for punitive measures: The suit alleges that the general term of revenue-sharing agreements between manufacturers and Google is two to three years. If a manufacturer doesn’t renew the agreement, the distributor loses revenue share not only for new devices but also those sold previously. “This provision is punitive to the carrier or manufacturer and helps to ensure that carriers and manufacturers will not stray from Google.”
“Particularly for newer entrants, the revenue sharing agreements present a substantial barrier to entry. These entrants cannot pay the billions of dollars that Google does for the most effective forms of distribution—premium placement and default status.” -— Lawsuit against Google
Google’s monopoly moves in the browser market
Google allegedly pushes adoption of its Search on browsers as well, using roughly the same tactics as in the mobile devices market. The company, the suit claims, shares advertising revenues in return for becoming the general default search engine on a browser. “In exchange for being the preset default general search engine, Google shares up to 40 percent of the advertising revenue it generates from these search access points with Google’s browser rivals.”
The suit notes that browsers are one of the most important distribution channels for general search services because they are “gateway to the internet” for most consumers. Google has revenue sharing agreements with Apple’s Safari and Mozilla Firefox, with Microsoft’s browsers as the only exceptions.
“Over 85 percent of all browser usage in the United States occurs on Google’s own Chrome browser or on one of the browsers covered by these revenue sharing agreements[…] In the absence of these agreements, rival browsers would have the ability to consider making other general search engines the preset default for some or all search access points, spurring greater competition in the general search services market and offering additional choices to consumers.” — Lawsuit against Google
Google cornering next-gen channels too
Google allegedly is using similar tactics to control distribution channels such as smart watches, smart speakers, smart TVs, and connected automobiles.
- Wear OS: Google prohibits smart watch manufacturers from preinstalling any third-party software, including rival search services.
- Automobiles: Google, which offers Android Auto for car infotainment systems, allegedly has agreements that prohibit preinstallation of rival search-related apps.
- Concurrency in IoT devices: The suit alleges that Google refuses to license its Assistant to IoT device manufacturers that would also host a rival voice assistant (like Amazon’s Alexa or Apple’s Siri). This feature, known as concurrency, would be valued by consumers, but Google sees competitive risk in it, the suit says.
DoJ seeks ‘structural relief’, indicating breaking up Google
In summary, the DoJ and the 11 states have sought that the court prohibit Google from engaging in antitrust behaviour, and break up the company if needed. It used the legal phrase ‘structural relief’ that refers to forced break-up and spin-offs. The US is no stranger to break-ups of large companies. The most prominent example of it is Standard Oil, which was the largest oil company of its time in the world. After it was found to be indulging in monopolistic business practices, it was broken down into several smaller companies in 1911; some of the offshoots of Standard Oil are operational even today.
If Google is indeed broken up, it will be first time such a thing will happen to a a technology services company. At the same time, it should be noted that Google is not the first major tech company to be targeted with an antitrust lawsuit. Co-giant Microsoft was hit with a similar lawsuit in 1998, which ended in a rather anticlimactic settlement in 2001. The present lawsuit, in fact, draws parallels with the Microsoft suit. It noted how Google, which was incidentally founded in 1998, had been critical of Microsoft’s anticompetitive practices then, but have ended up deploying the “same playbook to sustain its own monopolies”.
Google responds: ‘We operate across highly competitive sectors’
Soon after the lawsuit was announced, Google responded with a blog post with rebuttals to allegations. It claimed that its services such as Search, Gmail and Maps are provided to users for free, hence provide thousands of dollars a year in value to the average American.
Kent Walker, SVP of Global Affairs, Google called the lawsuit “deeply flawed”, and that it 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.”
Advertising industry is competitive: The company claimed its products “increase choice and expand competition” instead of inhibiting them. It claimed that it operated in competitive industries such as the advertising industry, where competition has helped reduce online advertising costs.
- It should be noted that while advertising costs may have actually fallen, it does not address Google’s dominance in this market. For instance, in the July hearing of the House subcommittee on antitrust, Google was accused of controlling 90% of the digital advertising market. It’s marketplace Google’s Ad Exchange essentially guarantees Google control of both buy- and sell-sides of the market.
Choice key to Android ecosystem: Google claimed that choice has always been a “core tenet” of Android, and consumers have always had control over which apps the use, including their keyboard, messaging apps and phone system. It claimed the Android ecosystem fostered consumer-friendly innovation that has led to smartphones becoming accessible at all price points.
With respect to exclusivity agreements, Google justified them by saying that it only asks Android device makers to preload Google services to support its investments in maintaining the Android OS. “These agreements are optional and device makers can just take the open source Android operating system for free and build a phone without entering an agreement.”
Google also talked about the Play Store, and why it asks developers to distribute apps on it. It said the Play Store allows users to safely and securely download apps. However, it doesn’t prohibit other app stores from existing on the operating system.
Google faces stiff competition in ad market: Google attempts to address the allegation that it abuses its dominance in the digital advertising market by claiming that it faces competition from Amazon, Facebook, bing, eBay, Snap, Twitter, Pinterest, Expedia, Kayak, Orbitz and others. “The online advertising space is famously crowded, with thousands of companies working together and in competition with one another to power digital advertising across the web.”
People use Maps because they like it: Google addressed the criticism of forcing use of Maps on Android phones by claiming that people used Maps only because they found it most helpful, not because they don’t have options. It said the mapping services market is highly competitive with players such as Apple Maps, Mapbox, Bing, here Technologies, OpensTreetMap and so on. “People choose to use Google Maps because it provides helpful, high quality information.”
Voice assistants: Similar to mapping services, Google claimed there is “fierce competition” in the voice assistants space. It essentially noted the examples of Apple’s Siri, Amazon’s Alexa and Samsung’s Bixby. However, Google, again, did not talk about the allegations that it forces use of Google Assistant on mobile devices.
Google’s practices not different from other companies’: When referring to Google promotion of Search, the company noted that it has agreements with multiple companies. It justified these agreements as necessary to gain consumer attentions, like how companies pay extra to supermarkets to place their products at customers’ “eye-level”.
“We have 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.” — Google’s response to DoJ lawsuit
Google claimed its agreements with Apple and other device makers and carriers are no different from those that many other companies have had in place to distribute software.
Apple uses Google Search because it’s ‘best’: On why Apple’s Safari browser uses Google Search as default, the company said it is because Apple this it is “the best”. “This arrangement is not exclusive—our competitors Bing and Yahoo! pay to prominently feature, and other rival services also appear. Changing your search engine in Safari is trivial. On desktop, one click and you’re presented with a range of options.”
Outcome of lawsuit will set global precedent
Due to the global reach of Google, and other Big Tech companies, the present case is likely to set a global precedent. Several countries, including India, will likely be watching developments closely to decide their own plans of action.
The European Union has begun deliberating on the Digital Services Act (DSA), which has several anti-competition provisions to put a check on Big Tech in the areas of data sharing, digital marketplaces and so on. Only earlier this week, Japan had announced its intention to team up with the US and EU to coordinate antitrust regulation of Big Tech.
India, too, has been looking closely into Google. So far, the Competition Commission o of India (CCI) has opened four probes into Google, one of which is for its alleged abuse of its dominance in the smartphone market. Another is about its dominance in the smart TV market.