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Life After The Googleopoly
By Matt Stoller
 The sign over a Google office in New York City (AP Photo / Peter Morgan) [View in browser] Monday was a big day for American business. “After having carefully considered and weighed the witness testimony and evidence,” wrote Judge Amit Mehta in his decision of the case United States of America vs. Google LLC, “the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly. It has violated Section 2 of the Sherman Act.” Fifteen years after it was first investigated, search giant Google is finally going to be held accountable for unfairly thwarting competition. In this piece, I’m going to discuss the complaint against Google, why it lost, the next steps, and what this case means for American business going forward. Make no mistake, this decision is huge for Google, the web, and the revival of monopolization law against giants across the economy. It’s also a big deal for the BIG community. We’ve been writing about this case, covering antitrust law, filing comments, contacting policymakers, and pushing for aggressive enforcement for almost five years. Subscribers to BIG helped finance the special site Big Tech on Trial, where we hired a reporter to cover the case and helped ensure that the judge didn’t keep key evidence behind closed doors. So this victory is not just for the public, it is in a sense by the public. What Happened?The government’s case against Google was simple. The search giant pays tens of billions of dollars a year to companies that distribute search engines — Apple, LG, Motorola, Samsung, AT&T, T-Mobile, Mozilla, Opera, UCWeb, and Verizon — to make sure it was the only search engine consumers saw. A colleague described the case in 2020: The government is saying that Google put its search engine in front of consumers so rivals — like Bing or DuckDuckGo — never get a chance to compete. The most important way to distribute search engines is to be the preset default general search engine on a device; most consumers simply never change their defaults. To take advantage of this dynamic, Google has agreements with mobile phone companies like Apple and Samsung, wireless carriers like AT&T and Verizon, and browser companies like Mozilla to gain default status for Google. In other words, it bought up all the shelf space. Such a tactic, a monopolist paying off partners to prevent the distribution of a rival, is called “monopoly maintenance.” In digital markets, monopolization is meaningful for a specific reason. When a search engine gets a lot of users, it learns what users click on, and can tweak results to make them better and more relevant. In other words, the use of the product actually improves the product. So Google’s ability to deny scale and data to rivals meant that no one could get enough information to produce a sufficiently high-quality service to foster actual competition.
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So what’s the harm? As Yosef Weisman put it in on Big Tech on Trial: The alleged harms of this monopoly maintenance are what you’d expect. The government argues it allowed Google to raise prices for advertisers without regard to the prices of ads on other digital platforms, and has allowed Google to forgo quality improvements in privacy and other areas that it would have otherwise pursued. Consumers are also deprived of the potential for a higher-quality search engine that could emerge if there was healthier competition. Poor quality search costs lives, as Dave Dayen wrote in 2017 when showing how Google’s bad stewardship of its search engine directed users to bad rehab clinics. A more tangible way to show the costs for everyone is as follows. In the late 2010s, Apple began building a search engine to compete with Google, which it would presumably use as its default for the iPhone. But then Apple stopped development, because Google’s sharing of monopoly rents from its search engine was too lucrative to be ignored. Apple now earns tens of billions of dollars from Google for putting Google as the preset default on its Safari browser, with virtually no cost. The public, advertisers, and websites are deprived of competition from an Apple search. Mehta’s DecisionThe key question for Mehta was whether default arrangements were mechanisms to monopolize or just smart business. “If defaults matter a lot,” Weisman wrote in The Power of Defaults early in the trial, “that suggests that consumers aren’t necessarily using Google because of its quality. But if defaults don’t matter that much, that strengthens Google’s claim that people use Google because it’s the best.” It turns out that Mehta thinks defaults matter, a lot. “Google,” he wrote, “has a major, largely unseen advantage over its rivals: default distribution.” Mehta quoted Google’s behavioral economics team in 2021 discussing how much defaults matter, noting consumers don’t change their search engine very often, if ever. “Inertia is the path of the least resistance,” this team said internally. “People tend to stick with the status quo, as it takes more effort to make changes.” Mehta further observed that because of Google’s set of contracts, only 30 percent of consumers ever get the chance to have access to the web without being defaulted to Google. That is, 70 percent of the market is foreclosed to competition. As I noted above, the most obvious potential rival in search would have been Apple, because it had the distribution capacity through its iPhone to source a different search engine or build its own. I thought this dynamic was compelling, and so, apparently, did Mehta. Apple would not distribute a rival search product because its revenue share with Google was so lucrative. The phone maker did not seriously consider Microsoft’s Bing as a replacement for Google, since the economics of search were such that Microsoft would have had to offer more than 100 percent of its revenue share to compete. And, unsurprisingly, Google was willing to pay a lot to be the default for Apple’s Safari for a reason. Internal Google documents suggested they’d lose between 60 to 80 percent of its mobile search were they to lose the default position on the iPhone, translating into a revenue loss of between $28.2-32.7 billion, numbers Mehta highlighted in his decision. “The prospect,” Mehta wrote, “of losing tens of billions in guaranteed revenue from Google — which presently come at little to no cost to Apple — disincentivizes Apple from launching its own search engine when it otherwise has built the capacity to do so.” In terms of the legal elements of his decision, Mehta found that Google’s violations amounted to “exclusive dealing,” which is to say cutting deals to make sure it was the only product distributed to a substantial share of the market. Monopolization can happen if rivals are cut off from just 40 to 50 percent of the market, or even less, and Google’s exclusive contracts certainly met that threshold. Mehta also pointed to the Federal Trade Commission’s recent IQVIA merger decision in determining how online advertising markets work, cited old powerful cases like American Tobacco (1946), which stated that merely being a monopolist is unlawful, and dismissed the emergence of artificial intelligence as meaningfully changing search market dynamics. Mehta made two points in favor of Google. First, he dismissed the claims of the states, which had argued that Google didn’t allow Microsoft to connect with Google’s advertising tools. And second, he chose not to sanction Google’s general counsel for destroying evidence, but said that was only because he found Google’s conduct unlawful. “The court is taken aback by the lengths to which Google goes to avoid creating a paper trail for regulators and litigants,” Mehta wrote. “It is no wonder then that this case has lacked the kind of nakedly anticompetitive communications seen in Microsoft and other Section 2 cases.” Google got lucky, he said, because sanctioning would have made no difference in the outcome, so he didn’t bother to do it. Fundamentally, this case is about two different visions of the internet. Google has tried to portray itself as an upstart fighting for innovation in an open web. The company likes to portray itself as having been founded in a rented garage, when competition was merely a click away. However, Mehta didn’t buy it. “The internet of today is a far different animal,” he said in his opinion. “Hundreds of millions of dollars is just the opening ante to enter the search market in part because of the internet’s dramatic growth; billions are needed to acquire meaningful market share. The next great search engine (if there is to be one) will not be built in a rented garage like Google.”
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Next StepsThis part of the trial was what is called the liability phase, which is to determine whether Google broke the law. Mehta found that it did. The next stage is called the remedy phase, during which the court will hear arguments about what to do to address the bad conduct. He has ordered both parties to propose a schedule for the remedy phase by September 4. No doubt Google will appeal, and will ask for the remedy phase to be delayed while it does so. I doubt Google will be able to delay the remedy phase while its appeals happen, but the law there isn’t crystal clear. I don’t think Google’s appeal will succeed; Mehta’s decision is tightly written and if Google isn’t a monopoly, then antitrust law is really a dead letter. However, the risk here is political. I don’t have any confidence in either Donald Trump or Kamala Harris to continue this antitrust regime, and they will both be tempted to settle this case, and others like it, on the cheap. Congress won’t be happy if they do that, and neither will the media. So I don’t think it’s likely that they do end this case, but it’s something that worries me. In terms of remedies, it’s not totally clear what the government will ask for. I have faith in the Antitrust Division leader, Jonathan Kanter, who has shown foresight and courage in his job. Legally speaking, Mehta has broad latitude to craft a remedy, though Mehta is quite cautious. He will likely end the exclusive dealing contracts. But he could go much further, breaking up Google, separating out Android and Chrome from the search function. He could force Google to share its ill-gotten data with rivals to let them create quality products, or he could mandate they delete it. Technical oversight committees, break-ups, choice screens, interoperability, and prohibitions on self-preferencing of Google products are all possibilities. Six months ago, tech incubator YCombinator and Bloomberg held a conference called Remedy Fest, with discussions of all of these options. Regardless, the immediate impact of this decision will start tomorrow, as venture capitalists, entrepreneurs, and executives begin planning for the end of Apple’s deal with Google and the $20-plus billion of free money that structures the web. That Safari search default is immensely valuable, and Apple isn’t going to waste it.
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What Does This Decision Mean?The implications of this decision are too broad to really convey in one article, it’s one of those legal decisions that will have ripple effects across the internet, the law, and big business for generations. Let’s start by putting it in context for Google. We have to remember that this monopolization case isn’t Google’s first. Last December, Google lost a monopolization case in a jury trial to Epic Games, which claimed Google monopolized access to mobile app stores. The judge is nearly done with the remedy phase, which could revolutionize mobile phones. Google is also facing a different case on its control of advertising software, in a trial starting next month. But this case is critical to freeing the web. As a colleague once told me, “Going after Google for anything but search is like trying to deal with Standard Oil without touching oil.” So there we go, Google’s control of the web is ending. What will a non-Google dominated web look like? Well, it’s hard to know, but I think there’s a vision tucked in an April speech by Federal Trade Commission consumer protection chief Sam Levine on how the internet didn’t have to become the cesspool that it is today. He sketched out what the internet could become if well regulated, a place where we have zones of privacy, where not everything operates like a casino, and where AI works for us. This case brings us a step closer to Levine’s vision, because it means that people who want to build better safer products now have the chance to compete. So that’s Google. What about the rest of business? Well, this decision means monopolization law is back. Exclusive contracts and arrangements are pervasive in American commerce, and until recently, executives could reliably exploit such deals without fearing that they might face any legal liability. But that era is over. This case is in the headlines, which means every single competent executive in America in any firm with market power is going to get a memo from their antitrust or general counsel on what they can and can’t do going forward. And they will likely begin changing their behavior to avoid being brought to court for monopolization. And that, more than almost anything, is what the rule of law means.
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