Earlier this month, a district court in Washington DC handed down a judgment in an antitrust case that has shaken up the tech industry. In a 286-page opinion, Judge Amit Mehta announced his conclusion. “After having carefully considered and weighed the witness testimony and evidence, 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.”
Now I know that for normal, well-adjusted people, antitrust cases are an excellent antidote to insomnia, but stay tuned for a moment because this is a really big deal. Apart from anything else, it shows that an ancient legal warhorse, the Sherman Antitrust Act of 1890, still has teeth. And to see it successfully deployed to bring an overbearing tech company to heel is a delight. After all, it was the statute that in 1911 broke up John D Rockefeller’s Standard Oil as well as American Tobacco, and AT&T in 1982. It was also used to prosecute Microsoft in 1998.
Section 2 of the act says that “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor.”
The misdemeanour of which the US Department of Justice accused Google was simple: it was paying tens of billions of dollars a year to companies that distribute search engines – notably Apple, LG, Motorola, Samsung, AT&T, T-Mobile, Mozilla, Opera, UCWeb, and Verizon – to make sure that its was the only search engine consumers saw. To that end it was forking out nearly $18bn (£14bn) to Apple to make Google the default search engine on its iPhones and other iDevices. Samsung was pocketing $8bn a year for ensuring that Google was the default search engine on its phones. And even poor little Mozilla (the creator of the Firefox browser) was getting $500m a year – which was probably most of its income. In other words, as one commentator put it, Google “bought up all the shelf space. Such a tactic, a monopolist paying off partners to prevent distribution of a rival, is called ‘monopoly maintenance’.”
And it worked. Nobody in the tech industry underestimates the power of default settings. It comes from the sad fact that most users of digital devices never change the defaults. If your smartphone/laptop/browser comes with Google search as its default, then you will almost certainly wind up as a Google user. This is the case even when other search engines are, in fact, available. Mehta understood this well. “Google,” he writes at one point, “has a major, largely unseen advantage over its rivals: default distribution.”
Google argued in court that the fact that most people used Google simply confirmed that it was the best search engine. In which case, came the (obvious) riposte, why was the company giving nearly $20bn to Apple to make sure that they did?
The main thrust of the government’s case was that Google’s 90%-plus share of the search market gives it overwhelming power, and that it was using payment-for-defaults as a way of maintaining that dominance. So it is anti-competitive, but in interesting ways. “The default is extremely valuable real estate,” writes Mehta. “Because many users simply stick to searching with the default, Google receives billions of queries every day through those access points. Google derives extraordinary volumes of user data from such searches. It then uses that information to improve search quality. Google so values such data that, absent a user-initiated change, it stores 18 months’ worth of a user’s search history and activity.” Other search engines have much less user-data, and therefore find it harder to compete.
One of the questions raised by the court proceedings is why, given that Google has such a virtuous circle for improving its search engine, does its quality seem to be deteriorating over time? After all, many discerning internet users no longer use it, preferring alternatives such as DuckDuckGo instead. The obvious answer is that if you are a monopolist with no serious competition, then you don’t have to innovate, and can milk your users ruthlessly, as Google has been doing for several years – to the point where for many searches you have to wade through a screenful of ads before getting to “organic” search results.
Another question is, why didn’t Apple develop its own search engine for its devices? The answer, it seems, is that it had originally embarked on such a billion-dollar project, but then Google arrived waving all that monopoly money. So the Apple engine went on the back-burner and was never seen again. If Mehta’s judgment – that default-placement is illegal – survives the inevitable appeal, then maybe one day we’ll have an Apple search engine, just as we now have Apple Maps as a viable alternative to Google’s cartography. In which case competition will have been good for consumers as well as for Google’s soul, assuming it has one.
What I’ve been reading
Conventional thinking
Richard Nixon: My Part in His Downfall is a nice memoir piece by Lawrence Freedman on his youthful participation in the 1972 Democratic convention.
Treatment for parasites
Cory Doctorow has a fine blast against the hyenas of capitalism – private equity operators – in this essay.
Preparing for war
Dan Gardner sends a sobering message from Poland about the threat the country faces if Ukraine goes under.
