The Department of Justice Went After Google — and the Market Shrugged
Did you hear the one about the Department of Justice (DOJ) going after Microsoft? It isn’t a joke, but the stock market seemed to laugh at the news.
On Oct. 20, the DOJ announced the largest antitrust lawsuit in decades, officially declaring Google “a monopoly gatekeeper of the internet.” The last antitrust action of this size and scope was launched against Microsoft in 1998 — the same year Google was founded by two Stanford students.
In many respects, today’s Google antitrust case bears a strong resemblance to the 1998 Microsoft antitrust case. Twenty-two years ago, Microsoft was accused of abusing its Windows operating system dominance by way of anticompetitive practices to stifle or squash rivals, effectively squashing the Netscape Navigator web browser. With an estimated 88% global market share, Google is accused of doing the same in web search, smothering competitors like Bing, DuckDuckGo, and Yahoo Search.
Though Google is the antitrust target here, the DOJ case has major implications for Apple, too. According to DOJ analysis, Google pays Apple an estimated $8 billion to $12 billion per year to maintain the default search position across all of Apple’s smartphone, computer, and tablet devices — a sum so large it accounts for 15 to 20% of Apple’s net profits.
The contract relationship between Google and Apple, which looks like a form of cross-platform collusion in the eyes of the DOJ, is at the heart of the antitrust complaint. If Google is large enough to buy search dominance on all Apple devices — along with a host of other devices — the argument is that other search providers are crowded out. Because $8 billion to $12 billion annually is a whole lot of money, even for Apple, banning the relationship could wind up hurting Apple’s bottom line as much as Google’s.
And yet, after digesting the 64page DOJ case briefing, which you can access here, the share price of Alphabet, Google’s parent company, wound up rising rather than falling. The reaction in Apple’s share price, even with 15 to 20% of net profits on the line, was a similar non-event.
There are multiple reasons why the market laughed.
First, antitrust cases are generally hard to win, even for the U.S. government, and Google is a trillion-dollar company with roughly $120 billion in cash on hand. Google will have a deep bench of the best antitrust lawyers in the world, and they will fight the case for years.
The DOJ has admitted the antitrust trial may not happen for a year — if it happens even then — and the verdict could be another few years after that, followed by years of appeals. By the time this thing is resolved, we might be using 3D hologram search from the back seat of self-driving hovercars.
This reality touches on an age-old complaint of antitrust cases: By the time the case is handled, the industry has typically moved on. While the DOJ is seen to have won its case against Microsoft, the verdict took four years to deliver — and the judge’s order for Microsoft to be broken up was reversed on further appeal.
Meanwhile Netscape — the competitor Microsoft wanted to squash, in part by tying Internet Explorer to the Windows Operating system — wound up fading away, while Microsoft went on to become the $1.6 trillion juggernaut it is today. Life after antitrust doesn’t have to be so bad, even if you lose.
Then, too, there are plenty of reasons why Google could win in court. It will be hard for the government to prove U.S. consumers are being harmed by Google’s actions, and even harder to prove that harsh antitrust measures against a lone tech juggernaut make sense.
In 1998, Microsoft was a kind of tech-world apex predator that had no rivals to speak of. But in 2020, there are at least five technology behemoths — Google, Apple, Amazon, Facebook, and Microsoft — who all encroach on each other’s turf.
That makes it hard to say Google stands alone in web search, for example, when Amazon dominates in e-commerce, Facebook dominates in social media, Microsoft dominates in corporate applications, and Apple dominates in smartphone app distribution — with all of those areas having search-related aspects.
All of the tech juggernauts want to be in your living room, as well as on your phone or computer, and all of them want to sell you hardware that further integrates their offerings into your daily life.
To single out Google for punishment, the DOJ may not only have to prove consumer harm for products that are free, it may have to explain how restricting Google’s reach, or forcing a break-up, would avoid giving extra power to other would-be monopolists.
For instance, if Google helps keep Amazon in check through an e-commerce alliance with players like Shopify, Walmart, and Target, who will restrain Amazon if Google is hobbled? You can be sure Google’s lawyers will be pressing these points.
Some are not happy with the timing and the substance of the DOJ’s antitrust effort, fearing that it was overly rushed and politically motivated, with the goal of being initiated before the election.
The New York Times reported that, of the 40 DOJ lawyers working on the Google case, most of them opposed the Sept. 30 deadline imposed by William Barr, the U.S. Attorney General, with some refusing to sign off or leaving the case entirely.
Another big-picture issue is the question of whether traditional antitrust law even works anymore.
The substantive report released by the House Antitrust Subcommittee just a few weeks ago — which pointed the finger at Facebook, Amazon, Apple, and Google — more or less argued that the tech giants represent a new kind of paradigm, implying that antitrust regulation as applied to dominant platform companies should be changed.
In its Google antitrust action, the DOJ is essentially going a different way than the House Antitrust Subcommittee, trying to paint Google as a monopolist under the traditional, old-school antitrust laws. But a big part of the problem with that approach, as noted above, is that the DOJ will have a hard time demonstrating consumer harm, and Google will be able to argue, rightly, that “competition is only a click away.”
It does, in fact, look like the technology juggernauts are headed for a reckoning, or at least some kind of showdown, by way of enforcement actions from the DOJ, the U.S. Congress, and dozens of state attorneys general.
But this is going to be a big, messy fight, with awesome legal firepower on the tech giants’ side, and the immensely complex challenge of having to rethink outdated antitrust laws for the Information Age. That is all going to take a good while to play out — most likely years at minimum — and Google’s search dominance will persist in the meantime.