Google logo displayed on a smartphone screen on Dec. 22, 2023.KIRILL KUDRYAVTSEV/Getty Images
Gus Carlson is a U.S.-based columnist for The Globe and Mail.
There’s a line between promoting and penalizing success in a free market and, in the case of United States v. Google GOOGL-Q, the U.S. Department of Justice crossed it.
Yes, a U.S. District Court, handcuffed by antiquated antitrust laws, ruled against Google this week, agreeing with DOJ allegations that the tech giant illegally monopolized the advertising technology market. But it was the government that picked the fight.
In doing so, it engaged in regulatory overreach and market manipulation, shielded by antitrust laws more than 130 years old, that send a strong and somewhat contradictory message to companies geared to winning in highly competitive markets: Don’t get too successful or you will be sorry. Google, once a darling of American tech superiority, has fallen from grace because it was too good at doing its business.
The ruling, which Google plans to appeal, raises the question of whether the company’s business practices – including multibillion-dollar payments to partners such as Apple AAPL-Q to use Google’s search engine as the default on smartphones – are really that different from those of dominant players in any other sector, where gaining competitive advantage is dog-eat-dog. The court ruled they were, saying the deal with Apple in particular has enabled Google to increase text ad rates without meaningful competitive constraint.
Ask any successful corporate CEO and they will tell you that winning isn’t just about having a better product – which Google does – it’s also about employing strategies that disadvantage competitors. In a free market, zero-sum strategies win, no matter how ruthless they may seem.
And let’s face it, the business world has changed substantially since Congress passed the Sherman Act regulating antitrust matters in 1890 – when advanced technology meant Carl Benz’s early concept for a horseless carriage.
The knock-on effects of the ruling will be significant for Google’s partners, including Apple, and may do more than simply roil the tech sector. It could damage it.
The financials are sobering. For example, Google pays Apple a percentage of the ad revenue generated from Safari and Chrome on Apple devices, about US$20-billion in 2022. Losing that would put a material dent in Apple’s revenue. While the ruling came on a day that the entire U.S. market was down 3 per cent, Apple fell much more, ending Monday’s session down 4.8 per cent. No doubt, the prospect of losing that Google money played a part. The pain would roll down the supply chain.
Google would take a hit, too. Court documents suggest Google would lose 60 to 80 per cent of search volume on Apple’s iOS devices if its search engine were replaced as the default option.
Beyond the punitive effect on Google, this is a blow to U.S. global competitiveness. The government should be finding ways to support crown jewels like Google and help them become global powerhouses, rather than hamstringing them and, in the process, making them vulnerable to weaker players and products that will fail the consumer experience test.
If you think this is déjà vu all over again, you’re right. Almost 25 years ago, the DOJ won a similar antitrust case against Microsoft MSFT-Q, seeking to block what regulators feared was the tech giant’s near-control of the internet. The signal was clear. Success in the tech sector will be defined by the government and the courts, not by the marketplace.
If the Google ruling stands up to appeal, it will be interesting to see the consumer reaction. That may shine a light on the DOJ’s real motivation. Is this really an altruistic crusade in response to a burning platform of consumers who are so unhappy with the Google product they demand a fix?
Let’s be honest. Wherever you come down on the legal issue, Google’s search product has proved it is superior to any other on the market – a key element of the company’s defence in court.
It has achieved the status few brands ever do. Like the ubiquity of Kleenex, Xerox, Frisbee, Dumpster and Chapstick in their sectors, the Google product has defined search. It’s more than just a proper noun – it’s a verb. We “Google” answers to questions and urge others looking for information to “Google it.” Some people still refer to their computer as the Google Machine.
No product in any sector achieves that status unless it works – and works better than any competitor. And that, according to most consumers, is the power of a free market. The utility and quality of the product, not the heartburn of bureaucrats, determines the winners and losers.
The case against Google is a cautionary tale for any company that believes market dominance is the ultimate mark of success. Don’t be naive to the point where you think markets are really free. Even in places like the U.S., where capitalism is king, Big Brother is waiting to pounce and the courts are constrained by Benjamin Harrison-era laws that are well beyond their expiration date.