A United States federal court has found Google in breach of the Sherman Act by pursuing default status for Google Search and Google Chrome. However, Google’s motives and the precise ways in which Google Search’s default status serves its interests remain poorly understood by the public and the antitrust community. They pertain to preventing users from migrating to competitors’ offerings in general and, in particular, to capturing user migration to next-generation platforms to access and search the internet. Understanding this motive will be essential in the calibration of forthcoming remedies and provide lessons for future cases against Google and other tech companies also confronted with user migration.
In a ruling delivered on August 5, 2024, a federal district court held Google in breach of United States antitrust law by engaging in anticompetitive practices to maintain its dominant position in the markets for general search and general search text advertising. A separate hearing on remedies will occur in the future, and the outcome of that phase of the case remains unknown. A status conference is scheduled for September 6 this year.
Regardless of the outcome of the remedy hearing, the ruling represents a significant victory for the Department of Justice and the involved state Attorneys General. The ruling not only holds Google accountable for anticompetitive practices but also rebuts the perception that antitrust is unable to police the tech sector. It even rebuts, with prejudice, any claim that Google is an unfair victim of interventionist Europeans, who have pursued and won several cases against the company in recent years..
The recent ruling is the most important antitrust ruling since the 2001 Microsoft case. However, unlocking the full potential of the ruling involves reviewing why Google deployed its anticompetitive tactics, not confining the discussions to the vehicle for these motivations. Understanding Google’s motivations will provide a clearer calibration of remedies and roadmap for protecting digital markets in the future.
A brief review of the Google Search case
The Google Search case is not the first U.S. case to end unfavorably for Google, but it is the first brought by the federal government, as others either are pending or were pursued by private parties and with mixed results. Globally, Google has also come under intense scrutiny, with more than 100 antitrust investigations, and more should be expected.
The case was filed in 2020, when two separate lawsuits were brought against Google. The first was filed in October that year by the DOJ and 11 attorneys general. It contained three counts of monopolization. The second, filed in December 2020 by 38 attorneys general, tracked the first lawsuit but also added additional claims, including that Google promoted its own offerings, more specifically its advertising options and vertical services, at the expense of competing offerings. In this case, the attorneys general reached back to the Federal Trade Commission’s 2013 decision not to pursue charges against Google for (alleged) self-favoring. The FTC had dropped the case due to a sentiment that the agency had only limited prospects of succeeding with a claim of anticompetitive self-favoring.
In January 2021, the two cases were consolidated into one with three overarching counts of anticompetitive actions. This involved a) two accounts of self-favoring, where users are directed to Google’s vertical offerings and advertisers to Google’s advertising options, and b) the solicitation of default status for Google’s search engine (Google Search) across platforms, including Apple’s iPhone. All of this was at the expense of competitors and, ultimately, the end-users.
Search engines crawl and index the internet, yielding a library that users can access. In this, search engines provide an essential service to end-users but also place the owner in a gatekeeper position, where it can influence online advertisements and thus control the very handsome revenue stream these represent. This follows from the ability to blend advertisements into the search results presented to end-users in reply to an inquiry, making it attractive to own the preferred search engine. Manipulation of search results can also be used to direct users to vertical offerings, accounting for the first account of self-favoring in the combined lawsuit. Google’s ability to self-favor, through its search engine management tool, SA360, which is used to optimize advertising campaigns across different options and providers, including search engines and social media, formed the second account of self-favoring. Officially, Google operates SA360 in a neutral manner, but it allegedly favors Google options.
The August 5 ruling and what is established
In February 2023, the first self-favoring charge was tossed from the case, and while initially allowed to proceed, the judgment eventually exonerated Google on the second. Moreover, after some very lengthy discussions on the market definitions, the case ended up involving two accounts of alleged monopolization maintenance, one for each of the accepted product markets: general search services and general search text advertising. The default status for Google offerings served as the vehicle for monopolization in each account. With respect to accepted product markets, this involved:
a) General Search Services, which is the market for operating and offering a general search engine. These engines crawl and index the entire (general) internet, yielding a list of organic blue links in reply to an inquiry. General search differs from specialized (vertical) search, which focuses on specific topics, e.g., travel, events, or shopping. Google Search dominates this market, with more than 80% of the market share. Microsoft’s Bing is number two, with less than a 6% market share.
b) General Search Text Advertising, which covers the text advertising that is blended in with the organic blue links. This can include images, like product listings, but generally, they come without. When users click on text ads, they are taken to an advertiser’s website or platform, earning a commission to the general search owner. Google held market power in general search text advertising, with market shares steadily growing from 80% in 2016 to 88% in 2020.
General search text ads are part of the broader market for search advertising, which is very attractive to advertisers through their unique level of real-time interaction with and relevance to a user. This explains not only why U.S. advertisers spent more than $150 billion in 2021 just to reach users of general search engines, but also Google’s interest in controlling their ad distribution. A strong stake in the advertising market not only brings in billions every year to Google’s shareholders but also allows Google to build out and maintain Google Search and all of Google’s other offerings, where few are profitable in isolation, but all contribute to making Google’s ecosystem attractive.
Google relied on a policy with two legs to maintain its monopoly
On August 5, the federal district court issued a carefully drafted 277-page ruling after having reviewed the evidence and the parties’ submissions for three years, including depositions of a line of top CEOs. The court found that Google maintained its monopoly power in the general search market and the market for text search advertising through its agreements with third parties for exclusive default status for Google Search. This was achieved with two overlapping policy steps.
First, Google paid other browser providers to make Google Search the default option, which disincentivized them from building their own general search engine or partnering with other search engine providers. In the course of the case it was revealed that Google paid $26.3 billion for default status in 2021, with Apple as the biggest recipient. In exchange, Apple (and others) made Google Search the default option on Apple’s web browser (Safari) across Apple devices. While customers could change their settings to a different search engine, they rarely made the effort to do so in practice, making default status very attractive for Google.
Second, Google distributed its popular web browser, Chrome, and its Android operating system with Google Search as the default option. It offered the latter royalty-free to manufacturers of smartphones and network carriers distributing Android phones, conditioned only upon the pre-installation of Google’s offerings, including Google Chrome and Google Search. Google even added a cherry on top in the form of revenue-sharing agreements, which incentivized its partners to pre-install the Google offerings and to refrain from partnering with other providers of general search services.
According to the decision, Google’s default status was akin to exclusion, as consumers were unlikely to switch from the default setting, resulting in a large portion of the general search market being inaccessible to rival search engines. Competitors were thereby deprived of market access in defiance of Section 2 of the Sherman Act. Google failed to present any outweighing consumer or procompetitive benefits of their deals to have its products preinstalled or set to default.
With respect to general search text advertising, the exclusive default status allowed Google to charge supra-competitive prices for text ads and, at the same time, degrade their quality, also in violation of Section 2. In contrast, Google was exonerated on the SA360 allegation because the evidence that Google monopolized a broader search advertising market was insufficient.
The judgment does not tell the full story of Google’s actions
It remains unknown what the DOJ will propose as the case now moves to remedies, but prohibiting agreements for exclusive default status would be a natural starting point. A broader and more forward-looking perspective would lead to a more elaborate remedy.
Google’s interest in maintaining its position as the internet gatekeeper is obvious because it allows it to dominate online advertising markets, which accounts for Google’s short-term motive for paying such large sums to be the default, pre-installed search engine.
By contrast, it does little to explain the full scope of Google’s conduct, including why the company has been so aggressive in rolling out the Android operating system, throwing cash at manufacturers not only of smartphones but also smart TVs, watches, cars, speakers, and anything else connected to the internet. However, antitrust enforcement in the European Union can help us understand this.
It does not do justice to the tenacity of the DOJ and the attorneys general and the intellectual effort invested by them in building the case to label the Google Search case as a copy of the EU’s Google Android case. Nonetheless, consulting Google Android does help to unlock the full potential of the U.S. ruling. Since 2009, Google’s internet activities have been subject to antitrust investigation in Europe, leading to Google Shopping (2017) and Adsence (2019) and generating fines in the billions. Sandwiched between these cases, Google Android was delivered in July 2018, condemning Google’s policy of soliciting pre-installation and default status for Google Chrome and Google Search when licensing the Android operating system. Essentially the same policy is now condemned in the Google Search case, but unlike the U.S. case, the EU decision explains Google’s long-term motives.
According to the EU, Google understood early on how users migrated between platforms, e.g., from personal computers to smartphones, and how this presented an existential threat to Google Search. Since 2015, mobile devices have accounted for more than half of all internet searches and today probably exceed 60%. However, the next migration might already be in the making, involving smartwatches, cars, and other devices connected to the internet.
To survive this development, Google needs not only to be available across all platforms, including the next generation, but also needs to micro-nudge users to Google offerings each time users migrate. Otherwise, Google risks being dethroned as the preferred web browser and, by extension, the preferred search engine, just like Microsoft was dethroned around 2012 by Google. Thus, Google’s exclusivity deals are designed to entrench Google’s position in new markets, allowing them to survive and continue to dominate even as the importance of the PC and mobile phone recede.
Next step and the way forward
Google will appeal, but unless it obtains special permission from the appellate court, it cannot do so until the conclusion of the remedy phase. How the case will end remains unknown, but termination of exclusive default status is plausible. That will hurt Google, but with the benefit of an understanding of Google’s long-term motive, it might be less of a concern if it only prohibits such agreements on smartphones.
Although smartphones are the premier gateway to the internet, how long will that last? Consumers may be already moving on, with data suggesting the mobile share of internet traffic has peaked and even begun to decrease. When launching the case back in 2020, the DOJ and attorneys general took account of this, arguing that Google aspired to monopolize next-generation internet access points. Unfortunately, somewhere in the process, this motivation has gotten lost.
The case has opened an avenue for further investigations, both into Google and also other tech companies reacting to the same concerns that user migration will leave their platforms obsolescent. Meta, whose flagship offering, Facebook, is bleeding users, is heavily investing in alternative platforms such as WhatsApp or the Metaverse, probably hoping to nudge users to those rather than the competitors’. Microsoft has also been suspected of pursuing a ring-fencing strategy directed at shielding its PC operating system (Windows) and, lately, its Office Suite (which includes products such as Word and Excel). The EU voiced these concerns during the merger review of Microsoft’s acquisition of the gaming publisher Activision Blizzard (2023), and again in its newly opened investigation into Microsoft Teams.
Tech companies are investing heavily, whether through exclusivity deals or acquisitions, to secure their footholds in the future markets. This, rather than maximizing ad revenue today, is what the Google Search case is really about.
Author Disclosure: the author reports no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
