David Kopec: Google is currently in the process of being sued by the federal government for antitrust related to their dominance of the search engine market. In this episode, we'll explain what that means, what the two different sides of the case are, and give our own opinion on whether or not they're guilty. Welcome to COPEC. Explained Software, the podcast where we make computing intelligible. Google is actually in the midst of multiple antitrust lawsuits. In this episode, we're going to be zeroing in on their lawsuit related to search. Does Google dominate the search engine market to such an extent that it is a monopoly? That's the first question. And the second question is, if they are a monopoly, are they using anti competitive practices to maintain that monopoly?
Rebecca Kopec: Before we dive into that, we should clarify, I guess, that monopolies aren't illegal. It's the anti competition part of it that makes it bad, right?
David Kopec: It's not illegal to have monopoly in the United States. And we should also say that antitrust law differs from country to country. In particular, the European Union has what some people consider a more stringent antitrust regime than the United States does. But in the United States, starting in 2020, a lawsuit was initiated by the Trump administration, along with the attorney generals of several different states, against Google for using anticompetitive practices to maintain their monopoly in the search engine market. So what that presumes is that they are a monopoly. And we should first define for our audience what a monopoly is. A monopoly is when a single firm dominates a market. Typically that's measured using market share. So out of the different products available in a market, what percent of all sales in that market or uses, in this case, are controlled by a single product or done through a single product? Pretty clear that Google has extensive share in the search engine market. You can look at different metrics. The government's data shows about a 90% share for Google. So in other words, the government is saying that 90% of all searches in the United States done are done through Google.
Rebecca Kopec: So that doesn't mean that there aren't other choices, right? There's that other 10%.
David Kopec: Absolutely. Of course there's Bing, there's Duckduckgo, there's Kaggy. There's a bunch of other search engines, the most popular of which is Bing. Bing is number two. It's not that there are no other choices. It's that Google dominates the market to such an extent that few people are using those other choices compared to the number of people that are using Google.
Rebecca Kopec: And why would that be bad?
David Kopec: Again, it's not illegal. On its own to have a monopoly. So if Google truly has a better product and hasn't done anything to force its way or use coercive practices to get that 90% share, then they should not be found guilty of violating any kind of antitrust law. So on its own, having 90% market share is not necessarily bad or necessarily illegal. Some people might disagree with that. Some people think that anytime a single company dominates a market, it is negative for consumers. And there's all kinds of theory on both sides of that. But most people within this space don't think on its own, having high market share is necessarily bad.
Rebecca Kopec: All right, so now let's just talk about why Google's getting in trouble here. Like what is it that they're doing that the government is arguing is anti competitive?
David Kopec: Right. And there are many different ways you can be anti competitive. For example, if a firm that has a monopoly position goes and lowers its prices below its cost to try to flood the market and make it impossible for competitors to be able to charge enough to turn a profit, that can be considered anti competitive practice. Also, if a company goes and abuses its monopoly position, so it has, let's say, a dominant position, and it raises prices to such an extent to try to capture more profit than is really good for consumers or is really fair, that can also be an abusive use of its monopoly power. Microsoft in the late 1990s got in trouble for bundling. So they took Internet Explorer, bundled it with Windows 98, and suddenly nobody was using Netscape because Netscape actually at the beginning was charging money for its client. Later on, that changed. But Microsoft, including Internet Explorer right within Windows, meant that everyone already had a web browser when they installed Windows. So why would they go install competitors? So seen as Microsoft leveraging its monopoly power to force its way into a dominant position in another market. So there are many different ways that you can coerce yourself into being in trouble with antitrust legislation. In the US, the main act is the Sherman Antitrust act, but there's also the Clayton act as well that extended the Sherman Act. When antitrust legislation was first passed during the Gilded Age, it was largely a bipartisan effort. Both Republicans and Democrats agreed that certain corporations, like Standard Oil, US Steel, were abusing their market position. A lot of that was through what are called trusts, which is where multiple companies collude to either keep prices high or to keep other competitors out of the market. Google's situation is a little bit similar to some of those earlier antitrust cases, in that what Google is being accused of is using its monopoly power to coerce other companies into using Google as the default search engine within their browser products. For example, Google pays Apple a huge amount of money. It's estimated over $20 billion last year to be the default search engine in Safari. So if you get a new iPhone and you go and do a web search in Safari, you type in some keywords you want to look up. By default, that's a Google search. Doesn't have to be that way. Apple could be using Bing, or they could be using DuckDuckGo as the default. If you use the Mozilla Firefox web browser and you go and make a search, it goes through Google by default. Now, in both cases, you can change that default. You can go into settings in Safari, you can go into Settings in Firefox and change what the default search engine is when you type some keywords into the search bar. But Google pays a lot of money to be that default, to be that first default before anyone makes any changes. And most consumers don't make a change.
Rebecca Kopec: The arrangement with Apple is particularly egregious, I guess, or making a lot of money. A lot of money exchanging hands. And seems to be a big crux of the government's argument.
David Kopec: Yeah, it's the largest payment that Google is making of any of the companies that they're being accused of colluding with. And I don't know if collude is quite the right word because not all the companies are necessarily considered by the government to really do anything wrong. It's Google that's really at issue here. But it's certainly the largest one. It's the one that makes up the most ultimate searches for Google because the iPhone has approximately 50% market share in the United States, and the other half is Android devices. And on most Android devices, Google is the default as well. And of course, Google makes Android. Now, that's where I think this gets a little more complicated and goes even beyond the surface level of what Google is accused of. Google is a competitor to Apple. Google and Apple make competing services and they make competing operating systems, iOS versus Android, and yet they're also working together on search. Isn't that a little bit troubling that you would work together with your competitor, in fact, be paying your competitor? Google pays Apple again over $20 billion for the privilege of being the default search engine in Safari. Isn't that a little troubling that you're paying your competitor? Isn't that two firms that dominate a market together, they have nearly 100% of the smartphone operating system market and one is paying the other over $20 billion a year. That seems like a form of collusion to me, but that's for our listeners to decide. Let's make the counterargument, though. So Apple has already testified in this trial and they've said, well, Google is a better product. It's the best search engine product we can give our users as a default. And also Google is willing to pay us the most. If you were in Apple's position, wouldn't you want to use the best product for your users? And wouldn't you also want to take the highest payment? So if Microsoft Bing was a better product and was offering Apple more money, wouldn't Apple choose to use Microsoft Bing? And is there anything really wrong then, if Apple's being offered more money and is providing its users the better product, that Apple is going that direction doesn't sound too bad. And in fact, searches within Siri are handled through a separate contract than searches through Safari. And for a number of years, I think it's approximately 2011 to 2017, if you did a search on the web through Siri, it was actually through Microsoft Bing. So Microsoft outnegotiated Google to be the default within Siri. So that shows that Apple would be willing to use a different search engine as a default, at least in some of its products, if it was paid more money. So is it problematic that Google simply has bigger coffers? Or maybe that Google does have a better product today?
Rebecca Kopec: It's also not unheard of for firms or organizations to make decisions and be exchanging hands in some different ways. I mean, Microsoft supported Apple for a bit, right?
David Kopec: And I think that Anecdote goes well with what's going on between Google and Mozilla right now. And we did a whole previous episode on how Mozilla makes money. But it might shock you if you don't know that actually Google basically funds Mozilla's development of Firefox. Google is the single biggest revenue source being the default search engine within Firefox of Mozilla, which makes Firefox. And so Firefox is a competitor to Google Chrome. And again, we see Google here funding one of their competitors. Google is funding Apple with over $20 billion. And Apple competes with Google's Android with Apple's iOS. Google makes Chrome a web browser. Mozilla makes Firefox a web browser. And Google in this case, is almost completely funding Mozilla. The vast majority of the revenue comes from that deal to be the default search engine within Firefox. And then Google can say, hey, look, we don't have a Web browser monopoly because there's Firefox. Right. Google has over 60% share in web browsers with Google Chrome. And Firefox is a small percentage. It's a few percent in the US. Yet if Google ever got accused of, well, you have a monopoly in Web browsers, they can say, well, wait, there's Firefox. We don't have a monopoly, but who's actually paying for Firefox to continue to exist? Oh, Google. And even more troubling, and you can get more about this if you listen to our prior episode that I'll link to in the show notes, is that Mozilla doesn't even spend all of that money on Firefox development that they're receiving from Google. They spend a lot of it on kind of like political type stuff. I think they overpay their CEO, considering that a lot of the organization is nonprofit. That's my opinion. I think the whole relationship between Google and Mozilla is especially troubling. Apple, of course, sells hardware. Apple, of course, makes most of its revenue in other places than this payment they get from Google. But that relationship is also a little bit troubling to me. But I don't know that it rises to the level of the relationship with Mozilla. And you brought up the Microsoft situation in the late 1990s. Yeah. When Apple was almost going out of business in the late 90s, mid to late ninety s, ninety six, ninety seven. And Microsoft was on the line with the government of being accused of being a monopoly and abusing that monopoly power. Microsoft had over 90% market share in desktop operating systems, the same way that Google has over 90% share in web searches today. And the only thing that was in the way of Microsoft completely dominating the market was the Macintosh. The Macintosh was really the only other mainstream desktop operating system. And Microsoft actually invested $150,000,000 in Apple when Apple was near bankruptcy. So some people at the time said, wEll, Microsoft has a vested interest here. They want to keep Apple alive so they can say to the government, oh, we're not a monopoly. People can buy a Mac, they don't have to buy a Windows computer. So I think that there could be a similar argument here made about their funding of Mozilla Firefox in terms of Google.
Rebecca Kopec: So for this case, what do you think?
David Kopec: Well, I think the first criteria. Are they a monopoly? If we just look at the market share numbers, undoubtedly, yes. But again, that's not illegal on its own. Has the payments they've been making to other browser bundlers, browser makers to be the default search engine been anti competitive. I might sound like in this episode that I'm saying yes. But I have to say that if I was in the position of Apple and Mozilla, I might very well make the same decision to use Google. And as long as Google is not forcing them and is simply offering their product and whatever amount they're willing to bid to be that default, I don't personally see a huge problem with that. And I'll tell you why. I think it's easy for consumers to switch. There's been some news stories that I've seen that say it's so hard to figure out how to change your default search engine. I disagree with that. It's a few taps into your settings. You go in the settings on your web browser or on your phone and you can easily change what the default search engine is. You can change it from Google to Bing or from Google to DuckDuckGo. I do that. I use DuckDuckGo on my desktop computer. It's not hard to do. And so consumers are not choosing to take those simple steps and switch away from Google. In fact, consumers often go the other direction. They like Google, they will switch from other things to Google. I've seen that often. I mean, some consumers do switch like I have, but here's some even stronger evidence for that. Google has really high market share in desktop web browsers. Like I said, Chrome dominates that market. And Chrome is not the default browser on Windows or on the Mac, yet everyone figures out how to download it and set it as their new default web browser. So if consumers can change web browsers, they can certainly figure out how to change search engines within their web browser. So personally, I don't see this as so aggressively anti competitive. Now Google's being sued in several other lawsuits for other kinds of anti competitive behavior that I think is more compelling. There's a lawsuit related to their dominance of the ads market that the Biden administration has initiated, again with several attorney generals. And there's also a lawsuit between EpiC and Google about their dominance of the Google Play Store on Android and forcing in app purchases through it. Epic also sued Apple for that and lost, but that's ongoing. So I think some of these other antitrust lawsuits against Google are a little more compelling. But default search engine, I mean, that's so easy to change. And if consumers were really not benefiting, I think they could just change it. What do you think?
Rebecca Kopec: Yeah, I agree with you. I mean, I think that Google is a better search engine and as other search engines get better or don't, then people will switch. We all customize our phone so much, we definitely could change our search engine.
David Kopec: Yeah. Now we're kind of making Google's lawyers arguments for them that this is what Google is arguing in court. They're saying, well, hey, it's really easy to change your default search engine. So this is not such an aggressive tactic we're doing, paying to be the default. And they're also saying, well, Google is simply a better product. So these other browser bundlers or manufacturers are choosing to make Google the default because it's better for their consumers. Ultimately, antitrust law in the United States is supposed to be about consumer benefit. Is a firm abusing its position in a way that's hurting consumers. That's one of the top reasons that an antitrust lawsuit comes about. It's not obvious to me personally that there really is a better product that's being suppressed as a result of Google's actions here. So personally, even though I think some of these other antitrust lawsuits are somewhat compelling, this one, to me, doesn't seem like there's a there there. But we'll see as it plays out in court. The lawsuit was initiated in 2020 by the Trump administration, and it is just now, starting last month, going to trial. And the trial is ongoing. It should finish, I think, by the end of the year, I read, and there's some really high level executives at multiple tech companies that have already testified. So we will see shortly what happens here. Thanks for listening to us this week, Rebecca. How can people get in touch with us on X?
Rebecca Kopec: We're at P-E-C-E-X-P-L-A-I-N-S. Don't forget to leave.
David Kopec: Us a review on your podcast, player of choice, and we'll talk to you soon. Bye.