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Google Faces Potential Split as US DOJ Makes Formal Request

The US Department of Justice has proposed measures to curb Google's power in the search market, including potentially breaking up the company.

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The US Department of Justice (DOJ) has laid out a series of proposed measures to curb Google’s power in the search market, including potentially splitting the company’s search engine operations into an independent entity. These recommendations are the latest development in an ongoing antitrust case, where a judge previously found Google to hold a dominant position in the search market, partly through exclusive agreements with major device makers like Apple.

Antitrust Allegations Against Google

The legal dispute centers around claims that Google has used its substantial market position to prevent rivals from gaining a foothold. For example, the company has negotiated deals with smartphone manufacturers to ensure that its search engine remains the default option on widely used devices, such as iPhones and various Android models.

The court’s initial ruling highlighted these exclusivity arrangements as significant barriers to competition. Although the court also addressed Google’s role in search advertising, it stopped short of considering this as a separate market segment.

In response to these findings, the DOJ has suggested a range of corrective actions, including changes to existing contracts, requirements for data sharing, and new rules to prevent discriminatory practices. Among the most severe options is a structural overhaul that could result in the breakup of Google’s key businesses. The DOJ plans to finalize its recommendations by March 2025.

A Major Big Tech Antitrust Legal Tussle

Mirroring Microsoft’s historic antitrust battle with the US government in 2001, Google is has been locked in a similar war. US courts in August found Google guilty of monopolistic practices. Among the potential outcomes from the ruling could be to break up the company.

The decision for the wider DoJ investigation was made last September and could have a huge impact on Google and its parent Alphabet. Last year, the DoJ accused the company of destroying evidence by deleting chats between employees. In November 2022, Google agreed to pay hundreds of millions of dollars to 40 states in the biggest anti-trust settlement in U.S. law.

Google argued that the failure of rivals such as Microsoft Bing was not down to its own practices but rather the failures of Microsoft. The trial also looked into Google’s search ad practices. As we reported in September, the DOJ alleges that Google’s market dominance allows it to hike ad prices without significant consequences. This claim is substantiated by Jerry Dischler, a Google ads executive, who testified about the company’s ad pricing strategies.

Big Tech Search Battle

Alphabet CEO Sundar Pichai and Microsoft CEO Satya Nadella have both given testimonies during the landmark trial. In his testimonies to the court, Microsoft CEO Satya Nadella suggested Google stifles Bing. Nadella revealed that Microsoft has poured a staggering $100 billion into Bing, its proprietary search engine. Nadella candidly admitted Microsoft’s unsuccessful attempts to dethrone Google from this position, even after offering Apple more favorable terms.

Google reportedly pays Apple up to $20 billion per year to keep its Search engine on iPhone and other devices. However, Pichai claims this drives competition not blocks it. He reasoned that the cost-effectiveness of contending with a potential Apple-powered rival search engine or another competitor weighed in favor of retaining Google’s default status on iPhones.

One option under consideration is the separation of Google’s Android operating system and the Chrome browser. Android, which powers around 2.5 billion devices worldwide, is frequently mentioned in these conversations. The widely-used Chrome – the dominant web browser on the market – is also being examined.

The Potential Implications of a Break-Up

One of the more drastic paths under consideration would involve breaking apart Google’s core components, such as the search engine, the Android operating system, and the Chrome browser, into separate entities. The approach aims to create a more competitive environment by reducing Google’s market power and allowing smaller companies to compete more effectively. A potential break-up could extend beyond search, affecting other divisions like advertising and app distribution.

However, history shows that even when large companies are broken up, the expected outcomes may not materialize. For instance, despite regulatory efforts, Google could still maintain its search dominance. In the European Union, where users can choose a different search engine on new devices, Google still commands roughly 90% of the market. This suggests that even without its current advantages, the company might continue to thrive.

Long Legal Battle Looms

Even with the DOJ’s recommendations in place, any major changes will likely take years to materialize. Google has made it clear that it intends to contest any unfavorable decisions, potentially extending the legal process for a significant period. The company’s financial resources give it the ability to withstand prolonged legal challenges, with an expected $80 billion in free cash flow this year alone to support its defense.

Investors have so far shown little concern about the potential impact. Since the unfavorable ruling related to Google’s app store policies in late 2023, Alphabet’s stock performance has remained on par with Microsoft’s, indicating a belief that the eventual outcomes may not immediately harm the company’s financial position.

What’s at Stake Beyond Search

The DOJ’s case goes beyond Google’s search monopoly, also scrutinizing practices in other areas, such as its advertising network and app marketplace. The hefty payments made to Apple to secure search exclusivity on iOS devices, which are estimated at nearly $20 billion annually, and the fees charged on in-app transactions through the Play Store, are also under review. Proposed changes could lead to new business practices that might open up more opportunities for competitors, potentially altering Google’s revenue dynamics.

Yet, if the final recommendations lean more towards contractual changes rather than a complete split, Google could maintain its stronghold, albeit with a need to adapt its methods for retaining market share. Some critics argue that these changes may not be sufficient to truly boost competition, as Google’s existing advantages may still be too difficult for competitors to overcome.

A Complicated Path Ahead

The unfolding situation presents a critical challenge for regulators and the tech industry alike. The DOJ’s antitrust case against Google will test how effective U.S. policies are at regulating major digital companies. The extensive appeals process and Google’s strategy to delay proceedings suggest that any substantial changes to its business model could take several years to become a reality.

With the DOJ’s proposals serving as a potential turning point, the future structure of Google remains uncertain. Whether these measures can successfully dismantle the company’s strong position in the market remains to be seen.

Last Updated on November 7, 2024 2:37 pm CET

Luke Jones
Luke Jones
Luke has been writing about Microsoft and the wider tech industry for over 10 years. With a degree in creative and professional writing, Luke looks for the interesting spin when covering AI, Windows, Xbox, and more.
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