Rational Expectations: Its popularity could be Google’s defence

By: |
October 22, 2020 6:30 AM

If its search engine is superior, Google could well argue that firms like Apple use it precisely because users want it

Google’s move is to be lauded, but as long as beauty filters continue to be available on the Android Playstore as also other app stores, it likely won’t mean much.The suit talks of Google’s search index containing “hundreds of billions of webpages and is well over 100,000,000 gigabytes in size”.

Given that around half of Google’s search traffic originates on Apple devices, the US Department of Justice (DoJ) seems to be on to a sure thing when, in its anti-trust suit against the search giant, it has highlighted the fact that Google pays Apple $8-12 billion annually for making it the default search engine for the iPhone’s Safari browser, Siri and Spotlight that the Mac uses.

Indeed, as the suit—that attorney generals in 11 other states have joined—points out, Google is in quite the same situation that Microsoft was in when the US government hit it with an anti-trust case two decades ago; Microsoft too shut off “effective distribution channels for rivals … by requiring preset default status (as Google does) and making software undeletable (as Google also does) … back then, Google claimed Microsoft’s practices (to protect its browser) were anti-competitive, and yet, now, Google deploys the same playbook to sustain its own monopolies”.

To that extent, DoJ has done well, since it is the job of anti-trust authorities to ensure competition is not snuffed out; indeed, as the US House report on Big Tech had pointed out earlier this month, “of Facebook’s nearly 100 acquisitions, the Federal Trade Commission (FTC) engaged in an extensive investigation of just one acquisition: Facebook’s purchase of Instagram in 2012.” The FTC and the DoJ are jointly in charge of anti-trust operations in the US.

But there is another side to the issue that can’t be ignored either; indeed, the DoJ suit alludes to this as well. What if Google argues that Apple is using it as the default search engine not because of the arrangement between the two firms, but because it is the best? The suit talks of Google’s search index containing “hundreds of billions of webpages and is well over 100,000,000 gigabytes in size”. Developing something of this scale, the DoJ says, “would require an upfront investment of billions of dollars … the costs for maintaining a scaled general search business can reach hundreds of millions of dollars a year”. And if Google has an 88% share of the search market—Bing has seven, Yahoo! less than four and DuckDuckGo less than two per cent—why would Apple sign an agreement with anyone else?

Indeed, a related issue that comes up is that, were the DoJ to win its case, and Google asked to rework its Apple contract to allow the latter to use any other search engine, would Apple use Bing, that much fewer people use? One search engine has to be the default setting, even if users change it later, so it makes sense to use the most popular search engine.

The suit blames Google’s policies for Amazon’s failed attempt to create an alternative Android with its Fire operating system “despite hundreds of millions of dollars in investment over nearly ten years across tablets and phones”. It argues that the restrictions Google put on those using its Android software to produce phones ensured that most of them refused to work with Amazon, but that seems more of an assertion with few facts to really back it up.
Indeed, while DoJ seems to view Android as a way to “protect Google’s lucrative general search and search advertising monopolies”—to underline the point, DoJ adds, “even though Android is open-source”—it doesn’t seem to appreciate the R&D effort, and money, that Google has put into developing Android and how this completely revolutionised the market for mobile phones and dramatically lowered their costs.

The DoJ, similarly, is wary of Google “positioning itself to control the next generation of search distribution channels” and speaks of how Google is partnering with “automobile manufacturers on the condition that they not pre-install rival search-related apps,” and how various hardware products—like smart speakers—are being developed to protect Google’s “general search monopoly”. But all of this requires Google to spend a lot on R&D to create new technology; if this is to be considered anti-competitive, a corollary is that R&D-spend will also reduce in new areas of technology as markets get more competitive.

It is important for the DoJ to try to stop anti-trust behaviour; indeed, while the FTC had dropped its investigation into Google’s search-bias in 2013, The Wall Street Journal had reported (on.wsj.com/3odmVIw) that FTC staffers felt they had enough to sue Google but were overruled by FTC commissioners who are political appointees. But it is short-sighted to ignore the positive spinoffs of the work Google does, or to conclude that its aim is only to find new ways to extend its domination over the search/advertisement market. Given today’s bipartisan support in the US for action against Big Tech firms like Google, 2015 seems a long time ago; but that’s when, in response to EU action against Google, then US president Barack Obama had said, “We have owned the internet. Our companies have created it, expanded it, perfected it in ways that they can’t compete”. That’s also a reality the US cannot ignore.

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