Google's long dominance is being challenged. Photo / Getty Images
After more than a year of speculation about how the US would approach a monopoly case against Google, on Tuesday, the Department of Justice went straight for the core of Google's business: its giant search engine.
Prosecutors said Google has acted anti-competitively to preserve its monopoly in both search and search advertising by paying billions of dollars every year to appear on iPhones and web browsers to lock out rivals, and stifling the development of new, alternative search engines. Absent a court order, they argue, Google will continue to crush rivals, reduce consumer choice and kill innovation.
"Google is now the unchallenged gateway to the internet for billions of users worldwide," the Justice Department said in its landmark lawsuit.
"As a consequence, countless advertisers must pay a toll to Google's search advertising and general search text advertising monopolies; American consumers are forced to accept Google's policies, privacy practices, and use of personal data; and new companies with innovative business models cannot emerge from Google's long shadow."
The regulator's key argument against Google is that more than half of its search results - around 60pc - come through funnels that they have fixed by entering exclusivity deals with other technology companies, rather than traffic Google has earned.
Google pays billions of dollars each year to secure these deals with phone manufacturers, network operators and web browser companies. The deals, which typically involve sharing Google's advertising revenue, make the company's search engine the default choice for millions of people.
Last year, it paid $30bn for "traffic acquisition costs", almost a third of its entire search revenue. This was up from $26.7bn the previous year, and up from just $6.2bn a decade earlier.
Around a third of this alone goes to Apple, keeping Google as the default search engine on the Safari browser that features on the iPhone and other devices. Elsewhere, the payments are split across dozens of Android phone manufacturers such as Samsung and LG, US mobile networks like Verizon and AT&T, and most browser alternatives to Google's own Chrome. The only major browser that does not have a Google deal is Microsoft's Edge, which uses the company's own Bing search.
"Google has almost completely shut out its competitors from mobile distribution," the lawsuit says. "As one executive for a competing search product recognized in frustration last year: 'Google essentially [has] locked up ALL DISTRIBUTION' with its Apple deal and restrictive Android licensing terms, leaving the competitor's product with "no mobile volume".
A tight grip
That Google maintains a tight grip on the search advertising market is no happy accident. It has evolved from a scrappy Stanford University project to an unrecognisable trillion-dollar corporation that employs 200,000 people around the world.
By graduating to a fierce acquisition machine it has snapped up every thinkable touch point between consumers and technology like speakers, laptops and phones. This tentacled grip on the hardware market helps place its core product - the search engine - in the homes of billions around the world.
Google says that by doing this, it provides people around the world with free, useful information and is able to the revenue generated by the advertising it sells using data collected through these touchpoints to fund exciting and life-changing projects like healthcare and environmental science.
But the US Justice Department says that this ease of information comes at too great a cost: the destruction of an innovative, competitive digital industry. Their case is remarkable in that they argue that Google should be split apart if necessary - a far stronger stroke than Europe has attempted in all three of its antitrust charges over the years.
"Enforcers have been left with only one option - a structural breakup," says Sally Hubbard, a former assistant attorney general in New York's antitrust division.
Google's legal team, led by its chief lawyer Kent Walker, have been waiting for charges to land since the regulators announced an investigation into its business some 16 months ago. Now they are kicking into action for a legal battle that insiders expect to take years.
"Google has endless resources to delay, delay, delay and it is fully in its interests to do so because it does not have strong defences to these claims," says Hubbard.
Walker and his team say that the argument that consumers cannot pick their own search engine or web browser is unfair because it is simple for people to download an alternative, a modification of its long-held argument that "competition is just a click away"
They insist that Google's payments to phone manufacturers, telecommunication companies and web browser developments to ensure their search engine appears on their products are simply a normal part of business.
"Yes, like countless other businesses, we pay to promote our services, just like a cereal brand might pay a supermarket to stock its products at the end of a row or on a shelf at eye level," Walker said in a statement responding to the lawsuit. "So, we negotiate agreements with many of those companies for eye-level shelf space. But let's be clear—our competitors are readily available too, if you want to use them."
But rivals disagree. "Google has shored up its search platform by paying for the right to be default search on every major browser, owning the world's most popular browser, Chrome and acquiring the phone operating system Android," says Christian Kroll the chief executive of German search engine Ecosia.
"This 'funnelling' process ensures that people are always within Google's ecosystem, driving users back to the search engine, and ensuring the kind of financial firepower that no other search engine could hope to gain access to."
Prosecutors raised concerns that Google might try similar tactics with the next wave of computers such as voice assistants, wearable devices and connected cars. They said Google had already tied up car manufacturers with exclusivity agreements, and that executives had raised concerns about the rise of Alexa, Amazon's voice assistant, as something that may erode the number of Google searches.
"If the government does not enforce the antitrust laws to enable competition, we could lose the next wave of innovation. If that happens, Americans may never get to see the next Google," deputy attorney general Jeff Rosen said.
With additional antitrust investigations in the pipeline including in Europe, the UK and from a group of US states, Google's future plans will be held up for close scrutiny.
"We are just getting to grips with web search and pretty soon we will be moving toward voice and wearable search," Hubbard says. "It bought Android when it saw that search was moving to mobile and it has seen search moving to wearables which is why it bought Fitbit. We need to make sure it is prevented from monopolising that market too".
- Telegraph
The event is described as a series of aggressive sales pitches.