In today’s Finshots, we dive into a recent ruling that’s shaking up Google’s search engine monopoly and tell you how it’s impacting the tech giant, its competitors, collaborators and the web.

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Now, on to today’s story.

The Story

In 2020, the US Department of Justice sent shockwaves across the world by filing a case against Google!

The allegation?

Google, which controls about 90% of global internet searches, was accused of unfairly monopolising online search and advertising. In simpler terms, the case questioned how Google was using its power to block competition and keep other search engines from catching up.

Fast forward to today, the drama has only intensified. And it seems like Google might be in serious trouble.

A recent 276-page ruling by the US Federal Judge Amit Mehta highlights that Google broke the law by exploiting its market dominance in the search industry through unfair practices. And the kicker in this document is the extent of these practices.

You see, Google has been throwing around billions of dollars to strike deals with mobile device companies and internet browsers to ensure that its search engine remains the default choice. This basically means that competitors don’t stand a chance at becoming the default search engine on any of these devices.

For instance, in 2022 alone, Google paid Apple $20 billion — about 17% of Apple's operating profits, to remain the default search engine on Apple’s web browser, Safari.

Let’s call this ‘default distribution’.

And Google’s default distribution doesn’t stop with Apple. It has extended these payments to major players like Samsung, Motorola, Mozilla, AT&T, Opera and UC Web. This ensured that it controlled most of the shelf space by being the default search engine on these devices and browsers. In 2021, these payments totalled over $26 billion.

Economists like to call this market domination strategy of blocking competitors by controlling access and distribution as “monopoly maintenance”.

And this monopoly maintenance has significantly impacted competition in the search industry.

Take Microsoft’s Bing, for example. Despite investing over $100 billion into it over two decades, Bing has only managed to grab a tiny slice of the market compared to Google.

Then there’s Apple. They’ve been pouring money into developing their own search engine. And Google itself has admitted that Apple’s search engine could threaten 65% of its revenue. Yet, Apple hasn’t launched it. That’s because competing with Google would mean spending around $6 billion a year to run their search engine and losing a significant chunk of revenue from their current deal with Google. For context, separating from Google could cost Apple a whopping $12 billion each year for the first five years. And these costs add up to a good 15% of their 2022 operating profits.

It’s no wonder that Google’s monopoly maintenance practice has upset competitors in the search industry, and has cranked up the search engine wars.

The fallout from this ruling could shake things up across the internet, set new legal standards, impact big businesses and even change how we search the web for years to come.

But this ruling is just the first step or the liability phase, which determines if Google broke the law. The next phase now is the remedy phase, where the court will figure out what actions to take to restore fair competition.

The court might order Google to end its exclusive default contracts, share data with rivals or even spin off its search engine business. It’s anyone’s guess.

But well, if any of this happens and Google loses its default status… BOOM! Things could change in a big way.

How, you ask?

You see, search engines are more than just tools. They’re the heart and soul of our digital lives. In India for instance, people spend about 31% of their waking hours on devices, checking them 80 times a day, with half that time spent streaming. So, this heavy reliance on search engines shows the risks of having one player dominate the market.

Also, in the digital world, monopolies can have wild consequences. That’s because when a search engine dominates, it sees how users interact with it and learns from this behaviour to fine-tune its results and make them more relevant.

Now imagine that this major player keeps all that data to itself, blocking others from competing. This means that rival companies won’t have enough information to offer a service that’s truly competitive.

And let’s not forget the money. The search engine business is a goldmine for businesses and advertisers. They make big bucks from the ads you see along your searches. To put things into perspective, in 2014, Google made around $47 billion in ad revenue. By 2021, that number had skyrocketed to over $146 billion!

Now you’d think that this would lead to fierce competition, right?

Not really. Thanks to Google’s monopoly maintenance.

But you might wonder “Hey Finshots, what if Google’s default distribution deals are just smart business tactics rather than an attempt to monopolise the market? And what if people use Google because it’s the best?” After all, Google claims that its dominance comes from offering a superior service.

Well, Judge Mehta wrestled with this question too. But he pointed out Google’s “unseen advantage” ― default distribution.

It’s what we told you earlier. Google is the best because the more people use it, the better it gets. It collects more data, refines its results and then attracts even more users. This creates a loop where its dominance in search feels like a natural monopoly. And with Google set as the default search engine on most devices, it becomes the easiest option for users to stick with, rather than choosing it over something else.

In fact, Mehta went on to quote Google’s behavioural economics team discussing how default distribution matters. The team wrote in 2021: “Inertia is the path of the least resistance. People tend to stick with the status quo, as it takes more effort to make changes.”

It essentially says how people are likely to stick with Google as their default search engine in the purchased devices because switching to a different one requires more effort.

Now, you could assume that this study and the default distribution of Google’s search engine on devices could be a fair business play.

But here’s the catch. Because of this setup, only 30% of searches in the US happen through a search engine that isn’t Google by default. And that means a large chunk of the search engine market is locked out for Google’s competitors, effectively stifling competition.

We’ll leave it to you to think if this looks like an acquired monopoly by the tech behemoth.

But the bottom line for now is that if the ruling stands and Google loses its default status, the search industry could be turned upside down. Competitors might finally get a chance to shine, and the way we use the web could change.

And it’s not us saying this. Recently, the US Federal Trade Commission shared a vision for a web that isn’t dominated by Google. They hinted that the internet didn’t have to end up as messy as the cesspool it is today. Instead, they painted a picture of a better future ― a space where the internet is well regulated, with real privacy, where things don’t feel like a casino and where AI truly benefits us.

And this ruling could be a step toward making that vision a reality.

That’s also why big players like Microsoft, Apple, Amazon and Meta are watching closely. If Google’s dominance wavers, they’ll be ready to jump in.

Also, don’t forget the impact on advertising, the real cash cow of the search industry. If this ruling goes through, it could curb Google’s power to charge sky-high rates to advertisers. With competitors like Microsoft’s Bing possibly grabbing more market share, advertisers might have more choices and better rates. This shift could mean lower advertising costs for businesses and hopefully, lower prices for consumers!

Besides, this battle isn’t just confined to the US. Google’s under scrutiny worldwide including India. And the outcome could set a global precedent for how tech giants operate.

So yeah, the search engine wars are heating up, and the stakes have never been higher. Will this lead to a better online experience? Only time will tell.

Until then…

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