Google — when being too successful becomes a problem

It occasionally comes to pass that a couple of people get together in a university dorm room and come up with a really good idea to make something new. Sometimes they actually make the thing, and occasionally it turns out that it was indeed a very good idea, so they form a company and show the thing to other people with money. Some of these people give them money which they use to build a product which spreads their new idea around the world.

Even more rarely, an idea is so really, really good that the company becomes huge and builds up a ridiculous stash of money. And everyone cheers, because everyone loves the product as well as the dorm room genesis story. And occasionally (very occasionally) the company becomes so dominant that its brand becomes a verb.

So huge is its pile of cash (taller than Mount Everest, higher than the ozone layer, beyond the planets), that such a company turns its attention to ensuring that no one can ever, ever, ever compete with it so that it can eventually rule the world and then go to capitalist heaven.

The dorm room was at Stanford in 1995. The people were Larry Page and Sergey Brin. The company became Google and the product became Google Search. In 2022 it had a 95% market share, up from 90% in 2020.

But wait. That was then, this is now.

This month, a US court decided that Google (specifically its search product) was breaking the law by engaging in all manner of anti-competitive behaviours and so it stomped on the company with big, heavy boots. Google’s competitors (real and aspirant) are thrilled. Google is aggrieved. We invented this, they plead. We made the internet a better place. We innovated. And now everyone hates us? WTF?

To be as accurate as possible (as a non-lawyer), the real issue that was litigated was Google’s deal with Apple and Samsung (and others) wherein they pay these companies (a lot) to place the Google Search app on their smartphones’ home screens. That, said the judge, was stopping other search engines from getting a look-in at the mobile search market.

In fact, internal Google documents showed that they had modelled how much money they would lose if they didn’t have these deals in place. For instance, they calculated that 60-80% of Apple iOS queries would be lost without such an exclusive arrangement. That must have been a heart-stopping prospect. Tens of billions in revenue at stake. Google was accordingly very happy to pay billions to ensure its podium position in the mobile market.

Google’s argument was reasonable. Companies pay for high-profile merchandising positions all the time. Think about the placement of items in your food store. The items on the shelf at the front and centre are paying for the privilege.

It also argued that, when the EU insisted on a pop-up offering the mobile user a choice of other search engines in 2020, Google was overwhelmingly selected, prompting the question: Doesn’t that mean that people choose us because we are, quite simply, the better product?

Ye shall repent

Then it argued that a big whack of the money made had been fed back into innovation, making Google Search by far the best product. We are not quashing competition, they pleaded, we are offering a better product.

The judge was unmoved. You are a monopoly, he declared. You have acted illegally to maintain your monopoly. And ye shall repent.

The repentance (still to come, next month) will be some combination of two remedies. The first is structural (like Google Search being ripped out of Alphabet and dropped into a competitive pool). The second is behavioural, meaning it will be forced to change its strategy of pay-for-position exclusive mobile deals.

This is not going to be resolved anytime soon. My money is on appeals going all the way to the Supreme Court, taking years and years before any resolution is achieved.

I am not sure how I feel about this. In 1776 the Scottish philosopher/economist Adam Smith wrote his foundational book on capitalism, The Wealth of Nations. In it, he fretted about monopolies, with their potential for price manipulation, undue political influence and corruption.

It’s all borne out by the grand monopolies of history — from the Dutch East India Company to Rockefeller’s Standard Oil to JP Morgan’s US Steel in the early 20th century to AT&T in the early 1980s (which was forcibly broken up by the courts).

However, other expensive legal actions in the last 50 years seem to have been largely a waste of effort — IBM had lost its edge to competition by the time the case against it was withdrawn after 13 years in 1982. Microsoft’s sanction in the early 2000s was questionable, given that it faced far bigger threats in the form of competition from the likes of Apple, the emerging mobile market and the open-source movement.

Google has already felt the heat of competition in search. AI is a game-changer (I used Perplexity.ai for research when writing this article, not Google). Is this newly imposed sanction on the company going to make a real and lasting difference to the dynamics of market competition?

On the one hand it seems like a solid and fair decision by the courts to level the competitive playing field. On the other hand, it seems like a flaw in the system when companies are enthusiastically embraced and cheered for innovation and excellence, only to be slapped down when they succeed beyond anyone’s wildest dreams doing what everyone else does, which is trying to hobble the competition in as many ways as possible. DM

Steven Boykey Sidley is a professor of practice at JBS, University of Johannesburg. His new book, It’s Mine: How the Crypto Industry is Redefining Ownership, is published by Maverick451 in SA and Legend Times Group in the UK/EU. It’s available now.