A Blog by Jonathan Low

 

Oct 22, 2020

The Reason the Google Antitrust Lawsuit Is No Sure Thing

Analysts suggest that the US Department of Justice suit is weak because it rushed to file before the election in hopes it would buoy the Administration's chances. The suit is limited in scope and focuses on ostensible abuses that its own brief then undercuts by citing cases - like Amazon's Fire phone - which show that consumers preferred Google. 

Finally, the government failed - or decided not to - go after Amazon and Facebook - which are considered far more abusive monopolists, further undermining the reasoning for the government's rush to attack big tech before it was ready to do so comprehensively. JL

Mike Masnick reports in Tech Dirt:

Many lawyers in the DOJ said they needed more time to put together a complete case against Google... and it shows. Abusive monopolies normally use their power to drive down how much they have to pay. As the filing shows, these search deals involved strong competition from Microsoft. Google pays Apple billions $8–12 billion in advertising revenue annually, approximately 15–20% of Apple’s net income. (And)
the argument shows when Amazon did fork, that failed in the marketplace. Which looks like evidence that Google isn't blocking competitors, but consumers just prefer Google.

As you've already heard, the DOJ filed the long-expected antitrust case against Google earlier this week. Karl has already discussed how it appears to be a politicized weapon wielded by Attorney General Bill Barr to create a bogus culture war around how Trump is "taking on" big tech. Cathy has looked at one weird aspect of the case -- how its own argument regarding trademark genericide actually cuts against the idea that Google is a monopoly.

However, what strikes me as most noteworthy about the filing is how insanely weak the argument is. As was already discussed, many lawyers in the DOJ had said they really needed more time to put together a complete case against Google... and it shows. I know that the folks who have been agitating for antitrust actions against Google for years are cheering this on, but that seems incredibly short sighted. As is currently filed (and it will likely change!), the case is so weak that Google would likely win in court, and it would then be more difficult (though not impossible) to craft another antitrust case later.

First, the case is fairly limited in what it argues. It focuses on Google's search distribution deals (e.g. getting Google to be the default search engine in things like Firefox or iOS, for which Google pays many, many millions of dollars). This seems like a weird choice for a variety of reasons.

For years, Google has entered into exclusionary agreements, including tying arrangements, and engaged in anticompetitive conduct to lock up distribution channels and block rivals. Google pays billions of dollars each year to distributors—including popular-device manufacturers such as Apple, LG, Motorola, and Samsung; major U.S. wireless carriers such as AT&T, T-Mobile, and Verizon; and browser developers such as Mozilla, Opera, and UCWeb— to secure default status for its general search engine and, in many cases, to specifically prohibit Google’s counterparties from dealing with Google’s competitors. Some of these agreements also require distributors to take a bundle of Google apps, including its search apps, and feature them on devices in prime positions where consumers are most likely to start their internet searches.

It seems worth noting here that Google pays a ton for those deals. Mozilla practically lives off of that contract. If Google is somehow forced to stop, that'll do a lot more to hurt Mozilla/Firefox than help it.

Also, when you're talking about abusive monopolies, it's normally how companies use their power to drive down how much they have to pay (because they're the monopoly). And yet, as the filing itself shows, these search deals have involved strong competition from Microsoft, meaning that Google ends up having to fork over huge chunks of cash.

Under the current agreement between Apple and Google, which has a multi-year term, Apple must make Google’s search engine the default for Safari, and use Google for Siri and Spotlight in response to general search queries. In exchange for this privileged access to Apple’s massive consumer base, Google pays Apple billions of dollars in advertising revenue each year, with public estimates ranging around $8–12 billion. The revenues Google shares with Apple make up approximately 15–20 percent of Apple’s worldwide net income.

Perhaps my understanding of how monopolistic markets work is different than the DOJ's, but I don't recall ever seeing it described as being a market where the "monopolist" pays billions of dollars just to be an (easily changed) default. The fact that Google's deal alone is 15 to 20% of Apple's revenue (and Apple makes a shit ton of money) alone seems damning to the underlying argument for the case. If Google were a monopoly, then by any normal economic analysis, it would be driving down how much it pays because Apple would have nowhere to go. The fact that Google has to pay so much suggests that there's actual competition for these deals.

There is also the question of what users want. Frankly, if my phone/browser didn't have Google as the default, I'd change to it. I've tried the alternatives (Bing, DuckDuckGo) many times over. And they just are rarely as effective as Google.

The other troubling aspect of the lawsuit is that it insists totally reasonable (and indeed, important to protect consumers) activity is somehow anti-competitive. Some of these seem to put Google into a no-win situation. They would get killed if they did things differently, and they're getting killed for doing things this way. Here's an example. A key part of the DOJ's argument is that Google's anti-forking agreements regarding Android are anti-competitive. And, as someone who uses a non-standard, Android-based mobile OS on my phone, there are definitely times that I wish there were more competition in forking and building out Android alternatives. But there are non-nefarious reasons why Google would do this:

Google’s anti-forking agreements, however, have inhibited operating system innovation through forking, ensuring that manufacturers and distributors are beholden to Google’s version of Android. Distributors know that any violation of an anti-forking agreement could mean excommunication from Google’s Android ecosystem, loss of access to Google’s must-have GPS and Google Play, and millions or even billions of dollars in lost revenue sharing. Thus, distributors avoid anything that Google might deem “fragmentation”—a term that Google “purposely leave[s] . . . very vague” and interprets broadly.

Pursuant to the preinstallation agreements discussed below, Google also has final say over whether a device is found to be compatible with the technical specifications Google requires manufacturers to meet before they can preinstall GMS. As a Google engineer noted, it must be “obvious to the [manufacturers] that we are using compatibility as a club to make them do things we want.” Google views its anti-fragmentation mandate, and its final approval of devices before they launch, as a “poison pill” to prevent deviation from the Google-controlled Android ecosystem.

One interpretation is that this is anti-competitive and giving Google control. But, remember, this is open source in the first place. The only reason forking is even any option at all is because Google made Android open source. No one can fork iOS. Or Windows. Because those are proprietary. Just the fact that it's open source seems like a weird thing to be the crux to hang an antitrust lawsuit over.

But, more to the point, another (non-nefarious) reason why Google might make those agreements is to hold various device companies to a standard that delivers users the experience they expect. Without those agreements, then you could get bad implementations of Android in which lots of things don't work correctly -- and end users would likely blame Google for that. Also, fragmentation has already been a problem in getting some apps to work smoothly across the wider Android ecosystem. So the efforts at standardization for those who want to offer the wider Google ecosystem are easily explained for the benefit of everyone, rather than as some attempt to block competition.

The lawsuit then immediately undermines its own point that everyone is afraid to fork Android... by showing how Amazon forked Android:

Google’s broad interpretation of the anti-forking agreements, and the reluctance it creates among Android distributors to support alternative versions of Android, presents barriers to entry. These were on display when Amazon developed its Fire OS operating system, a competing fork of Android. Rather than preinstall Google’s search engine, GPS, Google Play, or other Google apps on Fire devices, Amazon preinstalled its own proprietary apps and agreed to make Microsoft’s Bing the preset default general search engine. Amazon originally sold only Fire OS tablets, but in 2014 it launched a phone that ran on Fire OS. The phone was not a commercial success and Amazon quickly exited the phone business. Amazon continues to sell Fire tablets, which account for less than two percent of mobile device usage in the United States.

Right. As the DOJ says, this ended up being a flop for Amazon, but that also undermines the case. It shows that users like the Google services and apparently were not as interested in buying a device without them. So, the entire crux of the DOJ argument seems undermined in the filing itself. Basically, the argument is that Google prevents people from forking (except it didn't), and then shows when Amazon did fork, and says that failed in the marketplace. Which just looks like evidence that Google isn't blocking competitors, but rather consumers just prefer Google's offering.

Also, as Alex Stamos pointed out, a key problem with the assumptions in the DOJ's lawsuit is that the lack of startups entering the general search market is because of these practices by Google. But a much more reasonable assumption is that building a good general search engine is fucking hard.

And, a few have tried over the years, but they've had trouble, not because of Google's search deals, but because their products just weren't that good.

If your goal was to breakup Google or even cause real harm for the company... this isn't the lawsuit you're looking for. It's one of the weakest antitrust claims I've seen. I'm honestly perplexed by the people cheering this on because it's so weak that it's not going to work and will make any real antitrust harder down the road.

I will note that this might change. I imagine that there will be amended complaints down the road, and NY's attorney general put out a statement noting that while she and the AGs of a bunch of other states are investigating Google for antitrust, if they do file a case, they will seek to consolidate it with the DOJ's case. It's possible that whatever case the states bring could be much stronger.

I'm open to being convinced that this approach will work, but as it stands, this case looks incredibly weak, seems likely to fail, and even if it somehow succeeded wouldn't create any real structural change. Indeed, at best it would just limit how much Google has to pay out to lots of other companies, which helps support the wider ecosystem. I knew that this was a blatant political move by Barr, but I still expected a lot more meat to be found in the filing.

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