DOJ Google Antitrust Case Wraps With Apple Deal on Center Stage

Google pays as much as $10 billion per year to ensure that users access the internet through its search engine — payments that have blocked startups and fellow tech giants Apple Inc. and Microsoft Corp. from competing, according to the US Justice Department.

(Bloomberg) — Google pays as much as $10 billion per year to ensure that users access the internet through its search engine — payments that have blocked startups and fellow tech giants Apple Inc. and Microsoft Corp. from competing, according to the US Justice Department.

This week, federal enforcers will rest their antitrust case against Alphabet Inc.’s search engine, the biggest tech monopoly case since Microsoft in the 1990s. The move marks the halfway point in the 10-week trial, after which Google gets to present a defense against the allegations and perhaps explain why it pays rivals to use the search technology it argues is simply superior.

Judge Amit Mehta isn’t expected to issue a decision until next year, though any resolution to the case is expected to drag out for years with appeals and a possible second trial to establish a remedy if the Justice Department wins.

High-profile tech executives from Microsoft’s Chief Executive Officer Satya Nadella to Apple’s top dealmaker Eddy Cue have taken the stand as the Justice Department has sought to prove Google illegally maintains its monopoly over online search and the rich advertising stream that accompanies it. Google’s own CEO, Sundar Pichai, is expected to testify in the coming weeks. 

Over the past five weeks, Mehta has heard dozens of analogies about the search giant and its place in modern life for consumers and the companies trying to reach them. Google is a door or a gateway. It’s the only ferry to the island. It’s a card catalog to the infinite library that is the internet. 

The Justice Department alleges the company has used its prime position to extract more and more money from advertisers – often by making opaque changes to the rules that control the ad auctions in which companies participate.

‘Toughest Hurdles’

The government has done “a solid job” laying out its case, said Bloomberg Intelligence analyst Jennifer Rie, who has been monitoring the trial. “One of the toughest hurdles for Google, once it starts its case-in-chief, is reconciling why it pays so much,” she said.

Google is set to begin its defense on Oct. 26. Companies like Apple and Samsung Electronics Co. use its search engine because it is the best and consumers can easily switch if they want, Google says.

Mehta has so far heard from 29 witnesses, including 11 Google employees and four former ones. Many of the current executives responded haltingly to the government’s questions, quibbling over wording and terminology, before turning effusive with their own lawyers, prepared with illustrated presentations on how search or search advertising work. 

Read More: Google Search Is Like ‘Cigarettes or Drugs,’ Executive Said

In one of the more revealing internal documents, a senior Google finance executive likened its search advertising business to selling drugs since the company can simply ignore users and focus on ways to generate more money from advertising. And Pichai, years before he became CEO, questioned the wisdom of requiring Apple to exclusively use Google’s search engine in its Safari browser. 

A nine-year Google veteran turned Booking Holdings Inc. executive called the search engine “a benevolent dictatorship” that imposes costly changes on advertisers by fiat. Sridhar Ramaswamy, who spent 15 years at Google helping build out its search advertising products, testified that the company’s focus on ads weakens the consumer experience and leads to “many unintended side effects that have large social consequences” related to privacy. 

The Justice Department alleges that Google’s prominent position on a browser or mobile phone discourages people from switching to alternatives. In 2007, Google’s Chief Economist Hal Varian called the default home page a “powerful strategic weapon in the search battle,” according to documents introduced in the case. In 2014, Google determined that Android users “rarely stray away from pre-loaded apps.”

Google’s deals lock up between one-third and one-half of all search traffic in the US, according to the DOJ’s expert Michael Whinston. The company has deals with major smartphone manufacturers such as Samsung and wireless carriers AT&T Inc. and Verizon Communications Inc.

Apple Partnership

Mehta himself acknowledged “the heart of the case,” rests on one default deal in particular: Google’s 21-year partnership with Apple.

When the deal was first signed in 2002, it allowed Apple to use Google to power its Safari search for free. Over time the agreement evolved into a revenue-share where Google pays Apple a percentage of advertising sales. The Justice Department cited estimates that put the figure Google pays Apple at between $4 billion and $7 billion a year, though exact figures aren’t public. 

Google and Apple say the agreement is “highly confidential” and details have dribbled out slowly because the judge allowed much of the testimony in the first two weeks to take place behind closed doors. 

Testimony from Apple executives – John Giannandrea, the AI and machine learning head who defected from Google in 2018, and Cue, who negotiated the most recent version of the deal – defended the agreement because the company believes Google’s search engine offers the best results. The agreement also requires that Apple “support and defend” the deal in the face of regulatory challenges, Cue testified.

The Justice Department alleges the agreement prevents Apple from competing head-on with Google in search, even though the companies are each other’s biggest rival for mobile phones. 

Even well-funded rivals like Microsoft have proved unsuccessful in dislodging Google. Beginning in 2013, Apple used Microsoft’s Bing for some of its newer features like the voice assistant Siri and Spotlight, which helps users find apps and files on devices. The company eventually switched to Google for those in 2017.

Microsoft’s Nadella testified that he has tried to persuade Apple to move away from Google as its default search engine every year since he became CEO in 2014, and the company was willing to lose billions on a deal. An agreement between Microsoft and Apple would have been “game-changing,” a senior Microsoft executive who formerly worked at Yandex Inc. said, since it would give Bing enough mobile traffic to significantly improve its results. 

Earlier: Microsoft Was Willing to Drop Bing Name to Nab Apple Search Deal

Apple’s executives researched a potential shift. Cue set his devices to Bing for a few weeks in 2015 to personally test the difference, but said he didn’t think it provided good results. Giannandrea said he did the same in 2018 and found it “mostly” worked fine except for on more obscure searches. Apple later undertook a comparison study of the two search engines, concluding that Google provided better results everywhere except for desktop English-language searches, where Bing’s results tied with Google’s.

Privacy focused search engine DuckDuckGo’s talks with Apple likewise fizzled. The companies discussed in 2018 and 2019 making DuckDuckGo the default search engine for Safari’s private browsing mode, where it doesn’t track websites that a user visits or keep a history of what a person has accessed. Although executives with Safari were interested, Giannandrea nixed the idea. 

Ramaswamy, who unsuccessfully sought to to build a subscription-based search engine alternative to Google called Neeva, testified that despite his connections to Apple insiders, he couldn’t even get the company to respond to a request to add the search engine to its list of options in Safari.

Google’s “payments effectively make the ecosystem exceptionally resistant to change,” he said. The complicated contracts “basically freeze even the executive staff of most of these companies into not wanting to touch it.”

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