About three years ago, the U.S. Congress started summons against Google’s parent company Alphabet Inc. (NASDAQ:GOOG) and Facebook Inc. (NASDAQ:FB) over alleged misuse of private data. Google’s session in front of Congress teetered between farce and drama as several congress members took turns grilling Google CEO Sundar Pichai but repeatedly appeared befuddled by how the search giant works. Google came off unscathed, showcasing the paradox of entrusting technologically challenged lawmakers with the complex task of regulating a complex industry like information technology and the internet.
The internet giant might not be that lucky this time around after the U.S. Department of Justice opened the biggest antitrust case against a tech company since Microsoft Inc.(NASDAQ:MSFT) in the 1990s after determining that, indeed, Google holds monopolies in search and search advertising.
The lawsuit is the culmination of an yearlong investigation into Google’s alleged anti-competitive practices.
Gatekeeper to the internet
DoJ alleges that Google violated antitrust laws to act as a "gatekeeper" to the internet by unlawfully blocking out competitors and cutting deals with phone makers including Apple Inc.(NASDAQ:AAPL) and Samsung Electronics (OTC:SSNLF) to be the default search engine in their respective devices.
"As the antitrust complaint filed today explains, [Google] has maintained its monopoly power through exclusionary practices that are harmful to competition. 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, " US deputy attorney general, Jeff Rosen, told reporters on a conference call.
Eleven states are joining the lawsuit as plaintiffs: Arkansas, Florida, Georgia, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Montana, South Carolina and Texas. Interestingly, every single one of them has a Republican attorney general.
The move by the DoJ marks yet another attempt by the Fed to put the clamps on powerful tech companies just like the EU did with Facebook in a landmark ruling in July.
Google certainly is overwhelmingly dominant on the internet: The company holds an unassailable 95% market share in mobile search; 85% in mobile operating systems with Android, and 70% search share in browsers. It’s massive digital ad business is a real juggernaut that brings in about 85% of the company's ~$160 billion in annual sales. It’s namesake search engine is widely considered some of the most prime real estate on the internet, processing ~90% of global online searches.
But being highly dominant does not automatically translate to being anticompetitive.
In its defense, Google has this to say:
"Today's lawsuit by the Department of Justice is deeply flawed. People use Google because they choose to, not because they're forced to, or because they can't find alternatives,’’ Google's senior vice president of global affairs, Kent Walker, said in a blog post.
Will Google survive?
The million-dollar question here is whether Google will survive the latest onslaught in one piece or be forced to break up.
Much of the scrutiny on the company is directed at its alleged promotion of its own products at the expense of those by rivals. The report says:
"Evidence shows that once Google built out its vertical offerings, it introduced various changes that had the effect of privileging Google's own inferior services while demoting competitors' offerings."
That’s quite a surprising finding considering Google has faced similar scrutiny from federal regulators in the past and was cleared of any mischief. Back in 2013, the Federal Trade Commission decided unanimously that Google wasn't violating antitrust laws following two years of investigations.
Investors certainly do not seem to think that the latest blow is a death sentence for Google: GOOG stock has jumped nearly 5% since the report hit news feeds.
By Alex Kimani for Oilprice.com
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