This week the U.S. government filed suit against Google. Smart move, or just politics? And, which member of big tech — Amazon, Facebook, Apple — is next?
Google is a behemoth. It owns search in English and many other languages and, with Facebook, dominates digital advertising. But is it a monopoly? And should the government have filed antitrust charges?
To dive into the story, we’re chatting with Greg Sterling, VP of insights at Uberall. He’s a former lawyer and journalist.
Scroll down for full audio, video, and a transcript of our conversation …
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(This transcript has been edited for clarity).
John Koetsier: So this week the U.S. government filed suit against Google. Smart move, or just politics? Welcome to TechFirst with John Koetsier.
Google, we know, is a behemoth. It’s huge. It owns search in English, many other languages, and, with Facebook, dominates digital advertising. But is it a monopoly? And should the government have filed antitrust charges? To dive into the story, we’re chatting with Greg Sterling, who’s the VP of insights at Uberall. Welcome, Greg.
Greg Sterling: Thanks, John. It’s great to be here.
John Koetsier: Hey, wonderful to have you. Right from the top, why did the U.S. government file antitrust charges against Google?
Greg Sterling: Well, I don’t think there’s a simple answer to that.
I think there’s been a consensus now for a while on both the left and the right, that companies like Google and Facebook have too much power in the marketplace.
There’ve been a number of investigations, there’s state action, so there’s a lot of consensus about this power question. Now what motivated them to file suit right now? I think that that’s a mix of the conclusion of some of these investigations.
Also, there is a political element. I think that Trump wanted to show he was being tough on tech before the U.S. election, and I do think there’s kind of a grudge on the part of many right-wing legislators that these companies are in the pocket of the left.
John Koetsier: Yes.
Greg Sterling: So I think they see them, you know, there’s that vindictive element too.
John Koetsier: I agree. Okay, interesting. Is the antitrust suit focused on the right part of Google? Of course they’re dealing with the Sherman Act, right? It’s legislation that was crafted, sheesh, I don’t know, 50, 75 years ago — a long time ago.
Greg Sterling: Yeah.
John Koetsier: It focused on search. Is that the right part?
Greg Sterling: Well, I mean, you could look at many different parts of Google. I think it does focus on both sides, the consumer and the advertising side, which encompasses ad serving and other aspects of it.
I mean, this is where a lot of the criticism has come, that Google has become more and more greedy in terms of keeping traffic on its site. It’s having an adverse impact on third parties, pushing content down the page as Google adds more of its quote/unquote “owned content” at the top of the page in ads.
So, I don’t think it’s inappropriate for this to be an area of scrutiny. You know, Android is also in there, as a practical matter.
John Koetsier: So let’s assume that this will spend four or five years in litigation at various levels, and appeals, and all those sorts of things from either side as it goes forward.
If Google did get broken up in some way, shape or form — and Microsoft didn’t really get broken up from all the scrutiny that it was under — but if Google does get broken up in some way, shape, or form … first of all, is that even possible? And secondly, what would that look like?
Greg Sterling: Well it’s certainly one of the possible remedies. In the lawsuit itself they talk about structural — I think the language is ‘structural remedies.’ They don’t explicitly mention divestiture or breaking the company up, but allegedly, quote/unquote “everything is on the table.”
Just one quick footnote on the Microsoft action.
So the case, you know, I think it’s, I don’t know, the late nineties was when it was filed, and in the federal trial court the judge did recommend breaking the company into two. And then once the Bush administration — George W. Bush administration — came in, they were less interested in prosecuting the case and there was an appeal. And so they ultimately wound up settling with the U.S. government, and the company remained intact. So there was a kind of a recommendation that the company be broken up, but it didn’t happen in fact.
John Koetsier: Yes.
Greg Sterling: Now back to Google … repeat the question. I got lost in my own train of thought.
John Koetsier: If Facebook … [crosstalk]
Greg Sterling: What would that look like? Well you could do it in a number of ways. I’m certainly not an antitrust expert, you know, although I play one on TV, but—
John Koetsier: Very well! Very well.
Greg Sterling: You could sever, you know, on the ad serving side. Google is sort of vertically integrated — they’ve got demand, they’ve got the supply, and then they’ve got the ad serving technology. And you could break apart some of those pieces.
Some people have pointed to YouTube as a carve-out. You know, you could take Android and break it apart from the company. There’s many different things you could separate — Google Maps as an entity.
There are different components that you could pull apart. Of course, Google doesn’t want any of that, and their response to all of this is that you’re only harming consumers. I mean, one of the elements of [an] antitrust case is that you have to show consumer harm. Usually it focuses on price, price fixing, price increases, or the potential for price increases. And so you have some of that language in the complaint.
But Google says the opposite, ‘Well, if you try and break up the company, nobody wants that and you’re going to actually create harm.’ For example, if you remove the Android Google Play services pre-install relationship — which antitrust officials called ‘tying’ where you have to get the pre-installed apps if you want Google Play, if you’re a mobile OEM — they would say, ‘Well that’s going to increase the cost of phones.’ You know, ‘We subsidize the cost of phones with advertising and that benefits consumers.’
So Google is saying exactly the opposite of what the Department of Justice is saying.
John Koetsier: Well, that would look interesting, wouldn’t it? I mean, we get a preview of that if we look at the latest Huawei phones which are without the Google apps, and, you know, a very small segment of apps that they are able to offer. I guess one of the other things that the government could win in some kind of decision would be no exclusionary agreements, right?
Greg Sterling: Right.
John Koetsier: So for instance, you can’t buy positioning from Apple on their search engine, those sorts of things. And you have to make it simpler for people to change their search engine, or their default email system, or something like that. Correct?
Greg Sterling: Yeah. And I think those are very likely outcomes. I mean, I think the divestiture scenarios are pretty much doomsday scenarios. They might ultimately be more effective in restoring competition to the marketplace — to the extent that you believe Google is a monopoly — but I think more likely what we’re going to see are these sort of regulatory moves.
Like in Europe, what they did is they decoupled Google Play and pre-installed apps. I never know what to call these things exactly. So that kind of scenario, I think is quite likely in the U.S. market.
And then the contract, I mean, they spend a lot of time in the complaint talking about these exclusionary contracts. And Google is sort of reinforcing its dominant status by paying companies to have this privileged position and locking out competitors. I think it’s very, very complicated because I think neither side is entirely accurate. There’s accuracy on both sides.
Consumers do choose Google, they do prefer Google. But at the same time, Google has used some of these mechanisms to ensure that others don’t have the same kind of access to distribution that they have.
And Google says, of course, ‘This is just free and fair competition, we’re just like Coke or Pepsi paying for shelf space in the grocery store, and, you know, Microsoft does this, and DuckDuckGo does this.’ But of course, Google operates at a very different level of scale and they have much more money.
I mean, the irony with the Apple relationship is, you know, we saw the revelation that a huge chunk of Apple service’s revenue is coming from Google.
John Koetsier: Yes.
Greg Sterling: So if the government were to demand or get a concession that that relationship end — the pay-to-play scenario — I think it wouldn’t have much of an impact on Google and Google usage. I think it hurts Apple much more than it hurts Google, and people would go right back — as Google points out, with Mozilla and Yahoo — and re-install Google, and put Google on there.
So people do prefer Google services. That’s a fact. It’s not simply this sort of manipulation that the government alleges.
But at the same time, Google does wield power in ways that are, you know, often questionable.
John Koetsier: Yeah. I want to talk a little bit about what Google’s privileged position enables, and maybe we could start with ad tech. They see both sides of lots of different auctions, right? Do you see any challenges there? Any remedies that could be made there?
Greg Sterling: Yes. I mean, they have a completely walled garden where they see the entire value chain. And I think that there have been recommendations to get rid of the ad serving or to get rid of the, I mean, unless you get rid of something like YouTube, you’re not going to get rid of the demand side — or the supply side, rather. So, you know, maybe the demand side is severed from that.
I mean, I think it’s easier to — when you’re talking about divestiture — I think it’s easier to talk about that on the ad tech side than it is to talk about it on the consumer side.
John Koetsier: Yeah.
Greg Sterling: Because I think it’s just more … you know, Google’s arguments are, ‘We’re benefiting consumers. Consumers like us.’ On the ad tech side, for some of these reasons that you point out, I think it’s a little bit easier to have that discussion.
John Koetsier: Yeah. Yeah, absolutely. So, we already talked a little bit about this, but how much of this is motivated by politics — from both sides, from either side?
Greg Sterling: Well, what’s interesting is that I think there were 40 … so the U.S. has 50 states, right? Not …
John Koetsier: As far as I’m aware. Unless there’s a new one.
Greg Sterling: Yeah, no I was thinking of, you know, there’s been the discussion of Puerto Rico and Washington, DC.
But anyway, so the 50 states, and I think it was like 44 of the state attorneys general were involved in this Texas-led parallel kind of investigation where there was some coordination with the federal government, but it was largely a consortium of these state attorneys general. What you saw with the complaint is only 11 joined and they were all from Republican states, you know, so-called ‘red states’ … which I think is significant.
So the ‘blue states,’ or the larger group are not saying, ‘We don’t think there’s merit to these claims,’ but they didn’t join at this precise moment. And I think the desire — the timing of the suit is definitely political.
I don’t think the suit itself or the claims themselves are political per se, but I think the timing is definitely political as, you know, Trump and Barr try and show the public that Trump is delivering the goods or whatever. And I think that that’s problematic. And many of the internal attorneys were questioning the timing as well, in terms of the preparedness of the suit. But if you do read it — I mean, I’ll stop in a second — if you do read the complaint, it’s quite a bit stronger than I anticipated, just from a sort of a factual standpoint and evidentiary standpoint.
John Koetsier: Yeah.
Greg Sterling: There’s apparently a lot of internal documents that are in the possession of the government.
John Koetsier: Right, right, right. Is antitrust law modern enough to deal with digital monopolies? I mean, this is a different beast than Standard Oil or some massive, you know, railroad company or something like that in the 1920s. It’s also a different beast than Microsoft and a near monopoly on desktop operating systems, right? This is platform level that interacts with every layer of our computing stacks, and frankly, almost every piece of our digital lives as well.
Unless you’ve really worked hard to get Google out of your life, it’s in—
Greg Sterling: Pretty hard.
John Koetsier: Many pieces of your life.
Greg Sterling: Well, not being an antitrust legal scholar, I would venture to say, yes. I’m not going to punt on that. I think it isn’t quite in alignment with the current economic reality. I mean, it was formulated for very different kinds of companies in different kinds of market conditions.
And the House Judiciary Subcommittee report that came out two weeks ago — which came to the conclusion that Google, Apple, Facebook, and Amazon were all monopolies in their respective spheres — had a laundry list of antitrust reforms that are designed to address the challenges.
And I think this may be a problem for the DOJ. So without sort of going into the particulars of those, yes, the answer is … antitrust law does need to be modernized. And it’s partly because, you know, there isn’t really obvious consumer harm here.
John Koetsier: Mm-hmm.
Greg Sterling: I mean, where is the consumer harm? The harm is arguably to competitors, and the FTC action a number of years ago when Google was initially investigated, came to the conclusion that antitrust law protects competition, not competitors … not individual companies.
And this is the principle that they have to vindicate, is that by allowing Google to remain as it is in business-as-usual mode, competition in general will be harmed. And ultimately, that will harm competitors because of lack of choice, and maybe higher prices down the line.
But the consumer harm part of it is pretty hard to prove right now.
John Koetsier: That is a great point, actually. And it’s a good segue as well, because you mentioned that other companies were named, not obviously in this suit, but certainly in those recent documents.
Who’s next? What do you think — Facebook? Amazon? Apple? Where would you put your bets?
Greg Sterling: I would think Facebook would be next. I would put Apple at the end of the ladder there. Although Apple may get the short end of the stick if the default search contract has to go away to the tune of whatever it is, $8, $10 billion or something. I think Facebook next, and then Amazon. I mean, you know, Amazon is accused of all sorts of predatory behavior in terms of pricing and data usage.
But I think Facebook is next in line after Google. And I would be surprised not to see something happen with Facebook.
John Koetsier: Yes, of course Facebook is very busy integrating all aspects of its messaging stack of its various different properties.
Greg Sterling: Very quickly. Very quickly. We can’t break these apart.
John Koetsier: It’s very hard, and if not very hard, it’s impossible.
Greg Sterling: Yeah, exactly. I mean, I think Zuckerberg sort of saw the writing on the wall and began that work, you know, whenever it was last year.
John Koetsier: Yes.
Greg Sterling: Yeah. Yeah.
John Koetsier: Yes. Yes. Well, Greg, thank you for your time. This has been fascinating.
Greg Sterling: Oh, well thanks, John. It was my pleasure.
John Koetsier: It’s been a pleasure. Thank you for everybody else as well for joining us for the show. You’ll be able to get a full transcript of this in a few days, maybe a week, at JohnKoetsier.com. Story at Forbes will come out right after that. Plus the full video is available anytime on my YouTube channel. Thank you for joining. Maybe share with a friend.
Until next time … this is John Koetsier with TechFirst.