- Google is facing unprecedented legal scrutiny over its market dominance, slammed with an antitrust lawsuit by the Department of Justice after a recent congressional investigation concluded the company has monopoly power.
- Google controls 66% of the world’s web browsing, 74% of the world’s smartphone software, and 92% of the search engine market.
- The DOJ antitrust lawsuit against Google is largely unprecedented, and legal experts agree that the case is unlikely to result in sweeping structural changes to the company.
- But it’s possible the suit — or new laws passed by Congress — could result in Google being broken up, potentially separating businesses like Chrome, Android, and search.
- Here’s what those changes could look like, and what they’d mean for Google’s business.
- Visit Business Insider’s homepage for more stories.
Three out of four smartphones in the world run on Google’s Android software platform. To access the internet, two out of three people worldwide use Google Chrome. And when people across the globe search the web, they turn to Google’s search engine more than nine times out of ten.
Google has only expanded its dominance over the past decade, controlling more and more of the online landscape as its market cap has soared to more than $1 trillion from roughly $300 billion just 10 years ago.
But now, the company faces unprecedented legal challenges over its market dominance — and its sprawling businesses are at more risk of being broken up than ever before.
Google is now the target of an antitrust lawsuit filed by the US Department of Justice, which is primarily focused on the company’s search business. The suit accuses the company of securing unfair advantages in search over competitors through exclusionary business deals, in particular a contract with Apple to remain the default search provider across its devices – a privilege that costs Google $8 billion to $12 billion a year.
Weeks earlier, a Democratic-led congressional investigation concluded that Google is a monopoly and proposed new laws to regulate or break up its business (while Republican lawmakers didn’t agree with the proposed remedies, they largely concurred that Google is a monopoly).
Google has responded that the lawsuit’s premise is “deeply flawed” and that it doesn’t have market dominance or unfair advantages over competitors.
Antitrust experts explained to Business Insider the various paths that courts or lawmakers could take to break up Google, ranging from voiding contracts that make Google’s search engine a default for millions of users to potentially spinning off its businesses like Chrome or Android.
The case against Google is largely unprecedented, and experts agree that structural separations are unlikely to result from the DOJ lawsuit. But beyond that, future laws spurred by the congressional investigation could make it easier for regulators to break the company up.
Here’s how the government could break up Google — and what each method would mean for the company’s business.
Spinning off Search
Google accounts for more than 92% of the global search engine market, according to analytics website StatCounter.
That dominance is why the Justice Department lawsuit has focused on this part of Google’s business — prosecutors allege that Google maintains its dominance through exclusionary contracts, which could be remedied by breaking off Google’s search engine as a separate company or by simply voiding those contracts.
Google makes most of its revenues through advertising, but it’s search that drives most of that. For Google, search is the cash cow, and it’s where the company undeniably dominates the market.
Advertising accounted for 80% of the company’s revenues in the last quarter, but without Search, Google’s advertising business falls apart. Take the company’s 2019 full-year earnings: of the nearly-$135 billion advertising revenue Google raked in, around $98 billion came through search advertising.
In short, any serious action against Google’s search platform could spell disaster for the company.
Last year, Sen. Elizabeth Warren wrote a piece on breaking up big tech in which she proposed spinning off Google Search. The idea would be to split Google’s search platform from its ad exchange, which would prevent Google from using the two in conjunction to maintain its grip on the search advertising market.
However, breaking off Google’s entire search business would pose a much bigger challenge to regulators, and one Google would certainly fight its hardest to avoid happening.
But regulators aren’t just concerned with search agreements; Google’s self-preferencing in search, where it pushes users towards its own shopping ads and other products, has become a hot antitrust issue – one that landed the company a $9 billion fine in Europe.
While it’s not a focus of the initial Justice Department lawsuit, it could make its way into a broader case filed by the state attorneys general, which is said to be still in the works.
Cutting off Chrome
It’s difficult to talk about Google’s search dominance without talking about its Chrome web browser. In pushing users to Google’s search engine, Chrome has become an integral part of the company’s money-making funnel – and now there’s a target on its back.
Ten days before the Justice Department filed its lawsuit against Google, Politico broke news that the DOJ and state prosecutors were considering forcing Google to sell off its Chrome browser. Chrome is the most popular web browser in the world, and drives its users to the browser’s default search engine – Google, naturally.
Chrome has almost 70% of the global browser market share, making it by far the most dominant player. Google doesn’t share the revenue it gets from Chrome (or even the number of employees working on it), but CEO Sundar Pichai himself has said it is an “exceptionally profitable” product for Google.
For regulators, the problem isn’t just that Chrome itself is so successful, it’s that when paired with Google’s exclusionary agreement with Apple to also be the de facto search provider on the iPhone, it ends up dominating the entire search space.
As the lawsuit puts it, “Google effectively owns or controls search distribution channels accounting for roughly 80 percent of the general search queries in the United States.”
Forcing a selloff of Chrome would potentially be much more devastating for Google’s business than ending the Apple exclusionary agreement. It’s an extraordinarily popular browser, and if Google were to lose the ability to set its own search engine as the default, that’s a lot of users who may perform their searches on engines such as Bing and DuckDuckGo instead.
While it’s early days, breaking off Chrome is certainly seen as a tangible path for breaking up Google’s monopoly, antitrust advocates told Business Insider.
“I think the Chrome angle is the most likely one,” said Sarah Miller, executive director of the American Economic Liberties Project, which advocates for antitrust action. “It’s a fairly straightforward tying-exclusionary-conduct approach that travels through Chrome as a vehicle for that.”
A forced Android selloff
Another path that courts or lawmakers could take to break up Google could focus on its Android operating system, which runs on nearly three-quarters of smartphones globally.
The DOJ lawsuit alleges that Google enticed phone makers to sign deals agreeing to run Android on their devices by making its operating system open-source and offering distributors a share of its search and advertising revenue. This push was successful, and Android now makes up 95% of licensable mobile software in the US (its biggest competitor, Apple’s iOS, is not licensable and only runs on iPhones).
But once Google secured widespread Android contracts using the “carrots” of open-source software and sharing search and ads revenue, prosecutors allege that it used the “stick” of withdrawing those offers to pressure distributors to include by default its own apps like the Google Play Store, Youtube, Chrome, and Google Maps, which are not open-source.
If distributors tried to pull out of those agreements, they could lose their share of ad revenue — and by now, Google is the only major company selling licensable mobile phone software to distributors.
Courts or lawmakers could take steps to break up Google’s advantage in mobile operating systems. One option would be a structural remedy, like spinning off Android as a separate company from Google. Like Chrome, Android is a way for Google to direct users to its search engine, while the Play Store also helps the company turn the profit.
Another more likely option would be a behavioral remedy that forces Google to ease up on its contractual demands, like the requirement that distributors agree to preinstall Google’s default apps.
“Typically when companies are found to be unlawfully engaged in exclusive dealings, the remedy is simply, ‘Stop doing that’ — if you have exclusionary terms in your contracts, get rid of them,” said Jennifer Rie, a senior litigation analyst with Bloomberg Intelligence. “But that requires some monitoring to make sure this company is abiding by those behavioral restrictions. And sometimes companies don’t.”
Breaking up Google’s ad control
To the surprise of many observers, the Justice Department lawsuit didn’t try to tackle Google’s control of the digital advertising market, but that doesn’t mean it’s in the clear. A group of state attorneys general have been working on a case against Google in parallel with the Justice Department’s, which is reportedly more focused on the company’s online advertising business.
Reports from earlier this year suggest that the state AG case may look to break up Google’s ad tech business, which controls how advertisers and publishers buy and sell ads across the web.
Google’s dominance in this space is partly due to some of the companies it has acquired, the most significant being the $3.1 billion acquisition of DoubleClick in 2007. Over time, this has given Google end-to-end control of the process, controlling both the buy and sell side of the advertising auction exchange.
But splitting up Google’s third-party ad tech business could be messy, and it’s not entirely clear how it could play out. As The Wall Street Journal pointed out earlier this year, Google’s third-party ad products are closely entangled with the company’s other tech.
Interestingly, the same report claims that Google’s legacy DoubleClick business, which is predominantly focused on desktop display ads, has become less relevant as more users have shifted to mobile.
In fact, Google was reportedly considering selling off its third-party ad business as a way of appeasing regulators. Simply carving off, say, DoubleClick (since renamed Google Ad Manager) might prove ineffective at breaking Google’s iron-clad grip over the digital ad market, and could potentially have more damaging effects on publishers who lean on it.
The government could take other steps to weaken Google’s market dominance without targeting specific arms of its business.
Regulatory action in the European Union provides a template — last year, EU regulators required Google to let Android users pick their default search engine and browser, but Google still controls 93% of the search market in Europe, according to StatCounter.
“What remains to be seen is how well these remedies are working in the EU … I think the DOJ might be watching closely to see how that’s developing,” Rie said. Google’s rivals don’t think it is.
“I fully expect that we’ll probably land at a point in the US where Android devices would likely land on a choice screen, and it’s certainly possible if not plausible that we’ll get there on the Apple side as well, which would be new or different,” said Bernstein Google analyst Mark Shmulik.
Future action to break up Google will hinge on the evidence that the US provides in its lawsuit, which remains to be seen.
“The DOJ has been collecting millions and millions of pages of company documents,” Rie added. “Ultimately, what those documents say will color the remedy.”