How the Google Antitrust Battle Hurts Apple and Could End Mozilla

Good morning. In the Bay Area, we are celebrating back to school this week. It’s like hitting the reset button on chaos. Bay Area streets will be jam-packed, kids will lose school supplies by October, and the tech world is gearing up for the end-of-year sprint to ship everything before nobody cares anymore and goes off to the holidays.

If you are in the online search business, you will be extra busy. The ruling in Google’s antitrust battle raises challenges and opportunities.

Let’s discuss what you need to know about the details behind the scenes.

5-minute-read

US vs Google

On Monday, August 7th, a federal judge ruled that Google acts like an illegal monopolist but without harming customers.

The case opened the books on how Google built dominance in the online search segment. But not because it had only one goal—to be a monopoly—more so because it was just doing a better job building its search engine and business around it.

Even the judge recognized Google’s focus on “delivering the industry’s highest quality search engine” in his 286-page ruling.

However, the judge also said that Google has acted as a monopolist to maintain its monopoly.

FACTS about Google Search

• Google controls ~91% of the global search market

• Google processes ~63,000 searches per second or 5.5 billion per day

• The avg. user conducts 3-4 searches per day

• Google Searches closest competitor, Bing has a market share of 3.9%

Just look at the search share below; it’s not even close.

The Real Issue

• For many years, Google has been paying companies like Apple, Microsoft, and Samsung to make Google Search the default search engine on their devices.

• Google spent $26.3 billion in 2021 alone to stay the default search engine on the web and mobile.

• Google CEO Pichai said it made total sense to spend this amount to make Google Search the default: “We want to make it very, very seamless and easy for users to use our service.”

To understand the background, let’s look at the history of the Sherman Act.

How can a law from the 1800s be applied to Google?

The judge pulls the reasoning from the Sherman Antitrust Act of 1890.

What led to the Sherman Act was the dealing of long-term contracts that John D. Rockefeller’s Standard Oil put in place. He partnered closely with the railroad industry for long-term shipping contracts to dominate the kerosene market. It brought significant consumer benefits but hurt small businesses because they had to deal with much higher transportation costs for their small shipments.

The government stepped in and targeted these monopolistic practices with the Sherman Act.

How does this map to Google?

It is fair to say that Google gained this monopolistic position through its investment in innovation and drive to be the best search engine.

However, it is forbidden to extend a monopoly through contractual deals, like the deal Rockefeller made for Standard Oil with the railroad industry.

Good for Consumers

Consumers know what the best product is when it comes to online search. It’s a household name; consumers always know they use the best product.

Companies that produce content on the internet optimize it for Google’s search. This is, again, good for the consumer. Content is optimized for Google search so that people who are looking for it can use Google to find it based on their keywords.

More users lead to more data, leads to improving algos leads to better search experience that will be hard to beat and constantly improve…

Who worries about SEO (search engine optimization) for Bing or Yahoo?

But doesn't this raise the question: Why change anything if it’s good for consumers?

These Deals are Bad for Competition

Throughout the trial, many witnesses from other tech companies came to testify.

One of them is the Microsoft CEO Satya Nadella. When he took the stand, he mentioned that they had tried for years to replace Google Search on iPhones using Microsoft Bing. However, he added that even a company like Microsoft couldn’t compete.

Of course, Bing is not making nearly enough money to compete with a $20 billion payment to Apple. In 2022, Bing made ~$6 billion in net ad revenue.

Execs from other search engines like DuckDuckGo and Neeva brought the same sentiment.

Not that bad for Apple, though

In 2022, Google paid Apple $20 billion to be the default search on Safari.

Get this:

So really, Apple is also losing in this ruling. They are probably scrambling to quickly figure out how to tell their shareholders where 17% of their operating income went and how they will make up for it.

Why this could be the end of Mozilla

Earlier this year, Fortune reported that Google paid $510 million in 2021-2022 to the Mozilla Foundation to be the default search engine on Firefox. This is 86% of Mozilla’s revenue of $593 million. So Google, wanting to be the default search engine, has funded Mozilla.

Losing 86% of revenue just like that will severely impact Mozilla's near future.

What does “No More Contracts” mean for Google?

• Less search traffic leads to less ad revenue—First and foremost, Google will have to deal with less search traffic; that’s a given. That also means fewer impressions for the ads Google sells there.

• Sell off Chrome and Android—A more extreme scenario could force Google to sell off Chrome and Android. One consequence of that would be that Google would then have no say in what the default search provider would be here as well. Google built these products to own the whole ecosystem and drive users to their products.

• 32.7 billion revenue loss on iPhone and iPad searches alone - Google ran a prediction in 2020 that in case of not being the default search engine on Apple’s Safari browser would lead to 60-80% fewer queries on iPhones and iPads, which would lead to $32.7 billion in net revenue losses.

What’s likely? If there can’t be a default search engine, the user will probably be given a choice. Thus, I would expect most people still to pick Google over other services, and the revenue loss will be much smaller.

I think a ruling to sell off Chrome and Android is unlikely.

The Unexpected Result for Standard Oil could also hit Google

Here is the fun part: If we look back to the 1800s and what happened to Standard Oil, we learn that the company was indeed broken up into 34 distinct companies. Some of those companies ended up worth double what they all were together as Standard Oil, so Rockefeller ended up even richer. Three examples of these companies are ExxonMobil, Chevron, and BP.

Even though the company was broken into pieces, all these pieces still make up the firms currently dominating the market.

The Takeaways

For me, there are two things.

1. Google clearly has built the best search product in the market. Users choose Google 90% of the time, and companies optimize their content for the platform. Why would Google not be your default search?

The case shows a difficult balance between market dominance due to a superior product and market dominance due to anti-competitive practices.

Just like with Standard Oil, taking Google apart has likely no impact on product quality. If users are provided a choice, they will still default to Google search and select the “Don’t ever ask me again” checkbox. Google might even save $26 billion and still have users opt-in as their default search on the web and mobile.

It’s just one more click.

2. Google's ad business has a $300 billion run rate, but it has distributed that wealth across the tech industry. It paid Apple, Mozilla, and others. It literally paid a competitor to keep its product (Firefox vs. Chrome) in the market.

However, it is only helping a select few. The “open” market around search is not a field in which anyone besides Google might see a reason to innovate or do anything. This limits innovation and might indeed have long-term negative effects on customers and the market.

There are a few other lawsuits against tech giants. The government is investigating Amazon, Apple, Meta, and Google for monopolistic behavior. In fact, it sued all four of them, including Google, twice.

So, let’s get the popcorn ready, as " Government vs. Big Tech” will be a blockbuster for many more seasons.

For Your Deep Dive Desires

Notes about the trial and witness statements

Strategic deep dive with even more history

You are now well-equipped to discuss Big Tech Antitrust at your next dinner party.

If you have friends who need to catch up, it would mean the world to me if you shared this summary with them.

Have a great rest of the week,