On Tuesday, October 20, the US Department of Justice (DOJ) filed a lawsuit against Google Inc under the provisions of the Sherman Antitrust Act, charging that the firm is a “monopoly gatekeeper for the internet”.  This is the first time the DOJ has used the Act since 1998, when similar charges were filed against Microsoft.

The Microsoft case failed to break up the company, as the DOJ once announced its intentions to do, but reduced the dominance of Microsoft’s Explorer browser by opening up the browser arena to more competition.

By one measure, Google has an 87 percent market share in the search-engine “market”.  I put the word in quotes, because nobody I know gives money directly to Google in exchange for permission to use their search engine.  But as the means by which 87 percent of US internet users look for virtually anything on the Internet, Google has the opportunity to sell ads and user information to advertisers.  A person who Googles is of course benefiting Google, and not Bing or Ecosia or any of the other search engines that you’ve probably never heard of.

Being first in a network-intensive industry is hugely significant.  When Larry Page and Sergey Brin realized as Stanford undergraduates that matrix algebra could be applied to the search-engine problem in what they called the PageRank algorithm, they immediately started trying it out, and were apparently the first people in the world both to conceive of the idea and to put it into practice.

It was a case of being in the exactly right place (Silicon Valley) at the right time (1996).  A decade earlier, and they would have lapsed into obscurity as the abstruse theorists who came up with a great idea too soon.  And if they had been only a few years later, someone else would have come up with the idea and probably beat them to it.  But as it happened, Google got in the earliest, dominated the infant internet search-engine market, and has exploded ever since along with the nuclear-bomb-like growth of the world wide web.

It’s hard to say exactly which one of the classic bad things about monopolies is true of Google.

The first thing that comes to mind is that classic monopolies can extract highway-robbery prices from customers, as the customers of a monopoly must buy the product or service in question from the monopoly because they have no viable alternative.  Because users typically don’t pay directly for Google’s services, this argument won’t wash.  Google’s money comes from advertisers who pay the firm to place ads and inform them who may buy their products, among other things.  (I am no economist and have only the vaguest notions about how Google really makes money, but however they do it, they must be good at it.)

I haven’t heard any public howls from advertisers about Google’s exploitative prices for ads, and after all, there are other ways to advertise besides Google.  In other words, the advertising market is reasonably price-elastic, in that if Google raised the cost of using their advertising too much, advertisers would start looking elsewhere, such as other search engines or even (gasp!) newspapers.  The dismal state of legacy forms of advertising these days tells me this must not be happening to any great extent.

One other adverse effect of monopolies which isn’t that frequently considered is that they tend to stifle innovation.  A good example of this was the reign of the Bell System (affectionately if somewhat cynically called Ma Bell) before the DOJ lawsuit that broke it up into regional firms in the early 1980s.  While Ma Bell could not be faulted for reliability and stability, technological innovation was not its strong suit.

In a decade that saw the invention of integrated circuits, the discovery of the laser, and a man landing on the moon, what was the biggest new technology that Ma Bell offered to the general consumer in the 1960s?  The Princess telephone, a restyled instrument that worked exactly the same as the 1930s model but was available in several designer colors instead of just black or beige.  Give me a break.

Regarding innovation, it’s easy to think of several innovative things that Google has offered its users over the years, including something I heard of just the other day. You’ll soon be able to whistle or hum a tune to Google and it will try to figure out what the name of the tune is.  This may be Google’s equivalent of the Princess telephone, I don’t know.  But they’re not just sitting on their cash and leaving innovation to others.

In the DOJ’s own news release about the lawsuit, they provide a bulleted list that says Google has “entered into agreements with” (a politer phrase than “conspired with”) Apple and other hardware companies to prevent installation of search engines other than Google’s, and takes the money it makes (“monopoly profits”) and buys preferential treatment at search-engine access points.

So the heart of the matter to the DOJ is the fact that if you wanted to start your own little search-engine business and compete with Google, you’d find yourself walled off from most of the obvious opportunities to do so, because Google has not only got there first, but has made arrangements to stay there as well.

To my mind, this is not so much a David-and-Goliath fight — Goliath being the big company whose name starts with G and David representing the poor exploited consumer — as it is a fight on behalf of other wannabe Googles and firms that are put at a disadvantage by Google’s anti-competitive practices. From Google’s point of view, the worst-case scenario would be a breakup, but unless the DOJ decided to regionalize Google in some artificial way, it’s hard to see how you’d break up a business whose nature is to be centrally controlled and executed.

Probably what the DOJ will settle for is an opening-up of search-engine installation opportunities to other search-engine companies.  But with $120 billion in cash lying around, Google is well equipped to fight.  This is a battle that’s going to last well beyond next month’s election, and maybe past the next president’s term, whoever that might be.

 


 

Karl D. Stephan

Karl D. Stephan received the B. S. in Engineering from the California Institute of Technology in 1976. The article is printed with permission