The Google Breakup Trial Balloon
Poor Lee-Anne Mulholland. For the second time in three days, Google's Vice President of Regulatory Affairs has had to publish a piece on the company blog countering court proceedings that are coming fast and furious for the $2T company. The two cases are quite different, as the first is the result of a lawsuit by another company, Epic Games, to try to fundamentally change the Play Store. This one is about the US government going after Google's search business. (And, of course, there's a third one, where the same government is going after Google's advertising business – the expensive jewels. And there are various state cases as well. Mulholland better have those blogging fingers ready...)
Unlike the Epic case, today's news isn't a ruling but a requested framework for how the government might think about remedies for that first antitrust case which Google lost. It reads like you might expect in negotiating 101: start with the biggest ask. The DoJ is basically putting every option on the table, including the big one: a breakup of Google itself into smaller parts.
But, to be clear, they're not necessarily proposing that – at least not yet. The actual proposal isn't due until next month. This is just floating the idea. It's sort of like a trial balloon, it seems. And at least if the press reaction is any indication: they're likely overshooting here. Hardly a surprise, but good for them to know/hear.
Google's reaction is even more predictable, but it's still interesting in the way they're framing it. Calling some of the ideas "radical changes", Mulholland writes:
The U.S. Department of Justice (DOJ) today shared a broad outline of radical changes it may demand as part of its lawsuit over how we distribute Search. This is the start of a long process and we will respond in detail to the DOJ's ultimate proposals as we make our case in court next year. However, we are concerned the DOJ is already signaling requests that go far beyond the specific legal issues in this case.
The "long process" element would seemingly seek to calm the markets on the news. Regardless of what happens, nothing is happening any time soon. Again, this first outline will be followed up by an actual proposal next month. And then Google will counter that proposal in December with their own. And the judge has already said that it will take well into next year to hear both sides and ultimately rule almost a year from now. But several things could delay that timeline. See also: the way Microsoft's antitrust case played out 25 years ago.
In that case, Microsoft was actually ordered to be broken apart, but that obviously never happened. A technicality got that remedy thrown out, but even before that, various legal proceedings dragged the whole thing out – ultimately, for years – before Microsoft found a path to settle and move on. The same will undoubtedly be true here in the worst case scenario for Google. But just as likely would seem to be a faster settlement. Reading between the lines of Google's statement today, they already seem to be gearing up for that. As Mulholland continues:
This case is about a set of search distribution contracts. Rather than focus on that, the government seems to be pursuing a sweeping agenda that will impact numerous industries and products, with significant unintended consequences for consumers, businesses, and American competitiveness. The DOJ’s outline also comes at a time when competition in how people find information is blooming, with all sorts of new entrants emerging and new technologies like AI transforming the industry.
That basically reads like Google saying that while any break-up or divestment remedy is an overreach, they're open to discussions about the search distribution contracts. That seemingly previews what Google will counter with. Again, this all feels like negotiating 101. The DoJ goes in with the strongest ask, Google counters with "how about 'no'?" but also signals what they may be open to discussing.
My bet, based on nothing other than common sense, would be that the DoJ reads the room and doesn't ultimately ask for a break-up of Google next month. The concern there would be that the judge views this as an over-ask as well and it frames the entire remedy portion problematically for the government. But they'll still undoubtedly seek something stronger than simply altering the search distribution contracts. Killing them would certainly seem to be on the table. But perhaps some other non-break-up changes to Google's business.
As I wrote a couple months ago when the initial ruling against Google was passed down in a post entitled Let's Not Pass 'Go' Just Yet...:
The ones being thrown out there today range from break-ups/split-ups of various Google properties (selling Chrome, splitting off Android, etc), to far more nuanced tweaks to the business. This opinion today in Bloomberg Law by antitrust economist Tessie LiJu Su feels the most correct right now, at least directionally:
Enjoining Google from the alleged bundling and revenue sharing practices is probably the best remedy. Android phone makers will no longer be required to use Google Search as default on their devices in order to license its intellectual property. Nor will they or Apple be induced by financial gains when Google’s revenue sharing stops. This approach will open up distribution to rival search engines.
This would effectively be telling Google to put their mouth where their money currently is – i.e. backing up the notion that their search product is the best without paying to place it everywhere.
The Apple element of this is arguably just as interesting as the Google element, because as everyone is well aware by now, a massive percentage of Apple's now-all-important Services business – not to mention overall profit – is their search deal with Google. To the tune of $20B+ a year.
While Su suggest the revenue sharing would stop, I imagine it would just change. No more paying for default placement in lump sums and instead perhaps paying out a share for actual usage. The argument here might be that this would still give Google too much power because they could afford to pay more than anyone else, but an equalized market rate would incentivize product over payment.
Regardless, the Occam's razor read of such a remedy suggests a situation that would perhaps not change all that much. Because it wouldn't dictate that Android phone makers or Apple make another search engine the default, it would likely instead lead to more pop-ups asking people to explicitly make a choice. And Google would still have a huge market advantage there, simply thanks to brand awareness, if nothing else. And if companies were allowed to bid on placement in such a screen, the effect would likely be even more muted.
That still feels roughly correct. Perhaps they kill the revenue sharing entirely, but that hurts Apple – and really, Mozilla – more than Google. Certainly default payments are dead, and likely any sort of contracts as well beyond perhaps simple revenue share agreements. But would that be enough? For the DoJ, certainly not. But that will come down to the judge. I suspect anything touching AI will be a bridge too far as the entirely space is too chaotic and unclear at the moment. Microsoft and OpenAI really help Google here. Android is under attack in the other case. Chrome may be the most vulnerable other option here. But who knows.
The only thing I'd bet on is that a breakup of Google is very unlikely. And today was just an opening salvo. If I were Google, I'd be more worried about the Epic case, as there are tangible remedies there to contend with and a judge that seems more hellbent on altering Android.
Ultimately, though, as boring as it is to say, I suspect none of these cases will hurt Google all that much in the long run. As with Microsoft all those years ago, they can only do that to themselves. Let's check back in, say, five years, shall we?
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler