Losing Monopoly

In the wake of the historic summer ruling that Google has a monopoly on the online search market, the Justice Department has officially requested a limited breakup, requiring Alphabet to divest itself of Chrome, Google’s popular web browser and the basis of the operating system for its popular Chromebooks.

This is a major threat to Google, since its broadly adopted browser defaults searches to Google’s search engine, one of the company’s many tactics to draw in search queries, training its algorithms and helping Google maintain its dominant market share. As Chrome is used by an estimated two-thirds of global web users, the loss of these default queries and related advertising and sales revenues would be a major blow.

The Department of Justice also asked the judge to bar Google from paid agreements with firms like Apple and Samsung for its search engine to be set as the default on phones and browsers, a remedy that observers consider likely to be granted. More aggressive, the government is requesting Google’s search competitors be given access to Google’s ocean of search data for ten years. That amounts to another major burden on Alphabet, since the data from user responses to search results is used to improve its algorithm and maintain a crucial edge over competing search engines.

But unnoticed in much of the coverage is the DOJ’s further request regarding Android, Alphabet’s even more important mobile operating system (OS), which is used on the majority of the world’s mobile phones. The government requested the judge offer Alphabet a choice between outright selling off Android or reconfiguring it to no longer default to Google Search, a serious technical challenge to the company. Android plays a far larger role in keeping users in Google’s app ecosystem than does Chrome, with Android phones typically shipped preloaded with Google’s full suite of apps. This means the Justice Department’s remedy request is a major escalation in the case and closer to the more dramatic demand to break up Microsoft into OS and apps divisions in the 1990s Microsoft antitrust case.

The original verdict is now going through the yearslong appeals process. Whatever remedies US district court judge Amit Mehta lands on next summer will be in abeyance until the appeals process is exhausted. (In this connection, it’s worth remembering that Microsoft’s own breakup ruling was overturned on appeal.)

Ad Hominem

Meanwhile, in November, a district court heard final arguments in Google’s other major lawsuit brought by the federal government, the one on its ad tech. For all the company’s charming ad buys and its now quaint former motto “Don’t be evil,” Alphabet is facing an uphill battle convincing the world that it does not have a monopoly in various segments of the online ad market. While online ad placement overall is an oligopoly (led by Alphabet, Facebook parent Meta, and Amazon), in several important online venues and market segments Google has complete control.

Alphabet’s ad network is composed of a surprisingly dense tangle of Alphabet-dominated platforms, matchmaking services, and auction markets, which exhibit strong tendencies to favor the company’s own products and venues. This includes ads on Google Search, independent websites that use Google to sell ad space, and YouTube.

The DOJ and the seventeen US states joining the suit are focused in particular on the Ad Manager product, which allows websites (“publishers”) with ad space to sell to offer it to companies desiring to advertise their goods. Ad Manager is mostly used to sell and manage display-ad inventory, which, while far from the biggest online ad segment, did $7.4 billion in business in 2020. Further, Ad Manager gives Google major visibility into web browsing habits and the business struggles of web publishers, from other platform operators to news outlets. Google is known to have begun integrating information from users’ outside browsing into their activity on Google’s platforms, a project known inside the company as “Project Narnia.”

The government suit seeks another partial breakup, forcing Google to sell Ad Manager — a goal shared with other overlapping anti-monopoly suits against the company’s ad tech operation, including those brought by Canada’s Competition Bureau and the European Commission. Some lawsuits are also seeking to force the company to detach its giant ad market, AdX, which facilitates matchmaking between publishers and advertisers.

A major part of the case concerns lock-in, a common phenomenon in network-based markets where switching providers comes with costs. For many years, websites could use Google’s very popular ad placement services only if they also used Google’s auction system for bidding on the spaces. The European Commission found Google had imposed terms on website and blog publishers that prevented the use of other ad-brokering companies’ services on sites that display ads when users operate those sites’ own search functions, using yet another Google ad tech product, Ad Sense for Search. These contracts effectively locked publishers into Google’s ad system, a verdict upheld in court.

Besides this ad tech for placing the spots, Google’s giant AdX market means the company operates the entirety of significant segments of the online ad market, from the service that lets operators manage their ads to the software that places the ads on third-party sites to the market that matches buyers and sellers. And Google charges a fat 20 percent fee to publishers around the web for using its popular tools.

The government argues that all this makes Google a monopolist for a large chunk of the online ad market, and, based on the known details of the trial proceedings, plus the company’s loss in the search monopoly case, its argument is likely to succeed. The Justice Department bolstered its case with an internal Alphabet email (which somehow survived company’s policy of systematically deleting or privileging internal communications) in which an employee compared Google’s position to allowing a bank to run the stock exchange.

Google has responded, first, by claiming — as it unsuccessfully did with its search case — that its market dominance simply owes to its superior product. But the government argued that this only reflects the winner-takes-all nature of network markets, since use of its search or advertising tools yields valuable data that refines search results or ad tech processes. So the company may indeed have the best product, but this might itself simply indicate that early company success bred further success, putting the company permanently ahead of other firms with smaller business volumes that therefore cannot develop their search and ad tools to the same degree.

With that stratagem having failed in its last case, Google has prepared another line of defense. Like most gigantic companies accused by the state of unlawful monopolization, the company and its paid economists insist that there is actually great competition in the industry. Following this standard playbook, the company points in its defense to those segments of the large ad sector where real competition does exist, at least among an oligopoly of huge companies — basic display ads, for example, are served heavily by Google but often by Amazon and increasingly Microsoft.

But exhibiting the walled gardens common in network-based markets, most of these firms also have at least one segment of the market they not only monopolize but fully control. Amazon, Meta’s Facebook and Instagram, and Alphabet’s YouTube have full-on operator monopolies on ads across their own sprawling platforms, which due to their tremendous size makes them monopolists in some areas and mere oligopolists in others. What all of these segments share in common is being miles away from the sunny, may-the-best-man-win competitive fairy tales of Economics 101. Among them, the tech platforms control over half of the world advertising market, a $1 trillion annual industry.

A decision in the ad tech case isn’t expected for several months, to be followed eventually by remedies, and then the losing side will begin the yearslong appeals process.

Trumped-Up Antitrust

It’s unclear how the incoming Trump administration will treat these inherited Biden-era tech antitrust cases, as GOP presidents have in recent decades typically embraced extreme free-market ideologies that see antitrust regulation as baleful government interference in the economy. But it should be remembered that most of the present cases against big online platforms like Google, Facebook, and Amazon actually originated in Donald Trump’s first term.

Andrew Ferguson, Donald Trump’s appointee to run the Federal Trade Commission, which shares antitrust duties with the Justice Department, has signaled a looser enforcement approach typical of Republican administrations — with the conspicuous exception of Big Tech. But statements from Ferguson and Trump himself strongly suggest the main focus may not be arcane ad tech monopolies but alleged discrimination against right-wing views online.

Most socialists will have little compassion for the advertisers on which Google is forcing higher rates, as advertisers tend to represent naked corporate propaganda and hurt the online experience — obnoxiously cluttering web pages, slowing load times, and interrupting browsing. And as other socialists and I have argued, tech is inevitably prone to natural monopoly, where the basic logic of the market favors a single hyper-dominant firm. This potentially collides with US antitrust law, which is built around preserving some level of market competition. An Elizabeth Warren–style approach does do something to limit the most egregious forms of market monopoly, especially those that harm other large firms, which can get political or courtroom hearings more easily than the prole on the street.

But at most, antitrust remedies generally turn a market monopoly into an oligopoly, as when Rockefeller’s Standard Oil was broken up into successor firms that became today’s oil majors, like Exxon, Mobil, and Chevron, or the AT&T breakup whose descendants include today’s AT&T and Verizon. That may be better than monopoly, but they still leaving us coping with absurdly powerful companies that hold essential services in their manicured capitalist hands while forcing the working class to scramble for paychecks to cover the bills. The solution that would truly serve the public good, as ever, lies in socializing and democratizing the giant platforms that wield such great influence over our lives.