RALEIGH – Hi, it’s Jim Verdonik and Benji Jones again.
WRAL Techwire asked us to analyze the antitrust law suit the US and 11 states have brought against Google LLC.
We make my living as a lawyer asking clients’ questions and then helping clients find the answers.
So, here are some questions for you to think about:
- Is Free immune from regulation?
- What price do we pay for the Free stuff BIG TECH offers consumers?
That’s the challenge America (and the world) faces as we try to evaluate the positives and negatives BIG TECH brings to us.
How do we get the benefits of BIG TECH without becoming its slaves?
Let’s go on a journey together to try to find the answer.
- What the Law Suit Alleges
The law suit was brought under “Section 2 of the Sherman Act, 15 U.S.C. § 2, to restrain Google LLC (Google) from unlawfully maintaining monopolies in the markets for general search services, search advertising, and general search text advertising in the United States through anticompetitive and exclusionary practices, and to remedy the effects of this conduct.”
That sounds pretty lawyerly and complex, doesn’t it?
But don’t stop reading. It’s really pretty simple
The Justice Department asserts the following business points:
- It is impossible to compete in the search industry, unless you can achieve a certain degree of scale.
- Google has become so big (90% of US search queries and 95% of mobile search queries) that no other competitor can achieve the scale required to compete effectively.
- Google prevents competitors from growing by convincing all the telecommunications’ industry’s major players (Apple, LG, Motorola, and Samsung; major U.S. wireless carriers such as AT&T, T-Mobile, and Verizon; and browser developers such as Mozilla, Opera, and UCWeb) to either exclude competitors entirely or to make Google’s search product the default search tool for their platforms by: (i) using the revenues from its large advertising business to pay browser businesses and device manufacturers for advantages over much smaller search competitors and (ii) giving away its android operating system software for free in exchange for advantages over much smaller search competitors.
Google’s public response so far to these allegations basically boils down to:
- We’re big. So what!
- We became big by making great products and giving them away for free.
- We’re like any other business trying to sell products in a supermarket that pays the store owner for shelf space in the best spot so that people can see our product.
- Other can do what we do. We just do it better than others do it.
I’m not going to analyze prior court cases to argue which side has the better legal case. It will take many years for the courts to figure that out.
Let’s concentrate on how this affects you and me and telecommunications markets.
- Regulation and Innovation
I’ll start from these premises.
- Regulation kills innovation. It’s been proven over and over again. So, I’m not a big fan of regulation.
- Really innovative businesses can become very big very quickly.
- Businesses often become complacent and even arrogant when they become TOO BIG TO FAIL. Wall Street banks are an example.
- Bigness creates a tendency to start to rely on the power of being big to create success and less on innovation. You can get away with mistakes, because no one else is big enough to capitalize on them.
- Bigness when accompanied by market dominance often becomes the enemy of innovation.
Before we go further, I have a confession. I like Google’s search product. I use it many times every day. Google’s search product is more functional compared to what other tech giants make. For example, I soon stopped using both Facebook and Twitter, because they were just wasting my time by diverting my attention away from more important things. Both Facebook and Twitter could shut down tomorrow and I wouldn’t miss them. I would miss Google.
But as much as I like Google’s search product, I have to admit that its market dominance is troubling.
- The Power of Free
Google, Facebook and Twitter all built themselves using the Power of Free. They provide free services to attract market share and then sell that market to other businesses – advertisers and other tech companies.
The Power of Free has insulated BIG TECH from most antitrust law suits, because our antitrust laws predate the massive use of The Power of Free. American antitrust laws were created to protect consumers, not to protect competing businesses. Prices can’t get much lower than Free.
That’s why many antitrust experts think Google will prevail or at least battle the Government to a tie, which means paying an insignificant fine. Google has over $150 Billion of cash. So, a Billion Dollar fine is a win for Google.
Maybe that’s why Google’s stock price increased after the antitrust suit was brought.
- “Competitors” Who Don’t Really Compete with one another
More troubling than the size of Google or the other members of BIG TECH Club is that the Club members often act like a team rather than as competitors.
- Did you know that Google paid Apple over $10 Billion last year to have priority on Safari on all Apple devices? Google and Apple have operating systems that supposedly compete with one another Android and Apple’s iOS. So, why is Google paying $10 Billion to its supposed competitor. Can you imagine Ford paying $10 Billion to General Motors or Toyota? This is competition?
- WRAL Techwire asked me to analyze the law suit Epic Games brought against Apple over the fees Apple charges for allowing users of Apple devices ot download apps for the App store. See https://wraltechwire.com/2020/09/28/epic-games-vs-apple-inc-why-apple-may-win-this-legal-skirmish-but-lose-the-war/ Apple justified charging Epic 30% of Epic’s sales by pointing out that Google charges Epic the same 30% fee for downloads to Android devices. And Apple and Google both suspended Epic Games from their app stores the same day.
- Facebook, Google and Twitter impose similar restrictions on free speech at the same time. What a coincidence!
A question: Why do BIG TECH club members seem to be at peace with other members of the BIG TECH Club while at war with outsiders?
- Win in Court vs Lose in Congress
Google may be feeling pretty confident that it will win its court battle. But that’s just because the courts currently have to work within boundaries that Congress established over a Century ago.
I mentioned two things above that Bigness often brings – complacency and arrogance. The two go hand in hand. Complacency decreases innovation. Arrogance creates enemies. Courts are designed to try to ignore these. That’s why Google can win under current law.
But Congress is designed to punish arrogance.
BIG TECH’s arrogance has been alienating a lot pf people and their representatives in Congress. Maybe BIG TECH will continue to be successful in playing off one politician against the other. It’s difficult to understate the division that currently exists between the political parties that prevents bi-partisan efforts even for things they agree on.
But if anything can unite the political parties it’s when Big Businesses act more arrogantly than politicians do.
So, while the lawyers file their briefs and motions in the antitrust case against Google and the other court cases against other members of BIG TECH, don’t be surprised if Congress decides to change the antitrust rules before BIG TECH gets bigger than Congress (assuming BIG TECH isn’t already bigger than Congress).