[This blog is cross-posted at the Cyber Alliance Blog]
(This post was originally written in July of 2018.)
This post was written by Sarah Scheffler, a second-year Ph.D. student in computer science studying applied cryptography.
There’s a fair amount of talk about Google having a monopoly, and some people (including me) have wondered why no regulatory body in the U.S. has yet stepped in to limit Google’s increasing power. In a discussion led by BU's Stacey Dogan, the Cyber Alliance discussed antitrust law and its relevance to the Google situation, answering questions like “what is a monopoly?” and “what does antitrust do about monopolization?” The discussion then turned to Google itself, and what a monopoly in search engines means for other markets.
We can’t talk about monopolies without knowing what a monopoly is. Monopoly status can be checked with the following rule of thumb: “If this company raised its prices, would it lose customers to potential competition?” If raising prices does not risk this, then the company has a monopoly.
In the U.S., antitrust law does not prohibit monopolies, it prohibits monopolization. Antitrust law does not cover the situation where a monopoly forms “naturally.” It only prohibits monopolists from artificially creating barriers to entry in the market, for instance by temporarily lowering their prices while a new company is trying to get off the ground to compete with them. The idea is that if a company has a monopoly but there are no barriers to entry, then if that company starts price gouging, another company will swoop in and and offer lower prices than its competition. Or, if there are “natural” barriers to entry like required infrastructure, the government can regulate the monopoly and keep a careful eye on the company involved.
Now that we know the basics, let’s talk about Google.
What market might Google have a monopoly in? Google is most well-known for its free services: search engine, web browser, email providing service, mobile phone OS, and so on. But it’s important to realize that users are not customers, and none of these things are Google’s primary business, which is advertising. In 2017, Google got about 110 billion dollars in revenue, and 95 billion of those were from advertising.
It’s often tempting to think of the tech giants as a bloc - Google, Apple, Facebook, Amazon, etc. - but they are not the same. Google and Facebook both primarily make their money running advertisements, whereas Amazon is mostly an online store, and Apple sells hardware. Android and iOS are thought of as competing in the mobile operating systems market, but Google doesn’t make any money off of Android or the phone itself, it makes money off of ads displayed in Android phones, as well as collecting data about Android users. Contrast this to Apple, which these days gets about 60% of its revenue from iPhone sales. That 60% of its $200B/year revenue is bigger than Google’s entire 2017 revenue. (Though, of course, Apple’s expenditures are much higher as well.)
Let me speak briefly about the product Google actually sells. There are a lot of Google ad services and networks, and it’s easy to get confused. We’re going to focus on AdWords, since it’s the one that’s the most incorporated with their search engine. If a user searches for dentists, they’ll get ads for dentists.
But they won’t get ads for just any dentist. There are far more dentists than space to show users ads for dentists, and users want dentists close to them anyway. Different dentistry companies bid on the ad space within search results, in Gmail when emails or chats contain relevant words, in apps, shopping, and so on. AdWords itself also identifies “auto-created audiences” of people interested in weirdly specific things, or people who recently made posts about toothaches. Pretty much the only thing you can’t target by are a few pre-defined categories, and PII (meaning your name and your email address).
This is Google’s power, its ability to combine and link all these different kind of data about its users. Its ad-matching algorithm can use data gathered from many, many free products. It’s not just search results, it’s web browsing (Chrome), email (Gmail), phone habits (Android), location (Maps), videos (YouTube), documents, calendars, whatever-people-use-Google-Home-for, and so on. All this in addition to the now-typical web tracking techniques based on IP address, device info, and so on. Nearly any Google business decision can be understood from the axiom that Google wants to sell more and better ads. Yes, even Google Maps.
Along the way, Google has done an incredible job improving the quality of life of nearly everyone. It’s ubiquitous because it’s free, easy to use, and legitimately helpful. It’s just that they’re not doing it out of the goodness of their heart. They’re doing it to commoditize products that complement their ads.
To our last question, then - what antitrust charges do I think Google should reasonably face? Is Google a monopolist? In what market?
Europe would say the search engine market. From 2009 through 2017, the European Commission ran an investigation attempting to determine whether Google had violated Europe’s competition laws (the EU equivalent of U.S. antitrust). The first round of objections, in 2015, accused Google of two things: using its search engine to unfairly favor its shopping site over competitor comparison shopping sites, and stymying the development of mobile operating systems. The second round, in 2016, asserted that Google was unfairly maintaining its search engine dominance by requiring companies to pre-install Chrome or Google Search by default.
Google, of course, denied all of this, and said the claims “did not fit reality.” In this case, I think while Google is certainly extremely powerful, and is out-competing its advertising competitors, it is not abusing nor creating a monopoly for itself.
I don’t know whether or not Google deliberately cut out other shopping services from their search results. But they definitely didn’t do it in order to become dominant in the e-commerce market. It’s not trying to create any barriers to entry for this market. They really don’t care. If there was any deliberate action on Google’s part, it was only prioritizing its own services so it could sell more ads.
As far as I can tell, that means that they’re not using their monopoly power to maintain or create a monopoly - Facebook and Amazon (well, mostly Facebook) are legitimate competitors with Google in the advertisement space. Google is using their “monopoly” power over search to compete in a market they’re not a monopoly in. And in the process they stepped on some smaller businesses in a market they don’t care about.
I put Google’s search “monopoly” in air-quotes because using the rule we stated earlier, it isn’t a monopoly. True, it has about 85% of the market share. But if it charged even a penny for searches, that monopoly would be lost to its competitors in an instant.
In 2015, Google only had 41% of the digital ad market, and it has 78% of ads from search. I think we should worry less about Google’s search “monopoly” - which they would lose in a second if they started charging for searches - and start worrying more about what would happen if Google claws its way to a monopoly in the advertisement industry. Or, better yet, wonder whether getting better advertisements is worth the loss of privacy.
Rather than worrying about Google’s monopoly or lack thereof in either independent market, might it be true that Google has on the composition of the two markets? U.S. antitrust law seems well-suited into asking whether Google is the only one with its fingers in an individual pie. But the power of Google is not its dominance over any one market, but rather the sheer number of different pies that it has its fingers in.