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Google Search's Popularity Could Help Protect it from the DOJ

The DOJ alleges Google's search pre-install and exclusivity deals violate antitrust law. But many consumers would likely keep using Google Search even if those deals disappeared.
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The DOJ’s long-expected antitrust lawsuit against Google  (GOOG)  only covers some of the business practices that have put Google in the crosshairs of various U.S. and foreign regulators in recent years.

And while there could still be consequences -- both for Google and others -- if Google has to change some of the practices that are covered by the suit, the popularity of Google’s services with consumers could limit the fallout.

22 years after the DOJ sued Microsoft  (MSFT)  for allegedly abusing a dominant position in the PC operating system market, the DOJ and 11 state attorneys general are suing Google for allegedly abusing a dominant position in search. However, the suit generally doesn’t focus on how Google Search -- or the massive, keyword-based, advertising business that relies on it -- functions.

Rather, the suit focuses on deals Google has struck with smartphone OEMs, web browser developers and others to help maintain a dominant search market share. These include:

  • Exclusivity deals that prevent the pre-installing of rival search engines.
  • Deals that require the pre-installation of Google’s search apps “in prime locations on mobile devices and make them undeletable.”
  • Deals with Apple  (AAPL)  to make Google the default search engine for the Safari browser and iOS/macOS search tools.
  • More generally buying “preferential treatment for [Google’s] search engine on devices, web browsers, and other search access points.”

On the flip side, though this practice does get a mention deep within the DOJ’s filing (see claim #170), the DOJ doesn’t indicate it’s going after Google for the inclusion of content from various complementary services, such as Google Maps, Google Shopping, YouTube and travel search functions, within Google Search results (i.e., vertical search content). This is a practice that has been probed by both the FTC and the EU in the past, and which has been a point of criticism among companies such as Yelp, TripAdvisor and Expedia.

In addition, though the agency was previously reported to be studying this issue, the DOJ's suit doesn't go after Google over alleged conflicts of interest within its ad tech operations for third-party websites and apps. Web publishers had alleged that Google’s ad server solutions for publishers gave preferential treatment to Google’s own ad-buying tools and ad exchange.

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Also not covered are some of the search practices recently brought up in the House Judiciary Committee’s lengthy report on alleged antitrust abuses by Google, Apple, Facebook  (FB)  and  (AMZN) . Among these practices: The steady increase in the amount of space allocated on Google Search pages to ads and vertical search content relative to organic search results.

With all that said, it’s worth noting that the search deals the DOJ is taking issue with are collectively responsible for quite a lot of Google’s search traffic and ad revenue. This especially holds on mobile devices, where deals with Apple, Android OEMs and mobile carriers, together with the bundling of Google’s apps and services with its version of Android, have helped make Google Search the default search engine on the lion’s share of smartphones sold outside of China.

Should Google be forced to abandon such deals, with consumers subsequently allowed to choose their default search engine when setting up a new phone or installing a web browser, its search market share could take a hit. But given how popular Google Search is in much of the world -- after all, there’s a reason why “Google” is a verb in a way that “Bing” and “DuckDuckGo” aren’t -- the hit might not be massive in the U.S. and many other regions.

Also, though it’s hard to predict exactly how this would play out even if the DOJ wins its suit, forcing Google to abandon its default search deals could serve to lower its massive traffic acquisition costs (ad revenue-sharing payments to partners). Estimates for Google’s annual ad revenue-sharing payments to Apple alone have been north of $10 billion.

Earlier this year, Google began giving EU-region users setting up new Android phones the ability to pick between four default search options -- Google and three others -- with rival search engines bidding to obtain placement on the search option page. Google gets paid the bid amount each time a rival search engine is chosen.

If Apple was required to do something similar on iPhones and iPads, Google could lose a bit of mobile search share and would still have to pay to get placement on the search option page. But the company would still probably be well-positioned to obtain one of the four slots and more than make up whatever it bid via ad revenue, given the popularity of its search engine and the unmatched scale of its ad business.

All of this might help explain why Alphabet’s stock is (as of the time of this article) up 2.5% in Tuesday trading, amid a 1% Nasdaq gain. While Google undoubtedly isn’t happy to see the DOJ’s lawsuit, the damage caused by it might not be massive unless Google Search suddenly becomes a lot less popular with consumers than it is today.