Yesterday, the United States Department of Justice rocked the tech world by initiating a lawsuit that accused Google of unlawfully maintaining a monopoly on Internet search engines. Google’s stranglehold on Internet searching is not in itself illegal – monopoly power gained through offering a superior product is perfectly acceptable under antitrust law. However, there are constraints on how this power can be utilized. One such limitation prohibits a monopolist from using its market dominance power to impair rivals from competing in the market in an unnecessarily restrictive manner. The Justice Department accuses Google of doing just that by paying billions of dollars to mobile phone manufacturers to set Google as the default search engine on their devices to the detriment of its competitors.
Many observers have noted that the lawsuit against Google is the most significant antitrust action the Justice Department has taken since its monumental Microsoft case nearly two decades ago. Not only is the Microsoft case similar in size and significance to the new suit against Google, but it is also informative in evaluating its legal merits.
The Justice Department leans on the D.C. Circuit decision in United States v. Microsoft in arguing that Google’s agreements with smartphone companies to make its search engine the default option are exclusionary and illegal under antitrust law. In that case, Microsoft commanded 95% of the relevant market in its respective field—operating systems. Virtually every personal computer in use at that time was running Windows, and the court did not view Macintosh and other alternatives as legitimate competitors in the market. According to the Justice Department, Microsoft illegally leveraged that monopoly in operating systems to exclude competition in the internet browser market. Its own Internet Explorer was losing out to Netscape Navigator.
To achieve this end, Microsoft required computer manufacturers to pre-install Internet Explorer and prominently display its icon on the computer’s desktop. Since Windows was more or less the only game in town, the manufacturers were in no position to refuse. While the pre-installation of competing browsers was not prohibited, the manufacturers felt they could not do anything else. At that time, the Internet was a new technology. Many customers viewed the pre-installed browser as either synonymous with the Internet or as the digital frontier’s sole gateway. I’m sure many of us who were “plugged in” will remember such beliefs during this time. Installing more than one browser would have caused great confusion among users, which would have increased the manufacturer’s costs in providing tech support and would have taken up more of the relatively insufficient hard drive space offered on that era’s computers.
Microsoft’s tactic of making its own browser the default proved effective. In 1996, Netscape commanded roughly 80% of the market for browsers. By 1998, after what has been known as the “First Browser War,” it had fallen to 50%. By 2000, Internet Explorer took its place as the dominant internet browser, promptly filling its excluded competitor’s shoes, occupying more than 80% of the market. This move sent Netscape into a tailspin that saw it virtually eliminated by Internet Explorer’s 95% share in 2003.
While Microsoft argued that consumers were free to download and use Netscape, the Justice Department argued to the appellate court that the relatively unsophisticated computer users at the turn of the millennium did not understand how to do so. This finding was significant in supporting the court’s verdict against the tech behemoth. Considering that many of that group believed that the clock turning to the year 2000 would cause a catastrophic meltdown of the entire computing system, the court’s decision was likely well-founded.
The Justice Department is reprising that old argument against Google this time around. Through its arrangements with Apple – and its Android operating system – Google has entrenched its existing monopoly and prevented competitors from gaining a foothold in the search engine market, making Google the default search engine on those devices. Google responds that its dominance results from its offering a superior product and that the widespread use of its search engine is a result of choice rather than compulsion. According to Google, today’s consumers understand that alternatives exist and how to use them.
Each side’s economists will surely put forth data either supporting or rejecting that notion. This task will earn hefty expert witness fees and is not the type of analysis I can provide here. A glance at usage statistics for mobile browsers is not incredibly helpful in answering this question. While the Justice Department can contend more than 95% share in the market for mobile search engine usage occupied by Google, it needs proof that this dominance is attained through excluding competitors. Google could just as convincingly argue that their authority is the result of consumers’ conscious choice to use their search engine because they prefer it over competitors.
I use Google because…
Though not exactly on point, a look at the search engine and browser usage on desktop computers is informative. Microsoft’s Windows and Apple’s OS X together make up roughly 95% of the market for desktop operating systems, with the former leading the market with 77% and the latter following at a distant second with 18%. Computers running Windows comes pre-installed with Microsoft’s Edge browser and, by default, use Microsoft’s Bing search engine. On the other side, Apple computers come pre-installed with Apple’s Safari browser but use Google as a default search engine.
Suppose we assume these default options on desktops are as “sticky” as the Department of Justice claims – meaning that most consumers stick with the default options either because they don’t know that alternatives exist or simply to avoid the hassle of changing it. In that case, we can expect Microsoft’s Edge browser and Bing search engine to occupy a large slice of their respective markets on the back of Microsoft’s 63% share in the operating systems market in the United States. As you may not be shocked to hear, they do not. Despite being the default options on roughly 63% of computers in use today, Microsoft Edge (combined with the now outdated Internet Explorer) occupies a paltry 15% of the browser market, and Bing commands only a 12% share of the search engine market. Apple OS X users may be more loyal to their pre-installed browser, but Safari still only makes up 16% of the browser market, compared to Apple’s 28% share in operating systems. This suggests that consumers are generally willing to substitute away from their machine’s default software.
These statistics suggest that not only are desktop users aware that competitors exist, but that the vast majority of them seek out, install, and use these competitors instead of the options pre-installed on their computers. To suggest that mobile users would follow similar patterns is not a giant leap. For many, mobile phone settings are much more accessible and familiar than the menus used to change the inner workings of our desktop computers. It takes just four presses of an iPhone screen to change the default search engine to Yahoo! or Bing. While this is not to say that all consumers are intimately familiar with the supercomputers’ machinations in their pockets, it is fair to say that these default options are far less “sticky” than they once were. It will be an uphill battle for the Justice Department to show that, as used by Google in this case, default options are as good as they ever were.