Live Updates: What the US antitrust ruling says about Google’s monopoly over ads

SA360 is Google's search engine management tool that is used by advertisers to manage online marketing campaigns across multiple platforms in one place. In court, plaintiffs argued that on SA360, Google prioritised its own ad platform called Google Ads over Microsoft's ad platform by blocking various features on the latter such as the ability for advertisers to change their bidding strategies during ad auctions in real time. However, the court ruled in favour of Google on this charge and said that the Alphabet-owned company had "no duty to deal" with a rival.

During the trial, Microsoft CEO Satya Nadella was summoned to testify in court. As per the verdict document, Nadella's testimony reveals that at one point Microsoft was investing a lot more in search than Google. But it stopped making additional investments because there was no assurance that it's search engine Bing would reach the same position as Google which had set up exclusive deals with various players.

As per capita to our revenue . . . we’ve invested a lot, more so than Google has invested, in search. . . . [W]e’re the only player other than Google that has continued to invest in search [...] Can we invest more? Of course, any day, you know, everybody wants to invest more. And in order to invest more, please give me some mobile share and I’ll invest more," Nadella is quoted as saying.

“Fundamentally it boils down to what kind of a long-term revenue we can achieve. . . . If you don’t have [the] ability to effectively distribute [through defaults], it’s almost meaningless to invest in the area," Mikhail Parakhin, the former CEO of Advertising and Web Services at Microsoft, testified.

Monday's verdict has brought the tie-up between Google and Apple in the spotlight. In order to avoid further legal action, Google may look to call off the deal it has with Apple. So far, Google has been paying Apple 36 per cent of the ad revenue it earns from search ads shown on the Safari browser. This amounts to roughly $20 billion every year, according to a Reuters report. If Google terminates the agreement, the iPhone-maker could stand to lose that $20 billion which would lead to a 4-6 per cent drop in its profit margins, Morgan Stanley analysts estimated. Alternatively, Apple could strike a similar deal with other players in the online search market such as Microsoft or work towards bringing AI features to its Safari browser and improve the product.

In order to make Google Search the default choice on iPhones and other Apple devices, the search giant pays the Cupertino-based company billions of dollars. In 2021, The New York Times reported that Google gave Apple $18 billion to be the default search engine while another $8 billion went to Android platforms. Furthermore, over 36 per cent of search ad revenue from Apple's Safari is shared with Google.

Though Apple is paid a lot by Google, it comes at a cost. “The prospect of losing tens of billions in guaranteed revenue from Google - which presently come at little to no cost to Apple - disincentivises Apple from launching its own search engine when it otherwise has built the capacity to do so,” the order read.

One of the key legal findings that have emerged from the judgment is that Google has been able to maintain its control of the online search market by making exclusive deals or distribution agreements with handset makers like Apple and Samsung, mobile carriers like Verizon, and even browser developers like Mozilla.

"Google’s distribution agreements are exclusionary contracts that violate Section 2 because they ensure that half of all GSE [general search engine] users in the United States will receive Google as the preloaded default on all Apple and Android devices, as well as cause additional anti-competitive harm. The agreements “clearly have a significant effect in preserving [Google’s] monopoly,"" the order read

Based on direct and indirect evidence presented to the court, it concluded that Google had violated US antitrust law, specifically Section 2 of the Sherman Act which states that it is illegal for any person or business to monopolise, attempt to monopolise or conspire to monopolise any part of trade or commerce.

Though the antitrust verdict grabbed headlines, it did not have much of an effect on stock markets as Alphabet, Google's parent company, only saw a minor drop in share prices, according to The Information. The company's stocks declined by 5 per cent during the day's trading but it had already been down before the ruling came out, the report said. Apple stocks also did not take much of a hit either due to the judgment.

Aside from the online search market, the court ruled that Google has monopoly even when it comes to text-based ads that show up on search engines. Text ads have the appearance of organic search results and provide web links to the advertiser’s site. They can include an image but are largely text-based.

Google controls a large and durable share of the text ads market. In 2020, its market share in the text ads market was 88%, having grown steadily from 80% in 2016, the court said.

During the trial, the plaintiffs argued that Google controls a dominant and durable share of the search market, adding that its position is protected by high barriers of entry. To counter this argument, Google asserted that the online search services market did not exist as a product market. Instead, it said, that search engines were part of a broader market of query responses where Google did not have monopoly as there was vigorous competition in that space.

However, the court ultimately did not buy Google's argument and sided with the plaintiffs, ruling that there is a relevant market for general search services. It further noted that Google has monopoly power within this market.

In a lengthy, 286-page judgment delivered by Justice Mehta, the US district court held that Google's attempts to maintain its monopoly in the online search market was illegal. “After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly,” Justice Mehta wrote in his opinion on Monday.

Back in 2020, the US Department of Justice and other states in the country filed an antitrust lawsuit against Google, arguing that the tech giant's monopoly in the online search market is illegal. The hearings in the case kicked off in September 2023 and went on for more than two months. It was heard by Judge Amit P Mehta of the US District Court for the District of Columbia.