The Arbiter, Vol 1., No. 10
U.S. District Court Judge Amit Mehta’s landmark decision this week in Google’s years-long antitrust case will define the tech industry for decades, in much the way the Justice Department’s case against Microsoft came to shape the dot-com era. It will be years—and many appeals, likely all the way to the Supreme Court—before the full effects of the decision will be known. But here’s what we know and don’t know today:
“Google is a monopolist,” Mehta writes, “and it has acted as one to maintain its monopoly.” That wasn’t the only—or even the biggest—question answered by Mehta’s 286-page ruling. But today, what everyone in the industry has said quietly for years can be said with the force of law. Next question: What kind of monopolist? This part is important. The court ruled Google has a monopoly in search: the company controlled 90% of all U.S. search queries as of 2020, and 95% of such queries on mobile devices. But the court also ruled that Google does not have a monopoly in a broadly-defined “general search advertising” market1. Instead, the only advertising market in which Google exercises monopoly power is a narrowly-defined “general search text ads” market: the search-engine-results-page (SERP) ads that constitute a majority2 of Google’s advertising revenue. The court also found that “Google has exercised its monopoly power by charging supracompetitive prices for general search text ads. That conduct has allowed Google to earn monopoly profits.” In legal terms, that’s the mic drop.
Lucrative distribution deals were Google’s downfall. The court honed in on a “major, largely unseen advantage over its rivals: default distribution.” The Justice Department argued convincingly that while Google was clearly smart, skilled, shrewd, and innovative, it also illegally enforced its dominance by paying tens of billions of dollars to partners like Apple and Verizon, who agreed to install Google as the default search engine on their products. “In court, Google countered that its search engine was the leader because it was a superior product,” the New York Times wrote. “But Google struggled to credibly explain why it paid so much to get preferred distribution if its search software was clearly the best technology.”
Will the Feds break up Google? We don’t know—yet. This week’s decision was merely the verdict. The remedy—i.e., the sentencing—is yet to come. The judge could go so far as to force Google to sell off pieces of its business—the leading candidates being Chrome or Android. Or the government could issue an injunction against Google’s default-distribution deals with Apple and others. Such an injunction could potentially out-run Google’s appeals—taking effect immediately, until and unless a higher court overturns it.
And that’s why Apple may be, quietly, one of the biggest losers in the Google decision. If the Justice Department halts Google’s default-search-engine contracts, Apple would forfeit about $20 billion per year—that’s the amount it made from its deal with Google in 2022. Some analysts are speculating that Google could actually make money from such a decision—if (and it’s a big if) it no longer pays Apple, but users continue to choose Google as their default search engine on Apple devices. Meanwhile, Microsoft has estimated that it would make $2 billion for each percentage point of search traffic Bing is able to wrest from Google.
There’s broad agreement that the Google decision will “shape new rules for the tech industry” (according to the Times) and “affect not just the search giant but also its largest collaborators and competitors” (according to the Wall Street Journal). But how?
We don’t expect to see an immediate impact on Google’s search business: after all, the whole point of a monopoly is that we’re all forced to use it, and that isn’t changing…yet. What’s more, we believe any industry hedges against Google’s search decline are already baked in: everyone knows TikTok is Gen-Z’s emerging search product of choice, and publishers have been preparing for AI summaries to nerf their search traffic. Given those realities, it’s unlikely this new ruling will create additional short-term jitters.
But there are consequences advertisers should be thinking about. Namely:
First and foremost, a Justice Department emboldened to seek stronger antitrust sanctions against the industry’s biggest players: Apple, Meta, and Amazon, all of whom have pending cases with the DOJ.
Headwinds for any Google acquisition efforts—especially in AI. Anything Google wants to do that requires regulatory approval will be under greater scrutiny. The number-one place that Big Tech is spending right now is in AI. And Microsoft specifically testified in this case that if left unchecked, Google’s monopoly in search would lead to a monopoly in AI. We expect the courts to act accordingly.
Think of this as a pendulum-swing decision. Left largely unchecked, Meta, Google, and Apple have been free to deepen their advantages, at scale. This decision doesn’t reverse that. But we can see a future where investors begin to make different kinds of bets, and innovators are emboldened to attack the incumbents in more direct ways. Put it this way: There is a greater chance of competition today than there was yesterday—and that sentence will be true for the foreseeable future.
1 In ruling that Google doesn't have a monopoly on search advertising, the court specifically called out Amazon's "explosive growth in the market" (p. 183), as well as the "steady ero[sion]" of Google's market share between 2017 and 2020 (p. 184).
2 52% of Google ad dollars come from advertisers who purchase only these text ads (p. 186).
The Arbiter is a series of informed opinions, strategic outlooks, analytics-backed predictions, and tactical briefings from Gupta Media. Subscribe via email, Substack, or LinkedIn.