published by Chand Bellur – October 24, 2020 at 1:28 p.m.
- Google currently pays Apple up to twelve billion dollars to be the default search engine.
- The U.S. Department of Justice filed a lawsuit against Google on Tuesday, alleging the search giant employs exclusionary agreements to hold onto its search monopoly.
- The Justice Department contends that, by stifling competition, Google prevents the next generation of innovative tech startups from flourishing.
Apple and Google Cooperate to Lock Out Competitors
Fanboys believe that Apple and Google are arch-rivals. After all, Android vs. iOS is one of the most divisive and contentious issues in technology. Go to virtually any clickbait article claiming one mobile operating system is better than the other, and you’ll witness fanboys tearing each other apart in the comments section.
The reality is much different. Corporations are amoral. They only care about profits. Although Steve Jobs vowed to go thermonuclear on Google for “stealing” iOS, his desires were antithetical to shareholder profitability. His dark fantasy never saw the light of day.
Tim Cook serves the shareholders. If Google is willing to pay Apple up to twelve billion dollars to be the default search option on Apple devices, making a deal is in shareholders’ interests. In fact, Google’s payment to Apple makes up the bulk of its service revenues. Apple Music, Apple Arcade, Apple TV+, and its other services aren’t generating revenues sufficient to offset declining iPhone sales.
Default Search Status on Apple Devices Essential to Google’s Monopoly
Let’s face it; most people use Google. It’s a tremendously popular search engine because it works well and offers a suite of products with seamless interoperability. By making Google search the default on Apple devices, neither company is upsetting many customers. Collusion between Apple and Google, however, ensures that competitors struggle to gain market traction.
Google emerged out of a group of competing search engines, including Yahoo, AltaVista, Infoseek, Excite, Metacrawler, and many others. Offering faster and more comprehensive search capabilities, Google quickly became the pack leader, as other search engines faded into obscurity.
For some time, Google enjoyed a virtual monopoly created by consumer choice. Google is even a verb in English and many other languages. Over the past few years, however, concerns over privacy and monopolistic practices have eroded some of Google’s market share. Microsoft’s Bing is Google’s main threat; however, losing Apple ecosystem exclusivity would open devices up to competitors such as DuckDuckGo and perhaps startups that have yet to exist.
Corporations typically need to grow quarterly revenues to increase stock value. Declining market share in search is deadly to Google. The Justice Department found that, internally, anything jeopardizing their exclusive relationship with Apple would be a “code red” for the Mountain View search giant. The investigation found that high ranking Google and Apple executives agreed that the companies should operate as one.
Google continues to deliver new products, expanding on revenues. Ad revenues derived from their search business still account for 82% of parent corporation Alphabet’s revenues. Losing this deal with Apple would, without doubt, impact both Google and its parent corporation.
Defaulting to Google Hurts Competition
The case to break up collusion between Apple and Google is compelling. The free market is no longer in effect when one company can pay to lock out others. Impacting innovation, this monopolistic partnership hinders competition and prevents new search providers from emerging.
Currently, European smartphone customers have the freedom to pick their default search engine — the result of the EU’s battle against Google’s monopoly power. Even with consumer choice, most choose Google. The problem is, as Bing slowly eats away at Google’s market share, the Mountain View search giant can’t afford to lose any more.
Corporations Make Deals
Some economists and business analysts covering this issue contend that Google is doing nothing wrong. Corporations lock in exclusive deals all the time. They argue that a free market would allow a corporation to make an exclusive deal with another entity.
Many experts feel that the relationship between Apple and Google doesn’t constitute collusion. The classic definition of collusion is when two or more entities conspire to fix prices. Neither Google nor Apple are setting prices. Google is merely paying for prime real estate on Apple devices.
Furthermore, Google’s market share is in decline, partly because Microsoft pushes Bing on Windows users. Growth in Microsoft’s search engine correlates to aggressive moves within the operating system to push both Bing and the Edge browser. If Google can succumb to advances from Microsoft, they’re not really a monopoly. Without market hegemony, Google paying Apple to be the default search engine isn’t as nefarious as it seems.
The problem is that both Google and Apple executives were clandestine about the affair. It would appear that they knew they were doing something that, albeit legal, seemed unsavory. This is not a partnership they announced with a press release. On the contrary, both corporations conducted the deal in secrecy, indicating some admission of wrongdoing.
Justice Department Will Likely End Google and Apple Collusion
The United States typically adopts technology regulations first formulated in the EU. For example, all of the privacy laws regarding websites have, in some manner, found their way into state or federal legislation. Given the reasonable nature of consumers having the right to choose default search engines, it’s likely that this, too, will be adopted in the U.S.
Don’t underestimate the ability of large corporations to tie these matters up in court indefinitely. Both Google and Apple have tremendously powerful legal capabilities. With teams of lawyers, they can keep this tied up for years.
Apple will also face financial hardships if Google can no longer pay upwards of twelve billion dollars for the privilege of being the default search engine. It’s the largest source of service revenues as the iPhone maker sells fewer of the iconic devices.
Change will likely happen, and most consumers will opt to use Google, as they have in the EU. Given the parties involved and what’s at stake, it’s likely action will be delayed for years.