The Justice Department isn’t wrong when it asserts that Google has an effective monopoly on Internet search. Estimates vary as to exactly how dominant the company’s market position is, but it’s safe to say that it’s north of 80 percent, rendering its competitors almost irrelevant — both to consumers and to its own business planning.
So the question to ask about the government’s case isn’t “Does Google have a monopoly over search?” but “Is search the market we should care about?” And then: “If so, can we undo the monopoly without making everyone worse off?”
Certainly, without government intervention, the company will probably be able to maintain its overwhelming control over the search engine space — less due to anti-competitive side payments, as Justice suggests in the antitrust suit it filed on Tuesday, than to the structure of the market itself, which maximizes a competitive advantage known as “network effects.”
Consider the telephone, which is the classic example of network effects. If only one person in the world owns a phone, they have a curio. If two people have telephones, they’re a higher-tech version of what children do with two tin cans strung together by string. But if millions of people buy telephones, they become an essential tool. That’s network effects: a product that gets more valuable with each additional user.
In Google’s case, network effects come into play when people scroll through the results they’re served and click on a link. Google sees which results people find most useful for a given search string and ranks them accordingly for future searches. The more users, the more such information they get, and the better they can refine the answers they return. That makes it extraordinarily difficult to launch a competitor, because without as much search volume, results won’t be as accurate. Microsoft has been trying to crack this chicken-and-egg problem for 11 years with Bing, and it still has less than a quarter of the market.
Yet it’s not as though Google makes most of its money selling you “Internet search”; it gives that to you free, and it monetizes it by selling your eyeballs to advertisers. Google has a pretty impressive position in the online ad market, too — almost 30 percent, by some estimates. But that’s not a monopoly, and its closest competitor, Facebook, is not far behind. Moreover, both are facing stiff competition for those dollars from other tech firms.
The government’s complaint avoids this uncomfortable fact by defining that market extremely narrowly, as the market for “search advertising.” But, of course, advertisers don’t care whether they’re advertising on search or social media, as much as they care whether their advertising is generating more in sales than it costs them. As long as other firms can also deliver large numbers of eyeballs online, Google will be forced to compete, hard, for business.
But even if you insist that, no, what matters is the excessive power Google has over our search results, it’s not clear how the government can fix this without making us all worse off.
The government’s complaint suggests one easy way: forbid the side payments to other companies that make Google the default search engine on your phone or browser. Yet those of us who hark back to the old days, when you had to first type “www.google.com” to perform a search, will recall that that’s exactly what people did, even if another search engine was the default. That’s how Google came to control over half of all searches.
So to actually increase competition meaningfully, we’d probably have to break the company up, rather than fiddling with side deals. But doing so would mean dividing the current number of search results between two or more companies. And as a result, everyone’s searches would probably become less accurate and useful than the ones we’re getting now, because no one company would have enough data to refine those searches as well as Google currently does.
Moreover, such an intervention might threaten some of the other free goodies such as Gmail and maps that we get from Google — or will get in the future. Money from search ads subsidizes development of those projects, and naturally, they also benefit from being tied into the Google ad-sales juggernaut.
Against those risks, of course, we have to balance the costs of Google’s monopoly to . . . well, to whom?
In theory, to the businesses that might launch better search engines, but can’t. But if this market is indeed a natural monopoly, that’s just a fight about who should get to be the monopolist — and if the government instead intervenes to prevent matters from taking their natural course, then that will be a fight between a small number of people who might like to run a search engine and the large number of consumers who might rather they didn’t.