Breaching Google's $8 billion moat

Fully Charged

Hi all, Gerrit here. It may be just a matter of days before the U.S. government sues Google. The Justice Department is expected to allege that the Mountain View, California-based search engine provider broke the law by using its power to damage smaller companies. When it's filed, the case is likely to be the biggest dust-up between the U.S. government and one of the country's own corporations since Bill Clinton's administration went after Microsoft Corp. back in 1998. 

For now, the Justice Department's case is focused on Google's dominance in search, people familiar with the matter have said. is the biggest search engine in the world, and the government will seek to prove that the company used illegal methods to win that position and hold it.

According to new details that emerged last week, one key element of the investigation is Google's search distribution agreements. These are the opaque deals that Google strikes with other companies to make sure its search engine and the ads it serves up get in front of plenty of eyeballs. 

The best-known of these is the deal that made Google the default search engine on Apple Inc.'s Safari mobile browser, which has meant that Google is able to automatically reach (and serve ads to) millions of valuable iPhone users. It pays Apple $8 billion a year for the privilege, according to analysts from Sanford C. Bernstein & Co. And that's not the only such agreement. Google also has deals with Mozilla's Firefox as well as phone makers including Samsung Electronics Co. 

How, exactly, are these deals anti-competitive if Google is the one shelling out cash? Analysts say it comes down to the search giant's ability to reach agreements with the world's largest companies. "You're using capital as a moat for potentially an unfair advantage," says Mark Shmulik, a Sanford C. Bernstein & Co. analyst. "You can effectively shut others out."

DuckDuckGo, a privacy-focused search engine, is one competitor that feels it's been thwarted in this way. Google has so much money, it can easily out-bid anyone else to be the go-to search engine on browsers and devices, said DuckDuckGo Chief Executive Officer Gabriel Weinberg.

"It never makes economic sense" to even try and compete with Google, Weinberg said in a recent conversation. 

In Europe, regulators have already tried to solve part of this problem by forcing Google to offer users multiple search engine choices when they first boot up a new phone using Android, the operating system Google develops. On Tuesday, Google said that Microsoft's Bing would be prominently featured. But DuckDuckGo has argued that the new system doesn't work because competitors must pay Google in order to show up as one of the choices. This remedy also hasn't served to move Google's market share in a meaningful way in Europe yet. 

In the U.S., the potential range of outcomes from the Justice Department's pending litigation run the gamut from not-at-all damaging, to potentially catastrophic if the government tries to force a breakup of Google parent Alphabet Inc. But on the more narrow topic of search and distribution agreements, Google is well positioned for a challenge, experts say.

If the U.S. does take steps to prevent Google from doing search deals, it might be too little too late. Most users would still likely select Google if given the choice, Shmulik said. And if Google no longer had to pay browsers and phone makers to be their default search engine, Google would save billions of dollars and potentially put the companies and organizations that rely on those payments—like Mozilla—out of business.

Said Shmulik: "It's tough to see how Google loses." Gerrit De Vynck

If you read one thing

Polish video game developer CD Projekt Red told employees on Monday that they would be required to work six-day weeks in the run-up to the release of the highly anticipated game, Cyberpunk 2077. Earlier, the developer had told staff that overtime would not be mandatory.

And here's what you need to know in global technology news

Facebook is bringing its marketing team under the leadership of a longtime exec who's been focused on growing the number of users on the site for years.

A strict new Australian law is threatening to force social media companies to pay news publishers for stories. Google says it's coming close to a compromise solution. 

A rush of new investors trading stocks through the Robinhood app may actually have helped stabilize the market, rather than fuel the wild rallies and drops of recent months. 

A conversation on the voice-based social media app Clubhouse went awry on Monday, drawing calls of anti-Semitism. 


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