As Google cemented its powerful position in recent years, the tech giant’s executives said they believed they were helping web users get information and letting publishers and advertisers connect more efficiently.
Rivals saw a more sinister goal, and the question now is whether U.S. regulators will determine that the firm’s efforts squelched competition.
The Justice Department is preparing to launch a fresh antitrust probe into Google, The Wall Street Journal reported on Friday, setting up a potential clash over how to regulate one of the world’s most powerful companies and perhaps the tech industry more broadly.
Within Google, each new product or feature it rolled out in recent years was billed as a way to help web users search for information without hunting all over the web, and let advertisers and publishers make swift connections without too many middlemen. In Google’s parlance, the goal was to eliminate “friction.”
But rivals said the cumulative impact was to enhance Google’s dominance further. Over the past several years, more than a dozen of Google’s competitors streamed to Washington to make that case.
Those complaints, which tech rivals had been raising for close to a decade, have evolved and intensified along with Google’s practices. They also coincided with a shifting regulatory environment, as a bipartisan collection of powerful lawmakers—including President Trump and Sen. Elizabeth Warren (D., Mass.)—over the past year have raised concerns about the power of Silicon Valley’s giants. In February, the Federal Trade Commission launched a new task force devoted to antitrust in technology, in a sign to competitors that their complaints were gaining traction.
Google’s competitors are pressing antitrust enforcers to look far and wide at the company’s practices. Perhaps the most common complaint against Google around the world in recent years is that it uses its search engine to privilege its own content at the expense of its competitors’.
For example, it created new design features like the “knowledge graph,” which populates the boxes that appear at the top of search, often answering a query without requiring the user to click through to another website. In March, 62% of Google searches on mobile were “no-click” searches, according to research firm Jumpshot. Google has argued that if consumers don’t find the rearranged content useful, they won’t click on it.
But the scope of Google’s clout is well beyond search. In their early deliberations, Department of Justice officials have expressed interest in Google’s dominance in a broad range of markets, including the third-party ad business in which it is both a giant platform for selling ads on sites across the web and a dominant conduit for marketers to purchase online ads, people familiar with the matter said. Officials are interested in the lack of transparency in the digital ad business, and how Google, a unit of Alphabet Inc., uses its powerful position to extract a premium cut of online ad dealings.
At Google’s Washington-based policy offices, which have been staffing up in anticipation of more regulatory attention, the recent developments were met with weariness.
Google views the Justice Department’s looming investigation as the latest in a series of out-of-date complaints that have been passed between regulators world-wide for years, according to people familiar with the company’s stance.
Google is prepared to show U.S. regulators reams of nonpublic, granular data on the size of its advertising operation in various markets, the people said. Google separately provided some such information to regulators in Europe, Canada, Brazil and India, helping stave some of the more extreme antitrust threats there, one of the people said.
While Google doesn’t dispute that it holds an enviable place in the advertising pyramid, executives are prepared to argue that the data show they hold far from monopolistic pricing power.
Facebook Inc. and increasingly Amazon.com Inc. gather advertising dollars from companies large and small. Google sees the success of those rivals as evidence that the antitrust complainants are those who naturally fell behind a larger group of market players.
Google’s approach to competition matters was informed by Microsoft Corp.’s bruising experience in the European Union, where the Windows maker was fined a total of €2.2 billion ($2.46 billion) between 2004 and 2013. Google, for instance, worked for nearly five years to hammer out a settlement before the EU decided to charge it. Microsoft, by contrast, started settlement talks after only four years and two volleys of formal charges.
Google has for years considered antitrust issues when designing products, according to people close to the company. For instance, the company nixed an effort to start showing search results from personal Gmail accounts when users were searching the web because lawyers worried about the potential antitrust impact of tying the smaller email business to the company’s main search activity, one of the people said.
The longer Google can stave off the investigation, the better, according to people briefed on the issue, because internet traffic is increasingly moving to mobile, and Google views the trend as inoculating it against some accusations against its old-school search engine.
Google successfully made a similar argument in the FTC previous investigation into the company. Although the FTC commissioners ultimately voted in 2013 not to take action, the agency’s staff prepared a memo in 2012 detailing alleged harms that Google’s moves into “vertical” businesses had caused companies including Amazon, eBay, Yelp, CitySearch and TripAdvisor, most of whom were listed as complainants in the case.
Google voluntarily agreed to change some of its behavior in the wake of the probe.
In the ensuing years, Google was able to use the rise of mobile to make its position more dominant, not less. The company’s market value on Jan. 3, 2013, when it announced the changes, was almost $237 billion. On Monday, the company will open trading valued at more than $766 billion.
In part that growth was driven by making its search engine an integral part of its Android operating system for mobile devices—something that has led to antitrust scrutiny and fines in the EU and other jurisdictions.
Another major theme of recent complaints has been Google’s use of its dominance over the entire suite of tools that publishers and advertisers use to serve and purchase online advertising to strengthen its hold over the online advertising industry, in a way that hurts both publishers and advertisers.
Both Oracle Corp. and News Corp, which owns The Wall Street Journal, made such a complaint in their filings before Australia’s competition authority in 2018.
Google brought in 37% of online advertising revenue in the U.S. in 2018, according to eMarketer, but this number doesn’t capture its dominance over the industry. Its ad server technology—which lets publishers make ad space available on automated marketplaces, or exchanges, and then place ads on their sites—has a nearly 70% market share.
The largest exchange, with about half the market, is Google’s product, still commonly called DoubleClick Ad Exchange, a platform that offers up ad space across thousands of websites to buyers throughout electronic auctions. Meanwhile, Google’s Display & Video 360 is a leading suite of tools for marketers to buy ads from a variety of exchanges.
The upshot is that Google is the major force at every layer between advertisers and websites. Through all these layers, Google takes about a 30% cut of an online ad transaction, according to industry sources.
In addition, competitors argue that the market share of Google’s so-called “ad tech stack,” its pattern of bundling services together, the opacity of pricing, and its trove of data raise prices for advertisers and deprive publishers of revenue.
“Google’s control of both the data and the ad tech market puts publishers at a persistent and structural disadvantage,” Oracle wrote in its Australian complaint.
Some ad-tech competitors argue Google has harmed innovation in their sector.
“As an entrepreneur, I watched Google use its bundled services to unfairly attack my startup and cripple our growth,” said Brian O’Kelley, the founder and former CEO of AppNexus, a rival ad-tech company purchased last year by AT&T Inc., testified before the Senate Judiciary Committee in May.
When asked whether he believed Google needed to be broken up, he said yes.
“Google looks a lot like a super monopoly, like AT&T did in the early 1970s,” Mr. O’Kelley said. “Search, video sharing, ad serving, analytics—almost every single part of the internet is touched by Google.”
The playbook for taking on Google has been written in many ways in Europe. Antitrust regulators in Brussels have spent a decade investigating the company and are so far the only ones to issue it billion-dollar fines: a total of €8.26 billion over three separate decisions.
The EU also forced the company to create a new auction mechanism for rivals to sell product ads on Google’s home page and, most recently, to ask Android users if they want to choose alternate search engines and browsers. Google is appealing all three decisions, but has had to implement remedies in the meantime.
The cases—and their detailed, published rationales—have had a ripple effect around the world, where competition officials look as much to its example as to the U.S. Justice Department and FTC. Officials in many jurisdictions, from Brazil to Missouri, have pointed to the EU as inspiration for their own investigations.
But some antitrust experts, as well as longtime Google rivals and antagonists, argue that for all the attention, EU competition enforcers have so far struck only glancing blows. The three EU fines against Google combined account for only 22 days of revenue at Alphabet in the first quarter. Two of the EU decisions focus on only relatively specific slices of Google’s business, and in some cases for practices the company had already abandoned. Even the biggest decision, the one that found abuse of the dominance of its Android operating system for mobile devices, has yet to significantly loosen Google search’s popularity on Android phones.
Now some say that it is too late for traditional remedies of the sort undertaken in Europe to have much impact. At issue is the slow pace of antitrust action.
“Google has become much more prominent than it was 10 years ago. The usual behavioral remedies—stop this behavior—are not going to restore competition,” said Nicholas Economides, an economics professor at New York University Stern School of Business. “In my view that’s a failure of the regulatory system which acted very slowly in Europe and did not act in the U.S.”
While investors have also largely shrugged off the EU’s interventions, Alec Burnside, a Brussels-based competition lawyer at Dechert LLP who has represented complainants against Google in Europe, says the U.S.’s opening of a new front against Google is “hugely significant” because it signals a change in momentum.
“The tide is turning on the antitrust circuit. Increasingly people recognize that big tech markets need more vigorous and quicker intervention,” Mr. Burnside said.
Write to Keach Hagey at keach.hagey@wsj.com, Rob Copeland at rob.copeland@wsj.com and Sam Schechner at sam.schechner@wsj.com
