Big Tech collaborates to conquer
Google, Apple and other Silicon Valley groups have a history of teaming up to lock in market dominance
Rana Foroohar
It’s finally happening. The US Department of Justice has taken on the antitrust case of our time, accusing Google of illegally protecting its 92 per cent share of the global search market.
Key evidence includes deals cut with Apple and other Big Tech groups to lock-in the search engine as the default option across devices and platforms. The DoJ is alleging that Google and Apple teamed up to maintain dominance.
That makes perfect sense to me as there’s a paper trail of behaviour going back over a decade to suggest exactly that.
Consider the 2011 class action lawsuit that laid out in documents how, in 2007, Apple founder Steve Jobs (then the company’s chief executive) called Google to complain that a recruiter was trying to hire one of his software engineers.
Eric Schmidt (Google CEO at the time) then emailed his company’s human resources department saying, “I believe we have a policy of no recruiting from Apple . . . Can you get this stopped and let me know why this is happening?
I will need to send a response back to Apple quickly.” Mr Schmidt added that he would respond “verbally, since I don’t want to create a paper trail over which we can be sued later.”
It turned out that a group of large tech companies had put in place “no call” agreements to avoid having their top talent poached by one other. Numerous antitrust lawyers, and both Republican and Democratic Congressional aides, have pointed out to me that employment cartels are the sort of thing that people can be sent to jail for.
But Barack Obama’s administration settled without seeking a penalty. Google, Apple and other groups implicated in the scandal, including Adobe and Intel, later agreed to pay $415m in damages to 64,000 employees in a settlement.
Remember that scene from The Godfather when the big five mob families are dividing up the geographical and sectoral pie? The relationship among the Big Tech giants has always reminded me of that.
When critics complain that there’s too little competition in the field, the leaders of these companies often reply that they are, in fact, competing very, very hard — against each other. But both the new DoJ case and a damning report issued by the House of Representatives Judiciary subcommittee this month allege they are more likely to be helping one another maintain dominant positions in individual areas.
This exercise in back scratching is expensive, but clearly worth it to the companies. Google alone shelled out a fifth of its global net income to Apple to guarantee that its search engine would be the default on all Apple devices. Google needs Apple.
But the more Apple relies on services for revenues — as they are less easy for competitors to turn into a commodity than devices — the more Apple needs Google. As a senior Apple employee wrote to a Google counterpart in 2018, “Our vision is that we work as if we are one company.”
It’s “an ecosystem of mutual benefit,” says Columbia University law professor Lina Khan, who helped draft the House report. To me, this ecosystem mirrors the industrial trusts at the turn of the 20th century in which oil, steel and railroad tycoons often worked together to protect their interests.
Those trusts were broken up using lawsuits based on the 1890 Sherman antitrust act, which the DoJ also employed when it tried to penalise Microsoft for abusing its dominance in PCs. It won at trial, lost on appeal and then settled.
It is now using the same law to try to prevent Google from inking distribution deals with competitors, favouring its own products in searches, and restricting websites that use its AdSense advertising platform from also using competing services.
Kent Walker, Google’s chief counsel, and Mr Schmidt are teeing up the usual arguments about the consumer “harm” that will result should Google be forced to change its practices. “There’s a difference between dominance and excellence,” says Mr Schmidt.
But dominance and excellence feed each other. Google’s size creates barriers to competitors on both the “supply and demand” sides, as the UK Competition and Markets Authority report on online platforms put it in July. One example is “web crawling”, the algorithmic trawling of the internet for the most relevant web pages. Google was the first to do it, and its success helped lock in its dominance.
Now, it is too costly for any other search engine provider except Microsoft to even attempt to compete at scale. Because too many crawlers can crash websites, major webpage owners block all but a few of them. All this results in more clicks, better algorithms and increased market share for Google.
What’s the solution? Some ideas include changing default settings to allow more competition, forcing Google to spin off its Android operating system, creating independent crawlers, and/or making the data and algorithms behind Google’s success public. That would, in essence, turn the company into exactly what railroad and telecom monopolies ultimately became — regulated utilities.
Google’s founders made a similar recommendation in the original Stanford University paper that they wrote on search in 1998. Quite presciently, they wrote that conflicts of interest in a large-scale private search engine would necessitate having a “competitive search engine that is transparent and in the academic realm”. I’m all for it. You can’t be excellent — or not evil, to cite Google’s original motto — without being fair.
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