Why Google Is Facing Antitrust Lawsuits From All Sides -- 3rd Update

By Rob Copeland and Keach Hagey 

A set of sweeping antitrust lawsuits against Google this fall essentially grapple with one central question: Is Google good?

For most of its 22-year history, the search giant has enjoyed an enviable public reputation as an omnipresent yet benevolent force. As its parent, Alphabet Inc., morphed into a trillion-dollar conglomerate -- more than five times as large as a decade ago -- top executives stuck to their line that Google's market dominance is simply because consumers choose to use its products. Chief Executive Officer Sundar Pichai said this year, "I'm really focused on giving users what they want."

The antitrust lawsuits from federal prosecutors and separate coalitions of states allege nefarious activities. They say Google, through secretive, interlocking agreements with other technology giants including Apple Inc. and Facebook Inc., muscles out competitors and sells out the users it claims to protect. "The halcyon days of Google's youth are a distant memory," says one of the state lawsuits, led by Texas. "Its modus operandi is to monopolize and misrepresent."

Here is a look at the dueling narratives.

Why are there multiple lawsuits in the first place?

Federal and state prosecutors undertook separate, overlapping investigations over the course of roughly a year and a half. The federal suit, filed in October, focused on Google's flagship search business, which accounts for most U.S. queries. The government said the status quo effectively left no room for competition.

One collection of state attorneys general, all Republicans, chose to target Google's digital advertising. Their lawsuit reflected years of complaints from publishers and other advertisers that Google's system was opaque at best.

Another set of state attorneys general -- 38 in total -- followed with a third lawsuit adding additional allegations about internet search. These states said they would attempt to link up with federal litigation.

How does Google make so much money?

Alphabet, its parent, made $34 billion in profits last year, up nearly 12% from the year before. Nearly all of that comes from digital advertising, both on Google-owned platforms such as YouTube and external sites. Google sucks up about one in every three dollars spent on digital advertising and generated nearly $135 billion in total ad revenue in 2019.

The Texas-led state attorneys general say Google isn't just profiting from traffic. They laid out a complicated series of agreements that give the company a cut of every aspect of ad buying. In one instance, the lawsuit states, "Google was able to demand that it represent the buy side, where it extracted one fee, as well as the sell side, where it extracted a second fee, and it was also able to force transactions to clear in its exchange, where it extracted a third, even larger, fee."

The lawsuit also alleges that Google colluded with Facebook in an agreement in which the social-media giant would curtail its competitive moves in return for guaranteed special treatment in Google-run ad auctions.

In a blog post responding to competition concerns, Google said it operates "across many highly competitive sectors where prices are free or falling and products are constantly improving."

Google hasn't responded in detail to the state lawsuits, though it has called the claims meritless. A Google representative said, "We've invested in state-of-the-art ad tech services that help businesses and benefit consumers." Facebook didn't comment.

Why should most people care?

It isn't just advertisers who are harmed, prosecutors say. The state attorneys general write that Google's dominance is essentially a tax on American business, one borne by consumers through higher prices on the goods and services those businesses sell. "Google's internal documents belie the public image of brainy Google engineers having fun at their sunny Mountain View campus while trying to make the world a better place, " the state lawsuit says.

The Texas-led state lawsuit identified new potential victims: viral YouTube content creators. Because Google confines YouTube advertisers to using certain company tools to purchase video advertisements, the lawsuit says, Google restricted potential advertisers from bidding and thus lowered demand and revenue for content creators, who earn a cut of advertisements sold.

A YouTube spokeswoman declined to comment.

What role does Google's technology play in displaying ads across the web?

In automated online advertising, there is a chain of intermediaries between the companies who want to buy ads and the websites -- say, news sites or blogs -- that are putting their ad space up for sale. Google owns the dominant product at each link of that chain. The company became a major player in this area after its 2010 acquisition of the ad tech company DoubleClick and has expanded over time.

Now, Google's tool allowing publishers to offer up ad space for sale has more than 90% market share, according to U.K. competition officials, while its product that serves ads on behalf of advertisers has more than 80% market share, and its exchange -- where auctions between buyers and sellers happen in a fraction of a second -- has more than 50% market share.

Google argues in its blog post that the online advertising space is "famously crowded" with competitors.

What about all the data Google collects on users?

Mr. Pichai, the Google CEO, rarely speaks publicly, but when he does, it is often about privacy. He is quick to point out that Google offers so-called incognito mode in many of its products, and that users can opt in or out to some of the company data-storing practices. "We strongly believe that privacy and security are for everyone, not just a few," Mr. Pichai said at a company event last year.

The Texas-led state lawsuit presents a radically different view. "Google's entire business model is to collect comprehensive data about every user in the service of brokering targeted ad sales," the lawsuit states.

The lawsuit takes a dim view of a touted Google effort to eliminate third-party cookies, or data trackers. When announcing the move, Google described it as an effort to build a "trustworthy and sustainable web together." The state attorneys wrote, "The planned elimination of third-party cookies from Google's dominant browser, Chrome, is also justified on privacy grounds, but the effect is to increase information asymmetries between Google and its competitors."

In its October lawsuit, what did the Justice Department lawsuit allege about Google's dominance in search?

The Justice Department alleges that Google is illegally maintaining its monopoly in search through exclusionary contracts with distributors such as mobile-phone makers, wireless carriers and web browsers to make Google their default search engine. As a result of these agreements, which involve Google paying out billions of dollars to distributors each year, Google owns or controls search distribution channels accounting for about 80% of the general search queries in the U.S., according to the government's complaint.

These agreements thus prevent competitors from being able to get any kind of meaningful foothold, the government argues.

Google's chief legal officer said in a statement that the suit was flawed and that consumers use Google because they chose to, not because they are forced or lack alternatives.

Write to Rob Copeland at [e-mail] and Keach Hagey at [e-mail]

(END) Dow Jones Newswires

December 17, 2020 19:14 ET (00:14 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.