Judge says Google's deal with Apple is the heart of the antitrust case

The U.S. Department of Justice antitrust case has rested its antitrust case against Alphabet Inc's Google. The search engine mogul has 5 weeks to put up a defense.

Now that we have reached the end of the first half, let's see what has happened so far.

Department of Justice v Google

For those who are unaware of the proceedings, the DoJ sued Google for monopolizing the search engine market by cutting deals with Apple, and other OEMs, which it says is in violation of Sections 1 and 2 of the Sherman Act.

According to a report by Bloomberg, Mehta has termed Google's deal with Apple as the heart of the case? The judge is not expected to reach a decision until next year, and the case is expected to be played over a few years if any resolution is made. And if the Justice Department wins, a second trial could take place to establish a legal remedy.

Why is Google's deal with Apple taking center stage?

Apple and Google agreed on a deal in 2002, to use the latter's search engine in Safari for free. But as the years progressed, the two-parties entered a revenue sharing deal, where Google pays Apple a percentage of the sales that it earns from advertising for using. While the DoJ estimates the amount that Google pays Apple annually is around $4 billion to $7 billion for keeping Google as the default search engine in iOS, iPadOS and macOS. Some estimates predict that the actual figure could be nearly $10 billion per year.

This is what the Department of Justice has focussed on, to drag Google to the court. It alleges that Google's deal with Apple prevents the Cupertino company from competing in the search industry. Michael Whinston, representing the DoJ, said that Google's deals with smartphone manufactures and wireless carries, had ensured that it got between one-third and one-half of all search traffic in the US.

Testimonies against Google

Let's start with what other companies had to say about Google and Apple. DuckDuckGo held talks with Apple to make the search engine the default option in Safari's private browsing mode seemed to have made some progress in 2019, with some on the Safari team approving the idea, but it was ultimately rejected by John Giannandrea. Neeva had attempted to create a subscription-based search engine, and had tried to reach to Apple regarding the addition of its search as an option in Safari, but the company had failed to even get a response from Apple.

The only real alternative search engine that could take on Google, was Bing, but even Microsoft with all its billions could not compete with the Mountain View company. Apple briefly used Microsoft Bing for some of its services, for Siri and Spotlight. This partnership, however, was a short-lived one, as Apple decided to go with Google in 2017. Giannandrea, who formerly worked at Google, had been unimpressed with Bing's quality.

Microsoft's CEO, Satya Nadella, had said during his testimony, that he had held talks with Apple every year since he took over the Redmond company's reins in 2014. He had even admitted that Bing's usage was very low, and it was inferior compared to the services offered by Google. When he was told that it was not complicated to change the default search engine on an iPhone (e.g. from Google to Bing), Nadella argued that defaults are the only thing that matters, and that users don't normally go out of their way to change the defaults. He alleged that Google is winning because of this very reason. Google's own research in 2014 had proved that users “rarely stray away from preloaded apps.” Another document, from 2007, showed Google’s Chief Economist Hal Varian calling the default home page a “powerful strategic weapon in the search battle.”

Nadella believed that an agreement between Apple and Microsoft would have been a game-changing deal, and was willing to pay several billions to make it happen. But, that never came to avail. Microsoft had even tried selling Bing to Apple in 2020, but Apple's Eddy Cue - who had brokered the agreement between Apple and Google - did not pull the trigger on the chance to acquire Bing. His decision was based on Apple's research, which once again showed that Google was superior. Cue testified that Google was the best option for users.

A testimony by a former Samsung executive had revealed that Google had prevented the expansion of Branch's capabilities, restricting it to app search, thus blocking it from moving into web search. Two former Google employees, including Neeva's CEO, Sridhar Ramaswamy, had testified that Google's focus on ads weakens the consumer experience, and could have unintended consequences related to privacy.

Google's defense in the antitrust case

Google has so far tried to play it smart with its defense, pointing out the flaws in the complaints made by its rivals. The company's lawyer, John E. Schmidtlein, had downplayed the allegations, and had even mocked Microsoft for failing to invest in Bing. He had argued that it was not illegal for Google to make "the best search engine". Well, that is a good point. But that is just part of the bigger problem.

The DoJ is under the impression that Google's deals with its partners are illegal. Apple had defended Google in the court, with Cue saying that his company saw no reason to create a search engine. He had said that competing with Google was not something that Apple was interested in.

29 witnesses have taken the stand as a witness, including 11 Google employees and four former ones. Google's CEO, Sundar Pichai, could testify in the court in the coming weeks. Google is in a tight spot. An internal document from a senior Google finance executive had compared the company's search advertising business to selling drugs, and that they could just focus on the revenue and simply ignore their users. Interestingly, Pichai had objected to using Google as the search engine in Safari, calling it a bad idea. This was years before he became Google's CEO.

What will happen next? Will Google and Apple be forced to part ways?

Rumors say that Apple has all the resources to get started on a search engine of its own, but then it would lose out on the revenue. And it would have to start from scratch, well, not technically. Apple has been building its own internal search engines for some of its apps, including the App Store, Spotlight, etc. Apple's web crawler has been prowling the internet for years, so it could theoretically have all the tools at its disposal to get its search engine up and running quickly.

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