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The Most Profitable Searches, the Love-Hate Relationship with Apple, and Other Revelations of the Google Trial


Highlights: The parties have until May to present their findings. The judge says he still doesn't know what he will decide. "iPhone" is one of the searches that generates the most advertising revenue for Google. The focus of the lawsuit filed by the Justice Department from the beginning was on the settlements for which Google has paid tens of billions of dollars to be the default search engine for browsers and mobile phones. In 2021 alone, Google paid $26.344 billion (about €24.100 billion at today's exchange rate) The main beneficiary of those payments is Apple.

Witness hearings have ended, but the parties have until May to present their findings. The judge says he still doesn't know what he will decide

"iPhone" is one of the searches that generates the most advertising revenue for Google. That confidential piece of information, which the company tried unsuccessfully to keep secret, illustrates the love-hate relationship between Apple and Google around which the trial against the search engine for alleged abuse of its dominant position has revolved. The 10 weeks of testimony in Washington's 10th federal courthouse have shed light on what has been a toxic relationship, not for Apple and Google, but for the market and competition, according to the Justice Department.

More than fifty witnesses have paraded over the course of more than two months through the courtroom of the 10th federal courthouse in Washington. Among them have been Satya Nadella, CEO of Microsoft, and Sundar Pichai, the head of Google, experts, professors and executives of the search engine and other technology companies. The hearings closed Thursday, but the resolution of the most important competition case in two decades will still take months. Judge Amit Mehta, appointed in 2014 by Barack Obama, has asked the parties to submit their findings in the coming months and has summoned them to appear early next year for closing arguments.

"I can tell you sitting here today that I have no idea what I'm going to do," Mehta said Thursday at the close of the testimony phase. If the judge concludes that Google has abused its dominant position in the US internet search market, where it has a 90% market share, the most appropriate remedies to be adopted would still have to be discussed in a new procedure. The paradox is that a ruling that prevents Google from renewing its agreements with Apple could hurt the latter more than the search engine itself.

Google's thesis is that its success is due to the fact that its technology is superior, that it has developed new services and tools, from its Chrome browser to its Android mobile operating system, which have made it possible to increase the quantity and quality of searches. The Justice Department's thesis is that the search engine has reached agreements from its position of dominance that have closed the door to competition. The two theses are to some extent compatible.

Transcripts of witness statements take up thousands of pages. In addition, there are hundreds of annexes and documents that have been shown at the hearing, including internal reports and private communications between executives of the accused company. Some of them have been kept confidential, but others have revealed Google secrets.

A document dated Oct. 12, 2018, ranks the 20 most profitable searches, the ones that generated the most revenue in the U.S., the week of Sept. 22, 2018. "iPhone 8" and "iPhone 8 Plus" are the first two; iPhone" also appears on the list. The new model of Apple's phone had just been released and distributors paid to be placed in the search engine to sell the smartphones or accessories. Car insurance, cheap flights, and pay-TV services dominate the rest of the list.

That list is rather anecdotal. The focus of the lawsuit filed by the Justice Department from the beginning was on the settlements for which Google has paid tens of billions of dollars to be the default search engine for browsers and mobile phones. The Justice Department won the battle to make that figure, as yet undisclosed, public. In 2021 alone, Google paid $26.344 billion (about €24.100 billion at today's exchange rate) to be the default search engine as traffic acquisition costs. The figure is contained in an internal slide of the company whose secrecy was only partially lifted. The main beneficiary of those payments is Apple.

The Justice Department has brought in experts and Google's rivals to argue how those deals harmed competition. But perhaps the key moment of the trial came when Google's own CEO, Sundar Pichai, testified, subpoenaed by the defense. In the first part of his statement, in response to questions from Google's lawyer, he told his personal success story of reaching the top of Google and convincingly defended Google's technological contributions. Then came prosecutor Meagan Bellshaw.

The Justice Department's lawyer used the company's own documents to corner Pichai. He did so gently, but firmly, conquering ground with simple questions, with which he managed to get the head of Google to admit, one by one, the key points that underpinned his demand. (Read the full transcript of the statement here.)

"You wouldn't authorize contracts to pay billions of dollars every year to be the default search engine if it wasn't good for Google, would you?" asked Bellshaw. "Right," Pichai replied. Once he had laid the groundwork, he attacked with a letter that Google sent to Microsoft when the company founded by Bill Gates was going to use its own search engine by default in its new version of Internet Explorer. Bellshaw underlined fragments of that letter that were like daggers in Google's defense strategy. The search engine told Microsoft that users don't change the default settings and that Microsoft's decision could hurt competition. And the prosecutor was letting Pichai ratify everything.

"And since users don't change defaults, was Google deeply concerned that Microsoft's actions could harm the competitive process?" he asked. "Yes, that's what Mr. Drummond [Google's chief legal officer] is articulating here," Pichai admitted. At one point, the head of Google said that it depended on the context and conditions, to admit that "there are situations where default settings are very valuable." But the prosecutor didn't leave him that escape either. "And default settings are very valuable to competitors in search, right?" "Yes," Pichai admitted again.

The lawyer was trying to argue that Google wanted to prevent Apple from becoming a competitor with its agreements. He displayed a message from Sundar Pichai asking to be informed on a monthly basis of potential employees of the search services who would switch to the competition. He added, "If anyone from search [goes] to Apple, please email me directly on a case-by-case basis." "You don't get a notice when every one of the 180,000 employees leaves Google, does he?"

It focused on a report on a meeting of Google and Apple executives in which Pichai and Tim Cook were present, in which they talked precisely about those agreements to make Google the exclusive search engine for Apple's iPhones, iPads and Macs through its Safari browser. "Who is Tim Cook, just for the record?" the prosecutor asked. "I've heard of him," Pichai joked. "Mr. Tim Cook is the CEO of Apple."

In the summary of that meeting, in December 2018, one of the points was: "Our vision is that we work as if we were a single company." Bellshaw shot back: "Did you tell Mr. Cook, or did Mr. Cook tell you?" "I don't remember saying that phrase," Pichai replied, arguing that what that point was about was working together to improve the experience of their joint users on that product.

"And did you agree with this view, that Apple and Google work as if they were one company?" he insisted. "No," Pichai said. But Bellshaw wouldn't let go: "And isn't there anything in the notes that reflects that you or anyone else in that meeting disagreed with that view of Apple and Google working as one company?" Pichai went on to say that with that expression they had come a little too high ("irrational exuberance," he called it) when they left the meeting because they came to it nervous and with mutual distrust. "We compete fiercely on so many products that there has been a lot of tension, moments of mistrust between the two companies," he said. "We make Android, they make iPhones. We compete every day in the market on that and many, many other products," he added.

That is precisely part of the Justice Department's argument. They compete in many markets, but not in search. There, they prefer to maintain a revenue-sharing agreement with an exclusive that prevents other competitors from breaking through.

On Thursday, the transfer of boxes of documents and dozens of lawyers who have been accompanying each session of the trial ended. On the last day, Michael Whinston, a professor at the Massachusetts Institute of Technology, compared the case of Google and its market power with that of other monopolies such as AT&T in long-distance calls or Microsoft (which in this case is presented as a victim) in operating systems for personal computers. On the ground floor of the federal courthouse in Washington, a modest permanent exhibition commemorates those two cases among other emblematic ones held there. The exhibition may need to be expanded shortly.

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Source: elparis

All business articles on 2023-11-20

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