Hot takes on the other Google antitrust trial

The Monopoly Report is a new free newsletter from Marketecture covering everything relating to Google’s ad tech antitrust trial.

Hot takes on the other Google antitrust trial

Unless you’ve been living under a rock you probably know there are two different antitrust cases against Google, informally known as the Search case and the Ad Tech case. Well, not six hours passed between the launch of this dear newsletter focused on the Ad Tech case when the judge released his opinion in the Search case finding that Google is, in fact, a monopoly. Jeez, at least I don’t need to change the name of the newsletter.

With the extremely important caveats that a) I’m not a lawyer, and b) I am not really a deep expert in search, I’m going to do my best to set some takes on fire for what this all means, man.

The judge’s findings

Judge Amit P. Mehta of the United States District Court of the District of Columbia released a 277-page judgment that thoroughly describes the arguments of each party and his conclusions on each issue. I’d suggest you read it, or at least skim parts of it, as it is well-written and gives a lot of great context. But here at Marketecture, we stick by our informal motto, “we read it so you don’t have to” so let’s dive in.

A monopoly in General Search Services

The judge defined the relevant market as “General Search Services” and concluded that Google had monopoly power in this market. This conclusion was based on:

• Google’s ability to degrade or change the search interface without worrying about users leaving.

• The very high marketshare they experience (89.2% share, 94.9% on mobile).

• The extremely high cost of building a competitive product.

• Exclusive distribution agreements.

• Brand image.

No monopoly in Search Advertising

The judge defined “Search Advertising” in a pretty broad way as “all advertisements served in response to a query.” Rejecting Google’s argument that the market should include all types of display ads, the judge takes pains to differentiate with “indirect signals” you might get from a webpage (See Tay-Tay reference, below).

The opinion includes a quite long discussion of different rationales for concluding that search ads are a distinct market from other types of ads, including some fascinating data about how marketers do and do not shift search budgets based on their understanding of how the purchase funnel is working, and a case study of what happened when Nike boycotted Facebook and budgets had to shift abruptly.

After like eight pages of this discussion, the judge gets to the point — since Amazon has product listing ads (“PLAs”) and that’s a really big market, Google is off the hook and search ads are not a monopoly. Plot twist! Further, the judge shows that pricing of PLAs, both on- and off-Google have been stagnant, undermining the argument that there is a monopoly abusing prices.

But wait, there is a monopoly in Search Text Ads!

Prior to reading this newsletter you could be forgiven for thinking that search ads and text ads are basically the same thing.

The judge is ready to school you. The opinion details how the search ad market, because it includes PLAs, is quite different from text. PLAs don’t have much flexibility in creative, for example. Also, the two types of ads are not interchangeable. 92% of Google advertisers only purchase text ads.

The big smoking gun, according to the opinion, is pricing. While PLA pricing is flat, text ad prices have increased, and Google’s own experiments supported their ability to raise prices with minimal loss of customers. That data, along with the high market share, leads to the conclusion there is a monopoly for text ads.

No monopoly in General Search Advertising

Wait, what? There is a monopoly in “Search Advertising” but not in “General Search Advertising.” And we wonder why lawyers can be annoying.

There was a assertion by the complainants that there was a market for any type of ad that shows up in response to a query. So this would wrap in divergent search experiences like Yelp or other on-site search experiences. This claim was rejected, so let’s not dwell too much.

Exclusive agreements

A big point of discussion in the overall case, and the likely competitive remedies, is the exclusive arrangements Google has with browsers and mobile OEMs. The opinion has a long discussion over whether these agreements should be deemed exclusive or not, given potential areas where competitors could gain access. The net result is that the agreements are de facto exclusive given economic incentives. A plaintiff’s witness found that 50% of all search volume ran through defaults.

The effect of these exclusive arrangements is to preclude competition, primarily by depriving competitors of scale. The opinion speculates on what it would take to dislodge Google from the default position with even a smaller browser, like Firefox, and concludes “a new entrant would need billions of dollars to meet these…conditions.”

The opinion then goes on to determine that the exclusive agreements support the monopoly in search and text ads, thus setting the stage for remedies relating to these agreements.

SA360 is a product you’ve never heard of

The court found that SA360 does not need to support Bing search. SA360 is a search engine management tool. I don’t care and neither do you.

Remedies

The court will now move to remedies. From my reading, it appears the exclusive distribution arrangements are in the crosshairs. But the remedies applicable to the text ads part of the monopoly are more interesting, as you could imagine the court requiring ad interoperability on search results, or something else equally dramatic.

This will probably be the subject of a future newsletter. Subscribe if you want to hear how it plays out.