How Google Cheated Their Way To Billions

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3:26In the last episode, I went over why Google's monopoly is such a problem, and why monopolies are a form of societal cancer. And in this episode, I'll go over what might happen next to Google after their antitrust trial. And by the time you hear this, it'll have been a few weeks since judge Amit Mehta ruled that Google was an illegal monopoly in search and online advertising. The next phase of this saga, though not including any appeals, will decide what penalties will come. Although it will be several months and most likely several years before we learn exactly what happens to Google, it's clear the company sits on a dangerous precipice.

4:01In addition to a monetary penalty, which is fairly likely, and which could certainly be in the billions of dollars, Judge Meta will likely force Google to undertake some action that would effectively end its monopoly status, or at the very least support more competition. And we'll get to those in a second. But it's worth noting that we need to talk about how we got here. For this, I'm going to be heavily relying on Judge Meta's 300-page ruling. Judge Meta didn't concern himself with how Google got big, because in antitrust law, there's nothing really prohibiting you from achieving dominance by being good and better than the competition.

4:35And to be fair, for the first couple of decades, Google was genuinely superior to any alternative. This was evidenced by its early reviews, with Danny Sullivan, who now works for Google as a guy who occasionally pretends to care about what reporters think, but at the time he wrote for search engine watch. And he said, so how about results? I think many people will be pleased, especially for the ever popular single and two word queries. A search for Bill Clinton brought the White House site up at number one. A search for Disney, topranked Disney.com and sections with it like Disney World, the Disney Channel and Walt Disney Pictures.

5:06Yet interesting alternative sites like Werner's unofficial Disney park links also made it to that list. Now, let's just take an aside here. I'm just going to go to google.com as we speak. I'm going to take Disney and I'm going to read you what's on there. So the first things at the top are all sponsored. It's sponsored and then tickets and tours is a very big font. And then there's five different options to buy something on trip.com, some sort of vacation package. And then another thing from a company called Undercover Tourist. And then the results are Disney.com and Disney Plus and Walt Disney World.

5:44But those are the smallest thing on this page compared to the Disney Store link in Vegas and the four or five different sponsored pieces of content. And if you scroll down, it's Disney products, YouTube Disney, Disney on X, Disney Parks. Oh, this is all pretty good. But no original content. There's like 100 ,000 different Disney blogs that just aren't on there. Google don't give a shit. But they used to. Google also outclassed the competition on a technical level. as noted by Brian Durrell, former senior director of production operations at AltaVista. In a Hacker News post, he blamed AltaVista's demise on its failure to update its result indexes, which in turn meant that many of their front page results led to outdated or dead links.

6:25And I quote, This was particularly bad because one of our earliest strong points was fresh indexes. Our ability to refresh the supplementary index on the fly was awesome. When you lose one of your primary strengths, it's noticeable, he said. adding that the decline in AltaVista's index quality was due to a loss of focus within the company. Oh, would hate for that to happen to Google. Google was at the time, both objectively and subjectively, better than anything else. And so it grew. And like I said, last episode, it became a verb, kind of like how we say Photoshop instead of airbrush or Xerox instead of photocopy and better offline listener instead of average criminal.

7:03Not only did it fend off its earliest competitors, but it also brushed past anyone that would try to steal its market share, like damp Musk acolyte Jason Calacanis' Mahalo, which was a human-curated search engine a bit like the early version of Yahoo, and Kull, which emphasized its larger search indexes and privacy-centric ethos as distinguishing factors. Just so we're clear, being popular or superior is not an antitrust violation. No. No, no, no. That's not the problem. What Google did afterwards was the problem, and in the eyes of Judge Mehta and the US government was also illegal. As I know, a lot of the things I'm about to cite are from this ruling, which makes linking to them kind of hard.

7:43Please don't be mad at me. But much of this ruling discusses something called distribution, which refers to how Google makes its search product accessible to users. The Google website is the most obvious example of that, but it also includes browser and device integrations. You ever wonder why the default browser option on Safari and Firefox is Google? I kind of said it last episode. It's because Google pays these companies a lot of money. In the United States, half of all searches happen through an access point where Google is paid to be the default. A further 20 % come through Google Chrome, which is made by Google, and thus it follows that Google is the default search engine.

8:20A little monopoly in your monopoly. Pimp my ride. Only 30 % of US search queries take place in environments where Google is not the default browser, which is not to say that all those searches are going to DuckDuckGo or Bing, but rather that consumers have made an active decision to use whatever browser they've selected. And while you could argue that the consumers could choose to change the default on Safari or Firefox to something other than Google, the reality is, as shown by Google's own internal research and communications, that most consumers either don't know how or just don't care to. Another internal study mentioned in the judgment, this time from 2020, showed that half of all US iPhone users didn't even know what search engine they were using.

9:03The ruling also points out that in some cases, there are inherent points of friction that dissuade users from changing their default search engine. Switching on Android was arguably more difficult than on iOS, the ruling said, also noting that the smaller screen of a smartphone and general fiddliness of things was a further deterrent. Google's own estimates show that if it lost search placement on iOS to another provider, it would lose between 60 and 80 % of its traffic, just because of how tricky it is to change these default settings. And so you're starting to get an understanding of the importance of these default placement deals for Google and how critical they are to its bottom line.

9:41In 2021, Mozilla made 80 % of its operating budget, or$400 million, by selling default placement to Google too. These monopolies have real consequences. Apple, meanwhile, earns a percentage of advertising revenue from queries made from Safari and Chrome, even though Apple doesn't actually bundle Chrome with its devices. In 2022, this amounted to about$20 billion, which was double the figure of 2020, and amounted to one-sixth of Apple's operating profit from that year. Google also has signed deals with several US carriers like T-Mobile, Verizon, and AT &T, as well as other Android manufacturers, including Samsung and Motorola.

10:17The terms of these deals differ between companies, but they usually account for a percentage of ad revenue, with the actual percentage varying from contract to contract. While these deals are undoubtedly good for the balance sheets of these companies, they do impose restrictions on what these companies can do. Take Samsung, for example, which has around 31 % of US smartphone market share, second only to Apple. In 2019, Samsung wanted to integrate technology from a startup called Branch, which would allow users to search for content within installed applications, as well as, to a limited extent, content from the internet, although it was not, to be clear, a proper search engine in any real sense.

10:54Despite how there was a little bit of initial excitement around this, Samsung also saw, and kind of became clear, that the way Branch worked conflicted with their agreement with Google, and so the software had to be reworked in a way that massively limited its functionality. While the partnership went ahead, it was nowhere near as lucrative as Branch first hoped. The software was crippled, and thus much less attractive. Similarly, AT &T also wanted to pre-install Branch on its devices, but decided against it when it couldn't get clarity from Google whether it violated the terms of its revenue-sharing deal.

11:28Google, it seemed, simply stonewalled AT &T into submission. And this is again going back to the Matt Stoller interview I did. When you have rules like this, when you have monopolies, they do operate like miniature governments. And indeed, this is an example. Google didn't even need to intimidate these people in most cases. They just made enough money and they were scared enough of violating the deal that they literally made their devices worse. They didn't install cool software for fear that Google might sue them and cut off a lucrative revenue share. It's nasty. Even Apple, a company that is, at varying times, close to or the most valuable company in the world, found itself constrained by this devil's deal with Google.

12:08At one point, Google insisted on altering the terms of its agreement to prevent Apple from suggesting relevant links to users through the Safari search bar, as such a feature would be, and I quote, substantially similar to Google search. Apple, for what it's worth, has said that it did not feel constrained by these restrictions, which makes it fine with me then. I'm kidding, I'm kidding. I'd argue that they would say that because they were making$20 billion each year from Google. And if I'm honest, if somebody gave me$20 billion, I'd let them do whatever they wanted. Hit me with a baseball bat.

12:37Run me over with your car. I don't care. Call me a pig. I'll oink for you. Give me$20 billion. I need$20 billion. Please give it to me now. But if you can't give me your money, then perhaps you'll hand it to one of the extremely well-targeted advertisements that follow this wonderful message. Ones that will make you say, wow, this is definitely one that Ed wanted to follow what he just said.

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16:26Visit buyatoyota.com for a great deal on an efficient Toyota today. Toyota, let's go places. And we're back. And we're back with Google. As I've kind of hinted at, I don't think without their ad monopoly and with their Google search monopoly, I don't think Google is a profitable business. And I definitely don't think Google search is a profitable business. I think it's actually kind of a cost center. Search is, in effect, the vehicle in how Google gets people to look at billions of dollars of advertisements every single day. And Google doesn't allow any other competing business to show ads on its turf.

17:04It has exclusivity. And as the ruling found, that exclusivity has allowed Google to raise prices at will, looking to see how far it can push advertisers before they walk away, you know, to the other place they can advertise to this many people. In 2017, the company ran an experiment where it strongly increased certain prices for a cohort, 15%, of advertisers for six weeks. It found that half of the initial revenue gained stuck, and found that there was no significant evidence that advertisers were changing what products they bought. Google would later do further studies where it significantly hiked prices on advertisers, and each time, it learned that it could charge more without losing them.

17:44While Google acknowledged there was a limit to how far it could push things, they believed that there was still more value to extract from its customers, and so it set upon a strategy of gradually, though significantly I should add, raising prices across short intervals. As an aside, and god damn is this company so fucking evil, they should be eradicated from existence. The fact that people like this function in good society is only proof that there are things wrong in the world. Every time I read about them I feel poison in my veins. But there's more. These price rises, Judge Mehta noted Were often timed when Google was at risk of not meeting its revenue goals And when the company was at risk of showing some sort of slowdown in its ads business Hey, remember the code yellow from 2019 from the man that destroyed Google search?

18:28That was all around raising metrics because they were worried about query growth Google does not care They will do whatever they need to to make revenue They will make your products worse they will make it more expensive for advertisers to advertise to you. And it's all thanks to their goddamn monopolies. And these changes, these increases to the pricing of advertising and the way that they took money from advertisers, they were done with this insane lack of transparency. And this is really stomach-turning, this beer. This company, like, people should be in jail for this. Google didn't tell advertisers that the costs were going up, but rather they were timing these increases so that these increases could be dismissed as noise or ordinary price fluctuations generated within advertising auctions.

19:14The last point is important, by the way, as Google also tried to rig these auctions in their own favor. One way they accomplished this, by the way, is by removing the ability for advertisers to remove themselves from certain auctions. When someone buys a text ad on Google, what they're really doing is selecting a keyword or keywords under which they want their ads to appear. The problem is that people may use different words for a search with the same intent. So one person might say kids' clothing, where another might say children's clothing. And this is a problem for advertisers because you want to make sure that you capture the audience you want, right?

19:44And this is a problem that Google fixed by adding other relevant keywords to an advertiser's bid without telling them. Now, this might seem like a nice thing that Google did, making sure that your money goes further, right? The problem is, as the ruling showed, that Google interpreted the word relevant in the broadest way possible. So kids' clothing would, as one shot shown in the ruling showed, include phrases like newborn children's clothing or kids' clothing Canada or TJ Maxx kids' wear. And what's great is, if you don't like this, you have no one else to advertise with, no other choices. And while Google initially allowed advertisers to opt out of this feature, which they called semantic matching, or use a limited version that would only include grammatical variations like pluralization, so children clothing, children's clothing, and so on and so forth, they of course remove these options.

20:34This means that unless the advertiser explicitly states what keywords they don't want their advert to appear under, they're going to be bid on search results that aren't relevant to their needs. And guess who controls what are relevant? Google. Google. Google's the one that tells you how much money to spend on Google. You don't like it, well, you can work with Google to advertise on Google, and otherwise you can go fuck yourself. And this in turn increases the amount of advertisers bidding for space in an auction, which in turn results in higher prices for advertisers in a completely unpredictable way that's predictably evil.

21:09Not only does Google control the supply, they literally control the demand. And while Google at one point provided advertisers with detailed information about their matched keywords and the algorithmically selected ones at that, it no longer does so. As a result, advertisers are effectively forced to guess what keywords their ad might appear under, and they have no other vendor to go to who might be a little more transparent. This in turn, by the way, pushes them to larger advertising agencies who have a better relationship with Google, who might have keyword banks that they know that they can cut out so that the advertising dollars are more efficiently spent.

21:41This in turn makes advertising agencies, especially the bigger ones, more powerful and hurts small businesses. It's so cool watching this happen. It doesn't make me angry at all. But in his ruling, Judge Mehta found that Google's practices had degraded the quality of its text advertisements and charged super competitive prices for text advertisements. At the same time, by maintaining Google's stranglehold on the search market, they effectively limited how much rivals, like Bing, can make from advertising. Even if Microsoft built a better ad tech platform than Google, its share of spending would remain in line with its market share.

22:16And I quote here, By locking in a huge comparative query volume advantage through its exclusive agreements, Google ensures that advertisers will continue to spend 90 % of their text ad dollars with Google, regardless of increases in price or decreases in quality. That is an anti-competitive effect in the marketplace. And that's Judge Metter who said that, and he's bloody well right. So what happens next? There's four unlikely outcomes here, each with their own advantages or disadvantages, and their own level of probability have come into pass. And hat tip, by the way, to Adam Kovacic for highlighting these.

22:49Google may be ordered to cease engaging in default search deals Kind of the most obvious one Leaving the likes of Apple, Samsung and Mozilla Free to sign agreements with other search providers Although these agreements would Almost certainly be less favorable than their current ones And indeed would be I don't know Competitive It's gonna be a mess As the ruling showed Both Apple and Mozilla have at times Flirted with or been courted by the likes of Microsoft and Yahoo Although the terms were never as favorable as I mentioned And guess what? They didn't take them Judge Meta might, although the how is pretty difficult here as Apple and Mozilla aren't defendants in this case, force browser developers to offer users a ballot screen where people could choose what search engine they'd like to use.

23:31This would probably boost the market share of smaller search providers by a small degree, although I imagine most would just opt, either through habit or preference, to pick Google. At the very least, until a viable alternative gains momentum. But this is still a start. It's still good. Well, then again, it's entirely possible that people might try something new, and either because they like what they've selected or through sheer inertia, they don't go back to Google. As Google's data shows, this is a real threat, especially on mobile, which accounts for a massive portion of its search traffic and thus its ad revenue.

24:04Google may be forced to share click and query data with rivals, although again, this poses its own thorny issues, especially when it comes to privacy. At the very least, it should at least tell advertisers what keywords they're buying and give them meaningful opportunities to opt out of irrelevant queries. While this sounds like a minor slap on the wrist, it has the potential to cost Google billions. Google's made so much money from forcing advertisers to buy slots on searches they don't want or care about, and by forcing people into auctions against their will or knowledge. When buyers are empowered, it follows that the price of ads will decrease, commensurate with the lower levels of demand.