Google has a lot at stake if the Justice Department succeeds in breaking up its empire, from control over its search data and Android operating system to the loss of its Chrome browser.
But the biggest threat the company faces is to a search business that is deeply woven into the technology ecosystem of its parent company Alphabet (GOOG, GOOGL).
Of the $307.3 billion in revenue Google made in 2023, $175 billion came solely from that ad-driven search engine business. The DOJ wants to impose dozens of limitations on the way that Google connects that engine with consumers.
Other parts of Alphabet could also be affected. The DOJ also asked for the company to be prohibited from favoring its video subsidiary, YouTube, which is part of its YouTube Ads business unit.
That unit, which generated $31.3 billion in revenue in 2023, earns money through ads that appear on and around YouTube videos. Google search promotes YouTube video links in response user queries.
Google’s digital ads business, a division that generated $31.5 billion in revenue in 2023, could also be imperiled by a limitation on search favoring YouTube. Advertisers as well as content creators use Google’s buyer- and seller-side platforms to target consumers and monetize video content.
It will be up to District of Columbia Judge Amit Mehta, who sided with the DOJ’s monopoly argument in a trial that wrapped up earlier this year, to approve any of the proposals submitted by prosecutors. That could include the sale of Google’s Chrome browser and a divestment of its Android mobile operating system.
Even artificial-intelligence investments designed to pay off in the future could be under threat. Prosecutors also called for Google to divest within six months any investment or ownership in rival query-based AI products, as well as rival search text advertising technology products.
That would force Google to unwind its partnership with generative AI startup Anthropic. Google has invested $2 billion in Anthropic, while also hiring the founders of another AI startup, Character.AI.
Taken together, the Justice Department’s requests would dramatically alter the tech landscape. Some legal experts said there is a slim chance Mehta will grant all of the prosecutors’ proposals.
Judge Amit Mehta, of the U.S. District Court for the District of Columbia, will decide whether Google gets broken up. (Photo by Mark Wilson/Getty Images) ·Mark Wilson via Getty Images
“I think it’s pretty unlikely that the government will be successful in getting these things,” Columbia Law School antitrust professor Erik Hovenkamp told Yahoo Finance.
“In particular, I do not expect the court to order any divestiture. Contrary to popular misconception, antitrust rarely breaks up monopolies.”
The remedy legal experts say is most likely to be granted is a request to prohibit Google from agreements that secure its search engine as the default in browsers and on mobile devices.
That could hurt Google partners more than Google itself.
One is Apple (APPL). In 2022, Google paid Apple roughly $20 billion for default placement of Google Search on Apple’s Safari browser and to power search access points like the Siri voice assistant.
“Google would not have to pay $20 billion anymore, so they would gain market cap,” said Jean-Paul Schmetz, chief of ads for search engine rival Brave. “And that would be super perverted, because suddenly the perpetrator is being compensated.”
Cash from Google’s payments falls under Apple’s services segment, which brought in some $78.1 billion in 2022. Eliminating Google’s payments would effectively cut 25% of the services segment’s revenue from that year.
CEO of Apple, Tim Cook, on Apple’s campus in Cupertino, Calif., in September. REUTERS/Manuel Orbegozo ·REUTERS / Reuters
Schmetz hypothesized that if Google’s default contracts are prohibited, and no money flows between browsers and its search engines, Apple would stand to lose $500 billion in market cap, and Google would gain $500 billion.
“There would be $23 billion times the multiple of Apple that would just basically stop existing,” Schmetz said.
Another roughly $6 billion flows from Google to a group of browsers, mobile device manufacturers and wireless service providers, including Mozilla, Samsung, Sony, AT&T, Verizon, and T-Mobile.
Some experts have doubts the DOJ’s plans will effectively open up the markets for search and mobile.
Instead of dismantling Google, the Justice Department should force Google and Big Tech cohorts to be more open and interoperable, said Christian Catalini, founder of the MIT Cryptoeconomics Lab and a research scientist at the MIT Sloan School.
“I think it’s a fool’s errand,” Catalini told Yahoo Finance.
If the DOJ’s remedies are denied “then it’s all for nothing” but if they are accepted the remedies are probably worse than the underlying issue,” he added. “And ironically, there’s a lot more that could be done to restore competition in all of these sectors through much simpler measures.”
Those measures, he said, could include making it easier for third parties to offer their own payment services and app stores on mobile devices.
Google Play gift cards are seen in a shop in New York. (Photo by Beata Zawrzel/NurPhoto via Getty Images) ·NurPhoto via Getty Images
“Imagine forcing multiple stores to have the same level of service in the Google ecosystem on mobile,” Catalini said.
Google makes money on ad sales through its Play Store, and takes a 13% cut of app store sales. The company’s Android ecosystem also acts as a flywheel for its ad sales by driving users to Google Search and other services.
“Allowing for different parties to provide payments rather than just the Google payment flow in its app stores, or interpretability in messaging and in the services that platforms like Apple and Google dominate today. I think that would go much [further] in terms of really giving…businesses an opportunity to compete.”
Another of the DOJ’s proposals is to force Google to sell its internet index at a “marginal cost” and to make its search results, ranking signals, and query understanding available to rivals for purchase for 10 years.
The proposition is a risky one, according to Schmetz, because if Google is required to make its proprietary search data available it could wipe out Brave Search API and Bing Search API — the two other US search providers that crawl and index the internet. APIs or application programming interfaces provide search results to other search engines.
“Google’s price cannot be just the marginal price of providing an API – which is basically zero,” he said, “since it would destroy other existing businesses that are thriving.”
Google CEO Sundar Pichai. REUTERS/Jim Young ·REUTERS / Reuters
There’s no guarantee Mehta will agree to move forward with all or even some of the DOJ’s proposed remedies. And Google has said it will appeal the initial antitrust decision.
For now, the company has to wait and see how Mehta rules on the penalties, which is expected to happen after a remedies trial scheduled to take place in 2025.
Google also faces another antitrust trial that could end with restrictions on its separate ad tech business, if the Justice Department has its way.
Prosecutors who brought that case during President Biden’s administration have already asked for a judge to force Google to divest Google Ad Manager suite, including its publisher-side ad server, DFP, and its ad exchange, AdX.
Closing arguments in that case occurred Monday and a judge is expected to rule before year end.
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