Five Key Learnings from Google’s Antitrust Ruling
On default payments, the $20B in capex needed to replicate Google search and Bing's $100B investment in search
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Hi friends,
The recent antitrust ruling against Google—the first major tech antitrust decision since Microsoft in 2001—found the company guilty of anticompetitive practices. It also provided a wealth of information on arguably the most lucrative market in technology: search.
I had a chance to go through the full ruling this past week, and will discuss some of the most interesting notes from the trial around Google and the search market.
First, just a quick sense of Google’s scale before we jump into it:
3.5 billion searches per day
~90% search market search in the US
$146B in search revenue in 2021 at ~80% gross margins
1. Google’s Default Search Engine Status Payments is their Main Cost in Search
One of the most eye-opening revelations is just how much Google spends to keep itself as the default search engine on various platforms, relative to other costs.
In 2021 alone, Google shelled out an eye-watering $26 billion to secure these default placements on devices and browsers—payments that were nearly four times higher than all other search-specific costs combined.
These payments are structured as revenue-sharing agreements, where partners like Apple and Android device manufacturers receive a cut of the advertising revenue generated from Google searches on their platforms. As the court detailed:
“Google pays huge sums to secure these preloaded defaults. Usually, the amount is calculated as a percentage of the advertising revenue that Google generates from queries run through the default search access points. This is known as ‘revenue share.’ In 2021, those payments totaled more than $26 billion. That is nearly four times more than all of Google’s other search-specific costs combined.”
These payments played a significant role in why Google was found guilty, as they were seen as a way to lock out competitors and prevent them from achieving the scale necessary to compete effectively.
In fact, Google’s combined operational costs for running their search and ads businesses (~$19.5B/yr) are still less than what they spend on securing default placements.
So, the default payments are larger than all other costs associated with running the entire Google search and ads business.
2. Default Bias as Google’s Strategic Advantage
The concept of default bias was a crucial factor in the court’s decision, as it explains why Google’s payments to secure default status are so effective. Default bias refers to the natural tendency of users to stick with the preloaded or default options on their devices, often without considering alternatives, which I’ve written about in the past.
The court noted:
“That users overwhelmingly use Google through preloaded search access points is explained in part by default bias, or the ‘power of defaults.’ The field of behavioral economics teaches that a consumer’s choice can be heavily influenced by how it is presented. The consensus in the field is that ‘defaults have a powerful impact on consumer decisions.’”
Google capitalizes on this bias by ensuring its position as the default search engine on major platforms like Apple’s Safari and Android devices. The ruling highlighted that approximately 50% of all general search queries in the United States flow through these default search access points, making it incredibly challenging for other search engines to gain traction. As the court explained:
“Individuals often are not aware that they are acting out of habit. Consequently, when users are habituated to a particular option, they are unlikely to deviate from it.”
By securing its default status on so many devices, Google effectively ensures that a majority of users continue to use its search engine, reinforcing its market dominance (over 80% share).
3. Bing’s Challenges in Competing with Google
Microsoft’s Bing has long tried to challenge Google’s supremacy in the search market, but with limited success. Despite Microsoft investing nearly $100 billion in Bing over the past two decades, the search engine has struggled to capture significant market share.
The ruling highlights:
“Bing is Google’s largest general search competitor today. It is the only rival that crawls the web and generates its own search results. The next two largest search engines, Yahoo and DDG, syndicate their search results from Bing.”
However, Bing’s market share has never exceeded 12%, and on mobile devices, it’s even lower, at just 1.3% of search queries.
Despite its massive investment, Bing has struggled to secure the distribution deals necessary to significantly increase its market share. Microsoft made serious attempts to position Bing as the default search engine on Apple’s iOS devices—a potential game-changer given Apple’s vast user base. However, these efforts were largely unsuccessful due to Google’s dominant financial position and willingness to outbid competitors.
The ruling notes:
“Microsoft has tried at various points to win over Apple by offering higher revenue shares or significant investments in Apple’s ecosystem, but Google has been able to outbid Microsoft and maintain its default status on Apple devices.”
In fact, in the course of the trial, Microsoft executive Jon Tinker even testified that Microsoft was willing to pay Apple in excess of 100% of revenue/gross profit that Microsoft earned in order to secure default status. However, they still couldn’t match Google.
This underscores the steep challenges Bing faces in competing with Google, particularly when it comes to securing critical distribution channels.
Google's financial leverage and long-term agreements made it nearly impossible for Bing to displace Google as the default search engine on key platforms like iOS.
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4. The Astronomical Cost to Replicate Google’s Search Engine
The ruling also provided a rare glimpse into what it would take for a company like Apple to build a search engine that could compete with Google (if say they didn’t want to auction of default rights), and it amounted to $20B in capex to build out the infrastructure, and $7B annually to operate it, if run very efficiently.
As detailed in the ruling:
“Google estimated that the total capital expenditures required [for Apple] to reproduce [Google’s technical] infrastructure dedicated to search would be in the rough order of $20[ billion]. On top of that, if Apple could sustain a business with only one third of Google’s engineering and product management costs, it still would cost Apple $7 billion annually.”
These figures underscore the financial and technical hurdles any company—yes, even Apple—would face in trying to rival Google’s search engine. The ruling clarifies why so few companies have seriously attempted to build a search engine to rival Google’s, and why even a company like Apple may have been happy to receive their ~100% margin ~$15B+ in payments for default access, rather than build a search engine.
5. Why Google Was Found Guilty of Anticompetitive Practices
The crux of the ruling against Google was its use of these exclusive distribution agreements to maintain its monopoly in the general search services and general search text ads markets. The court found that Google’s extensive payments to secure default search engine status on key platforms effectively locked out competitors and stifled innovation.
The ruling states:
“Google’s distribution agreements are exclusive and have anticompetitive effects. These agreements foreclose a substantial share of the market, depriving rivals of scale. Google has used these agreements to maintain its monopoly power by charging supracompetitive prices for general search text ads, resulting in monopoly profits.”
By ensuring that no other search engines were preloaded on devices, Google created significant barriers for competitors to reach users, which the court found to be in violation of Section 2 of the Sherman Act. This behavior was deemed to harm both competition and consumers by reducing the incentives for innovation in the search market.
Closing Thoughts
The antitrust trial against Google helped illustrate some of the market dynamics that underpin its dominance in the search engine market.
Many questions still remain, such as what the penalties to Google will be and whether the courts will rule to break them up (and if so, how?). Google has already stated its intent to appeal the decision, and so I expect it to drag on for a little bit.
Interestingly, some potential penalties may end up benefiting Google more than harming it (or hurting others such as Apple more). For instance, if regulators decide that users must choose their default search engine when setting up a device or browser—rather than allowing companies to pay for that status—many users might still opt for Google, allowing the company to save the $25B+ it currently spends, while only seeing a small drop in share. As the case develops, it will be fascinating to see how these scenarios unfold.
That "$20B to replicate Google" estimate doesn't hold up in the current LLM regime. OpenAI, Perplexity, (and to a lesser extent, Exa) have shown you can reach or even exceed parity in user experience for many searches. Limit the operational focus to US users (~20% of world internet traffic, but the majority of search advertising value) and you cut your opex massively. If something brings down Google I suspect it won't be government action or AI competition, but rather the cultural rot that's set in after decades of dominance due to monopoly power, not competitive excellence.
It’s also worth considering that a Trump DoJ may be less interested in pursuing remedies instigated under the Biden admin. There are a lot of unknowns about the ultimate impact of this decision at present.