In a recent antitrust trial, Microsoft CEO Satya Nadella accused Google of using deals to solidify its dominance in the search engine market. Nadella claimed that Google’s search engine is widely used because of agreements that make it the default option on smartphones and computers. These agreements, also known as default contracts, ensure that nearly every smartphone sold in the United States comes with Google search as the default option.
One of the largest deals in question is between Google and Apple, with estimates suggesting that Google will pay Apple between $18 billion and $19 billion this year for default search status on iPhones and other Apple products. Nadella revealed that Microsoft had tried to persuade companies like Apple to prioritize its own search engine, Bing, by offering substantial payments. However, they were unsuccessful in swaying Apple from its lengthy contract with Google.
Nadella argued that the notion of user choice and the ability to switch from one search engine to another is “completely bogus.” According to him, default status is the key factor in influencing search behavior. He emphasized the importance of default contracts in maintaining the dominance of Google’s search engine.
The antitrust case against Google centers around these contracts that require smartphone makers to use Google’s search engine. The Justice Department claims that Google engaged in anti-competitive practices to prevent rival search engines, such as Bing, from gaining traction. Google, on the other hand, argues that companies were free to negotiate deals with different search engines but chose Google because of its superior service. The company also asserts that advancements in artificial intelligence, like ChatGPT, have introduced new competition into the search market.
Google’s search engine currently commands a 90 percent market share in general search queries, while Microsoft’s Bing has struggled to gain significant traction in the search engine market. Nadella acknowledged Bing’s lower market share but stressed that Microsoft has persisted in the search landscape, hoping for a change that could improve its chances.
Nadella’s testimony shed light on the tactics used by Google to maintain its dominant position. He mentioned that Google has both incentives and penalties to ensure smartphone makers stick to default contracts, including the threat of denying access to Google Play, the app store for Android phones. Nadella described an Android phone without Google Play as a “brick,” highlighting the immense challenge of overcoming such a hurdle.
Interestingly, this antitrust trial brings Microsoft full circle, as the company faced similar accusations in the past. In 1998, the Justice Department launched an antitrust case against Microsoft for maintaining a monopoly by requiring PC manufacturers to use its Internet Explorer browser and other applications in conjunction with its Windows operating system. The case was settled, with Microsoft making commitments to foster competition.
As the trial unfolds, the Justice Department is presenting its witnesses and building its case, with Nadella being one of them. Google will have its opportunity to present its defense and call its own witnesses starting in late October. The outcome of this trial could have significant implications for the balance of power between these two Silicon Valley giants and the overall competitiveness of the search engine market.