Details of Google's antitrust ruling exposed: Microsoft pays for Apple not to use Bing?

Key Points

① Apple believes that Microsoft Bing's performance is very poor. Even if Microsoft is willing to provide it for free or even pay for it, Apple is not willing to set it as the default search engine for Safari.

② In order to become the default search engine for Safari, Google pays Apple a huge share of advertising revenue every year, around $20 billion in 2022.

③ Apple is not unwilling to develop its own search engine, but to replicate Google's current technological infrastructure, it may cost at least $20 billion.

According to Tencent Technology on August 7th, the U.S. Department of Justice's ruling on Google's monopoly has been announced. In the 286-page ruling, U.S. Federal District Judge Amit Mehta made detailed factual findings and legal judgments on Google's monopolistic behavior in the search engine field. This ruling not only reveals the various strategies Google has adopted to maintain its market dominance, but also exposes the heated debates among executives of the companies involved, embarrassing internal research, and astonishing details of the contract worth hundreds of billions of dollars between Google and Apple.

Apple Believes Microsoft Bing's Performance is Very Poor

Google pays Apple billions of dollars each year to ensure that its search engine becomes the default option on Apple's Safari web browser.

However, during the trial, Eddy Cue, Apple's Senior Vice President of Services, stated, "No matter how much Microsoft offers, Apple will not consider making Bing the default search engine for Safari." He explained, "Even if Microsoft offers Bing for free, or even gives it away with the company, we will not consider it."

For Google, this indicates that they have already won this default position, although Google does need to pay a substantial amount to maintain this position. Judge Mehta pointed out, "This highlights an undisputed fact that Google has become the only choice in the default general search engine field."

Even Fortune 500 Companies Can Only Choose Google

Google not only has a close partnership with Apple but also has agreements with mobile operators and device manufacturers to ensure its position as the default search engine on Android devices. While the mechanisms of these agreements may vary slightly, they are all based on Google's dominance in the app store.

It is worth noting that not only Cue has expressed rejection of Bing, almost all tech companies see Google search as the only choice. Even "Fortune 500 companies" lack a true alternative when it comes to choosing a default search engine.

Judge Mehta bluntly pointed out in the ruling, "Google understands that in the issue of default search engines, its market position is solid, with almost no competition concerns, because partners understand deeply that giving up Google also means giving up the huge revenue share it provides—often in the hundreds of millions or even billions of dollars. Therefore, partners repeatedly weigh the options and believe that from a financial perspective, changing the default search engine or seeking greater autonomy in search products is not a wise move."

Google - Apple Signs a Win-Win Agreement for Ten Years

According to the ruling, "In order to occupy the exclusive and non-exclusive default search engine positions on Apple devices, Google has paid a significant portion of its net advertising revenue to Apple, and by 2022, this amount has reached $20 billion. This figure is almost double the amount Google paid in 2020, when this payment accounted for 17.5% of Apple's operating profit."

The current contract between Google and Apple dates back to 2016, but their cooperation goes even further. It is worth noting that around 2016, Apple also introduced a new feature called Suggestions, which had a significant impact on Google. Google's analysis shows that due to Apple's Suggestions feature, its search traffic on Safari browser decreased by 10% to 15%, and its advertising revenue on iOS Safari decreased by about 4% to 10%.

To address this situation, Google specifically added a provision to the contract signed in 2016, requiring Apple to keep the implementation of the default search engine on Safari "basically similar" to the previous version, in order to limit Apple's further expansion in search functionality and prevent Google from losing more traffic due to Apple's innovation.

Today, on the iPhone, "Google receives almost 95% of general search queries."

The terms of the 2016 contract seem to benefit both companies. Google and Apple extended the agreement in 2021, and the contract will expire in 2026. However, Apple "can unilaterally extend the agreement by two years," and if both parties agree, they can further extend the contract until 2031. According to the contract agreement, both Google and Apple are obligated to defend this agreement, "in response to antitrust regulatory actions similar to those brought by the Department of Justice."

How Challenging is it for Apple to Challenge Google Search?

Judge Meta pointed out that the huge amount of money Google pays to Apple not only weakens Apple's willingness to challenge Google's dominant position in search, but even if Apple has such willingness, it actually faces insurmountable obstacles. Both Google and Apple have conducted relevant research and disclosed internal estimates in court.

Apple estimates that in order to operate a comprehensive general search engine, in addition to current search development expenses, an additional $6 billion in funding is needed annually. Google's assessment at the end of 2020 shows that for Apple to replicate Google's current technological infrastructure, it would cost at least $20 billion.

Is TikTok a Competitor to Google Search?

TikTok is clearly not, and neither are Amazon and Meta.

In the Google antitrust case, the court raised the concepts of General Search Engines (GSE) and Specialized Vertical Providers (SVP). Among them, General Search Engines are commonly understood search engines, including Google, Bing, DuckDuckGo, etc In addition, there are thousands of "small search boxes" on the Internet for finding specific information or purchasing goods. However, services like Booking.com and Amazon.com are not general search engines, as they are fundamentally different from general search engines that index the World Wide Web.

Social media platforms also have search boxes, such as TikTok's search function. The way it operates in terms of user behavior is slightly different from general search engines, and it has never been seen as a competitive threat to Google search. However, a study by Google in 2021 found that among Generation Z (18-24 years old) users who use TikTok daily, 63% of them consider TikTok as a search engine.

Judge Meta pointed out that social media platforms are different as they can be seen as "walled content gardens." More importantly, "there is almost no evidence to suggest that they are actually competing with general search engines." He said that just because young people like TikTok does not mean it is competitive in Google's relevant search market.

Furthermore, TikTok is not the only leading social platform. Judge Meta mentioned that research has found a positive correlation between the usage of Facebook and the search volume of Google.

In the context of antitrust analysis, Judge Meta believes that the internet habits of Generation Z users are not a key consideration. He wrote, "Imagine, if Google's search quality significantly deteriorates, whether intentionally or negligently, can we reasonably expect that a Facebook Vice President or any other social media platform can quickly allocate resources to launch a product comparable to Google's search engine, thereby attracting a large number of dissatisfied Google users? The answer is obvious, this is extremely difficult. Even industry giants like Amazon or Meta, if they want to fill this market gap, will face huge costs and expenses."

When will the AI search revolution come?

Artificial intelligence search may herald the future, but this future has not yet materialized, at least not under the scrutiny of antitrust laws. Judge Meta wrote, "Artificial intelligence may eventually fundamentally disrupt the search field, but this process is not immediate. Currently, artificial intelligence cannot fully replace the basic components of search, namely web crawling, indexing, and ranking mechanisms."

Judge Meta added, "Generative artificial intelligence has not (at least not yet) eliminated or significantly reduced its reliance on user data to maintain high-quality search results." This conclusion is supported by Sridhar Ramaswamy, co-founder of Neeva: "In certain contexts, the process of determining the most relevant pages for a query still heavily relies on user click behavior data." He emphasized that artificial intelligence models not only do not eliminate but actually strengthen this data requirement In other words, when you search for "golf shorts" on Google, it not only presents relevant results but also accurately captures preferences through user-clicked pages, continuously optimizing the relevance of search results. This feedback-based loop mechanism has not been seen in artificial intelligence chatbots.

Furthermore, the ruling also cited the views of Google's Vice President of Search, Pandu Nayak, who believes that Google continues to maintain "an infrastructure that can understand and operate effectively" - traditional ranking systems are crucial. He said, "Handing over rankings entirely to emerging systems is not practically meaningful at this stage. We still need to maintain a certain level of control and understanding."

"Only monopolists can do this"

In 2020, Google conducted an internal study to explore the potential impact on its profitability of "significantly reducing search quality." The research results indicate that even if Google deliberately lowers the search experience, the revenue from its search services will not be greatly affected.

Judge Mehta commented on this, "Google can freely adjust its products without fear of losing users, which is something only monopolists can do."

The core of antitrust regulation lies in maintaining the fairness of market competition. Competition is the cornerstone of driving market prosperity, promoting business growth, and safeguarding consumer rights. In the internet age, "consumer harm" as a measure of monopolistic behavior, while controversial in its applicability, the Google antitrust case undoubtedly provides us with strong evidence: even industry leaders known for innovation may, through traditional means of stifling competition, inflict invisible harm on consumers - that is, even if service quality declines after excluding competitors, Google can still maintain substantial profits.

Article Author: Jin Lu, Source: Tencent Technology, Original Title: Google Antitrust Case Ruling Details Exposed: Microsoft Pays Apple Money, Bing Not Needed?