The US Department of Justice has smacked Google with a massive antitrust lawsuit, a once-in-a-generation case that challenges the company's dominance in search. It could eventually affect how everyday consumers use their phones.
The DOJ said Tuesday that Google's exclusionary practices hurt the market and, ultimately, consumers because those practices could deprive them of the innovation that competition brings. Google says the lawsuit is "deeply flawed" and argues that smartphone prices would rise if the Justice Department prevails.
Nothing will change for consumers in the near term. Antitrust cases typically move very slowly. If Google and the government don't reach a settlement, appearing in court and appealing the process could drag on for years. But a decision that forces Google to change its business practices could impact both the tech giant's billions of users and the billions of people who use competing services. The case could alter the amount of data people give to Google or affect what apps come installed on phones. But, analysts say, Google's argument that it helps keep down the price of devices like the iPhone are likely overinflated.
At the heart of the Justice Department's case are Google's contracts with other companies, which set the tech giant's search engine as the default option on devices including iPhones and Samsung phones. It's big business, and Google pays billions of dollars a year to make sure it's front and center. Google's hold on that default spot means it's in control of what people see whenever they look stuff up on their phones.
The DOJ's complaint dives specifically into Google's agreement with Apple, the most valuable tech company in the world. Google pays Apple $8 billion to $12 billion in ad revenue a year for its default search deal. It's a top priority for both companies. In 2018, Google CEO Sundar Pichai and Apple CEO Tim Cook met to discuss how they could work together to drive revenue, the lawsuit says. After the meeting, an Apple employee allegedly wrote to a Google employee, "Our vision is that we work as if we are one company."
The deal is a boon to both tech giants: The lawsuit says the agreement accounts for 15% to 20% of Apple's annual profits. The suit also says almost half of Google's search traffic last year came from Apple devices. The deal is so important that Google views losing it as a "Code Red" scenario, according to the DOJ's complaint. (A code red indicates fire or smoke at a hospital.)
Google and Apple didn't respond to requests for comment.
Google, Apple and the price of phones
On a conference call, Google argued that the Apple deal helps to keep phone prices down. The search giant said its payments to Apple are part of what helps the iPhone maker enter the lower end of the market, something Apple has done by adding the budget iPhone SE to its lineup. If Apple no longer gets that revenue, Google's thinking goes, Apple could seek it from consumers, meaning higher prices. Google also argues that it's pushed down the price of other devices by providing its Android mobile operating system for free to phone manufacturers.
Avi Greengart, lead analyst at the research firm Techsponential, says Google's argument would make sense if it were applied to almost any phone company. However, Google stretches the logic when talking about the maker of the iPhone, the most famous smartphone of all time. Apple doesn't need to get that money from Google. It could get that revenue from another suitor, such as Microsoft, Greengart says.
"It's not clear to me phone prices would go up," he said.
Microsoft -- which was the object of the DOJ's ire two decades before Google entered its crosshairs -- makes Bing, Google's nearest search engine competitor, though it's distant second. Bing owns 7% of the US market, far behind Google's 88%, according to the DOJ. Microsoft, too, pays Apple to have Bing prominently featured on Apple devices. Microsoft declined to comment.
Android and preloaded apps
The Justice Department also calls out Google for its Android business contracts. The software is the dominant mobile operating system in the world, powering almost 9 of every 10 smartphones shipped globally. The DOJ claims Google "locks in" search distribution on Android by forcing its partners to preload its search service and other apps onto devices.
To bat away that criticism, Google is willing to poke fun at itself. The search giant argues that preloading apps onto phones doesn't guarantee success. Google reps point to Google Plus, its Facebook rival. The service was a major initiative, pushed by Google co-founder Larry Page. The Google Plus app was preloaded on Android phones, but it ultimately went nowhere, Google's reps acknowledge. The company shut down Google Plus last year.
Still, factory settings like preloaded apps and default options make a difference, says Bob O'Donnell, an analyst at Technalysis. Studies have shown that default settings are important, and consumers can be hesitant to change them or unaware of how to do so. They have enough significance that Google shells out billions a year to keep its status. If people were given a choice, most people would stay with Google, O'Donnell says, but some may opt for a rival.
"There's no question that defaults have power," he said.