A recently aired CBS 60 minutes segment asked: “How Did Google Get So Big?”
The shortest answer is illegal acquisition of market power.
The simple answer is an epic bipartisan failure of antitrust law enforcement by both the W. Bush FTC, in the 2007 bipartisan approval of Google-DoubleClick; and by the Obama FTC, in the 2010 bipartisan approval of Google-AdMob, and in the 2013 bipartisan, abrupt closure of all five FTC antitrust probes of Google for a five year period.
Concerning Google antitrust, both Administrations, both parties, and both the Senate and House overseers own this bipartisan, FTC-created, Google-monopolization mess. It demands bipartisan antitrust enforcement cooperation, investigation, and solutions soonest.
Overwhelming public evidence shows Google has purposefully and systematically deceived and played everyone here, in gaming and corrupting the antitrust law enforcement system like no other company has before.
There is hope that a clean slate of FTC commissioners, with clean hands and unprecedented bipartisan support behind them, will tackle and resolve this severe problem over time. Fortunately, it is a completely fixable problem. It just takes leadership, courage, and bipartisan political will.
Summary of “How did Google get so big?”
Both the W. Bush FTC and Obama FTC failed to enforce the Clayton Antitrust Act to prevent Google’s evident illegal acquisition of market power.
What conventional wisdom appears to be missing, is that the well-known, high Sherman Antitrust Act bar is not Google’s only antitrust risk. Google also evidently faces serious Clayton Antitrust Act risk.
That’s because the Clayton Act offers a dramatically lower antitrust enforcement standard of proof for the FTC [or DOJ] to win a case in court, i.e. proof that an acquisition likely will in the future, (or has in retrospect), “substantially lessen[ed] competition.”
Conventional wisdom also appears to be missing that the greatest potential and practical divestiture or breakup risk for Google would arise if the FTC [or DOJ] concluded, and could prove, that any of Google’s past acquisitions have “substantially lessen[ed] competition,” and that Google misrepresented anything material in the FTC’s review of the offending transaction.
Simply, if a government-approved transaction proves illegal after approval, it later can be undone by a court.
With that in mind:
· The FTC’s bipartisan 4-1 approval of Google’s acquisition of #1 digital advertising platform DoubleClick in 2007, predictably tipped Google to a PC search advertising monopoly – which by definition “substantially lessen[ed] competition;” and
· The FTC’s 5-0 bipartisan approval of Google’s acquisition of #1 mobile ad provider AdMob in 2010, despite “serious antitrust issues,” predictably enabled Google to extend its Google-DoubleClick PC search ad dominance into the mobile market, which by definition “substantially lessen[ed] competition.”
In addition, the FTC’s chaotic bipartisan closure of all five FTC antitrust investigations of Google – i.e. first, standard essential patent abuse (4-1, 3-0-2); second, search bias (5-0, 4-0-1); third, ad campaign API restrictions (5-0, 4-0-1); fourth, misappropriation of scraped content (5-0, 4-0-1); and fifth, Android contractual tying of search (no FTC vote or public disclosure) – predictably enabled Google to extend its search and search advertising monopolies to an Android mobile operating system monopoly and an Android app store monopoly called Google Play.
The Summary Incriminating Evidence of “How did Google get so big?”
Evidently the big FTC mistakes above have enabled Google to become the biggest monopoly with the most antitrust problems in modern times.
First, in 2007, the FTC’s approval of Google-DoubleClick combined the:
· #2 Internet ad audience, Google’s ~650m search users, with the #1 ad audience, DoubleClick’s ~800m ad viewers. Today Google commands 4.5b search users in 123 languages, which is the most used app in the world with the biggest captive digital ad audience for advertisers in the world;
· #2 Internet advertiser network, Google, with thousands of advertiser clients, with the #1 advertiser network, DoubleClick, that had ~1500 of the top 2000 advertisers that Google did not have. Today Google serves most of the world’s advertisers that digitally advertise.
· #2 Internet publisher network, Google with a million+ AdSense websites, with the #1 publisher network, DoubleClick, that had 17 of the top 20 websites that Google did not have. Today Google serves the most publishers of any company in the world, >15m sites.
In 2007 I testified before the Senate Judiciary Committee under oath, that the proposed Google-DoubleClick acquisition was a “watershed moment for Internet competition,” because it would combine the only two digital advertising companies in the world where each served over half of Internet users, advertisers and publishers, (when no other firm at the time served even 20% of any of those ad-critical constituencies), and that the combined Google-DoubleClick would command ~90% share of many of the key building block segments of the digital advertising marketplace, if approved.
It is evident from the results above, that the W. Bush FTC could not have been more wrong in 2007 in concluding that “Google’s proposed acquisition of DoubleClick is unlikely to substantially lessen competition.”
It is also evident that the FTC has yet to honor its public promise that the FTC would “closely watch these markets and, should Google engage in unlawful tying or other anticompetitive conduct, the Commission intends to act quickly.”
Second, in 2010, the FTC’s approval of Google-AdMob combined the:
· #2 mobile in-app advertiser, Google-DoubleClick, with 25% share, with the #1 mobile in-app advertiser, AdMob, the self-described “world’s largest mobile advertising marketplace” with 50% share of the mobile in-app market. This flipped a strategic nascent market with 75% of the market competing with Google-DoubleClick, to a mobile in-app ad bottleneck market where Google commanded 75% share of the mobile in-app market after the acquisition was approved. Mobile game set match.
In 2010 per NetMarketShare, Google commanded a 95% share of the nascent mobile search market of ~100m mobile search users.
As a result of Google-DoubleClick, Google commanded ~1.5m advertisers per UBS/NYT, about 100x more advertisers than any actual mobile in app competitor. Potential competitors Microsoft and Yahoo had 100k and 300k advertisers respectively, and Apple had none.
The FTC’s approval of a #2 Google and #1 AdMob hinged completely on its presumption that Apple would enter and quickly become such a strong mobile advertising competitor that the Google-AdMob transaction would not “substantially lessen competition.”
In approving Google-AdMob the FTC explained: “although the combination of the two leading mobile advertising networks raised serious antitrust issues, the agency’s concerns ultimately were overshadowed by recent developments in the market, most notably a move by Apple Computer Inc. – the maker of the iPhone – to launch its own, competing mobile ad network.”
As it turned out, Apple tried to buy AdMob before Google did, in order to jumpstart a new Apple iAd business. But the FTC let Google buy AdMob instead, which effectively foreclosed any real competitive opportunity for Apple to jumpstart a mobile ad business from scratch -- sans AdMob.
With no mobile ad experience or core competency to do advertising, Apple’s iAd business struggled and never amounted to much of a mobile in-app competitor that the FTC presumed in its linchpin assumption in approving Google-AdMob.
Today Apple has no material ad business and it now is Google’s biggest search advertising partner in the world in outsourcing/syndicating its search advertising business entirely through Google-DoubleClick’s dominant digital advertising platform, for a an estimated annual payment of $3b a year from Google for “traffic acquisition costs.”
What FTC investigators will find, they won’t like -- if they seriously investigate the ultimate effect of the FTC’s approval of Google serially buying their number one competitors in PC and mobile search advertising.
Today FTC investigators will learn what the marketplace has long understood, Google utterly dominates (>90%) mobile search advertising syndication and advertising on both the Google-Android mobile operating system ecosystem and the Apple iOS mobile operating system ecosystem, ever since Apple quietly defaulted to also offering Google Search and search advertising by default.
In 2017, 99% of new smartphones used either Android or iOS.
Simply, these FTC-approved transactions -- Google-DoubleClick and Google-AdMob – did much more than “substantially lessen competition,” they effectively enabled the Google destruction of mobile search advertising competition over time, that could not have been accomplished, but for the FTC’s grave Clayton Antitrust Act enforcement mistakes.
Third in January 2013, the FTC’s closure of all five FTC-Google antitrust probes, granted Google a de facto “green light” to extend its market power in mobile search advertising into the mobile operating system market and the mobile app store market.
In retrospect, the most problematic part of the FTC’s chaotic 2013 decision was the closing of the Android tying investigation, without a public vote or explanation, because that antitrust case was legally the strongest and most analogous to the U.S. v. Microsoft antitrust precedent.
We only learned of the FTC-Google Android probe from footnotes in the FTC staff report which stated: “Staff continues to investigate Google's conduct in the mobile [Android] arena and will address these issues in a supplemental memorandum;” (fn. 51, p120) and noted that “Since Google's release of the first commercially available mobile device running Android OS in October 2008, Android's market share has grown exponentially.” (fn. 51, p120)
This is serious because the FTC then did not act “quickly” on its knowledge of Google’s illegal 2011 Android tying contracts that required manufacturers and carriers to have Google search and location services installed as default, and required over 15 other Google apps to be pre-installed on the home screen or prominently. This was the “smoking gun” illegal contractual mechanism Google employed from at least 2011 to illegally extend its market power from the PC market to the mobile market, right under the FTC’s nose.
The FTC investigating staff in 2012 had to have discovered Google’s illegal tying in Google’s standardized Android contracts with manufacturer and carriers. If they did not, Google apparently would have been guilty of defying the FTC civil investigative demands for that exact type of information. (The public did not learn about these illegal Android contracts until a 2014 scoop by The Information.)
In effect, without a public vote or explanation, the FTC decided to look the other way for the last five years and let Google use illegal contractual tying (that was ruled illegal when Microsoft did it per U.S. v. Microsoft) to tie multiple additional Google products and services to its already dominant mobile offerings in search, search advertising, and search advertising syndication.
Now please consider the evidence below of how much Google has been able to illegally extend its mobile search advertising monopoly through out most of the mobile ecosystem over the last five years when the FTC evidently looked the other way.
Android OS monthly users have grown from ~500m in 2012 to >2b in 2017 -- ~400% growth in five years. As for market share, in 2012 Android had 70% share of the global mobile OS market, which increased to an 88% share by 2018 per Statista.
The number of Google Play apps have increased from 700k in 2012 to 3.6m in 2018, -- ~400% growth in 5 years.
Google Chrome users increased from ~400m in 2012 to >1.5b in 2018 -- ~400% growth in five years. As for Chrome’s market share, it has increased from 32% in Jan 2013 to 58% today, per Statista.
Google-YouTube users have grown from ~800m users in 2012 to 1.8b users now, -- ~125% growth in 5 years.
Google Maps users increased from ~1b users in 2013 to est. 1.8b Google Maps users in 2018, -- ~80% growth in 5 years.
Google Gmail users have grown from 425m users in 2012 to about 1.2b users now, -- ~180% growth in 5 years.
Concerning Android apps, as a result of Google’s contractual tying, Google now commands 16 of the top 20, or 80% of the most downloaded Android Apps.
Lastly economically, from 2012 to 2017 Google’s revenues grew 118% from $50.2b in 2012 to $109.7b in 2017, which is ~9 times faster growth than the 11.34% economic growth in real USGDP from 2012-2017 per the U.S. BEA, and ~18 times faster revenue growth than the 6.14% revenue growth of the Fortune 500 from 2012 to 2017 per the Fortune 500.
As for market valuation, from 2012-2017 Google’s market value increase 200% compared to the S&P 500’s market value increase of 87%.
Conclusion:
The evidence is overwhelming, the FTC’s approvals of the Google-DoubleClick and Google-AdMob transactions -- “substantially lessen[ed] competition” illegally.
In addition, the evidence is overwhelming that the FTC’s de facto stoppage of antitrust oversight of Google in January of 2013 for five years, effectively invited and facilitated Google’s illegal extension of it mobile search advertising monopoly power through much of the mobile ecosystem.
Why so many others are calling for Internet platform monopolies like Google to be broken up, is that they intuitively know that they did not achieve their monopolies on their own merit, but via the illegal acquisition of market power, like Google evidently did in acquiring DoubleClick and AdMob.
Forewarned is forearmed.
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Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an internetization consultancy specializing in how the Internet affects competition, markets, the economy, and policy, for Fortune 500 companies, some of which are Internet platform competitors. He is also Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. Cleland has testified seven times before the Senate and House Antitrust Subcommittees on antitrust matters. Overall, eight different congressional subcommittees have sought his expert testimony a total of sixteen times. When he served as an investment analyst, Institutional Investor twice ranked him the #1 independent analyst in communications. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.”
