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D
Google doesn't have to sell its popular Chrome web browser, a federal judge ruled Tuesday in the Justice Department's landmark antitrust case against the search engine. The ruling allows Google to avoid one of the most severe remedy requests from the US Government after the court found that the company had an illegal monopoly in the search market. The judge did bar Google from entering into exclusive contracts for Internet search.
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E
All right, we knew we wanted to talk with our Mandeep Singh of our Bloomberg Intelligence team. He's here in studio. Google shares are up. I mean, was this expected? First of all, no.
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F
I think that's why you see such an instant stock reaction because the judge was quite vocal about how Google had created a monopoly because of all the assets and Chrome was one of the most prominent assets that, you know, they, the judge focused on. So clearly in this case, the fact that the ruling says that they don't have to divest Chrome, it's positive news. And look, all the exclusive arrangements with Apple and for their operating system, I think that was expected remedy, really. I mean, it kind of allows Apple to pick the partner they want. There won't be an exclusive arrangement. But look, from an Apple perspective, they can still say Google has the best alarm and, you know, they want to do business. So from that perspective, that's why Apple is up too. So, you know, this sort of clears all the uncertainty for both the companies.
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D
Look, I'm going to ask a Crazy question here. Do we care about search the way that we used to care about search, in the sense of typing something into Google, or increasingly, do we care more about which people choose?
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F
Well, so the search market has definitely expanded because of generative AI. So think of how Google had a 90% plus share. I'm sure if this lawsuit came to the scene and the hearing was happening now, the judge would say Google doesn't have 90% plus share because ChatGPT has got 1 billion monthly active users. It's got the query volume not comparable to Google, but almost one third of Google. And so that search market is not the same as it was probably three years back before the launch of ChatGPT. And from that perspective, I mean, look, the search pie has grown. The fact that Google owns Chrome is a big advantage. So when I look at Generative AI deployments, browser is a critical aspect of how AI agents will be deployed. That's why you're seeing such a stock reaction, because everyone knows if you take out Chrome from Google, even if Google has their own chips and they have got their, you know, own LLM, without a browser, the advantage just goes away. So divesting Chrome would have been a big, big blow. And, you know, that's why the combined entity owning Chrome and owning all the other assets that Google has is such a big advantage when it comes to Generative.
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E
Why are we getting though this ruling? And I guess I'm just bringing up in a world where we have a White House that I think it's fair to say is transactional, and we have seen various tech executives make their way to the White House. Is there something that was going on behind the scenes of, I don't know, that caught the attention? I don't know. What are you hearing?
- [04:38]
F
And I mean, there are obviously lobbies for these companies. Not a surprise, regardless of the administration. But look, in this case, clearly, as you said, the administration is transactional. And this was the best outcome for Alphabet, you know, not having to divest anything. There is another pending lawsuit, the ad tech lawsuit. But even if they have to divest something there, it's not that big of a deal as Chrome. Chrome is like the prized asset when it comes to Alphabet. When you think about YouTube and, you know, all the other things, Chrome is right up there. Without a browser, generative AI deployments get hard. And that's where owning the distribution through Chrome is paramount for a company like Alphabet.
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E
We just want to point out shares of Alphabet are up more than 6% here in the aftermarket. And mandeep, mentioned that Apple shares are also higher. And Tim, they're up about 4% here.
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D
I want to bring in Tom Giles, he's senior executive editor for Global Technology. He joins us from our San Francisco bureau. Tom, this ruling obviously coming as a surprise to investors. Look no further than shares of Alphabet higher by 6.4% in the after hours. Why do you think that we got this ruling today?
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C
I mean, this is a huge sigh of relief, right? This is, as Mandeep said, they avoided the most harsh penalty here, which would have been selling Chrome, which Google has woven into its products and is really an integral part of their value proposition to many customers. So major sigh of relief there. They're really allowed to continue to do a lot of the things that they have been doing. They're going to have to change certain, certain terms. But something else that they are, they will continue to be allowed to do is, is paying for browser placement. They can still make these big cash payments that give their browser, you know, a special placement on an, on a smartphone, for example. They just need to change. They can't have the kinds of exclusivity that used in the past. That's really what it came down to. And as you know, we're still parsing the decision. So let me be clear about that. But what they said was that if we, if we go too far and for example, say no to these payments, that would be onerous to the larger ecosystem, that would hurt some of the small players, some of the manufacturers, some of the other players in here. And I don't think that the DOJ clearly does not want to do that at this stage. Remember that some of these decisions are going to be revisited. This is a six year decision. We just had some headlines on that. So, you know, Google's going to have to continue to mind its P's and Q's in the coming years to ensure that it doesn't run afoul of this ruling. But on its face, the headline here is this is great news for Google, this is great news for Apple and you're seeing it in those shares rallying as we speak.
- [07:44]
E
Yeah, as you said, we've got Alphabet up six and a quarter percent, Tom, and then you've got Apple shares up 3.6%. So Mandy Pooh, beyond Apple and Alphabet are kind of watching this decision and maybe a little upset about it.
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F
I mean, remember the news when Perplexity wanted to buy Chrome and they put a value, I think 34 billion.
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D
I was talking about this earlier. Put Perplexity on The map. Everyone was like, wait, you don't even have that cash? But that's okay.
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F
Even if Google had to divest Chrome, 34 billion is too low of a price tag for an asset, you know, that has got over 3 billion monthly active users. That is at the core of deploying generative AI. I mean, that's why, you know, when you look at individual assets for Google, everyone looks at how much money does this make, right? Chrome doesn't make any money on a standalone basis. But when it comes to the value of chrome, we're talking 50 billion plus even higher. I mean, I wouldn't be surprised if it's close to 100 billion as, as just a standalone product, given how important it is when it comes to deploying the AI.
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E
So, Tom Giles, come on back in here. So if you were sitting down or I don't know if Alphabet's going to do any kind of call or what, what have you, what would you want to be asking them right now?
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C
Well, first of all, is there a plan to appeal? And what does that look like? What are the grounds? I hate to put it this bluntly, but you guys got off really easy here. You avoided the worst possible scenarios. As we've said, as Mandeep and I talking about, are you going to appeal? What are the grounds for that? They may see something in here that is onerous to them that they feel is going to tie their hands in the future. Again, it's a six year decision. DOJ is giving itself leeway to kind of revisit at least part of this. And so are there clauses, are there things that they want to change? And do they, you know, did they, do they want to send the signal that we don't think we're monopolists here? Which is, of course, what they've been saying all along. Do you want to hit that home with, with, with sending this into an appeals process?
- [09:51]
E
Same question to you, Mandeep. So you're sitting down with these execs over at Alphabet, and what you, what you would want to know, I mean.
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F
It sounds like they don't want Google to be making any exclusive payments to Apple, like the $20 billion tax payment going forward, which again, I view it as a positive because on the one hand it opens up, you know, other search companies to bid for Apple, but Apple has no choice but to go with Google. I mean, their users are used to, you know, the Google experience, and so it sort of saves the $20 billion that Google is paying Apple and that helps their gross margin. So I don't think there's anything bad here in terms of, you know, the judge restricting Google from having an exclusive arrangement with Apple.
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E
Is there anything, Tom, that we have to be worried, though, about the EU and their view on this?
- [10:47]
C
We always need to worry. If you're Google, if you're one of the major US tech platforms, you always need to worry about what the EU is doing, what they're thinking, where they might land on some of these decisions. I do think it's a slightly different paradigm across the pond, as it were. But I do want to come back to, and I'm curious, I want to hear from Mandeep too, about, you know, does the removal of the exclusive agreements, what kind of opening does that give to the other platforms? How might they try to gain an advantage here? It does make a huge difference when you buy your new iPhone or you buy a new smartphone. It makes a huge difference that, that there's going to be some kind of institutional or, you know, existing support for Google to be the default if you cannot, if you, yes, it's okay to make these payments, but if you can't have exclusive agreements, what about, what about Claude? What about ChatGPT? Can some of these other tools start to present themselves as alternatives and do it more readily? Mandy, please tell me if I'm, you know, you're right.
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F
So, I mean, Google search, 90% plus share is driven by these exclusive arrangements. So you're right. But I look at it this way. I mean, some of the ruling says Google may have to share their search index with other providers. I have to read the fine print. But that again, could make ChatGPT better in terms of solving for all the use cases that we use Google for. So from that perspective, it is a risk. At the same time, on Android, they own the operating system, so I don't think anything will change from a search experience perspective. And for Apple, again, they want their users to get the best experience. So I don't think they're going to take a chance by completely overhauling the search experience and, you know, bring in a Claude or a chatgpt for the native browser search. I would be very surprised if they did that. But I guess the final point here is if Google were forced to share some of their search index, then that could draw in more competition and that is a risk.
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E
I just want to point out that our Josh Sisco, who's got the right through on the Bloomberg terminal, says the order is one of the most monumental court decisions affecting the tech sector in more than a quarter century and could offer a blueprint for other judges who may end up weighing similar choices in cases against Metta, Amazon and Apple. So I mean Mandy, first to you, what are those like, what do we need to know about those cases and what that could mean for those companies?
- [13:29]
F
I mean there is nothing as serious as there is, you know, when it comes to Alphabet losing one of their core assets. I think for others, even in the case of Matter, I would have expected more fines than, you know, a divestiture. I don't think anybody is forcing Matter to divest in Instagram or you know, what's not the same? It's not the same. In the case of Google, the monopoly lawsuit said they had 90% plus share. That was the basis for the lawsuit. So the fact that the judge is not saying, you know, they have to divest Chrome and it is a testament to where the market is right now. The search market has changed completely over the course of the last three years very quickly. Yes, right. And so that's why I do think it's a fair ruling from that perspective.
- [14:19]
E
Tom Giles, even 45 seconds. Final thoughts.
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C
I am curious about what kind of precedent this does set. There had been a lot of fear about a breakup of Metta. If you're telling Google that it doesn't have to sell Chrome. And look, as Mandeep said, Google's a very different animal from the Meta situation. Google is making these huge, there's these huge payments that are being made right in favor of, you know, getting that browser on. You're not seeing those kinds of same payments, those big multi billion dollar payments heading to or from Meta. So that's another reason why to think that you're not, you don't you even have less reason to worry about a judge coming in or one of these regulators coming in and saying meta, you need to divest WhatsApp or you need to divest Instagram.
- [15:08]
E
Well, certainly caught our attention. Some big news and got some stocks moving. Hey guys, thank you so much. Bloomberg Intelligence, Global head of Technology Research, Mandeep Singh in our New York studio and senior Executive editor for Global Technology out there on the West Coast, Tom Giles, thanks so much to both of you.