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Emergency Podcast: Ari and Alan Chapell on the Google Search Remedies
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- [00:01]
A
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- [00:40]
B
This episode is brought to you by Sovereign, a software and data company powering commerce media campaigns for the world's largest brands. With real time purchase intent data collected from over $3 billion in annual retail spend. Sovereign's commerce media deals are helping reach consumers at the time of purchase and deliver better outcomes for advertisers. To learn more, visit sovereign.com that's s o v r n.com to learn more. This podcast is brought to you by Adelaide Media Verification and measurement are undergoing major disruption. Legacy players are pivoting to performance advertising, AI is reshaping brand safety and attention is replacing viewability. Adelaide is leading the shift with au, a new way to assess media quality that scores placements based on their potential to drive attention and outcomes. Before your ads run, think of it like a credit score for media. Finally, a clear view of quality before you buy. Take the guesswork out of your investment strategy and try Adelaide AU on your next campaign. Welcome to the Market Podcast. This is Ari Paparo. We have a special episode today. It's called an emergency episode. Get out the sirens. I'm not sure how to describe it, but yesterday, as of the recording of this on Wednesday, the remedies in the Google search case came out and Judge Meta effectively let Google off the hook. We'll hear more about that. And so we want to do a special episode with myself and the primary author of the Monopoly Report, Alan Chappelle, who is an expert in all of these things, privacy, regulatory, et cetera, antitrust. And we're going to go through the ruling, what it means and et cetera. And then we'll have a second episode this week on Friday where Eric and I go through our news of the week. And it's been a newsworthy week. So with that, let me welcome Alan Chappelle. Alan, thanks for being here.
- [02:39]
C
Hey Ari, thanks for having me on.
- [02:41]
B
We're starting to become like a rotating cast of characters in the architecture world. We just pull people from left, from right. Everyone kind of hears the same voices on different podcasts.
- [02:50]
C
I like it that way. You cross pollinate a little Bit.
- [02:53]
B
Yeah, exactly. So take us through it. What did Judge Mehta rule in these remedies?
- [03:00]
C
Well, I think at a high level, Judge Mehta basically took what Google proposed, made some very minor edits to it, and then put that in his ruling. And that's sort of it. I mean, a lot of us were maybe tongue in cheek here, but almost mocking what Google had initially proposed. And it turns out that they had the ear of the judge and the judge mostly agreed.
- [03:26]
B
Okay. So as setting the stage, Google was declared a monopoly. So the same judge ruled that Google was a monopoly and there needed to be some action. And then the actions he recommended were in no way going to stop them being from a monopoly. So let's run through it one at a time. So first we have the headline Chrome is not being spun out.
- [03:53]
C
Yeah, well, the judge basically decided that pulled precedent from the Microsoft case, what, 25 years ago, and basically said that a divestment was not in the cards. And there was a couple of rationale for that. I think they decided that the plaintiffs, the doj and the states failed to meet the heightened, what they call clearer indication of a significant causal connection. So in other words, that I think they're saying that the Chrome browser in and of itself was not the thing that caused the monopoly, which is sort of true. On the other hand. Yeah, well, that's the thing. It's sort of true. But if you're really looking at this holistically from the perspective of how Google has been able to perpetuate its monopoly over the last 10 years, it's not true at all.
- [04:51]
B
Chrome wouldn't exist if Google had not built it for the express purpose of supporting its search. Right. The reason they built Chrome was because they were scared that they were building a search a business that was dependent on another company, namely Microsoft, who owned the browser.
- [05:08]
C
No, absolutely. And then the judge came up with a couple of additional rationale which I found surprising. The first one was, well, what? 80% of Chrome's user base is outside of the U.S. and you know, in an America first world that we seem to be living in. I was really surprised by that because, well, for one thing, it's very clear to me that the European Union and the UK and a whole bunch of other places were sort of waiting for this announcement or this decision to come out and then they were going to react. So the idea that, that Judge Mehta has said, well, you know what, we're not going to divest Chrome because it impacts the rest of the world in such a big way. To me, felt a little bit like an abdication on his part.
- [06:01]
B
Yeah. And there's a good contrast here because, correct me if I'm wrong, but in the ad tech case, Judge Brinkema found that the abuses were global. So that the same rationale won't work in the ad tech case.
- [06:11]
C
Yeah, that's a really good point. And so, you know, some silver lining, I suppose, and that that argument isn't going to play well with Judge Brinkama. Right, but, so, but in this case, which I still think is actually was more important to the health of the larger digital media ecosystem, you know, the judges basically said, no, we're not going to divest Chrome. And, and you know, what that means is that we're going to, we're going to be back in antitrust court at some point. I don't know who's going to be bringing it because there's a separate, there's a separate discussion to be had about whether this DOJ is really super interested in pursuing these types of charges. You know, Kahn and Kanter have clearly left the building.
- [06:57]
B
All right, let's get back to future activities later in the pod. Let's go through current. So Chrome's off the table, the Android just off the table entirely. Android wasn't explicitly asked for the doj. They said it was contingent and the judge just threw that one out. No reason even dwell on it here. The, the surprising one is the distribution deals. In my opinion, this is the surprising part because the headline from the, from the case was that Google pays apple something like $28 billion a year for distribution. And in the testimony in the case, folks like Microsoft said it didn't matter how much they paid, they couldn't get that slot because their search wasn't good enough. They didn't monetize it enough. And so this payment is a unique ability of Google to maintain their position and their monopoly. And the judge just sort of didn't do anything about it. Right. The judge just said, no, if we remove the payment, it will be devastating. He didn't say devastating, but it'll be problematic for Apple and the OEMs and the browser makers. It would save Google money. So we're not going to prohibit this payment.
- [08:14]
C
Yeah, it seemed like the judge was afraid of blowing up the market. The, the unintended consequences argument. And the judge made a couple of references to, you know, look, I can't predict how the market is going to work. Which is, which is kind of funny because it's like, okay, then maybe we could have gotten somebody who was willing to venture a guess, kind of.
- [08:37]
B
His job is like you had one job. Right.
- [08:41]
C
That's how it feels. And so I guess this is great news for Mozilla, who really seemed to be an entity in search of an actual business model. And now they've got their business model restored. But at the end of the day, I don't understand the rationale. If the goal here is to prevent Google from continuing its dominance over the larger ecosystem. Well, okay, you've now set up a situation where they're continually, you know, they're, they're able to continue to buy their way into distribution and into perpetuating the dominance of their, their search product.
- [09:27]
B
The judge tweaked it. The judge said, if I'm correct, he said there's, the deals have to be on a one year basis instead of a longer term basis. The deals can't bundle AI and search and the deals can't be exclusive, which is sort of a red herring because you can only have one default. So I'm not sure what exclusive means here. Did I get that right?
- [09:49]
C
Yeah, I think, I think that's exactly it. And so it's just, it's difficult to see how this is really, how this is going to do anything other than continue to perpetuate Google's dominance.
- [10:03]
B
Yeah. And it's maybe worth spending a moment talking about the theory of the whole case. The theory of the case is that effectively search has this flywheel effect where the bigger you are, the better you get at search and the better you are at search, the more you monetize, and the more you monetize, the more you can pay for distribution. So it's kind of a complex argument. And we've been talking about distribution. So the two distribution allegations, Chrome being a monopoly and payments, the judge did nothing effectively. Nothing about, which is a little shocking to me. A little shocking. But let's talk about data then. So on the data side, there was quite a bit of testimony from folks like Microsoft that said that there's this enormous data advantage that Google sees more searches so they get better at search. An example is long tail searches. If somebody searches for, I don't know, a cafe in a certain neighborhood in a rural area of the country. Bing has never seen that search before, so they haven't trained on it. So the results are not as good. I'm a little skeptical about this argument in general, but the judge seems to have taken this one as the heart of his remedy. So what is this data sharing thing and how's it going to Work well, yeah.
- [11:26]
C
So I think it starts with there's a concept of a qualified data user. I forget exactly what the term it was, but there's a group of entities who are going to get some access to data. At the end of the day though, this to me seems like the exact type of scheme which plays very much into Google strengths, which is to run everybody around in circles for the next 18 months. Now, the one thing that I should point out is that monitoring this is going to be a technical committee of five individuals, one picked by Google, two picked by the DOJ and states, and then the other two picked by the first three. So the good news there is that this technical committee is going to have a fair amount of power and it seems like it's going to be difficult for Google necessarily to dominate this technical committee. So there's that. Although again, I, you know, Google is just so good at playing this game that it's very difficult for me to see how any of Google's actual competitors are going to end up with something that is really meaningful, that they're going to be able to build a business off of. Because what's going to happen is you're going to create something, you're going to think you've got a certain data flow coming to you as one of these qualified entities and then there'll be an update or a change and hey, this is to your benefit. I can just see some iteration of Alex Cohn or somebody over there, you know, saying, no, this is all good for you. You don't understand, this is all good for you. And then, and it'll be, but it'll be a significant change to the quality or quantity or formatting of the data that gets received. And it's really hard to build a business off of that.
- [13:17]
B
Yeah, I think there's so many nuances here. Like think about just the privacy aspects. You know, they're not going to want to give out any data that could identify users or user behavior. And that is a giant can of worms. Like what sort of data do they provide on geography, on time of day, things like that, which are probably really important. But also there are queries that alone indicate the user people's surnames in the query strings and things like that. And so there's going to be a whole effort by Google to sanitize the results. And there could be, I mean, maybe you can put on your lawyer hat here, which is this subject of this data could be subject to additional lawsuits by other parties, privacy lawsuits, you know, all kinds of people. Who may not want this data to be transferred despite the order transferring it.
- [14:08]
C
Oh, yeah. Well, the ad space is, right now is up against a series of SEPA litigation, the California Information Privacy act, the Wiretap act, and that's just, you know, pixels are firing and pseudonymous data is being collected by X fill in the blank. It's really anybody in the ad space now because half of them are under some flavor of litigation there. So, but, but. So you could certainly see a scenario where Google completely in the right, says, hey, we can't give this data with respect to California data subjects because of sepa. And while, you know, some of us will be, you know, up in arms and say, well, that's horrible, you kind of understand it from Google's perspective because they don't want to get sued.
- [14:54]
B
Right, Right. And also, we're just talking about search data. Your search results include the profiles they have about you, like your current location, your Gmail activities, the inferred demographics. I mean, for some searches, that's not used very much, but for some searches it is. Does this include maps searches? Does this include, you know, chat searches? There's like a million points here. One point I also want to make because like a lot of folks on Twitter, so kind of the ad tech crew on Twitter just started, you know, rubbing their hands together in glee thinking about all the data they could have and they're not going to get this data. There's going to be a very limited number of very qualified companies like DuckDuckGo, Microsoft and, you know, a handful of others to get any of this data.
- [15:38]
C
Yeah, it's going to be, it's going to be a very narrow list and it's going to be a very, it's going to be a moving target in terms of who gets access to the data, probably. But more importantly, it's going to be a moving target in terms of what they get. And some of that will be Google gaming the system. And some of it will be based on just legitimate concerns for, you know, for privacy.
- [15:58]
B
So last point on the ruling is choice screens. So this is also sort of the one that a lot of people thought was just in the back pocket, like, don't worry about it. There'll be choice screens where you'll install Chrome for the first time. A little pop up will say, hey, are you sure you want Google? Maybe you want Bing? I would say that people thought this was a shoo in that there'd be choices screens, mainly because it's just such an easy remedy for the judge to Just throw in and say they're doing something about the monopoly. And the judge said, no, no choice screens. They don't want the judge, the judiciary to be involved in product design was more or less what he said. I mean, I don't know. I don't even know what to say at this point.
- [16:39]
C
Well, but okay, I'm going to play. I'm going to maybe provide a counter to that. I mean, there has been a fair amount of research now on choice screens, and the recognition is that they're fairly useless. And so that might be one of the places in the ruling that I'm just thinking. I'm not sure I disagree with.
- [17:01]
B
All right, so let's talk about the effect of this ruling on Google's search monopoly first. I think the effect is zero. There will be zero reduction in Google search monopoly based on anything in this ruling.
- [17:16]
C
Yeah, yeah, this is. Let the market figure it out is really the message here. The market figures it out. Maybe we're back in antitrust court in about five years with a different DOJ coming after Google's AI. But the one thing I just want to point out here is there was a time in 2013 when Leibowitz was running the FTC where I think collectively they missed a moment to reign Google in. And I think this is another one of those moments. And what really strikes me is that things have become so much more difficult now because of how big Google has gotten. And I just wonder, five years from now, is Google going to be even bigger and have its tentacles out in even more places and be even harder to rein in? Because one of the judges here's issues was, hey, they're intertwined in so many things that breaking them apart or doing something meaningful is really going to screw things up. And I don't want to screw things up.
- [18:27]
B
That was definitely the feeling of the remedy. So a couple of points to follow up on what you said. So to some extent, AI saved Google here, because basically, and the judge writes this, AI was not a big part of the original trial, but it became a big part of the remedies trial, because AI is, as we've discussed in this podcast endlessly, the biggest threat to Google search monopoly. And so is this a good judicious ruling? Because the biggest criticism of antitrust historically has been they fight the last battle that they go after IBM right when the mainframe is dying, and they go after Microsoft just as the Internet's starting, and now they're going after search just as search is becoming irrelevant. So maybe the judge is smarter than the rest of us and took the right road here.
- [19:17]
C
I actually disagree with that. I think that the way that the DOJ was trying to set up the ruling or trying to set up the remedies was specifically to address an AI world and to prohibit Google from enjoying the fruits of their search monopoly in AI. So look, I can't get inside of the judge meta's brain here, but in my view this, that there was an opportunity to, to push antitrust law into the next thing and to be maybe a little bit more forward looking. Now that begs the question that maybe antitrust law is not the right remedy for what ails the larger digital media marketplace. But boy, I don't know. We're running out of things because there's no Section 230 privacy laws and certainly isn't doing a whole heck of a lot. If antitrust law isn't going to save us, then what's next?
- [20:14]
B
Right, well, but there were some changes to the way Google's allowed to do business with Android. I think they voluntarily changed some of their policies to be less bundled between the Google services and search and Android and the change to the default browser requirements that is in the ruling, sort of crack the door open for AI to be treated differently. But the reality is, is that if AI is able to take 10 or 15% share from Google over the next year or two, which would be, that would be a massive change in the market that would be more effective than anything the judge would have recommended.
- [20:52]
C
Yeah, fair point. We'll see how all that shakes out. But Google still has a near insurmountable advantage given the distribution points via Chrome.
- [21:05]
B
Okay, well I guess stepping back from putting on our economics hat, is search a natural monopoly? Meaning a natural monopoly more or less is defined as a business where its scale is so important that you can only have one company that wins. And I think that's Google's argument more or less is that it's not their fault they have a monopoly. It's just the only way you could run search successfully.
- [21:29]
C
Yeah, I'm skeptical of that. I think that's just how it worked out. But I don't see any reason why a number of entities could not have been more successful in search. And now we can point the figure at Microsoft, we can fork the figure at what was it? Ask Jeeves or going way back. But like Yahoo.
- [21:46]
B
Yahoo would be.
- [21:48]
C
Well, yeah, Yahoo dropped the ball in so many places over the years that, you know, I guess search is certainly one of them. So yeah, fair enough. I'm Not. I am skeptical of that as an argument. And even when it comes to AI, people who are smarter about this stuff than me on the business side are already telling me that there are certain AI engines that are better for certain things. And so certain types of queries that just lend themselves better to. Because. Because of probably the input data and because of how the algorithm works. And so I am, you know, hopeful that, you know, despite this ruling, we can end up with, you know, an AI world where that's just more than one company providing it.
- [22:31]
B
So a couple of times this conversation, you've referred to the future antitrust cases and the doj. So I want to push back on a couple of things or at. Explore a couple of things. First thing is, do you think that the DOJ phoned in this remedies? Do you think it's. They are. That under the Trump administration, this new DOJ is less supportive of this case and that this outcome was more about the prosecution than it was about the judge? Or. Or am I reading too much into what you're saying?
- [23:00]
C
I think you might be reading too much into it. If you look at what was initially proposed by the Cantor DOJ and what was now proposed by the Slater DOJ under the Trump administration, they're almost identical. I think there was one quirk in the indexing part of the proposed remedies, but that's sort of minor in the grand scheme of things. And so I don't think you can make. I don't think that argument really holds water. Where I think where you're going with this, that does hold some water is how much does the Gail Slater DOJ really want to fight this? And judging by the celebratory press release, there's certainly evidence that maybe they don't want to fight this.
- [23:47]
B
Yeah. So for those who don't know what we're talking about, in typical Trump fashion, the DOJ celebrated this as a massive victory, which is just, you know, right out of some Cold War propaganda. So, okay, so next steps. Is Google going to appeal or do they just settle?
- [24:05]
C
And wouldn't it be funny if they did? I mean, that would just be the ultimate chutzpah move. Right.
- [24:11]
B
They never take their foot off the gas, though. I can't imagine them settling.
- [24:15]
C
So I think that they're probably right this second counting on the DOJ to appeal. But. But if that doesn't happen, I wouldn't rule it out. But, boy, I think you take this deal. Yeah.
- [24:29]
B
Yeah, take the deal. Right. Both sides just take the deal. Right. We can't do these podcasts the rest of our lives. It's time to end this thing.
- [24:38]
C
No, we've got other things to focus on.
- [24:42]
B
What are the other shoes to drop, though? So you said five years from now there'll be another antitrust case. Do you think it'll be the same antitrust case? Can you run the same play or are you thinking like future developments will be an AI case or something like that? And also, what's the role of civilization? Antitrust and, and, or state.
- [25:00]
C
Okay, so when I talked to Jonathan Kantor a while back and name dropping, yeah, I know you like that, that humble brag when Jonathan Cantor and I talked to Jonathan hanging out, but I think he made a really good point, which is that, look, as you're, as you're approaching these types of cases, there are any number of ways that one can go and you have to, you know, pick a lane to, to a certain extent or pick a horse or a couple of horses that you really, really want to go after. That ultimately is I, I think, going to end up being a problem in the ad tech case because I don't think they focused enough on the buy side, but we can, we'll be there in a separate pod for that. Okay, but, but I think that, but, but I think that, you know, there, there were a bunch of different ways they could have gone. They could have focused more on Android. There's not a lack of areas for a DOJ to come after Google. And then number two, and this one, I won't name drop number two. The DOJ had to come back to the bar with Microsoft, what, three times, four times before they got something crazy.
- [26:07]
B
And then the FTC went after them and then the DOJ went after them. Right?
- [26:11]
C
Yeah, yeah. And so these things, you know, it's really difficult to get this kind of thing right where I think, you know, where I think that we're in a little trouble here if we were hoping for some flavor of a breakup or meaningful remedies. Where we're in trouble is that it's not clear that this DOJ has the intestinal fortitude or just the will to keep coming back.
- [26:37]
B
Right, Right. And I do think that the environment with AI ascendant really does call into question what you would do with search. It's, it is a pretty tricky issue and I think both of you and I had written about this in separate newsletters about how hard it was to come up with a good, satisfying remedy in this case. And I think that that proved, you know, to be A stumbling block for the court.
- [27:03]
C
Yeah, you know, in, in retrospect, it's always very easy to Monday morning quarterback this stuff, particularly as a Jets fan. At the end of the day, the, the. They picked a case that was a very good, classic antitrust case to prove. And you know, Judge Mehta's initial opinion said, yeah, this, this is a classic antitrust taste. Google is a monopolist, but on the back end, when they went for remedies, it's a much, much harder thing. Because what do you really do here? Now, I'm of the mind that the current ecosystem is so broken that I'm okay with blowing everything up, but I do want to be somewhat sympathetic to the idea that a judge who's not super steeped in this stuff might be reluctant to blow things up.
- [28:00]
B
Yeah. Okay, last point. The ad tech remedies are coming up on September 22nd. I will be down in Virginia reporting on them. Is there any carryover effect here? The two cases are pretty separate, but there is a vibe shift. Is there any overlap?
- [28:17]
C
I don't think so. It's a different court. It's a very different judge. This judge has already said that the remedies or that the case is global. So I don't think so. I do think that there's a little bit of a vibe shift now because I think. But that's really on us or on those of us commenting here. I don't see that Judge Rinkham is looking at this and going up. Well, I might as well do nothing too.
- [28:44]
B
It could change Google's opinion about settling. You know, we've long said, I've said many times that we, that I think Google isn't going to consider settling until they have all the cards on the table. Between multiple cases and the fact that this card turned up an ace for them, you could kind of game theory it out. But it could make it easier to settle ad tech because they won't feel like they're going to get swept away in a giant tide of breakups. They could isolate the ad tech one, which I think we all think they would be fine settling in some form.
- [29:20]
C
Yeah, I think that's a really good point, Ari, and we'll see. But I do think, really, at the end of the day, a lot of us have speculated that Google doesn't really want to stay in the network advertising business. And so if that's true, we're going to find out because now would be a really perfect time for them to just to try to move beyond this.
- [29:42]
B
Yeah, absolutely. And it was reported separately by Reuters just a couple days ago that the EU is no longer looking at a breakup of the ad tech assets, that they're looking for a fine instead. I'd missed that article, but that's kind of a little bit surprising and maybe has some geopolitical questions related to it, but it was kind of interesting.
- [30:03]
C
Yeah. Well, this gets back to my point about it being a global, the, the, the, the concern around it being a global settlement. It seemed really clear that the EU was waiting on the U.S. but now we've got the EU, who clearly has blinked in the face of the Trump administration showing its teeth and are really reluctant to come after, you know, the big US tech companies. And so, you know, now the next question is, is, you know, is the US Congress going to step in? And that's a, that's a whole other thing. I think there's going to be hearings, well, the America act, but then there's, you know, some anti preferencing stuff coming from the Judiciary, the Senate Judiciary Committee. I think there's going to be hearings. I don't think there's going to be any action in 2025 for sure.
- [30:51]
B
And the big loser here, Perplexity, because they wanted to buy Chrome, they closed down their ad division. It's all bad news over there.
- [30:58]
C
Yeah.
- [31:01]
B
All right, so if you don't already, please subscribe to the newsletter@monopoly-report.com that Alan writes every week. It's really excellent. I'll be taking over a little collab for the two weeks of the remedy trial where I'll do my daily snarky opinions from what I hear in the courthouse. That should be a lot of fun. And then also the Monopoly Report podcast is really excellent. Alan's got top tier talent coming on every week talking to him about stuff. Who have the recent guest been on the report podcast?
- [31:33]
C
Well, next week we've got Tobias Juden, who is from Norway's Data Protection Authority, and we're going to talk about consent or pay. I've got John Leibowitz, who was the former head of the FTC back when in the previous skirmish with Google, back in what, 2012, 2013. So I'm really excited to hear his thoughts on that.
- [31:53]
B
That despite what Alan just said, he has a lot of great, exciting guests. All right, Alan, thanks for joining us on this.
- [32:03]
C
I feel wise every week, man.
- [32:05]
B
I know that would be fun. Thanks so much for joining me on this emergency podcast, Alan. We'll be back probably Friday, so you may be getting two episodes this weekend with the news of the week that I'll be doing with Eric. As always, thanks again, Alan.
- [32:19]
C
Thanks Siri. Thank you for subscribing to marketecture.
- [32:22]
B
New interviews are added every week at marketecture TV and your favorite podcasting app. Thank you for listening to the marketecture podcast. New episodes come out every Friday and an insightful vendor interview is published each Monday. You can subscribe to our library of hundreds of executive interviews at Markitecture tv. You can also sign up for free for our weekly newsletter with my original strategic insights on the week's news at News Market tv. And if you're feeling social, we operate a vibrant Slack community that you can apply to join at adtechgod. Com.