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Antitrust campaigners are determined to prove that there is no such thing as too big to break up. On Tuesday, the US government suggested that Google — a $2tn company — could be split apart. This, according to the Department of Justice, is one way to put an end to its monopoly in online search.
If the recommendation is followed it will change the way the country thinks about the success of its biggest industry. The penalty is drastic. Google’s parent company Alphabet accounts for more than 4 per cent of the main S&P 500 stock market index. The last major US company ordered to break up was Microsoft in 2000 — and that bid failed. At the time it accounted for less than 3 per cent of the index.
The DoJ’s proposal shows how far the US government is willing to go to shift the balance of power in tech. Google is the first big loser in an industry-wide antitrust fight that has been brewing for years. If these sorts of penalties are meted out, the US tech industry will start to look very different. Big Tech could become Medium Tech.
A caveat: regulatory legal action is notoriously slow. The DoJ published its complaint in 2020 and Judge Amit Mehta found the company guilty this August. He has given himself until summer 2025 to make a decision. Google can then appeal. The DoJ is considering more options than forcing the sale of parts of the business. This is why the company’s share price has not plummeted. It remains just 14 per cent shy of the all-time high. Investors find it hard to price the risk of potential changes that may not even happen.
Still, Google is being tied up in legal battles just as its rivals are raising record sums to develop artificial intelligence. Google’s AI plans may not be in the crosshairs of this particular fight but they could be one of its casualties. The drag effect of government intervention can be long-lasting. China’s severe crackdown on its own tech sector in 2020 hobbled the sector’s growth.
Any restriction on Google Search risks curbing the lucrative digital advertising business that funds research into everything from driverless cars to home tech gadgets to AI. It is the reason Google can provide certain consumer services for free, including a popular new feature in NotebookLM that lets users upload their own data and then listen to AI-generated podcasts created from that content.
Nor is this the only restriction the company has to worry about. Epic Games, maker of blast-em-up video game Fortnite, has long railed against Google’s habit of taking a hefty chunk of payments made in apps downloaded from its app store. This week, a judge ordered Google to stop forcing app developers to use its in-app billing service and for the search giant to stop paying device makers to pre-install its app store for three years. The US government also has a second antitrust case against Google, this time focusing on its digital ad auctions.
These fights come just as credible threats to Google’s Search dominance have started to appear. Look at OpenAI’s chatbot ChatGPT, which provides succinct answers to questions typed in by users. Or TikTok, where related searches appear automatically underneath videos of cute baby hippos and dance memes.
Losing market share in its core business and battling multiple legal cases is a particular problem when Google is locked into an expensive fight to stay ahead in AI, which remains a lossmaking endeavour. The company’s capital expenditures last year were nearly 50 per cent higher than they had been three years earlier. Private sector rivals are being handed billions by investors with an expansive attitude to risk. OpenAI has just raised $6.6bn and secured access to a $4bn credit line. Elon Musk raised $6bn for his AI start-up xAI and Anthropic has raised more than $7bn since 2023.
The outlook is not entirely gloomy. A Google break-up is not inevitable. If it does occur, it could produce smaller, more nimble businesses able to release new products more quickly.
But Microsoft offers a warning of what could happen even if the most severe penalty is never applied. After the company was found guilty of abusing the monopoly power of its Windows operating system and ordered to split up, it successfully appealed against the decision. But the fight exhausted resources that could have been put to use elsewhere. Perhaps without the distraction of the antitrust case, Microsoft would not have been so far behind on mobile operating systems, something that allowed Google to pull ahead. Google’s rivals in AI will hope that history is about to repeat itself.