Downside at Google
Monopolies, Antitrust and Chatbot Risks...
“Don’t be evil.”
—Google’s former motto
“Do the right thing.”
—Google’s current motto
“You don’t have to be the first at what you do, you have to be the best at what you do.”
—What my mate told me a Google founder once said
WINNING
Google is the undeniable leader in global (ok, Western) paid search — and some other things too! The company was founded in 1998 by Larry Page and Sergey Brin, two Stanford Ph.D students at the time. The two co-founders developed the PageRank technology which ranked search results by relevance to the user’s query.
By 2000 it launched AdWords (now, Ads), allowing advertisers to place ads alongside search results. By the end of 2004, Google had unseated every other competitor and was first with ~36% market share. Yahoo! was second with 24%, and MSN was third with 16%.
Google it!
Since 2004, Google just kept taking market share while everyone else kept falling in the rankings. This video shows just how vibrant and competitive the search market was since 1994, and how monopolistic it has become since.
The problem with too much winning is that you get governments fighting you, in the case of Google this comes in the form of Antitrust suits.
Google market share in search is steadily above 90% worldwide, while Microsoft Bing is at 3.6%…
US Vs Google, Lawsuit #1
In October 2020, the US DoJ filed an antitrust lawsuit against Google on the grounds the company abused a monopoly position in the general search markets.
The trial started last September, and the DoJ alleged that Google struck anticompetitive deals with Apple and others for prime placement of its search engine to maintain this dominant position. Google says their dominant position is a result of its superior product.
My thinking is, if Google was such a superior product it wouldn’t have to pay Apple $20bln a year for this prime placement! Let’s not get into the nitty gritty of the case, but my idea is Google’s position isn’t great right now!
The trial concluded in November 2023 and closing arguments were heard this month (May 2024). The Judge has reserved judgment and we await for his findings when they do come out. Whatever the outcome, experts say there will be an appeal.
US Vs Google, Lawsuit #2
In January of 2023, the DoJ filed another antitrust lawsuit against Google, this time on illegally monopolising the advertising market. The suit aims to force Google to sell off significant portions of its adtech business and require the company to cease certain business practices. The case goes on trial September 2024.
US-based IT monopolies are already tempted to compromise themselves in order to gain entrance to these vast and fast growing markets. The dictatorial leaders in these countries may be only too happy to collaborate with them since they want to improve their methods of control over their own populations and expand their power and influence in the United States and the rest of the world.
The owners of the platform giants consider themselves the masters of the universe, but in fact they are slaves to preserving their dominant position. It is only a matter of time before the global dominance of the US IT monopolies is broken. Davos is a good place to announce that their days are numbered. Regulation and taxation will be their undoing and EU Competition Commissioner Vestager will be their nemesis.
—George Soros, World Economic Forum, Davos 2018
ENTER THE VESTAGER
Margrethe Vestager Vs Google et al.
The EU Competition Commissioner has a bone to pick with Google and Big Tech in general. The US is generally very careful on how it treats its mega companies and prefers not to kill their global competitive advantages…
Besides, US world domination is tied to the hip with the continued dominance of American Big Tech.
The thing is, the EU doesn’t have Big Tech companies, so this is a great opportunity to make an example of unfair business practices from the Americans and make some revenue for EU countries in the process. Vestager has up to now fined Google a staggering 8bln Euros, and still going.
The introduction (came into effect May 2023) of the EU’s Digital Markets Act (DMA) shows how serious the EU is about fair digital markets. Under this act, the EC can designate “gatekeepers” in digital services — and open cases against them if they do not comply with the DMA.
As of now there are six gatekeepers, Google, Amazon, Apple, ByteDance, Meta and Microsoft. These gatekeepers collectively run 22 services that are considered to be Core Platform Services by the EU.
Again, no need to get into the legal nitty gritty - the point is the EU is serious and ramping up legislation and actions against Tech giants.
Remember the winner take all narrative that we talked about?
….Well, it’s not going to happen.
“You cannot put in place a fee structure that disables the benefits of the DMA, because the entire point of the DMA is for the market to be open…” — Margrethe Vestager
CONCLUSION: The EU will not allow Big Tech to use their size, influence and money to exert monopolistic powers over markets. Big Tech will be forced to shed advantages to allow competition to come in (newsflash: it will) and/or be broken to achieve the same effect. I wonder what the Nasdaq 100 will look like performance-wise when this happens
AI Chatbots // New Prompt Launch
In late 2022 Open AI launched Chat GPT, kicking off the AI rush that markets still find themselves in. If it weren’t for the invention of the AI CHATBOT, Google and the classical search engine prompt would still be the go to prompt for internet users — and would make it very hard for anyone to unseat Google, even possibly with antitrust cases against them,
HOWEVER, the launch of AI Chatbot products means billions of users are now going to chatbots instead of search engines — this means one thing, Google has to compete ALL OVER AGAIN.
This is why the market moves so violently with news regarding Google’s AI plans and progress, and whether Google’s AI Chatbot (Gemini) is moving or not. Note that Google’s LLM is also called Gemini.
Change is a constant…
Everything is in flux, don’t expect things to remain fixed — and especially in the tech space. Does Google risk becoming the next IBM in obsolescence?
Maybe not right now, but does it run the risk of having to once again compete with other search engines? Is everything now up in the air? Probably!
And guess who LOVES this?
As we talked about in Downside at Microsoft, MSFT lost the race for Search with Bing having a less than 4% global market share — and so they would love to start taking market share from Google. For more information on the dynamics at MSFT, just read that piece.
As an example, Microsoft’s CoPilot, an Open AI-powered chatbot offered for sale with Microsoft productivity tools automatically uses Bing to search the internet, not Google.
Closing Remarks
There is zero doubt that Google has been a phenomenal investment. The value that they created with the acquisition and growth of Youtube has been just epic, and Google Workspace isn’t doing so bad either.
But what we are trying to do in Downside pieces is take a critical look at companies PROspectively.
Not all companies in the Downside series are absolute and utter CrapCos that can go to zero like Modern or Transocean. We’ve taken critical looks at the most profitable companies in the world, namely Microsoft, Apple etc.
The point is to offer value to the reader and feed him information and angles that could help him make a better decision.
And so the question remains…
With the two antitrust cases in the US, Verstager just warming up in the EU, the harsh competition in Cloud and Google being 3rd in that market, and a reheated Microsoft leveraging its strategic partnership with Open AI to take market share from search — would you buy Google at ~27X earnings?
Think of it this way, would you buy a public utility that has 90% market share in its most important segment and soon to be facing all-out competition, at 27X earnings? Do you think there is sufficient margin of safety here to make this a prudent investment?
Personally, I wouldn’t touch this here, but you do you.
Sincerely,
Philo 🦉
P.S. I wrote on the brewing risks on Big Tech 2 years ago as well, here.
Further Reading
Read George Soros’ speech in Davos 2018 on Big Tech.