The Justice Department just slapped Google with a landmark antitrust lawsuit
That could be bad news for Amazon, Facebook, and Apple
/NOVOSTIVL/ The US Department of Justice filed an antitrust lawsuit against Google Tuesday morning, kicking off a potentially yearslong battle to more heavily regulate the tech giant.
The lawsuit accuses the company of unlawfully maintaining monopolies in search and search advertising. It alleges that Google has used unfair practices to stymie competition, such as paying Apple billions of dollars a year to be the dominant search engine on its devices.
Google is the first tech giant to see major antitrust action since the US government went to battle with Microsoft in the late '90s. It's also not the only company being probed over antitrust concerns. Earlier this month, House Democrats concluded a yearslong investigation, accusing four of the biggest tech companies — Apple, Amazon, Facebook, and Google's parent company, Alphabet — of monopoly power.
The Justice Department's lawsuit is a major step that could lead to sweeping changes in tech and signal ripple effects across the wider industry, with Apple, Amazon, and Facebook caught in the wake.
Each company has something different to lose. Search is Google's bread and butter, and a breakup of its search stronghold would have ramifications for its power in advertising, which is the company's primary revenue driver.
For Facebook, the risk is having apps such as WhatsApp and Instagram broken off. Meanwhile, Apple could be forced to loosen its control over its App Store, while Amazon could be at risk of having its Marketplace for outside sellers broken off.
If Google wins the case, Apple, Amazon, and Facebook might fare better if they face their own lawsuits. If Google loses, however, lawmakers could be encouraged to rein in the other giants.
"I think the big thing is that the government finally went ahead and did it," said Sam Weinstein, a former Justice Department antitrust attorney and Cardozo School of Law professor. "If I'm one of these other companies, I'm probably thinking, 'OK, this is happening.'"
"If you were on high alert before, you're on really high alert now that this has happened," he added.
"Today's lawsuit by the Department of Justice is deeply flawed. People use Google because they choose to — not because they're forced to or because they can't find alternatives," a Google spokesperson said.
Here's what this case might mean for the other big tech companies.
The House Judiciary Committee said in its October report that Amazon uses third-party seller data to copy popular products and "kill" smaller businesses. New York, California, and the Federal Trade Commission opened a probe into Amazon to further investigate how it collects third-party data and discover whether it launches competing products and favors them on the site.
This is likely where antitrust action would zone in. In a recent Wall Street Journal report, dozens of investors and entrepreneurs said Amazon was investing in their companies before taking the data to build competing products.
With a successful antitrust case, Amazon risks being forced to separate Marketplace from its main selling site, thus denying it access to a trove of useful data.
Amazon has denied the claim it takes data to build competing products, calling the relationship it has with third-party sellers "mutually beneficial." The tech company has since doubled down on touting the success small businesses have on its site.
An ongoing Federal Trade Commission probe into Facebook is investigating whether it acquired companies — including Instagram and WhatsApp — to neutralize competition.
In September, The Wall Street Journal reported the FTC was preparing to bring a case against the social giant, based on its findings. According to Politico, CEO Mark Zuckerberg was interviewed as part of that investigation.
Zuckerberg has also previously said that the success of services like TikTok and YouTube, which is owned by Google, proves competition in the tech industry exists.
With an FTC case said to be waiting in the wings, Facebook has reason to be concerned. Experts believe Facebook offers the most obvious breakup route, which could see Instagram or WhatsApp spun off into separate companies. Instagram ad revenue is growing quickly and now counts for more than a quarter of Facebook's total revenue.
"The obvious case for a breakup is Facebook, and I think this is on the table," said Gary Reback, a Silicon Valley antitrust lawyer who helped jump-start the case against Microsoft three decades ago. "I don't think it would be radical to say you have to spin off Instagram or WhatsApp."
Lawmakers have accused Apple of using the App Store to disadvantage competitors, and according to a report published earlier this year, the Department of Justice could also bring a case against the iPhone maker.
At issue is what critics have referred to as the "Apple tax." Apple requires app developers to pay Apple a 30% commission on each in-app payment. This has long been a sore point for developers, especially those that compete against Apple's own products, like Apple Arcade and Apple Music, which aren't charged the same commission.
Spotify, an Apple Music competitor, filed a complaint against the 30% commission, saying that the charge allows Apple to artificially inflate prices while forcing companies like Spotify to make less money on similarly priced subscription costs.
The issue again came to the forefront after Apple kicked "Fortnite" maker Epic Games off the App Store in August when the developer bypassed Apple's payments system, and the 30% commission, resulting in an ongoing legal battle.
Apple has said the exposure businesses get from iPhone and iPad users justifies the 30% cut and that its rate is similar to those charged by other digital storefronts.
In the House antitrust report published earlier this month, lawmakers also said Apple favored its apps over rivals by preinstalling them on its devices.
One remedy that could come about from antitrust action is to force Apple to "open up" its app store to third-party developers, potentially allowing developers to sideload apps as Android phones or PCs do. It may also be forced to offer alternative payment methods, which would mean Apple loses out on a lot of cash. A CNBC analysis estimated that Apple made $15 billion of its nearly $300 billion in annual revenue from the App Store last year.