Alphabet, the parent company of Google (the name many still call it), is best known for its search engine, but its incredible technology does not stop there. The company is also a powerhouse in online advertising, cloud computing, quantum computing, AI, and numerous other Internet-related products.
Google is one of the five largest companies in the world based on market cap. The BBC went so far as to call it “The most powerful company in the world.” Take a good look at it, because the Dept. of Justice (DOJ) wants to break it up. And if it does, the company will look very different afterwards.
Actually, it’s already starting to look different. At the end of January, shares were trading at approximately $206. By March 14, they had declined to about $168– a drop of more than 18% in just a few weeks. Ouch! Aren’t the shares of giant companies with humongous revenues and profits supposed to be stable? Isn’t this the kind of decline you’d expect from a small, speculative company?
In The Crosshairs
This decline was set in motion by the worry – subsequently confirmed – that the DOJ would try to break up Google. And to a layman, it seems they have a very strong case.
But it’s not only laymen who think so. Google needs to be broken up because “It is a very powerful player, holding 90% of the search market, which is dangerous,” antitrust expert Professor David Gilo told a local radio station. This is not a new idea; it was first raised by the Biden Administration and picked up by Trump, who will get the credit or blame when the case is finally decided.
According to an article in the New York Post, “DOJ attorneys formally asked US District Judge Amit Mehta to force Google to sell off its Chrome web browser. Mehta ruled last August that Google was a ‘monopolist’ with an illegal stranglehold on the search market, fueled in part by billions in payments to partners like Apple to ensure its search engine is enabled by default on most smartphones.
“In a scathing court filing on March 7, the DOJ said Google had relied on ‘illegal conduct’ to create an ‘economic goliath’ that ‘wreaks havoc over the marketplace to ensure that — no matter what occurs — Google always wins.’” The DOJ said that Google Chrome accounts for more than 30% of search inquiries.
The Post reported that the government also “wants Google to end its ‘default search engine’ partnerships with Apple, AT&T and other firms.” If the court decides in favor of this, it would be a very big deal because this is a big business. To give you an idea of just how big, Google paid Apple $20 billion in 2022 alone to be the default engine on its Safari browser.
In addition, the government says Google should also be required to share its data related to search and digital ads with rivals to help ensure a level playing field. The DOJ also wants Google to divest itself of the Android operating system if initial remedies are “not effective.”
Make Up Or Breakup?
A trial like this certainly shakes up many Wall Streeters. Individual investors certainly are wondering whether their long-term profits in this company will wither, and big players have the same concern. They must also be concerned about what the company’s growth prospects would be if the courts force a breakup.
Market-oriented websites have addressed this issue and their perspectives may be helpful to investors. “Hacker News” said: “If Google is chopped up, the new android (parent) company certainly will be far poorer and have far fewer resources than Apple. This will cause the entire android ecosystem to languish as new features slow and shift power back to Samsung and existing companies that can afford to push features without Google.”
Viant Technology raised the possibility of a more immediate consequence. “Breaking up the Google Ad Network might decrease the company’s dominant market position, thus decreasing its pricing leverage.”
According to Search Engine Land, “The most likely result of a Google breakup would be the separation of the Chrome browser, which might not seem like a significant issue on its own. The deeper concern is that Chrome operates on Google’s free, open-source browser software, Chromium which powers nearly all major browser alternatives.”
Forbes’ take on this is more restrained and calm. “Experts suggest that a breakup of Google is unlikely,” it reports. “Instead, the DOJ appears to be leveraging this situation as a negotiation strategy to compel Google to agree to less drastic measures, such as eliminating certain exclusive contracts and facilitating easier access for users to alternative search engines.”
No Quick Fix
Legal experts believe this case will not be decided quickly. They expect “The judge will hold hearings in April to consider arguments from the DOJ and Google on proposed remedies.” They predict the judge’s final decision will be handed down sometime this summer.
No matter which way the court decides, the losing side will almost certainly appeal. If this does reach a higher court, it is possible that, because of the magnitude of this case, the decision too may be appealed. Of course, it’s also possible that at some point both sides will decide it’s a lot simpler and less expensive to compromise and reach a settlement on their own.
The case for a breakup has attracted a great deal of attention and likely will continue to because of the tremendous importance of Google – not only for its own shareholders but also to the market and the economy.
Over the years, Google has generated tremendous amounts of wealth for its co-founders, and also for mutual funds, pension funds, and individual investors. It is one of only a handful of stocks credited with keeping the bull running on Wall Street. One imagines the judge is well aware of this, and will consider this to the extent it’s appropriate in any decision he hands down.
Antitrust expert Gilo doubts that a decision to breakup Google would be successful. “Europe has taken tougher actions against Google, and studies have shown that it did not have an impact and Google maintained its power.”
In the past, the government has broken up three monopolies: Standard Oil, American Tobacco, and AT&T. Despite Wall Street’s fears, those survived and continued to generate profits for shareholders. If Google is added to this club, more than likely it will follow the same pattern. The market will be watching closely.
Sources: bloomberg.com; forbes.com; israelnationalnews.com; news.ycombinator.com; nypost.com; israelnationalnews.com; searchengineland.com; viantinc.com; zerohedge.com
Gerald Harris is a financial and feature writer. Gerald can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
