Google's trial, Amazon's FTC lawsuit, and the perils of the garbage internet.
The feds are pursuing the power of these companies, partly for their role in deteriorating the online experience.
Procuring dog food should not pose a challenge. When conducting a search on Google or Amazon for your pet's nourishment, you are bombarded with an overwhelming number of sponsored results.
On Amazon, a search for dog food prominently displays an advertisement for Merrick dog food. Just below, two more brands—Purina and Blue Buffalo—compete for attention, alongside Amazon's own brand called Wag.
The situation on Google is even more troublesome.
Shopping for dog food should not be this frustrating. Searches on Google or Amazon inundate you with an excessive number of sponsored results.
On Amazon, the search yields prominent displays of sponsored products for Merrick dog food. Just below, two other brands—Purina and Blue Buffalo—vie for attention alongside Amazon's own brand, called Wag.
On Google, the experience worsens.
The same search not only generates four consecutive sponsored ads for Chewy, the Farmer's Dog, Purina, and a website called allforyourfurbaby.com, but there is also a panel on the right-hand side that showcases additional sponsored dog food brands. You have to scroll through all of that in order to find the first organic result, which is also for Chewy.
The internet is saturated with low-quality advertisements. When utilizing Google or Amazon, you often have to navigate through numerous sponsored results before you can access the relevant organic content, which is determined by their secretive algorithms.
The U.S. government contends that this excessive presence of ads indicates a larger problem with Amazon and Google. Antitrust authorities have filed two significant cases—one against Google (currently in court) and another against Amazon—accusing these tech giants of unlawfully excluding competitors and abusing their monopolistic power.
Undeniably, internet ads are ubiquitous. They enable popular websites to remain free for users (as Mark Zuckerberg famously said: "Senator, we run ads"). However, the authorities argue that Google and Amazon have essentially become the dominant players in online search and retail. Consequently, purchasing ad space has become the only dependable way for companies to connect with users of these widely utilized services. These tech giants generate substantial ad revenue, with the U.S. Department of Justice disclosing that Google earns $40 billion annually from search ads alone. The exact amount of Amazon's ad revenue remains undisclosed in the recent Federal Trade Commission complaint, but their overall revenue from advertising services (including various types of ads and related services) was approximately $10 billion in the second quarter.
The Department of Justice and 11 states referred to Google as the uncontested "gateway to the internet" for billions of people, emphasizing that countless advertisers must pay a toll to reach them. Similarly, the Federal Trade Commission and 17 states claim that Amazon has compromised the quality of its services and inundated its storefront with pay-to-play advertisements.
According to the government, this digital payola is how Google and Amazon capitalize on their dominance, but it has also significantly worsened the quality of these services for everyone. In other words, the feds are making an effort to address the issues of the deteriorating internet.
The proliferation of massive internet companies has complicated antitrust enforcement. In competition law, the so-called consumer welfare standard, by which regulators assess harm to consumers, has prevailed since the 1980s. This approach, focused on evaluating whether a company is a harmful monopoly, primarily considers price increases resulting from anticompetitive mergers or unscrupulous corporate practices. In contrast, many of the successful services on the internet are free, supported by advertising revenue. They do not exploit customers through the sticker price, as there is no price.
The New Brandeis movement, championed by FTC chair Lina Khan and others, seeks to redirect antitrust enforcement towards the nature of competition rather than solely focusing on price—the broader economic impacts created by giants like Google.
"Most antitrust enforcement is directed at the risk of higher prices to consumers, but with these two-sided platforms like Amazon or Google, consumers don't pay a monetary price to access the platform," said Bill Baer, a Brookings Institution fellow who served as assistant attorney general for the Justice Department's Antitrust Division during the Obama administration. "Antitrust jurisprudence needs to come to terms with the injury inflicted on competition and consumers when people do not pay a monetary price but instead provide incredibly valuable personal data that enables the platform to monetize it by attracting advertisers and retailers."
The more control Google or Amazon exerts over their respective domains, the more valuable their user data becomes in targeted advertising, and consequently, the higher the price they can charge for ad placement. According to Baer, if a monopolistic entity has monopolized the marketplace, advertisers and retailers will inevitably pay more to gain access to the only available platform.
Additionally, Amazon and Google are accused of leveraging their market dominance to suppress competitors. Antitrust enforcement not only addresses the impact of mergers and acquisitions but also scrutinizes how dominant companies employ their market power to exclude rivals. This is at the heart of the Google and Amazon cases, where the government alleges that these companies have engaged in illegal practices to stifle fair competition.
In the ongoing Google trial, the government claims that the company illicitly forged agreements with phone manufacturers and distributors like Apple and Samsung. Google allegedly paid them substantial sums to make its search engine the default on mobile devices, consequently diminishing the already limited competition from contenders such as Microsoft's Bing and the privacy-focused DuckDuckGo.
On the other hand, Amazon stands accused of prohibiting sellers from offering discounts on other platforms, while also mandating the use of Amazon's fulfillment system for sellers who wish to participate in the Prime subscription program, which provides subscribers with two-day shipping.
While the mechanics of these monopolization cases differ, prosecutors reach a shared conclusion. As the dominant players in the market, Google and Amazon have allowed the quality of their services to decline by flooding search results with "pay-to-play" advertisements. Consequently, this diminishes the user experience and potentially drives up costs for consumers if advertisers pass on the additional expenses.
According to the government's argument, Google serves as the gateway to the internet. In this context, degrading the quality of this access point harms the fundamental essence of the web. Increased garbage at the entrance only worsens the overall environment.
Major monopoly cases are relatively infrequent for the U.S. government. Notable instances include the Standard Oil break-up in 1910 through a Supreme Court ruling and the subsequent settlement that dissolved the Bell telephone system in 1982. Among the last significant technology-related cases is U.S. v. Microsoft, which centered around allegations that the company exploited its monopoly in operating systems, specifically with Windows, to gain an advantage in web browsers via Internet Explorer. Although the case ultimately settled without breaking up the company, it likely curbed Microsoft's ambitions in certain consumer-facing sectors.
George Hay, an antitrust law professor at Cornell University and former Director of Economics at the DOJ, anticipates the government will face significant challenges when confronting the extensive legal teams employed by major tech firms. According to Hay, breaking up Google or Amazon into smaller entities is unlikely, and he believes the government may be inclined to seek settlements in exchange for changes in business practices.
These cases place an immense burden on the government. Moss, former president of the American Antitrust Institute, asserts that the plaintiffs must demonstrate not only that the firms possess monopoly power but also that they employ it to exclude rivals, extend their dominance, or leverage their position.
As part of their argument, the government's lawyers will attempt to illustrate that while Google and Amazon may not directly raise prices for consumers, they abuse their market power by compromising the quality of their services.
Baer, the former chief antitrust official at the DOJ, has expressed increasing frustration with Amazon's search results in recent years. He cites sponsored results and the prioritization of certain sellers in the "buy box" as obstacles that make it challenging to explore alternative options.
If the allegations against Google and Amazon prove true, and they establish a pay-to-play environment for sellers and advertisers, it could indirectly lead to increased costs. Ultimately, it is the consumer who bears the brunt.
0 Comments