By Aaron Tilley
The target of the U.S. government's last major tech antitrust
campaign could be the biggest beneficiary of its newest
lawsuit.
Microsoft Corp.'s Bing search engine is the only major
competitor to Google's dominant product, though it has less than 7%
of the market. The Justice Department accused the Alphabet Inc.
unit of using anticompetitive tactics to preserve a monopoly for
its flagship search engine and related advertising business in an
antitrust lawsuit it filed Tuesday.
The suit represents the biggest enforcement action against a
major tech company since Microsoft and the U.S. government went to
battle more than two decades ago. The Justice Department's latest
charges echo those it leveled against the software maker in
1998.
After years of litigation, Microsoft avoided a threatened
breakup. But the distraction from the case helped rivals
capitalize, such as Google becoming the dominant search
provider.
This time Microsoft could get the boost. "Anything that limits
Google's ability to move freely in the market is a good thing for
Microsoft," said Brad Reback, an analyst at Stifel Nicolaus.
A Microsoft spokesman declined to comment on Google's antitrust
case.
The Justice Department alleges that Google uses billions of
dollars it collects from advertisements on its platform to pay
mobile-phone manufacturers, cellular carriers and browser
suppliers, such as Apple Inc. and its Safari, to maintain Google as
their preset, default search engine. These payments create a
self-reinforcing cycle of dominance, the suit alleges.
Google calls the case deeply flawed and said its search engine
is popular because people choose to use Google, not because they
can't find alternatives.
A loss for Google in the antitrust case could mean court-ordered
changes to how it operates some of its business, potentially
creating openings for rivals. Microsoft would be the most natural
company to gain.
Microsoft's Bing search engine is the second-largest competitor
in the field -- though by a huge distance. Bing had a 6.7% market
share in the U.S. in September, compared with Google's 88.1%,
according to Statcounter, while Yahoo was at 3.29% and DuckDuckGo
at 1.7%. Bing's market share has barely changed over the past
decade.
Despite its laggard status, Bing is a sizable business.
Microsoft reported $7.7 billion in search-ad sales in its last
financial year, principally linked to Bing -- more revenue than its
device sales and a bit behind its LinkedIn social media unit.
The Bing figure, though, was little changed from the prior year.
And while the software company's computer gaming and cloud-storage
businesses have benefited during the pandemic as people spend more
time at home, its search business has been dented as advertisers
pulling back on spending.
Under former Chief Executive Steve Ballmer, Microsoft and Google
were fierce rivals in search. But that battle ended. Microsoft's
current CEO, Satya Nadella, and Google's Sundar Pichai brokered a
truce four years ago, withdrawing their regulatory complaints
world-wide against one another.
Since then the companies have found areas of cooperation even as
they compete in other markets such as cloud computing and business
software. Microsoft last year relaunched its effort to design and
sell its own line of smartphones, this time using Google's Android
software instead of its own mobile operating system.
Former Google CEO Eric Schmidt said at The Wall Street Journal's
Tech Live conference on Wednesday that the company he once ran had
to contend with ruthless competition in search, particularly from
Microsoft. Through Wednesday, Microsoft is America's second
most-valuable company after Apple, with a market capitalization of
$1.62 trillion, while Alphabet is fourth, at $1.08 trillion.
Under Mr. Nadella, Bing has taken less prominence within
Microsoft to other ventures, notably its cloud-computing division
and its videogaming business. But Microsoft hasn't given up on
search. The company struck a deal last year for Bing's ad software
to be used on the Yahoo search engine, owned by Verizon
Communications Inc. Yahoo search itself also is powered by
Bing.
Microsoft last year also announced an upgrade of Bing in
conjunction with the company's launch of its Edge browser. The
search features, the company said, were aimed in part at making
people more productive by helping them find office locations,
people and other corporate information.
Google's regulatory troubles have already benefited Microsoft to
a limited extent. In Europe, Google since March has been showing
people who set up new mobile devices running the company's Android
operating system what it calls a "choice screen," a list of rival
search engines that they can select as the device's default.
The system is part of Google's compliance with a 2018 European
Union decision that found the company used Android's dominance to
strong-arm phone makers into pre-installing its search engine.
Microsoft's Bing has benefited from auctions that are held to
determine which search apps appear on the choice screen -- which
offer three spots in each of 31 countries to outside search
engines.
With another shot at search, Microsoft could try to
differentiate Bing from Google by providing a more privacy-focused
version of search, said former Google executive James Whittaker,
who also worked on Bing under Mr. Ballmer.
"Google's weaknesses are privacy and users' hatred of ads," Mr.
Whittaker said. "Those are the places Bing needs to focus on if it
is going to make another run at being a real competitor."
The distractions of an antitrust case that is expected to take
years also could serve to keep Google from further encroachment on
Microsoft's core businesses: the cloud and corporate applications.
"Antitrust cases are extraordinarily complex and consume tremendous
amounts of senior management attention," Mr. Reback said.
Microsoft hasn't shied away from regulatory battles that some of
its other rivals potentially face. Microsoft relies on app stores
for some of its videogame business and is among several to complain
about how Apple runs its app store, describing the practices as
monopolistic and harmful to customers.
Microsoft also hasn't escaped the increased regulatory scrutiny
facing tech giants. Workplace collaboration software provider Slack
Technologies Inc. this year filed an antitrust lawsuit against
Microsoft in the EU, accusing its rival of trying to kill
competition. Microsoft said it was committed to providing customer
choice.
To what extent Microsoft can revive its search ambitions is
uncertain. "Even if you removed Google off every phone and device
that shipped, most people would still go back to Google," Jefferies
analyst Brent Thill said. "I think it's game, set, match in
search."
Write to Aaron Tilley at aaron.tilley@wsj.com
(END) Dow Jones Newswires
October 22, 2020 11:10 ET (15:10 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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