There’s a biological reason for this. In the messy and complex world we’re in, it’s hard for our brains to sift through information overflow. It takes a lot of brain effort – that is, energy and calories. Further, directing that energy to something that is our focus means that other info will be neglected. In a calorie-scarce environment, using too many calories can be fatal. We as humans have, therefore, evolved to require as few calories as possible.
The solution is that humans developed heuristics – shortcuts that let us move forward with our lives by selectively taking in info upon which we act. Eric J Johnson’s 2021 book, The Elements of Choice: Why the Way We Decide Matters, shows how ‘choice architects’ – those who design the decision-making environment – influence the decisions people make.
So, what does this have to do with the recent US antitrust ruling against Google? Studies show that the default option – the option first offered to you in a decision-making situation – is highly likely to be chosen over others. This brings us to a fascinating new understanding of monopoly.
With search, there are an incredible number of alternatives to Google. Switching to using any of them is easy. Under traditional conceptions of monopoly, the fact that nearly identical substitutes are available, for free, would make any consideration of monopoly power a non-question. But choice architecture has entered the calculus.
As NYT reported, ‘The government argued that by paying billions of dollars to be the automatic search engine on consumer devices, Google had denied its competitors the opportunity to build the scale required to compete with its search engine. Instead, Google collected more data about consumers that it used to make its search engine better and more dominant.’ Google figured this out long before the government did, reportedly paying Apple $20 bn in 2022 to remain the default on iPhones.Broadly, Google has systematically secured its position by spending billions on exclusive contracts with smartphone manufacturers and web browser designers, ensuring its search engine remains the default option for most users. This strategy has stifled/scared away competition, cementing Google’s monopoly.The second-order effect is that Google is the only game in town for many advertisers, giving it unparalleled pricing power. What is particularly interesting is that the ‘ownership’ of default position in search is now being treated the way physical goods are in the analogue world.
A sticking point for antitrust regulators has always been that since Google’s search product is free, it’s hard to make the case that it’s engaged in price-fixing. Classically, a monopolist can ‘fix’ prices. But when the product is free, and consumers can choose an alternative, that’s a tough argument to make.
However, if control over the default is an asset, it opens the door to the US government’s argument. Notwithstanding the option to switch, the default remains the primary search access point. Roughly 50% of all general search queries in the US flow through a search access point covered by one of the challenged contracts. And nearly one-third of queries come from Apple devices on which Google is default. Google argues it has a dominant market share because its search engine is the best.
Is this the beginning of the end of the digital advertising model as we know it? The whole programmatic ad model, as we had argued earlier in a column on this page (The Great Internet Ad Scam, May 18), looks like a bubble.
Bubbles occur when the price of something exceeds its fundamental value by a large margin. The programmatic ad system that makes up dominant parts of ad spend tells advertisers that it’s a perfect realm where precision meets automation, and where their ads reach the perfect audience – almost as if by magic.
Google’s search dominance has long supported its claims that it can finely target prospects by combining huge amounts of data on interests, behaviours, demographics and even time of day. And advertisers believe that. Statista suggests that digital ad spend will be around $300 bn this year in the US. If current trends persist, this could be $452 bn by 2028.
The Google case does raise questions. If one of the remedies is to break up the company to reduce its dominance of internet-based advertising, engaging with its proprietary platforms becomes less compelling. If, as some suggest, the remedy will be years in the making, Google will have the time to figure out its next act.
Many people don’t appreciate the massive change in the concept of ‘asset’ this ruling represents. Rather than a tangible, analogue item, we now are being told that controlling critical elements of choice architecture are understood to control critical parts of our economic lives. This is big deal.