Tech Giant Google (GOOGL) Faces Additional Antitrust Probe

Fifty state attorneys general are joining an investigation into Alphabet Inc. unit Google (GOOGL) over possible antitrust violations. The bipartisan probe includes attorneys general from 48 states, the District of Columbia and Puerto Rico. California and Alabama are not involved in the probe, said Texas AG Ken Paxton at Monday’s press conference; Google’s dominance in the ad market and use of consumer data was also emphasized. Facebook (FB) is under state investigation for similar antitrust practices by the same group of attorneys general as well.

Apple (AAPL) and Amazon (AMZN), in addition to Google and Facebook, are also under federal investigation for potential antitrust violations. Are big technology companies using monopoly power to defend and extend their dominance over the U.S. digital marketplace? That is the big question being asked by state attorneys general as they ramp up their investigation into big tech companies’ practices.

The Potential Case Against Google

Federal antitrust laws are broadly written, providing the government with the opportunity to freely apply the laws to the contemporary economic landscape. If a case does end up resulting from the federal or state level investigations, then it will take antitrust enforcement into new uncharted, digital age territory. Courts haven’t seen a major monopolization case since the Department of Justice sued Microsoft (MSFT) two decades ago.

Florida state attorney general, Ashley Moody, stated, “Is something really free if we are increasingly giving over our privacy information? Is something really free if online ad prices go up based on one company’s control.” The argument is that Google has used its dominance in online search to solidify its position in online advertising. Google possesses unmatched data on publishers, advertisers, and what consumers search for.

Another potential point against Google is that the company maintained its huge market share of online ad sales by excluding competing firms through contractual terms that make it harder for advertisers and publishers to work with other ad businesses that compete with Google. In 2016, Google started requiring that advertisers use its tools to buy ads in YouTube, which holds the largest audience for online videos.

In 2017, the European Union concluded that Google biases its own search results in favor of Google offerings and slapped a $2.7 billion fine on the company. A recent study found that less than half of desktop and mobile Google searches result in the user landing on a non-Google website. The EU also imposed a $5 billion fine for Google requiring smartphone manufacturers using the Android operating system to pre-install Google’s search app and its Chrome browser.

Moving Forward

Antitrust probes pose a direct threat to companies’ business models. If the federal or state probes find evidence of anti-competitive behavior in Google’s practices then the company would be compelled to make its algorithms friendlier to rival companies even if it is detrimental to its bottom line. The other companies, if found guilty, would also be forced to reconfigure their business models in ways that can possibly hinder their profitability.

Google is now facing possible litigation on the state and federal front, which continue to pose headwinds for the company and shareholders. However, in the short-term, the company has had strong estimate revisions, giving it a Zacks Rank #2 (Buy).

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