EU

Those who think the U.S. Internet market is competitive, and not extremely concentrated, need to read on.

In a nutshell, for the first time, publicly available evidence shows that the cumulative effect of well-known “winner-take-all” platforms (WTAPs) Google, Amazon, Facebook, and Microsoft, is a “four-winners-take-all Internet sector.” Four different dominant platforms collectively command ~80% of overall Internet market share in revenues, new absolute annual revenues generated, market capitalization, and employees.

Imagine if the 94% of the economy that is offline-based, were as extremely concentrated as the 6% of the economy that is online-based/the Internet sector, per the Internet Association.

That would be an offline economy with basically one information company, one sharing company, one retailer, and one business software company, that collectively commanded 80% revenue share of the 94% of the economy that is offline based with ~4,000 publicly traded companies.

The abrupt resignation of Michelle Lee as head of the U.S. Patent and Trademark Office, completes the Trump Administration’s housecleaning of Google’s government guardians in the Executive Branch, that apparently were dutifully placed to watch over Google’s commercial  interests in all the Federal policy and enforcement offices of most commercial importance to Google from 2012-2016.

Ms. Lee’s resignation is relevant to this blog and to Google’s going forward antitrust risk in the U.S., because Ms. Lee played a leading role in the FTC’s abrupt and chaotic closure of all Google FTC antitrust investigations January 3, 2013, shortly after the 2012 election.

Examining her role is relevant to determining if Google’s alleged antitrust violations were dismissed legitimately on the facts and legal merits, or because of improper Google political interference in a law enforcement matter.

The expected guilty EU antitrust verdict against Alphabet-Google’s flagship “general search service” for abusing its dominance, will be a tipping point for Alphabet-Google this summer. It will effectively divide Google’s history into the two-decade-long, Google pre-monopoly-enforcement era, from the impending Google monopoly-enforcement era, that will likely last a decade plus, if the only plausible proxy, Microsoft, is any indicator.

For the last decade overall, and the last seven years in the EU, Google, its lawyers and PR team have masterfully delayed this inflection point from becoming a reality. Their delay tactics bought the company invaluable time as a business to broadly extend, entrench, and consolidate its massive monopolization across several of the most crucial functions of the Internet ecosystem.

As a stock, the delays have helped to fortify the company’s financial resilience with the Alphabet restructuring, and with Alphabet-CFO Ms. Ruth Porat’s sage belt-tightening and skilled investor whispering, which has been instrumental in helping increase Google’s stock 87% in her two years in the job.

Reportedly the EU will rule Google has abused its search dominance this summer, putting the growth and profitability of the ~30% European part of Alphabet-Google’s revenue base at risk.

The logical next important question will be if this EU antitrust enforcement means U.S. antitrust enforcement eventually will follow, expanding Alphabet-Google’s growth and profitability risk, to the combined ~80% U.S. and European revenue base of Alphabet-Google.

Why do the answers of President Trump’s nominee for DOJ Antitrust Chief, Makan Delrahim, to the Senate Committee overseeing his confirmation process, merit close attention as it pertains to Alphabet-Google’s U.S. antitrust risk?

Mr. Delrahim’s is highly likely to be confirmed by the Senate to head the DOJ Antitrust Division, and it is likely to occur in June.

Thus, his written answers under oath to the Senate Judiciary Committee represent the best accessible, most-recent, most-reliable, forward-looking evidence upon which to discern the general direction Mr. Delrahim and U.S. antitrust enforcement is likely to pursue on the Google antitrust matter.

If proponents of network neutrality, an Internet non-discrimination principle, truly care about preventing discrimination on the Internet, why do they turn a blind eye to the worst offender of gatekeeper discrimination on the Internet – Alphabet-Google?

Recently, the Internet Association, which Google co-founded and funds, criticized the Federal Communications Commission for its proposal on network neutrality and utility regulation of Internet Service Providers (ISPs). Internet Association President Michael Beckerman stated: “ISPs should not be able to use their position as gatekeepers to prioritize their own content over others.”

Apparently, the net neutrality movement has a hypocritical double standard on gatekeeper discrimination. It has one for their chosen opponents – ISPs, and another for their allies and patrons like Google.

They maximally regulate competitive ISPs as monopolies engaged in anti-competitive discrimination, when they are not on both counts. They stay silent and do nothing when a real monopoly anti-competitively discriminates.

How can net neutrality proponents be so incensed about an imagined ISP net neutrality problem and so indifferent to a real anti-competitive and discriminatory gatekeeper problem on the Internet – Google?

They must ignore the facts.

Let’s see what a winner-take-all, market failure looks like as it is happening before our eyes.

The Goobook digital ad cartel is continuing its outsized, abnormally-fast, revenue growth on top of the largest digital ad revenue bases by far. Consequently, their few remaining platform digital advertising competitors are weakening significantly per 1Q17 earnings reporting and other information.

This is how the relevant market players did in 1Q17.

Google (which is 90% digital advertising) grew revenues at a 22% annual rate, or an absolute revenue increase of +$17b to total $95b for the last year.

Facebook (which is basically all advertising) grew revenues at a 49% annual rate, or an absolute revenue increase of +$10b to total $30b for the last year.

What did the Senate confirmation hearing for President Trump’s nominee to head up the DOJ Antitrust Division, Makan Delrahim, tell us that’s relevant to the biggest pending global antitrust issue -- Google?

A lot.

Google is no longer politically protected from antitrust investigation in the U.S.

Let’s learn why.

It has gone from likely to clear that Makan Delrahim, will be the antitrust lead in handling the most consequential U.S and international antitrust matters, like Google, in the Trump Administration.

The hearing affirmed Mr. Delrahim is very well-known, highly-respected, and enjoys bipartisan support on the Senate Judiciary Committee. He received bipartisan letters of endorsement from 12 previous DOJ Antitrust Chiefs and all the Commissioners he served with on the Antitrust Modernization Commission.

In addition, as Deputy White House Counsel for nominations, who also shepherded Supreme Court Nominee, Judge Neil Gorsuch, through the Senate confirmation process, he obviously enjoys the strongest trust, respect, and support from President Trump and Attorney General Sessions.

Tellingly, it is mid-May and we don’t have a nominee for FTC Chairperson.

Please don’t miss my latest The Hill op-ed:   “Google’s ad blocking exposes the company’s hypocrisy on net neutrality” (& copyright).  

There are potentially big implications for Google, complainants, and antitrust authorities around the world, from Google’s antitrust settlement with Russia’s Federal Antimonopoly Service (FAS)

FAS previously ruled officially, and was upheld by the Russian Supreme Court, that Google-Android illegally abused its dominance in forcing handset manufacturers to strongly preference Google search and other apps, as a contractual requirement to license Google’s official Android operating system.

In this settlement, Google agrees to a variety of significant Android/Chrome behavior changes that, if they work in practice as represented, will enable other search engines, like Yandex, and app developers to have significantly more competitive opportunities in Russia. The arbitration agreement is for six years and nine months and comes with a fine of ~$7.8m -- the equivalent of 46 minutes of Google’s annual revenues.

What Google gets in return, is big brand protection in that it can claim: a) the settlement was voluntary; b) there is now no more Russian official finding/legal precedent that Google is dominant or a monopoly, or has done anything wrong (even though it officially did before this superseding settlement); and c) a Google-Android antitrust settlement template that Google can shop to other countries, (that is friendly to Google in that Google knows this settlement won’t be as effective elsewhere, because other countries sans China and South Korea, do not have a material competitive mobile search offering to Google like Russia’s Yandex.)

The evidence is compelling that the DOJ will replace the FTC as the lead Sherman Act antitrust enforcer on the biggest Google antitrust matters during the Trump Administration.

A huge action forcing event for the Trump DOJ Antitrust Division is coming, most likely this June/July, when EU antitrust authorities most likely will conclude the first of three antitrust cases against Alphabet-Google, and officially rule Google is a 90+% search monopoly that has anticompetitively abused its monopoly position in search, and impose a traditional monopoly nondiscrimination principle remedy that Google treat its shopping comparison competitors as it treats itself.

While conventional wisdom assumes the FTC will continue as the Google antitrust lead, that is very unlikely to continue, because of two Google antitrust gamechangers, the replacement of President Obama with President Trump, and the EU’s coming official antitrust conclusion that Google is in fact a monopoly that acts anticompetitively in over 30% of the world.

Since so much flows from the baseline assumption of which U.S. entity will be the Google antitrust lead, the DOJ or FTC, it warrants closest examination.

Summary of six reasons DOJ will take the Google antitrust lead from FTC

(1) Institutionally, DOJ is the United States’ antitrust lawyer and the official liaison with other countries.