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March 17, 2023

Google faces antitrust action in the US over its advertising dominance. Could the giant be broken up?

Market commentary by eToro analyst for Romania, Bogdan Maioreanu

 Could the “google era” be coming to an end? The giant is facing multiple challenges, from its search dominance threatened by artificial intelligence chatbots like the recently launched ChatGPT, to its highly profitable advertising business which is under the microscope of competition authorities.

The Department of Justice of the United States has filed a lawsuit against Alphabet Inc’s, Google’s parent company, for violations of the Sherman Act and called for a breakup of the advertising-tech business. If this happens it will be the largest corporate breakup in decades. 80% of Google revenues depend on their advertising business.

At global level Google is leading in search engine usage and data consumption. The search engine market is dominated by Google with 92.42%, followed by Microsoft Bing with 3.45%, Yahoo with 1.32% and the Chinese Baidu with less than 1%. Globally 71.55% of mobile data consumption is coming from Google Android devices, 27.8% is coming from Apple IOS devices and the rest 0.65% is coming from other operating systems. The internet traffic by browser is dominated by Google Chrome with more than 65% followed by Apple’s Safari with close to 19% leaving Microsoft Edge browser with 4%.

According to the eToro Retail Investor Beat survey, Romanian investors use google.com as their main source of information search, followed by social media. This is also observed among the general public, where the most viewed websites are in order google.com, youtube.com and facebook.com.

Assistant Attorney General Jonathan Kanter mentioned that in late 2016, a Google digital advertising executive asked the following question in an internal email exchange: “[I]s there a deeper issue with us owning the platform, the exchange, and a huge network? The analogy would be if Goldman or Citibank owned the [New York Stock Exchange]?”. Starting from this the DoJ states that Google engaged in 15 years of sustained conduct that had — and continues to have — the effect of: driving out rivals, diminishing competition, inflating advertising costs, reducing website publisher revenues, stymieing innovation, and flattening the public marketplace of ideas.

Google said last Wednesday it believes the complaint from the U.S. Department of Justice accusing the company of abusing its dominance in digital advertising is “without merit” and that it will defend itself vigorously. The Google lawsuit is a long term battle and it is not singular in the big tech industry. There are similar cases open, appealed or settled against Meta, Apple and Amazon.  Alphabet  is having other antitrust lawsuits started during the Trump administration including one about its domination as an internet search engine.

Even prior to the antitrust action, Alphabet’s stock has struggled on the financial markets in the last year alongside the entire tech sector. The stock dropped 34% in 2022 as revenue growth slowed and investors worried about weaker search-advertising trends.

Alphabet is the 10th most held share by Romanian investors on the eToro platform. Investors reacted to the lawsuit news and the shares of the company depreciated with 2% after the news broke and another 2.5% Wednesday influenced by Microsoft estimates about a drop in cloud business. However, yesterday, the share price recuperated the Wednesday loss and is up 10.55% from the start of the year. The lawsuit, that is at the very beginning, most likely will not further influence the share price in the short run.

The Sherman Act issued in 1890, on which the antitrust lawsuit is based, broadly prohibits anti-competitive agreements and unilateral conduct that monopolizes or attempts to monopolize the relevant market. There are precedents in the past when DoJ managed to break up monopolistic companies like Standard Oil and American Tobacco in1911, and the Bell System/AT&T in 1982. In the case of Bell/AT&T the lawsuit took eight years and it ended in a negotiated agreement that separated Bell from AT&T and broke it into smaller units. In all break up cases for the investors the result was good, in case of AT&T shares appreciating more than 200%.


Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.


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