The U.S. Department of Justice’s (DOJ) recent proposal to disrupt Google’s dominance in the search engine market could significantly impact the tech giant’s profitability and hinder its growth in artificial intelligence, according to analysts. While the final resolution of this case may take years, the potential ramifications are already causing ripples across the industry.
On Tuesday, the DOJ announced its intention to seek judicial approval for measures that could require Google to divest key components of its business, including the Chrome browser and Android operating system. These elements are considered instrumental in maintaining what the DOJ alleges is an illegal monopoly in online search.
The proposed remedies are part of a broader set of solutions that prosecutors are evaluating. Other potential actions include prohibiting Google from collecting sensitive user data, mandating that it share search results and indexes with competitors, allowing websites to opt out of having their content used for AI training, and requiring Google to report to a “court-appointed technical committee.”
Following the DOJ’s announcement, Alphabet Inc. (GOOGL) investors reacted by pushing shares down by 1.5%, closing at $161.86 on Wednesday. This comes amid a series of antitrust challenges this year, including a recent ruling that mandates Google to make its app store more accessible.
“The DOJ has reverse engineered Google’s formula for success and is intent on dismantling it,” remarked Gil Luria, managing director and senior software analyst at D.A. Davidson. He noted that the proposed remedies regarding privacy and data accumulation could force Google into a difficult position, where it may have to choose between sharing all collected data or ceasing data collection altogether. He believes that this choice could inadvertently bolster competitors and stimulate new market entrants.
Furthermore, the suggested AI-related changes pose a threat to Google’s operations, particularly at a time when the company faces increasing competition from startups such as OpenAI, the creator of ChatGPT, and other AI-driven search engines like Perplexity. Research firm eMarketer predicts that Google’s share of the U.S. search ad market could drop below 50% for the first time in over a decade by 2025.
“The last thing Google needs right now in the broader AI battle is to fight with one hand tied behind its back by regulators,” cautioned Bernstein analyst Mark Shmulik.
Potential beneficiaries of the proposed remedies include rival search engines such as DuckDuckGo and Microsoft Bing, along with AI competitors like Meta Platforms and Amazon. Kamyl Bazbaz, senior vice president of public affairs at DuckDuckGo, stated, “The framework recognizes that no single remedy can rectify Google’s illegal monopoly; it will require a combination of behavioral and structural remedies to free the market.”
However, some industry observers remain skeptical about the feasibility of these remedies, which mark the most significant antitrust initiative in the U.S. since the 1999 Microsoft case. Adam Kovacevich, CEO and founder of Chamber of Progress, a trade organization representing tech companies, commented, “The DOJ is throwing remedy spaghetti at the wall. While it might generate headlines, it faces serious legal challenges. The proposed remedies could exceed the bounds of the judge’s ruling, and historical precedent suggests that broad measures often do not survive the appeals process.”
In contrast, Russ Mould, investment director at AJ Bell, noted that the risks associated with this legal battle have been anticipated for some time. “Investors don’t seem to believe that a forced breakup will occur,” he added.
As the situation unfolds, all eyes will be on the DOJ’s actions and their potential impact on one of the world’s most influential tech companies.
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