Microsoft CEO, Satya Nadella, testified on Monday, October 2, 2023, in the federal antitrust trial against Google. He spoke about the issues of competing with Google in digital search. In his testimony, Nadella stated that Google’s power in online search was so ubiquitous that even Microsoft could not overcome it. Nadella’s appearance on the witness stand in the case was a sign that the rivalry between Microsoft and Google is still on.
Please note that this article is on Nadella’s testimony in court. The court will take Google’s rebuttal and response to Nadella’s claims at another date. When Google responds, we will update this article.
Nadella said they are still competing for the massive content needed to train AI. However, he claims Google has locked in high-priced exclusive agreements with publishers. Nadella makes it clear that the company is not happy with Google’s content and practices.
Nadella’s testimony is in the first major trial against Google. This is the he first major antitrust case since the U.S. government sued Microsoft in 1998. He testified that tech giants are scrambling to build content libraries to train their own large language models.
Google’s Dominance in Search
Nadella testified that Google’s dominance in the search was due to its use of multibillion-dollar deals to be the default search engine on smartphones and web browsers. He stated that Google’s deals with device makers and browser developers made it difficult for Microsoft to compete with Google in search. Nadella also said that Google’s dominance in search was so entrenched that even Microsoft, with its vast resources, could not easily fight it. He added that Google’s power in online search was “really the Google web”.
The distribution agreement is at the centre of the U.S. Department of Justice’s (DoJ) antitrust crackdown on Google. Google, which holds 90% of the search market, pays smartphone makers like Apple and wireless carriers like AT&T. The DoJ’s probe found that Google pays these companies $10 billion a year to become the default search engine on their devices. The U.S. DoJ believes that this behaviour violates the law.
Google has leveraged its influence in the search market to become a heavyweight in the lucrative ad market, boosting profit margins.
Nadella said developing AI requires computing power (servers) and data to train the software. “No problem, we’re willing to put the money in,” he said of the servers.
But if other companies block content through exclusive agreements with large content companies, that’s “problematic.” But he didn’t explicitly mention Google.
“When I met with publishers, they said Google paid the money and signed the exclusivity agreement, and you have to offer the same terms,” Nadella said.
Google antitrust case reveals Apple rejected Bing
Nadella also said that Microsoft once wanted to make Bing the default search engine on Apple mobile phones. However, he said Apple did not accept the deal.
Gizchina News of the week
Google chief lawyer, John Schmidtlein reminded Nadella that Microsoft sometimes gains the status of the default search engine on computers and mobile phones, but there are still many users who bypass Bing and use Google.
John said Microsoft failed to gain a foothold in Bing due to a series of strategic mistakes. This includes failing to invest in hardware and talent to improve Bing and failing to recognize the potential of the mobile revolution.
John also said that Microsoft had signed default search engine agreements with many companies before. He mentioned Microsoft’s deals with Verizon in 2008 and BlackBerry and Nokia in 2011. John said despite these deals, the end result was the same. He claims that users still bypassed Bing and completed most of their tasks through Google.
Nadella admitted that Bing is the default search engine on most laptops using Microsoft systems, but its market share is still less than 20%. Referring to Google’s dominance of the search market, he added: “A lot of people get up in the morning, brush their teeth and start searching on Google.”
Quality issues
Amit Mehta, the presiding judge in this case, asked Nadella: Since the quality of Microsoft products is poor, why should Apple switch to Bing?
The question showed the judge was interested in Google’s argument that its dominance was achieved through better product quality, not violations.
Nadella became Microsoft CEO in 2014. The tech giant had long been aware of the federal antitrust lawsuit. That lawsuit ended in a settlement in 2001, forcing Microsoft to end some business practices and opening the door for companies like Google.
As Google grew into the industry’s leading search engine, the two companies also became bitter rivals. Both have browsers, search engines, email services and a host of other overlapping services. The two brands have also recently competed with each other in the field of AI. Microsoft invested heavily in OpenAI and Google is developing the Bard AI chatbot.
Impact of Google’s Anticompetitive Deals on Bing
Nadella testified that Google’s anticompetitive deals had a significant impact on Bing, Microsoft’s search engine. He said that Google’s deals with device makers and browser developers made it difficult for Bing to gain market share. Nadella also spoke about the impact of Google’s anticompetitive deals on Microsoft’s ad business, stating that Google’s dominance in the search had made it difficult for Microsoft to compete in the online ad market. He said that Google’s anticompetitive practices had thwarted Bing’s growth and had prevented Microsoft from competing fairly in the search market.
Conclusion
Microsoft CEO Satya Nadella’s testimony in the federal antitrust trial against Google shed light on the challenges of competing with Google in digital search. Nadella’s testimony highlighted the impact of Google’s anticompetitive deals on Microsoft’s search engine, Bing, and its advertising business. Nadella’s appearance on the witness stand in the case was a sign that the bitter rivalry between Microsoft and Google continues. The trial is ongoing, and it remains to be seen what impact Nadella’s testimony will have on the outcome of the case.
