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Google’s Search Domination Began With Plan to Combat Rivals

(Bloomberg) -- Two decades ago, when Google was emerging as an Internet powerhouse, company officials were developing strategies to combat rivals, and eventually landed on a plan to make its search engine the default tool for as many browsers as possible.

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In July 2003, Google Chief Economist Hal Varian warned senior executives in an email that Microsoft Corp.’s plan to include web search in its Windows operating system “poses a serious threat,” according to evidence presented Tuesday by the US Justice Department in a high-stakes antitrust trial in Washington. Varian said the company should consider ways of retaining users as it develops new product ideas.

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“Up until now we have mostly evaluated those ideas on the basis of technological merit, value to user, and revenue potential,” Varian said in a memo to company executives. While providing a superior product should remain the top consideration, “we should also consider entry barriers, switching costs, and intellectual property when prioritizing products,” he said.

The US Justice Department, which began its case by calling Varian to testify, said Alphabet Inc.’s Google now maintains a monopoly in online search by paying more than $10 billion a year to tech rivals, smartphone makers and wireless providers in exchange for being set as the preselected option or default on mobile phones and web browsers.

“This case is about the future of the internet and whether Google’s search engine will ever face meaningful competition,” Kenneth Dintzer, a government lawyer, said in his opening statement at the start of the trial Tuesday. “The evidence will show they demanded default exclusivity to block rivals.” Google controls 89% of the search market, he said.

Sign of Dominance

For years, Google employees tracked the company’s share in the search market by four internal metrics as well as data offered by third-party data analytics firms like Comscore Inc. In a sign of how dominant it has become in the past decade, Google executives decided in 2014 to stop publishing the monthly reports because the company no longer needed the data, Varian said Tuesday.

The trial before US District Judge Amit Mehta is the first pitting the federal government against a US technology company in more than two decades. The trial is expected to last 10 weeks. If Mehta decides Google illegally matained its monopoly, the Justice Department may seek remedies in a second phase to break off Alphabet’s search business from other products, like Android and Google Maps, which would mark the biggest forced breakup of a US company since AT&T was dismantled in 1984.

Read More: What’s at Stake in Google Trial on Antitrust Charges

Google argues the company has won market share because it has the best search engine, not because of a lack of competition.

Consumers use Google “because it delivers value to them, not because they have to,” John Schmidtlein, a partner at Williams & Connolly LLP who is representing the company, said during his opening statements. “Users today have more search options and ways to access information online than ever before.”

But in 2007, Google executives were focused on boosting market share by expanding their presence on web home pages, according to an email presented at trial. The email summarized a meeting that included Varian and Sundar Pichai, who was then leading product development and is now Google’s chief executive officer.

On the witness stand, Varian acknowledged the benefits of being the default search engine in any browser.

“In general, having the default is useful,” the chief economist said. “It’s valuable to Yahoo. It’s valuable to Microsoft. It’s valuable to Google.”

Christopher Barton, a former Google employee who helped negotiate the company’s agreements with smartphone makers related to Android, is expected to take the stand Wednesday morning. Varian will then resume his testimony after that.

Read More: Google’s Ties With Apple Under Spotlight in Antitrust Trial

The case is: US v. Google, 20-cv-3010, US District Court, District of Columbia.

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