Google faces a possible $100 billion avalanche of litigation, says Bernstein

In addition to the Justice Department’s proposed remedies, which could include breaking up the business, Google could also face more class-action lawsuits from advertisers seeking monetary penalties as repayment for years of inflated fees. In total, the mounting tab for the tech giant could top $100 billion, on top of possible lawsuits from competitors that could bring other penalties, according to a note on Tuesday from Bernstein analysts.

The antitrust suit, along with possible billions in penalties sought in possible future lawsuits, could prompt Google to take a less aggressive strategic stance at a time when generative AI is revolutionizing its search business, said Bernstein senior analyst Mark Shmulik . wealth.

“The reality of an Internet company is that progress never stops. And if you’re going to be hampered, where maybe you’re fighting with one hand tied behind your back, it becomes a very difficult prospect to move as fast as you want to and maybe the way you need to,” Shmulik said.

The ruling found that Google used its dominance in text ads to charge “supra-competitive prices,” or prices above what would be sustainable in a competitive market, which allowed it to make “monopoly profits” from text ads such as the ones that appear near the top of the search results.

While text ads may seem outdated, they represent 65 percent of the larger search ad market, according to the ruling. In 2020, text ads accounted for about 80% of Google search ads by revenue. In the same year, the company’s “Google Search and Other” product category brought in $104 billion in revenue, according to an SEC filing.

The court found that Google used this monopoly power to raise the prices of its search text ads by between 5% and 15% in order to meet its revenue goals without losing customers to competitors. The ruling also found that Google did not take into account what rival firms were charging for similar text ads when setting its prices.

When reached for comment, a Google spokesperson referred us wealth to an earlier statement by Google’s president of global business, Kent Walker. He praised Google and said the $1.9 trillion company plans to appeal the ruling.

Although not directly related to text ads, reviews and bookings company Yelp has already taken advantage of last month’s decision to sue Google, saying the company used its search dominance to unfairly drive competitors out of the market for “local search and local search services”. advertising.” A Google spokesperson said that “Yelp’s claims are not new.”

“Similar claims were rejected years ago by the FTC (Federal Trade Commission) and recently by the judge in the DOJ (Department of Justice) case. We appeal the other aspects of the decision referred to by Yelp. Google will vigorously defend itself against Yelp’s meritless claims,” a Google spokesperson said in a statement sent to multiple outlets.

Shmulik said Yelp’s lawsuit is one of the first to emerge after the ruling, and that other search competitors may have standing to sue because of the decision. That includes Microsoft, maker of rival search engine Bing, which has spent more than $100 billion on search over the past 20 years, CEO Satya Nadella said during the antitrust lawsuit against Google, according to the ruling.

“(Microsoft) can argue that, ‘Well, part of the reason (Bing) never broke through was because of all this illegal behavior that Google engaged in, and so we want ROI on all of that investment. he said.

More than two decades ago, Microsoft faced its own antitrust reckoning, and a further uptick in lawsuits could be a precedent for what’s to come for Google, according to Bernstein analysts. After a federal judge ruled against the tech giant in 2000, buyers of Microsoft’s computer operating system and other software sued the company to try to recover overcharges, mostly over a two-and-a-half-year window, said Shmulik.

Microsoft settled those lawsuits, along with several others from competitors that saw it pay $1.9 billion to Sun Microsystems, $775 million to IBM, $536 million to Novell and another $150 million to Gateway.

In total, Microsoft paid about $10 billion in settlements, or about 11 percent of its net income, between 2002 and 2008, Bernstein analysts found.

All signs point to potentially years of lawsuits capitalizing on the judge’s antitrust ruling against Google, Shmulik said.

“Far be it from me to judge how excited the lawyers sound,” he said. “But the ones I spoke to seemed very eager to work.”

Recommended reading:
In our new special edition, a Wall Street legend gets a makeover, a tale of crypto iniquity, poultry misbehavior and more.
Read the stories.