A five-year truce between rivals Alphabet Inc. and Microsoft Corp. came crashing down in 2020 when the tech giants found themselves at odds over their competing web-search businesses, according to testimony at the US government’s antitrust trial against Google.

After a decade of fights, the companies forged a non-aggression pact in 2016, wanting a fresh start to their acrimonious relationship. But three years ago, the situation began to fray, Jonathan Tinter, a Microsoft vice president of business development, testified Thursday in Washington.

Alphabet insisted that Microsoft place a Google search widget on the main screen of its Surface Duo touchscreen smartphone device in order to license the Android operating system, rejecting the software company’s request to use its own search engine, Bing, said Tinter, who negotiated the deal in the spring and summer of 2020.

Google also prohibited Microsoft from instructing users how to switch the default search engine to Bing, he said.

“Ultimately, for the Duo to be successful we needed the license from Google,” he said. “We wanted the search entry points to be Bing. They wanted the search entry points to be Google.”

Tinter is one of several Microsoft executives to testify as part of the Justice Department’s antitrust lawsuit against Google. Microsoft Chief Executive Officer Satya Nadella is expected to take the stand next week. The government alleges Google has monopolized the online search market through contracts where it paid billions to Apple Inc. and smartphone makers to make its search engine the default on browsers and mobile devices. Google has said consumers like its search engine and it’s easy to switch.

Microsoft and Google eventually reached a “compromise” on Duo for both search engines to appear on the device, Tinter said. A search widget, the Chrome browser and the Google Search app would all be on the phone and use Google, while Microsoft’s Edge, the device’s default browser, would use Bing.

Microsoft began taking orders for the $1,400 dual-screen folding Duo in August 2020, marking the company’s return to the handset market following an ignominious retreat in 2016 after its acquisition of Nokia Oyj’s handset unit resulted in a costly writedown. While it had some fans, the Duo fared poorly and within months Microsoft was already offering discounts on the product. Scarcely a year later it was selling for less than half the original sticker price.

While the release of the Duo appeared to represent a thaw between the tech rivals, behind the scenes, the relationship was less friendly, Tinter said. Tinter said he personally advocated for “strategic cooperation” with Google, citing the success of Microsoft’s Office products on the Android platform.

“There was a debate about how much we should work with Google or not,” he said. “The Bing ads team was arguing we should not.”

The companies’ agreement on ending hostilities set out a formal, escalating process for handling disputes that might previously have gone directly to regulators. In March 2020, Microsoft formally complained to Google that its Search Ads 360, which lets marketers manage advertising campaigns across multiple search engines, wasn’t keeping up with new features and ad types in Bing.

The dispute triggered talks between the companies’ top lawyers – Microsoft’s Brad Smith and Google’s Kent Walker. Tinter was also involved, he said, discussing the issues with Google’s Don Harrison, president of global partnerships and corporate development.

Tinter said that in response to Microsoft’s escalation, Google officially complained about a problem with the terms of Microsoft’s cloud program that barred participation of the Google Drive products – rival productivity software for word processing, email and spreadsheets.

In response to questions by the Justice Department, Tinter said Microsoft had informally agreed to pay for Google to make the changes to SA360.

“It was half a negotiating strategy,” Tinter said. Harrison “said, ‘This is too expensive.’ I said, ‘Great let me pay for it.'”

The two companies eventually negotiated a resolution about cloud, but couldn’t resolve the problems with the search advertising tool, he said. As a result, nothing was ever signed on either issue, Tinter said.

“We ultimately walked away and did not reach an agreement,” he said.

Microsoft and Google also let their peace deal expire in 2021.

The key allegation against Google is that its “arrangements” with Apple and other companies to be the default search engine on their devices, is unlawful monopoly building. File
| Photo Credit: AP

The story so far: On September 12, Justice Amit Mehta of the U.S. District Court for the District of Columbia started hearing what is being described as the most important case about the future of the Internet. Over the course of the next 10 weeks, Justice Mehta will hear arguments of the U.S. Department of Justice (DoJ) and several U.S. States to the effect that Google used illegal tactics to maintain a monopoly in online search. Several top officials from Google, including CEO Sundar Pichai, are expected to be called in as witnesses. If the allegations against the $1.7 trillion Silicon Valley giant are upheld, Justice Mehta will begin a separate trial to decide on the action that needs to be taken. Other mega Internet companies such as Amazon and Meta are keenly watching the trial, as it will have major implications on how their own ‘anti-trust’ issues are dealt with.

What is the charge against Google?

The key allegation against Google is that its “arrangements” with Apple and other companies to be the default search engine on their devices, is unlawful monopoly building. The DoJ filed the charges on October 20, 2020, arguing that Google throttled competition from other search engines and caused harm to consumers, making it a prime anti-trust — targeting monopolies — case. “Two decades ago, Google became the darling of Silicon Valley as a scrappy start-up with an innovative way to search the emerging internet. That Google is long gone,” the DoJ had said in its initial filing.

Since the extent of harm that has been caused to consumers is the key deciding factor in anti-trust cases, the DoJ is expected to show how the default search position for Google on various devices limited options available to consumers. Focus may also fall on how a lot of the real estate on Google’s search result pages is often taken up by the company’s own non-search services — such as user reviews — at the cost of rival services. Google’s default position also creates a ‘feedback loop’ in which consumers are regularly giving the search engine their personal preferences, allowing Google to fine-tune its algorithm and deliver better search results and advertisements. “Google’s contracts ensure that rivals cannot match the search quality ad monetisation, especially on phones,” Kenneth Dintzer, the main lawyer for the DoJ in this case told the Associated Press. “Through this feedback loop, this wheel has been turning for more than 12 years. It always turns to Google’s advantage.”

However, Google argues that the reason it controls 91% of the global search market is that it provides better quality of services, rather than a lack of competition. Google says that consumers can always choose to change the default option, and that any deals it has with device manufacturers like Apple are above board.

Is there a deal between Apple and Google?

While both Apple and Google have been secretive about their cooperation, several reports indicate that such a deal was renewed in 2017. According to The New York Times, while Google paid Apple to the tune of $1 billion in 2014, the latter now receives between $8 billion and $12 billion, amounting to 9% of its annual gross profits. Google’s willingness to pay such a huge amount is driven by the fact that 75% of its search revenue comes from iPhone and iPad users. It is also a precautionary measure as it holds back the creation of a rival search engine by Apple, one of the few companies that have the wherewithal to take on Google.

Google also understands a key lesson from behavioural economics — most people will not bother to change the default options made available to them.

Why is there a ‘techlash’ on anti-trust issues?

Google is no stranger to anti-trust cases, though not in the U.S. In 2017, it was fined $2.7 billion by the European Union for showing undue preference for its own services in search results. The EU has imposed a total fine of 8.25 billion euros on Google over three anti-trust investigations. The EU has also trained its anti-trust guns on other U.S. online giants such as Meta and Amazon.

On the other hand, the U.S. has been slow to act against homegrown behemoths, who also spend considerable amounts of money and effort on political lobbying. However, a massive ‘techlash’ has been building up in the U.S. in recent years with calls from both sides of the political aisle to restrict the influence that these companies can exert on aspects ranging from teenage mental health to personal privacy and the success of small businesses.

The current case against Google has the potential to redefine how anti-trust laws are wielded in the technology era against new business models. A key test of consumer harm under anti-trust law is the amount of monetary loss that has been sustained by consumers due to the monopolistic behaviour of companies. However, Google offers its search services for free. It remains to be seen how the DoJ, which has another anti-trust case in the pipeline against Google over its dominance in online advertising, will prove its point on consumer harm in this case.

Why are anti-trust cases important?

Anti-trust cases have the potential to completely revamp a sector of the economy. Such cases in the U.S. also have far reaching impact across the globe. The last major anti-trust case was over two decades ago, when the U.S. government took on the Bill Gates-led Microsoft that had near-total monopoly over the operating systems running personal computers.

Also read |Google fails to end $5 billion consumer privacy lawsuit

In 1995, the Internet revolution was taking off with the Netscape browser being the key software for accessing the World Wide Web. Microsoft tried to squeeze out Netscape by bundling its Internet Explorer web browser for free with its Windows OS. The government took Microsoft to court in 1998, and in 2001 arrived at a deal that made Microsoft keep a more open Windows environment. Critics of this case say that it did not do much to shake Microsoft’s monopoly; Netscape lost its market leadership and eventually morphed into the Firefox browser from Mozilla Foundation. Others, however, say that the open environment that the deal ensured saw to it that Microsoft did not crush the smaller technology companies that were developing products around the Internet, including one that was formed in 1998 in a garage in Menlo Park, California — Google.