The US courts have ruled that Google is, in effect, a monopoly. That will probably not come as a great surprise. Most of us have probably noticed that the company completely dominates search on the internet, that it has at least half the mobile market and that from maps, to email, to media, it has an effective lock on how we all use the web. Last week, the Department of Justice in the US went a step further, arguing that the only way to fix that was for the business to be broken up. What might that look like?
The most obvious division would be a three-way split into Search, Android and Media, with each one turned into a stand-alone company. Instead of one giant conglomerate, there would be three far smaller companies. That would have a huge impact on investors. Google’s parent, Alphabet, is a $2 trillion company, and every portfolio probably has some shares in it somewhere. Whether the split would prove good or bad will depend on how the new companies were valued. Presumably, each existing share would be split into three shares, one in each of the new companies. Put them all together and they might even be worth more than before the break-up.
But the biggest impact would be on the wider tech industry. A Google break-up would transform it in three main ways. First, it would lower advertising costs. One of the main issues raised by the regulators has been that its dominance of web advertising drives up costs. If the dominance were broken, we could expect costs to start coming down. That would make a big difference. One of the major barriers to entry for new digital businesses has been sky-high marketing costs. That either prevents them from getting off the ground in the first place, or means costs have to be passed on to consumers. Either way, choice is restricted. A more open market would change that decisively.
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Next, it should reduce the barriers to getting into app stores. Again, one of the main barriers to entry for new companies is not just the cost of marketing, but finding a slot in the app store, which is where most of us find new services and products. It would help if Apple was forced to break itself up, but splitting up Google, with its control of the Play app store as well as the world’s biggest search engine, would be a good start. The major app stores should operate as a utility, with very modest charges, as they are the gateway to everything else. If it were made more open we could expect a lot more new businesses to emerge.
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A broken-up Google could cause 'good' disruption
Finally, a break-up would create smaller, more focused companies, with a greater capacity for innovation. The greatest break-up in corporate history was splitting up John D. Rockefeller’s Standard Oil more than a century ago. Its constituent parts eventually turned into ExxonMobil and Chevron, and spawned several smaller companies along the way. Shareholders ended up doing very well out of it, and the oil industry emerged in far healthier shape. The same would almost certainly be true following a break-up of Google. The advertising unit would be more competitive and have to offer better products. Search would need to innovate to stay ahead of artificial intelligence (AI)-driven services. And mobile would have to adapt and improve instead of relying on corporate power to ensure it is installed on most devices.
The break-up will be fought in the courts for years. Lobbyists will mount a furious campaign to stop it. But a break-up of Google is long overdue and is a far better solution than the EU’s preferred strategy of harassing Big Tech with constant fines and cumbersome regulations. Far better is to birth the Baby Googles. We may think the tech industry is ubiquitous. But it still only accounts for 3.4% of GDP. After a couple of decades of extraordinary growth, the rate at which new products are being successfully launched has slowed down significantly. Add it all up and one point is clear. Tech is an industry that, far from being cutting-edge, has become very mature and relatively conservative. A blast of disruption is precisely what it needs right now. There is still huge potential for growth – and a Google break-up will help unleash that.
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