By any stretch of the imagination Google has been given a bit of a kicking by the U.S. Federal Trade Commission over the last few months as it delves deeper into the anti-trust investigation into the activities of the world’s largest and most profitable search engine.
As part of this ongoing investigation the FTC has been looking into Google’s position in the U.S. search market to determine whether it unfairly increases advertising rates for competitors, and whether its search results are skewed to favour its own businesses and franchises, like the increasingly popular Google+ social networking platform.
The FTC has cranked up the pressure this week by issuing a subpoena to Apple to find out more information about the deal by which the search giant provides services for the iPhone and iPad. The Authority has demanded that Apple hand over the documents which forged the agreement by which Google became the default search and mapping engine on its mobile devices. However, it should be noted that according to Bloomberg, other mobile handset makers and networks have also been subpoenaed.
Microsoft, Google’s closet rival, has called such agreements anticompetitive.
The combined resources of Apple’s devices and mobile phones running the Android mobile operating system, and Google’s search predominance gives Google roughly a 75% market share of the mobile market in the US at present: interestingly this is greater than the percentage it holds in the desktop market, where its share is roughly 66.4%, according to ComScore. In Europe, where the European Commission is also carrying out an antitrust investigation into the company, Google’s desktop share is closer to 90%. It is unclear at present whether the European Commission is also planning to investigate Google’s deal with Apple, though a decision on its investigation is expected within the next few weeks.
Details of the Apple-Google relationship may ultimately show evidence of whether the search giant is abusing its dominance of search to boost revenue in the mobile phone advertising market. This issue is becoming increasingly important as the mobile market percentage grows exponentially. Allen Grunes, an antitrust lawyer at Brownstein Hyatt Farber Schreck in Washington, told Bloomberg: “as mobile search gets more widespread, the default setting becomes more significant.”
Google has been the default search engine on Apple’s mobile devices since the iPhone was unveiled in 2007, though Apple is believed to have pursued talks with Microsoft in 2010 to use its Bing search engine instead. However, Google managed to secure the continuing contract. As a consequence of this agreement, Apple and Google are understood to share the advertising revenue from Google searches on iPhones, iPod Touches and iPads. Apple and Google have unsurprisingly declined to comment on the subpoenas.
The FTC’s probe of Google is also understood to be investigating whether the company is using its control of Android to harm the competition. This is particularly important as the growth of mobile search is predicted to outstrip desktop search by a significant margin. Ben Schachter, a New York-based analyst with Macquarie Capital told Bloomberg that he estimated that by the end of 2012 mobile searches in the US will make about 25% to 30% of all searches, up from 15% at present. What makes this particularly significant is that most people will use whatever is the default on the device, even though this can be changed in the settings:
“Most people don’t even know what default search means – they just know there’s a box they can use to look for information.”
In 2011 Google earned $1.3billion in search-related revenue on Apple products, according to a report released on 8 March report by Macquarie Capital, which stated that the revenues were then split to give Apple $1billion and Google just $335million. In January, eMarketer, a New York-based research firm, estimated Google’s share of US mobile advertising revenue was 52% in 2011, driven by searches. Google earns about 95% of all US mobile-search advertising revenue, the firm claimed.
The FTC’s subpoena is the latest twist in the relationship between Google and Apple.
The two companies were linked for much of last decade, with Google Chairman Eric Schmidt serving on Apple’s board of directors. But that changed when in 2008 Google announced it would introduce Android to compete against the iPhone. Schmidt left the board in 2009, during the same year the FTC said it was examining whether Apple and Google were violating antitrust laws by sharing board members, though Schmidt, then Google’s chief executive, stated the FTC probe did not prompt his decision to step down from Apple’s board. However, conflict between the two companies escalated in 2010 when Apple’s late co-founder Steve Jobs opened a patent battle against companies whose mobile devices run on Android, including Samsung and HTC.