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Alphabet Hit with Google Antitrust Lawsuit After Years of M&A

Google’s parent Alphabet enjoyed countless mergers and acquisitions for many years as it sought to expand its empire through billions of dollars in startup acquisitions or investments through its venture capital arms.

Alphabet closed 24 deals in 2015, but that figure dropped to just five so far in 2020, says PitchBook.

Scrutiny from federal government antitrust regulators has seen the company’s spending spree slow in recent years. Some analysts say that it could be the beginning of a chill in its ambitions.

Alphabet Department Justice

The Alphabet Lawsuit

The Department of Justice named Alphabet in an antitrust lawsuit this week. The lawsuit describes Alphabet’s alleged anticompetitive behavior. The complaint contends that Google uses these practices to preserve a monopoly for its flagship search engine. Google also sought to thwart competition from smaller rivals.

The action doesn’t focus on any Alphabet M&A activity, but some believe that it and other tech giants will approach new deals with greater caution. The increased regulatory scrutiny could slow approvals.

European Scrutiny

Google has experienced similar regulatory scrutiny in the European Union over its business practices. The EU has hit Google with three antitrust penalties totaling approximately $9.8 billion since 2017.

Moreover, the European Commission is reviewing Alphabet’s $2.1 billion takeover of Fitbit. That acquisition is close to clearance after Alphabet reportedly made some concessions to alleviate antitrust concerns.

However, the picture is much brighter in Alphabet’s venture capital activity. The total value of deals that its VC investment arm, GV, has participated in this year is already greater than last year’s total. According to PitchBook. GV has invested in 62 deals totaling over $5.8 billion thus far this year. Last year, GV participated in 73 deals worth nearly $5.3 billion in 2019.

Details of the Antitrust Lawsuit

The U.S. Justice Department accused Alphabet, a $1 trillion company, of illegally using its market power to repel rivals. The DOJ said nothing was beyond consideration—including a breakup of the internet search and advertising company.

The lawsuit is the largest challenge by the United States to the growing power of tech companies in a generation. It’s not unlike the lawsuit against Microsoft Corp. filed in 1998 and the 1974 case against AT&T which led to the breakup of the Bell System.

The complaint alleges that Google acted illegally to hold its position in search and search advertising on the internet. It says says that “absent a court order, Google will continue executing its anticompetitive strategy, crippling the competitive process, reducing consumer choice, and stifling innovation.”

Nearly 90% of All General Search Engine Queries

The government added that Google has close to 90% of all general search engine queries in the United States. it has almost 95% of searches on mobile devices.

Attorney General Bill Barr remarked that his Justice Department investigators found Google doesn’t compete on the quality of its search results but instead bought its success through payments to mobile phone makers and others.

“The end result is that no one can feasibly challenge Google’s dominance in search and search advertising,” Barr said.

In its complaint, the Justice Department said that Google’s actions hurt Americans. In its “request for relief,” it said it was seeking “structural relief as needed to cure any anti-competitive harm.” “Structural relief” in antitrust matters generally is the sale of an asset.

Alphabet Stifling Innovation and Competition, Says Government

“Ultimately it is consumers and advertisers that suffer from less choice, less innovation and less competitive advertising prices,” the complaint says. “So we are asking the court to break Google’s grip on search distribution so the competition and innovation can take hold.”

Google called the lawsuit “deeply flawed.” People “use Google because they choose to — not because they’re forced to or because they can’t find alternatives.”

The complaint also noted that Google pays billions of dollars to smartphone companies to place Google’s search engine as the default on their devices. As a result, rival search engines never achieve the scale they require to improve their algorithms. For that reason, rivals cannot grow, the complaint said.

Google has been successful at shielding its profit derived from the Android mobile operating system. The OS is officially open source, but Google bars companies that change it from lucrative revenue-sharing agreements. The Justice Department found that an internal Google analysis of restrictive agreements determined that just 1% of Google’s worldwide Android search revenue was at risk of being lost to competitors.

“This analysis noted that the growth in Google’s search advertising revenue from Android distribution was ‘driven by increased platform protection efforts and agreements,'” the complaint found.

States Plan to Sue Alphabet

Google and Alphabet could be defending more lawsuits in the future. Investigations by state attorneys general into Google’s wider businesses are now ongoing. Further, there’s an investigation of its broader digital advertising businesses. Attorneys general led by Texas will be filing a separate lawsuit soon that centers upon digital advertising. A group led by Colorado is considering a more expansive lawsuit against Google.

The antitrust lawsuit came a little more than a year after the Justice Department and Federal Trade Commission started antitrust investigations. They investigated four big tech companies: Amazon, Apple, Facebook, and Google.

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