After years of relative calm, Google and Microsoft are tossing out their ceasefire, a move that—perhaps ironically—could bring each company additional antitrust scrutiny. The two tech giants recently ended a years-long truce during which they agreed not to aim their substantial lobbying firepower against each other.
With regulators around the world threatening to impose
limits on the power of the biggest technology companies, the two rivals — which
compete in web search, cloud computing and artificial intelligence — are now
free to step up behind-the-scenes lobbying efforts and public complaints
against one another. The old non-aggression pact, forged at the time by two new
CEOs wanting a fresh start on a formerly acrimonious relationship, had already
been fraying before it lapsed in April.
The companies feuded publicly over a proposal to force
Google to pay news publishers for content and squabbled more quietly over
technology for selling search ads. Neither company is eager to extend or renew
the alliance, according to people familiar with each companies’ thinking, who
weren’t authorized to discuss confidential relationships.
From Microsoft Corp.’s side, the disputes are about giving
marketers equal access to search engines when they organize campaigns with
Google’s technology, and creating a robust ecosystem for content creators to
get paid. Google, a unit of Alphabet Inc., believes Microsoft is objecting
because it regards Google as a threat to Microsoft’s Azure cloud-computing and
Office productivity businesses.
At a time when regulators are training their guns on the
whole industry, Microsoft and Google handing them ammo against each other may
backfire, leaving both companies and their peers subject to even more scrutiny.
The first signs of strain between the two companies appeared
more than two years ago, when Microsoft protested 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 Microsoft’s search
engine, Bing. That meant it was easier and better for potential advertisers
using that system to buy Google spots than Microsoft ones.
It seemed to be happening when Bing’s capabilities caught up
with an existing Google search feature, said Rik van der Kooi, vice president
of Microsoft Advertising. He estimates Google’s moves in ad tech are costing
the software maker hundreds of millions in ad revenue every year. It impacts
Bing as well as the Yahoo and DuckDuckGo search engines that use Bing
technology.
“If you want to advertise, if you want to sell advertising
or buy advertising on the internet, you have to use Google’s tools, and when
they make their tools in a manner that fails to interoperate easily with
others, it impacts everybody,” said Microsoft President and Chief Legal Officer
Brad Smith in a Bloomberg television interview in April. “We raised the
concerns with them and they just turned a deaf ear.
”The companies’ expired agreement on ending existing
hostilities and preventing future ones set out a formal, escalating process for
handling disputes that might previously have gone directly to regulators. In
the current ad-tech quarrel, Microsoft says the two companies followed that
process but its concerns about Google’s product still weren’t addressed
successfully. Even talks between the companies’ chief executive officers,
Microsoft’s Satya Nadella and Google’s Sundar Pichai – the final step in the accord’s
predetermined process – failed to produce a resolution.
Under the peace treaty, only once all the efforts laid out
in the accord have been exhausted could one company take its grievance to
regulators. By last year, Microsoft had spoken with U.K. officials and
regulators in some U.S. states about the ad-tech issue.
A 2020 report about Google by the U.K.’s competition
authority states that Microsoft expressed concerns that Google doesn’t update
its SA360 technology with Bing’s latest features, which reduces the amount of
money advertisers spend on Bing. Microsoft also said that Google provides
quicker bid information to book ads on its website than on Bing. The U.K.
conversations were in response to questions put to Microsoft, which was allowed
in the agreement with Google, said a person familiar with the matter.
Microsoft declined to comment on the terms under which it
spoke to the U.S. states. An antitrust suit from states led by Colorado against
Google notes that Search Ads 360 enables a sophisticated type of automated
auction technology used to optimize bids only for Google “while withholding
equivalent interoperability from Microsoft.” The Redmond, Washington-based
software maker has said Google refused to change anything, while Google
officials said the company is working to make the product better for customers.
SA360 and the AdWords programming interface work with other
search engines, Google said in a statement, adding that others don’t offer
these kinds of tools. “We invest significantly to make these products available
even though we’re not required to,” the company said. “Google continues to work
to improve the customer experience for SA360, which includes responding to
customer demand for new features for third-party search engines like Microsoft
Bing.”
The cease-fire’s demise and escalating tensions come against
the backdrop of stepped-up regulation and antitrust activity against the
biggest technology companies, including Google, Apple Inc., Facebook Inc. and
Amazon.com Inc.—earlier this month U.S. legislators introduced several bills
aimed at curbing their dominance and market power. The U.S. Justice Department
is accelerating a probe into Google’s ad market practices, according to people
familiar with the matter.Microsoft has so far remained somewhat insulated from
the scrutiny in the U.S., and hasn’t had to participate in confrontational
congressional hearings where other CEOs were in the hot seat. People familiar
with the company’s thinking say Smith and Nadella are eager to show regulators
Microsoft hasn’t been guilty of the same behavior that its rivals are being
questioned about and to distance their company from other targets.
Google, meanwhile, is growing more frustrated with the
Microsoft attacks. In May, Senior Vice President Kent Walker accused his rival
of “naked corporate opportunism.” As competition between the two intensifies,
Microsoft is “reverting to their familiar playbook of attacking rivals and
lobbying for regulations that benefit their own interests,” he wrote in a March
blog post.
On Capitol Hill, Google has been among companies agitating
for more scrutiny of Microsoft. Though Smith has said that should the antitrust
bills become law, his company would be impacted by some parts of them,
Representative Jim Jordan, the top Republican on the House Judiciary Committee,
is asking why the company has been getting a pass.
On June 23, Jordan and other Republican committee members
raised that issue in meetings to mark up various proposed bills to regulate big
technology companies, saying it made no sense for Microsoft to evade scrutiny.
Google has donated to Jordan’s campaigns since 2012, but said it was not behind
his public comments last week. Microsoft has also given to several of Jordan’s
campaigns.
One member of the House Judiciary Committee, who asked not
to be named when talking about private conversations, said a Google lobbyist
brought up Microsoft, questioning why the criteria for a “covered platform” in
the House bills appeared to exclude the massive tech company. Google spent $2.7
million on federal lobbying in the three months that ended March 31, while
Microsoft laid out $2.6 million. Some of their priorities do overlap, in areas
like immigration and data privacy.
The relationship between the two digital giants has gone
through many twists and turns since Google co-founders Larry Page and Sergey
Brin revolutionized the search engine in the late 1990s, dominating the digital
advertising market in the process, and Microsoft realized it had missed out on
a huge revenue opportunity. By the time Microsoft released its Bing search
engine, in 2009, it was too late to be anything but a laggard. Then Google’s
Android mobile software seized the market for smartphone operating
systems—something Microsoft had tried and failed.
The software company fought back in a variety of other ways.
From 2012 to 2014 it ran an ad campaign designed by Mark Penn, a former adviser
to the Clinton administration, called “Scroogled”—a portmanteau of Google’s
name and the word screwed—which claimed that Google was spying on consumers.
Microsoft complained to European regulators about Google and funded other
complainants and groups opposing the search giant as regulators investigated
the company.
That pugnacious approach changed shortly after Nadella took
over as CEO of Microsoft in February 2014 and Pichai was elevated at Google a
year later. The companies felt the battle had gotten expensive and distracting
and, in some cases, embarrassing. There were also areas where they wanted to
work more closely together. After taking over as CEO, Nadella began releasing
Office apps for rival operating systems, which included Google’s Android.
The two leaders reached a formal détente in April 2016
marked by a written agreement in which the companies settled outstanding patent
issues and agreed to keep their competition to the realm of software. No longer
would each try to gain an edge by siccing governments and agencies on the
other. The accord was part of a peace mission by Nadella after he took the
helm, designed to make relationships with Silicon Valley rivals less
confrontational and enable Microsoft to partner more effectively. Nadella also
made amends with Salesforce.com Inc.’s Marc Benioff, and there have even been
some collaborations with Amazon.
As recently as a year ago, the Google deal seemed to be
enduring, at least outwardly, with Microsoft avoiding lodging public complaints
about Google even as it put Apple’s App Store on blast. In May 2020, when Smith
said European and U.S. regulators should examine app stores in a public
appearance in Washington, Microsoft spokespeople took pains to note to
Bloomberg later that Smith was referring to Apple only.
And Microsoft and Google continue to deepen their
cooperation in other areas of their businesses. Microsoft’s Edge browser runs
on Google’s Chromium technology and Microsoft now sells a phone called Duo that
uses Google Android as its operating system. Last week Microsoft announced its
next Windows operating system will run apps that use Google’s Android —
although Microsoft didn’t work directly with Google to accomplish that. The
Android apps on Windows will be sourced from Amazon’s app store. And the people
familiar with both companies’ thinking noted they weren’t closing the door
completely on a new or extended truce.
Still, even before it expired, there was ample evidence that
the deal was eroding. Already irked with Google over the digital ad limits,
Microsoft took a different set of complaints public earlier this year—Google’s
refusal to comply with a planned Australian law that would have forced it to
pay news outlets for content its sites and apps feature. Microsoft said
Google’s public conduct there showed a similar intransigence to what it had
seen more quietly over the ad tech dispute.
Microsoft also posited that the continued deterioration of
news outlets in the internet age is hampering free and democratic discourse.
Google’s conflict with Australia happened a few weeks after the U.S. Capitol
riots in January, and Microsoft’s Smith drew a connection between the two. In
March, Smith testified before the House Judiciary Committee about it.
The insurgency was “an assault on the Capitol and an assault
on a peaceful transfer of power that in our view in part reflected an
unprecedented amount of disinformation at a time when the country cannot rely
on the traditional base of news and journalism, that has been a bedrock of
American democracy since the country was founded,” he said in an April
interview with Bloomberg Television’s Emily Chang. “So when we step back and
look at all of these things together, this is a time to ask these questions
because they matter for the web. They matter for the people who use the
internet, and frankly they matter for the fundamental pillars of our democracy
itself.
”Protestations about free speech aside, Microsoft may also
be trying to exploit Google’s heightened vulnerability to antitrust regulation
around the globe. The company, is battling government claims of abuse of
monopoly power from the U.S. Justice Department and a group of states, and in
Europe, Google faces a sweeping probe of its ad technology. Any new regulations
or laws that weaken Google might give Microsoft leverage in markets where they
increasingly compete for the same business.
“We have a name for this in antitrust — we call this raising
rivals’ costs,” said Randal C. Picker, a law professor at the University of
Chicago who studies tech antitrust and copyright issues, about Microsoft’s
stance on paying for news content. “All of this is going to cost the Facebooks
and the Googles of the world a lot more than it’s going to cost Microsoft. So
that makes it look like a competitive move.”
Google has chosen the area of cybersecurity to poke at
Microsoft—Google’s Walker posted another blog this month cautioning customers
that using one vendor for too many parts of their software stack puts them at
greater risk of hacking.
“As we saw with SolarWinds and the Microsoft Exchange
attacks, proprietary systems and restrictions on interoperability and data portability
can amplify a network’s vulnerability, helping attackers scale up their
efforts,” Walker wrote, in a swipe at Microsoft.
Mountain View, California-based Google may have other ways
to hurt Microsoft. So far Microsoft’s large acquisitions, such as deals for
LinkedIn and GitHub, as well as purchases of video-game studios, have passed
through regulators without much scrutiny. But Google could choose to raise
concerns about current and future deals, like Microsoft’s $20 billion agreement
to buy Nuance Communications Inc., an artificial intelligence company meant to
bolster Microsoft’s health-care, cloud and AI efforts—all primary areas of
competition with Google and Amazon.
Google is also Microsoft’s biggest rival in the market for
productivity software like word processing, email and spreadsheets, possibly
the only major field where Microsoft retains a dominant position. Already
rivals like Slack Technologies Inc. have complained to European regulators
about Microsoft bundling new apps into Office to fend off rivals, and Google
could chime in with any concerns it may have.
“Microsoft is a huge company as well and it’s dominant in
many areas. For example, Office is a dominant package in the market,” said Gus
Rossi, a principal of responsible technology at Omidyar Network, a foundation
and impact investment firm focused on social change. “What Google can do is to remind everyone
that Microsoft is also a bad actor, because if everyone is a bad actor, then
you’re not such a bad actor.”
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