How Google Eliminates Competition Before It Even Steps onto the Starting Line
By Sophia Stafford ’25
A flourishing economy thrives on competition. When multiple companies compete in the marketplace, it drives innovation, delivers fair prices, and guarantees diverse choices for consumers. However, a danger arises when one firm dominates the market. If there is only a single company dictating an entire market without any conceivable competition, it can lead to elevated prices, reduced innovation, and limited consumer options. This type of prevailing firm is known as a monopoly. Recently, the Department of Justice has accused Google of abusing its power as a monopoly to suppress rival firms. The trial focuses on Google’s deals with Apple, Samsung, Mozilla, and other providers, where they have paid billions of dollars to become the default search engine installed on the companies’ devices. So far, media coverage of the trial has concentrated on these contracts. Yet, not enough time is being spent exploring Google’s history of preemptive acquisitions – buying out early-stage firms before they have a chance to become real competitors. This strategy allows Google to expand, while simultaneously eliminating other rivals. Within these deals lies the foundation of Google’s dominance.
Since the company’s founding, Google has strategically bought out potential rivals, hindering market competition. Starting in February 2001, Google acquired Deja News, an online search engine that offered access to Usenet newsgroups. The technology was quickly integrated into Google Groups, a move that helped the company expand its search capabilities beyond web pages. Throughout the years, the company has continued its strategy of purchasing potential rivals. In July 2005, Google bought Android for 50 million dollars, solidifying its market position as internet users shifted their focus from computers to smartphones. Then, in 2006 and 2007, Google entered the workplace productivity sector, acquiring Writerly and Tonic Systems, which became Google Docs and Google Slides respectively. Just a year later, Google expanded into the online video sector, acquiring YouTube for 1.6 billion dollars. (Today, YouTube generates that amount of money for Google every three weeks.) All along the way, Google scooped up hundreds of additional companies, spending a total of 42 billion dollars on nearly 260 acquisitions. This series of acquisitions has allowed Google to control sectors that are not even its direct focus. Currently, Google has a market share of 68.6% in the office suites market, 97.4% in the media players and streaming platforms market, and, of course, 91.58% in the search engine market.
This strategy of buying up startup companies has allowed Google to cement itself in multiple sectors, becoming the dominating force it is today. Yet, these acquisitions come with a massive cost for the rest of the economy. As Google harnesses the technologies of these smaller companies, it also buys out any potential competitors. By purchasing early-stage companies, Google is able to sweep any potential threat off the playing field, ensuring that its dominance of the market remains unchallenged.
In addition to the direct elimination of potential competitors, this strategy of aggressive acquisitions has contributed to a change in the very landscape of the marketplace. Recently, Florian Ederer, an associate professor of economics at Yale School of Management, and Bruno Pellegrino, an assistant professor of finance at Columbia Business School, examined the relationship between acquisitions and market competition. They found that over the last 30 years, the percentage of venture capital-backed startups being acquired, rather than going public, has increased from 10% to 90%. Furthermore, market concentration, the percentage of a certain sector’s market share that is held by a small number of businesses, has increased in over 75% of industries in the United States since the 1990s. This striking increase demonstrates that the nature of startups themselves is changing. Rather than being created with the goal of one day competing in the marketplace, more and more startups are being created simply to be bought by another company.
So why has so little action been taken to prevent these excessive acquisitions from occurring in the first place? Currently, under the Hart-Scott-Rodino Act, both the Department of Justice and the Federal Trade Commission are responsible for evaluating any major acquisitions in the US. If either organization concludes that the deal would “substantially lessen competition” they can take legal action to prevent or modify the deal. When the evaluation is taking place, one of the major factors the department examines is the market share of each company, which is the percentage of industry sales of the company over a period of time. If the companies’ combined market share exceeds a certain threshold or raises other anti-competitive possibilities, additional investigation is necessary before the deal is approved. The cleverness of Google’s preemptive acquisition strategy is that by purchasing early-stage companies with essentially zero market share, its deals do not trigger any alarm bells, allowing it to effectively bypass the regulatory process. Google has aggressively exploited this loophole, completing, on average, one acquisition per month since it began in 2001. By leveraging this system, Google has cemented its dominance and eliminated potential rivals, all while appearing to operate under the rules.
The Google antitrust trial should not simply focus on taking necessary action against Google; it should be a wake-up call that the current regulatory system of acquisitions must be rethought. Especially now, as technology is advancing at record speeds, it is imperative to relevel the playing field. Technology is adapting. Monopolies are adapting. It is time that our regulatory approaches adapt along with them.
Pictured: Google’s headquarters (https://techcrunch.com/2022/09/14/google-cancels-half-the-projects-at-its-internal-rd-group-area-120/)