Does breaking up Google make sense?

News Corp has called for Google to be broken up in its latest submission to the ACCC's Digital Platforms Inquiry. Mumbrella's Paul Wallbank questions if that's feasible, or if dismantling the online giant might actually backfire.

As the responses to the ACCC’s digital platforms inquiry roll in, probably the most audacious – and predictable – is News Corp’s call for Google to be broken up.

News Corp Australia’s executive chairman Micheal Miller added to the calls to break up Google in an opinion piece for The Australian

In its submission, News Corp correctly pointed to Google’s dominating 85% share of the ad tech market, saying: “The layers of the Google ad tech stack have been built through successive acquisitions, internal restructuring and merging of businesses/product lines.”

That share is growing. Last year, Group M reported Facebook and Google took 135% of new digital advertising spend.

News Corp also highlighted in its submission how Google’s other services such as search, news, voice and Accelerated Mobile Pages complement its advertising functions.

If anything, News Corp’s submission understated the strength of Google’s complementary services. Services like Maps, Docs, Gmail and the constant stream of data through its Android mobile platform add to the treasure trove of information the US giant is amassing on consumers and businesses.

News Corp are not alone in expressing concern about Google’s dominance. European competition regulators have flagged Google’s control of the adtech sector, while US Democrat Elizabeth Warren last weekend called for all the tech giants  – including Apple and Facebook – to be broken up.

As if to illustrate Warren’s point about the tech giants’ power, Facebook removed her campaign advertising – which criticised the social media giant – from their platform, before restoring it a few hours later.

So News Corp has good grounds in calling for the break up of the tech giants. But they should be careful what they wish for, as history shows that breaking up monopolies can actually make the resulting businesses stronger.

The history of US corporate breakups

In 1984, the US broke up its huge private telephone company, AT&T Corporation into seven independent operating companies. The break up, and subsequent deregulation of the American telco market, saw a fiercely competitive industry develop.

One of the quirks of history is this allowed the internet to quickly develop in North America as, unlike in Australia under Telecom and later Telstra, there wasn’t a big fat incumbent protecting its slow, legacy services and their fat profits.

The break up was also good for shareholders, with the ‘Baby Bells’ reporting far better profits and share price performance than the staid, old ‘Ma Bell’ of AT&T days.

A similar thing happened in the early part of the Twentieth Century with the break up of Standard Oil, then the world’s biggest and most powerful conglomerate.

That breakup saw the formation of Exxon, Amoco, Mobil and Chevron, and the competition created by having rival oil companies also heralded the automotive age that defined last century.

Google itself is similar to the AT&T of 1980 or the Standard Oil of 1910 in that it is a sprawling, monolithic bureaucracy with a range of businesses that would probably perform better as standalone operations, rather than being seen as adjuncts to the lucrative advertising business.

In fact, this was the hope at the time Google re-organised into Alphabet in 2015. The reshuffle promised to bring more transparency into the company’s disparate operations, but under the new structure, the bulk of the businesses remained under the Google umbrella.

So it’s highly likely that a broken up Google would prove to be more powerful and lucrative than the current behemoth.

Indeed it should be pointed out that Rupert Murdoch’s breaking up of News Corp itself, particularly the splitting of print from Twenty-First Century Fox, has delivered for the group’s long beleaguered shareholders.

The death of newspapers

There’s also the fact that Google is not wholly the villain in the decline of media, a point made by the company’s executives and by Facebook in its own submission to the Digital Platforms Inquiry.

Newspaper circulations had been in decline for two decades prior to Google’s founding in 1998 and the World Wide Web, started in 1994, quickly eroded the industry’s distribution model.

If it hadn’t been Google, any one of the multiple adtech businesses founded in the late 1990s would most likely have smashed the print media’s business model anyway.

The print business model is hopelessly broken, and dismantling Google isn’t going to stitch it back together.

A degree of hypocrisy

News Corp calling for the break up of a dominant industry player could be labelled hypocrisy, given the company was gifted a near-monopoly on Australian newspaper publishing in the early 1990s by supine Labor government and then-treasurer Paul Keating, who was anxious to curry favour with Rupert Murdoch.

That near-monopoly gave News Corp dominance over Australia’s metro and local print advertising and classified industries, but as technological change bit hard, the rivers of gold started to dry up. A similar story can be told by News Corp’s dominance of Australia’s pay TV sector.

News Corp’s own experience with locally-gifted monopolies should give us pause about what the ACCC will recommend.

If anything, the breaking up of Google would only further unleash forces that Australian businesses and regulators have repeatedly shown themselves to be incapable of dealing with.

Once again, Australia’s media industry should be careful of what they wish for.


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