Google Has Monopoly Power In The U.S. Search Ads Market

B. Google Has Monopoly Power In The U.S. Search Ads Market

1. Google’s High And Durable Market Share In Search Ads

575. In 2020, Google’s U.S. Search Ads market share was 74%. Tr. 4779:7–15 (Whinston (Pls. Expert)) (explaining UPXD102 at 63). Google’s Search Ads market share has been durable. Between 2012 and 2020, Google’s share ranged from just below 65% to 74%. Tr. 4779:7–15 (Whinston (Pls. Expert)) (explaining UPXD102 at 63); UPX0006 at -329 (Google’s U.S. Search Ads market share grew from 68% to 77% between 2017 and 2020.).

576. Google’s market share in Search Ads has remained persistently high during a period of overall growth in the Search Ads market. Tr. 8874:25–8875:13 (Israel (Def. Expert)) (The overall Search Ads market has grown.).

577. Outside the Search Ads market, growth in other digital platforms outside the Search Ads market (e.g., TikTok and Facebook) did not come by shifting ad spend away from Google, but rather by creating new opportunities for advertisers and expanding the overall size of the digital advertising “pie.” Tr. 8873:25–8874:21 (Israel (Def. Expert)) (Advertising spend on other digital platforms, like Facebook and TikTok, are “all growing. Google is not shrinking. They’re all growing.

The other ones are growing faster. So these are share numbers out of a pile that’s getting bigger.”). Thus, for example, growth in Amazon’s advertising business did not come at the expense of Google’s advertising business; Tr. 7434:16–7435:20, 7436:2–7438:19, 7439:8–7440:25 (Raghavan (Google)); UPX0436 at -005 (email from Mr. Dischler (Google): “Amazon is growing in advertising. Based on the best analysis we have, most of this is offline co-op spend coming online, not cannibalizing us.”). Mr. Dischler believed Amazon was not “cannibalizing” Google when he wrote a contemporaneous email in 2020, however, at trial he sought to disavow his own written words. Tr. 1496:24–1497:16 (Dischler (Google)).

578. The majority of Google’s overall revenue comes from Search Ads. Tr. 1137:2–14 (Dischler (Google)); Des. Tr. 98:3–13 (Miller (Google) Dep.) (explaining UPX0046 at -351; “Search Ads have driven the vast majority of [Google’s] profits and have allowed [Google] to make significant investments in other businesses.”); Tr. 3668:16–3669:11 (Ramaswamy (Neeva)) (“Google made most of its money early on from search advertising . . . [C]ertainly it was Google’s most profitable division by a long shot.”).

579. Google’s market share understates its power in the Search Ads market because other providers are not options for many customers. Tr. 5124:9–5125:3 (Booth (The Home Depot)) (The Home Depot cannot purchase ads on Amazon because The Home Depot does not sell products on Amazon); Des. Tr. 115:11–22 (Raymond (Kohl’s) Dep.) (Kohl’s mostly does not purchase ads on Amazon because it does not sell products on Amazon); PSX00267 at -282 (top brands that sell on Google but not Amazon include Walmart, The Home Depot, Macy’s, and Williams-Sonoma).

2. Barriers To Entry In Search Ads Are High

580. Showing Search Ads requires a general or specialized search engine. Constructing a search engine requires developing search functionality capable of (1) accepting and interpreting queries, (2) retrieving and ranking results from an index or other source (which, in the case of a GSE, requires crawling and indexing the Web), and (3) organizing and displaying the results to the user. All require significant capital and engineering investments. Supra ¶¶ 531–540 (§ V.A.2.a); Tr. 4781:11–19 (Whinston (Pls. Expert)) (costs applicable to the general search services market also apply to the ads market).

581. In addition to the costs attendant to the search engine itself, providing Search Ads requires a mechanism for advertisers to bid, target, and provide ad copy; mechanisms for matching Search Ads to queries through keywords, product feeds, or other matching techniques; tools advertisers can use to monitor performance and make real-time improvements; engineering resources to develop, maintain, and improve these mechanisms; and sales and marketing personnel. Tr. 5458:23–5459:6, 5462:11–5463:8 (Jerath (Pls. Expert)); Tr. 1199:18–20 (Dischler (Google)) (Google’s ad auction is “highly automated” and “reasonably complex.”).

582. Google’s annual costs for providing Search Ads are approximately $[redacted] billion, separate from the $[redacted] billion associated with providing search services. Tr. 4764:1–4765:6 (Whinston (Pls. Expert)) (referring to redacted figures in UPXD102 at 52).

583. Smaller advertisers prefer larger ad platforms; there are fixed costs associated with purchasing ads on search engines, and those fixed costs are more material for smaller advertisers with fewer ads to offset the costs. Tr. 8861:5–24 (Israel (Def. Expert)) (“fixed costs” of “joining a new ad platform are more material for small advertisers than large”).

584. Notably, over the years, Facebook has made multiple unsuccessful attempts to enter the Search Ads market. Des. Tr. 93:2–15 (Levy (Meta) Dep.) (Meta no longer sells “Sponsored Results,” a form of Search Ads); id. 145:13–146:16, 148:2–14 (reviewing UPX1015 at -725; Facebook Search Ads dropped from success forecast due to poor performance), id. 151:6–11, 151:16–25 (reviewing UPX1015 at -751; Meta’s Search Ads product was “a really small part of the business”). Indeed, while Facebook projected in 2013 that it would grow its Search Ads revenue to $498 million annually by 2016, UPX0914 at -090, it failed to meet that projection and by 2018 its Search Ads revenue remained at $0, UPX1015 at -760. Des Tr. 152:4– 13, 153:16–19, 153:22–23 (Levy (Meta) Dep.) (reviewing UPX1015 at -760).

585. Google recognizes that, due to the nature of Facebook’s product, the social network is ill-suited to offer Search Ads. Tr. 1491:21–1492:2 (Dischler (Google)) (“The search feature is just not very important on Facebook for searching for products or services or other commercial things.”) (discussing UPX0423 at .001) (Facebook Search Ads “seem like small money due to low intent today.”).

3. Advertisers Perceive Limited Alternatives To Google For Search Ads

586. Advertisers do not view shifting spend away from Google Search Ads as a viable option for their businesses. Tr. 5458:23–5459:6, 5464:2–13, 5465:13–22, 5466:7–5467:4 (Jerath (Pls. Expert)) (discussing UPXD103 at 30–32); supra ¶ 430–439 (§ IV.B.3) (describing limited alternatives to Search Ads).

The advertising industry broadly shares the view that there are limited alternatives to Google Search Ads. For example, Mr. Dijk explained that Booking.com has tried unsuccessfully to reduce its dependence on Google. Tr. 5279:21–5281:4 (Dijk (Booking.com)); 5284:1–5 (Dijk (Booking.com)) (Travel industry is “completely reliant on Google.”); Tr. 6515:21–6516:1, 6533:6–20 (Hurst (Expedia)) (Google Search Ads “essential”; not “mathematically possible” for Expedia to grow its business without advertising on Google); Des. Tr. 123:3–22, 125:25–126:9, 126:13–15, 126:17–127:1, 127:3–18 (James (Amazon) Dep.) ([redacted] would have negative consequences for raising consumer awareness of new product families.); Des. Tr. 258:15–259:7, 260:12–261:22 (Dacey (TripAdvisor) Dep.) (TripAdvisor cannot reasonably stop buying ads or reduce ad spending on Google because it would see a “significantly negative impact” to its business if it shifted ad purchases from Google to Bing).

587. As advertisers are looking for consumers’ attention, or “eyeballs,” the volume of available queries on a given platform is an important consideration when deciding how to allocate Search Ad spend. Tr. 5463:9–17 (Jerath (Pls. Expert)) (“And in the case of search ads, they’re looking for people who are doing searches who [they] can show ads to.”); Tr. 3831:9–19 (Lowcock (IPG)) (“[T]he more scale a search engine has the more important it is to buy advertising on that platform.”).

588. Google’s higher share of queries provide advertisers increased opportunities to appear on a SERP; accordingly, advertisers allocate much more Search Ad spend to Google than to rival GSEs. The Home Depot allocates an “industry standard” 90% of its paid search spend to Google versus about 10% to Bing because “Google has more search volume” and more auctions.

Tr. 5141:19–5142:13 (Booth (The Home Depot)); Tr. 4873:13–20, 4874:17–4875:2 (Lim (JPMorgan)) (discussing UPX0441 at -803 and explaining that Google, as a “core partner,” received more than 90% of JPMorgan’s search spend due to “overwhelming market share”); Tr. 6595:12–6596:2 (Vallez (Skai)) (“[B]ecause Google has the majority of search volume, [advertisers] start and spend most of their time with Google.”); Des. Tr. 185:14–22 (Stein (IAC) Dep.) (Angi relies mostly on Google for traffic because it “is by far the largest search engine directing the most traffic”); UPX1131 at -370 (Apple spends [redacted]% of SEM, or $[redacted] million annually, on Google because “Google’s dominance allows them to retain 90%+ market share in AMR, EMEA & RPAC.”); id. at -371 (“Apple Search Marketing/Q&A” explaining that Apple maximizes spend on Bing and Yahoo but cannot “just spend more on Bing, Yahoo, Baidu or just use SEO” because “most people in the world (except [China]) search on Google” and Apple would “lose incremental revenue by not advertising on Google.”).

4. Direct Evidence Of Monopoly Power In The Search Ads Market

589. As set forth in the following section, Google has demonstrated its power to affect Text Ad pricing. Text Ads constitute approximately 64% of the Search Ads market; Google’s pricing power in the Text Ads market therefore confers on Google the ability to control price in a significant portion of the Search Ads market, even without regard to any of Google’s other Search Ads products. Tr. 4797:2–14 (Whinston (Pls. Expert).

a) Google’s Search Ads Business Has Generated Persistently High Profit Margins

590. Google’s Search Ads business has generated persistently high profit margins. Tr. 1253:19–22 (Dischler (Google)) ([redacted]% to [redacted]% profit margin for Google’s Search Ads over the last five years).

591. In a 2020 exchange about antitrust concerns, Dr. Varian’s colleague advised him that “[t]he base of most concerns with Google is that you have strong prima-facie market power in search, that you make a very large amount of profit, and that these are linked. You can argue that you don’t have market power in search, but it’s going to be extremely difficult to win that argument until you stop making large amounts of money.” UPX0452 at .003–04. Dr. Varian responded: “I agree with the point that defending Google’s profits is difficult, but I’m going to try anyway.” Id. at .004.

592. Internally, Google tracks its profitability in detailed profit-and-loss statements (P&Ls) and circulates this information to executives. Tr. 7516:19–7518:25 (Raghavan (Google)) (P&L reports, such as UPX0453, are prepared quarterly by the finance teams and transmitted to Raghavan and others.); Tr. 1254:17–25, 1258:10–1259:13 (Dischler (Google)) (P&L reports, such as UPX2001 and UPX0489, are regularly distributed.).

593. Google’s P&Ls include a segment called “Search+,” which tracks the profitability of Google’s search and Search Ads activities. Search+ measures the revenues that Google earns from the sale of Search Ads relative to the costs Google incurs in operating both its search engine and its Search Ads business. Tr. 7520:13–25 (Raghavan (Google)) (Search+ includes the costs associated with providing organic search results and the costs and revenues associated with Search Ads.); Des. Tr. 96:15–21 (Porat (Google) Dep.) (Search+ is the sum of the costs and revenues for the Search and Search Ads product areas.). Search+ includes a small amount of revenue from other products, but more than [redacted]% of the revenue is from Search Ads. Tr. 1263:13–1264:4 (Dischler (Google)).

594. Google’s Search+ revenues have grown rapidly. Between 2014 and 2021, Search+ revenues grew from $46.8 billion to $146.4 billion. UPX7002.A (compiling information from P&Ls at UPX0490, UPX0491, UPX0492, and UPX0493); Tr. 7548:15–7549:9 (Raghavan (Google)) (reviewing UPX0342 at -824 and agreeing that revenue growth consistently met the 20% goal between 2010 and 2018; revenue growth from $17 billion in 2010 to $83 billion in 2018 represented an overall growth rate of 400% over nine years; for more than ten years Search Ads accounted for approximately two-thirds of Google’s overall revenue and growth); UPX0342 at -824; UPX0012 at .002 (“First off we wanted to remind you that we are all part of a most amazing business. Search Ads + O&O has grown at an incredible rate over the past decade – typically in the high teens – reaching $98B [in 2019], and despite covid – we’ll exceed $100B [in 2020].”).

595. Between 2014 and 2021, Google’s Search+ profit margins remained steadily high—during each year in this period, Google’s gross margin exceeded [redacted]%, and its operating margin exceeded [redacted]%, and its operating margin exceeded [redacted]% UPX7002.A. Given Google’s ability to sustain high margins while rapidly growing revenue, its bottom-line profits for Search+ more than [redacted] billion in 2014 to nearly $[redacted] billion in 2021. Id.

596. The single largest expense that Google incurs in its sale of Search Ads is TAC. Tr. 7576:9-7577:2 (Raghavan (Google)). Between 2014 and 2021, Google's Search+ TAC payments grew from $7.1 billion to $26.3 billion. UPX7002.A. Google spends more on TAC than on all other Search+ costs combined. Tr. 7577:3-6 (Raghavan (Google)).

597. Each year, Google spends multiples more on TAC than it spends on R&D. For example, although Google spent $26.3 billion on Search+ TAC in 2021, it spent only $[redacted] billion on Search R&D. Compare UPX7002.A with DXD-21 at .002; Tr. 7577:7-24 (Raghavan (Google)) ("I would say there's a large ratio between the traffic acquisition and the [R&D] numbers I see here."). billion

598. For 2021, Google forecasted a Search Ads gross margin of [redacted]% and a Search Ads operating profit of $[redacted] billion for an operating margin of %[redacted]. UPX2001 at -547. In 2021, Google's total ads gross margin was [redacted]%, and its total ads operating profit was billion for a total ads operating margin of [redacted]%. UPX0489 at .002; UPX7002.A (demonstrating Search+ operating profit margins of between [redacted]% and [redacted]% from 2014 to 2021).

For 2022, Google forecasted a Search+ gross margin of [redacted]% and a Search+ operating profit of billion for an operating margin of [redacted]%. UPX0489 at .002. For the same period, Google forecasted $[redacted] billion in Search+ revenue which represented over [redacted]% of Google's total forecasted advertising revenue. UPX0489 at .002.

599. Google's Search Ads are far more profitable than Google's other types of advertisements. For display ads (sometimes referred to as "DVA" or "DVAA") in 2022, Google forecasted revenue of $[redacted] billion and an operating margin of [redacted]%, both of which are significantly lower than Search+’s [redacted]% operating margin and $[redacted] billion in revenue. UPX0489 at .002; Des. Tr. 105:4–20 (Miller (Google) Dep.) (Search Ads are more profitable than display ads because display ads involve revenue-sharing with publishers’ websites).

600. For YouTube in 2022, Google forecasted revenue of $[redacted] billion and an operating margin of [redacted]%, both of which are significantly lower than Search+’s [redacted]% operating margin and $[redacted] billion in revenue. UPX0489 at .002.

601. Others in the industry recognize the outsized profitability of Search Ads. Dr. Ramaswamy, former Google executive and Neeva founder, referred to search as “one of the most profitable businesses ever.” Tr. 3796:5–3798:22 (Ramaswamy (Neeva)). Mr. Perica, Apple’s VP of Corporate Development, has said “there aren’t so many businesses on the planet that have such high marginal profit[] on incremental revenues.” UPX0635 at -352. Mr. Nadella explained that search is “the largest software category out there by far” in terms of “share, revenue, margins. Whichever way you look at it, . . . it’s dominated by one player, so therefore it’s got high margins.” Tr. 3488:3–3489:2 (Nadella (Microsoft)).

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