Google's new antitrust defense is AI

For more than a year, company executives threw around the words artificial intelligence to signal that they too were on the cutting edge. Feeding the investor frenzy for lower costs, boosted productivity, and smarter products, “AI” became an earnings call mantra. On Wednesday, Google (GOOG, GOOGL) showed another way companies can wield AI and the excitement around it: as an antitrust defense.

In a blog post responding to the Justice Department’s proposal to potentially break up Google, the company pointed to the blossoming market for AI and the evolution of search as reasons why the government’s case is so misguided.

The Justice Department in a court filing earlier this week outlined potential remedies to reinvigorate competition in the search engine market. Google will have a chance to formally respond, but in the blog post, the company said the government seems to be pursuing a sweeping agenda that threatens to harm consumers and American competitiveness.

“The DOJ’s outline also comes at a time when competition in how people find information is blooming, with all sorts of new entrants emerging and new technologies like AI transforming the industry,” wrote Lee-Anne Mulholland, Google’s vice president of regulatory affairs.

In Google’s view, the government’s heavy-handed approach to transforming the search market ignores the nascent developments in AI, the fresh competition in the space, and new modes of seeking information online, like AI-powered answer engines.

The energy around AI and the potential disruption of how users interact with search is, competitively speaking, a negative for Google, said Wedbush analyst Dan Ives. But in another way, as a defense against antitrust charges, it’s a positive.

“That’s an argument against monopoly that bodes well for Google,” he said.

The US Justice Department said in a new court filing that it may recommend a break up of Google as an antidote to unhealthy competition in the search engine market (AP Photo/Marcio Jose Sanchez, File) (ASSOCIATED PRESS)

Others are more skeptical of the AI defense.

“The DOJ has specifically noted that this evolution in technology is precisely why they are intervening at this point in time,” said Gil Luria, an analyst at DA Davidson. “They want to make sure that Google is not able to convert the monopoly it currently has in Search into a monopoly in AI Enhanced Search.”

Google’s enormous investment in AI-powered search tools also carries risks for the company. At a fundamental level, the AI transition marks an overhaul of Google’s core search product. And since many people experience the internet through Google, powered by its advertising empire — analysts have questioned whether Google might be endangering its search business to prop up a new, untested AI-driven regime.

“The shift to AI Enhanced Search is a tricky one for Google to begin with because it changes the monetization model Google has successfully refined over the last 20 years,” said Luria.

Instead of displaying ads and sponsored links with every search, Google will have to experiment with different types of advertising when it offers generative AI answers to their queries, he said. “While it is in a position to monetize those ads as well, it may take it years to achieve the same level of monetization [it] enjoys in traditional Search.”

The company likely anticipates these risks, and some contend that a new paradigm could complement or even supplant the old search-based ad model.

“I’m not of the belief that the dollars within search are going to disappear,” said Charlie Miner, an analyst at Third Bridge. “We don’t fully know how they are going to approach the monetization of search.” Advertisers, for instance, might pay a higher premium to place their products inside of AI queries.

Of course, pointing to the advancements of AI and the potential for new markets isn’t a proven defense against accusations of abusing market power. In fact, Google and the other major cloud providers, who are also among the top players in the AI market, have already attracted regulatory scrutiny concerning their AI deals and partnerships.

Earlier this year, the Federal Trade Commission launched an investigation targeting Microsoft (MSFT), Amazon (AMZN), and Google’s investments in AI startups. The inquiry focuses on three multibillion dollar deals: Microsoft’s partnership with the maker of ChatGPT, OpenAI, as well as Amazon and Google’s relationships with the AI startup Anthropic.

The FTC said it is seeking information related to competition for AI inputs and resources and the strategic rationale for the deals.