The U.S. Department of Justice (DOJ) is preparing to launch an antitrust probe into Google, the search division of Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), according to a Friday report in The Wall Street Journal. Several other news outlets, including The New York Times and Bloomberg, have since confirmed an investigation is imminent.
The DOJ's antitrust division has been laying the foundation for a potential inquiry for several weeks now, while negotiating for control of the probe with the Federal Trade Commission (FTC), which shares antitrust authority. Talks between the two regulatory bodies resulted in the FTC ceding jurisdiction of the investigation to the DOJ, according to the report, which cited "people familiar with the matter." Neither the DOJ nor Alphabet have commented publicly on the news.
This is the latest in a series of crackdowns by government bodies, both here and abroad, to rein in what they consider questionable practices by Google.
Laying the groundwork
The agreement between the two U.S. government agencies marks the first in a series of steps that could result in a far-ranging examination of Google's most lucrative businesses.
Google has become the world's largest digital advertising seller and will account for an estimated 31% of global ad spending (nearly $104 billion) in 2019, according to data compiled by eMarketer. Its digital ad business is largely the result of its dominant worldwide search engine, with contributions from video site YouTube and its Android mobile operating system. Google controls more than 70% of the search engine market, according to NetMarketShare.
Any investigation by antitrust regulators could reach into every corner of Google's operations, and violations could result in fines, sanctions on its business practices, or the worst-case scenario -- a breakup of Google.
Antitrust scrutiny at home
This isn't the first time Google has found itself in the crosshairs of U.S. antitrust regulators.
The FTC filed suit against Google in 2011, saying the company misrepresented its use of tracking cookies to users of Apple's Safari internet browser. Google agreed to pay a then-record $22.5 million fine to settle the charges.
In 2012, the FTC investigated the company for anti-competitive practices. It ended that probe without further action after Google agreed to make certain changes to its business practices.
Behind the scenes of the probe, however, the investigation found that Google's "conduct has resulted -- and will result -- in real harm to consumers and to innovation in the online search and advertising markets." The FTC commissioners declined to act on the recommendation of its staff, deciding that the voluntary changes made by Google would result in greater "relief" for consumers.
Under the gaze of international regulators
The potential investigation comes on the heels of numerous multibillion-dollar antitrust fines levied on Google by the European Union (EU) in recent years.
In early 2019, the legislative body of the EU, the European Commission, fined Google 1.49 billion euros ($1.7 billion) for abusing its dominant market position and forcing customers to sign anti-competitive contracts. Merchants that used Google's AdSense were forbidden by the company from placing ads with competing search providers. While the offending stipulations have since been removed from contracts, the fine was assessed retroactively.
In 2018, Google faced similar charges related to bundling Chrome and its search engine with its Android mobile operating system. EU antitrust regulators slapped Google with a then-record 4.34 billion euro ($5 billion) fine. The company was hit with a 2.42 billion euro levy ($2.7 billion at the time) in 2017 for favoring its own shopping service over those of competitors within its search results.
Growing anti-tech sentiment
Attitudes about competitive practices have been turning against the largest technology companies in recent years. With its laundry list of international violations, this isn't something Google investors should take lightly. Consumers and government regulators are increasingly leery of big tech and politicians on both ends of the political spectrum are looking to make a name for themselves by criticizing tech companies' alleged anti-competitive actions and policies. This potential new investigation might not end well for technology companies in general and Google in particular.