Microsoft CEO testifies about competing with Google in antitrust trial

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Microsoft CEO Satya Nadella arrives at federal court on October 2, 2023 in Washington, DC. Nadella is testifying in the antitrust trial to determine if Alphabet Inc.’s Google maintains a monopoly in the online search business, which is expected to last into November. 

Drew Angerer | Getty Images

When it comes to online search, it’s Google’s web and everyone else is playing in it, according to rival Microsoft.

That was the essence of Microsoft CEO Satya Nadella’s testimony in federal court on Monday as part of the government’s antitrust trial against Google. Nadella told the court that Google’s dominant market share in online search means that publishers and advertisers shape their content to Google’s requirements, making it harder for competitors like Microsoft’s Bing to gain a foothold.

“Everybody talks about the open web, but there is really the Google web,” Nadella said from the stand in Washington, D.C., District Court. Nadella was referring to the way publishers often cater their content and advertising to Google’s products, like by optimizing their pages for how Google ranks search results.

Nadella was questioned by lawyers for the Department of Justice and a coalition of state attorneys general who are suing Google for allegedly violating antitrust laws by illegally maintaining a monopoly in the general search market. The government argues that Google locked up distribution channels for general search engines through exclusive deals with browser and phone makers to be the default choice on various devices. Perhaps the most famous of those deals is the multibillion-dollar agreement between Google and Apple to make Google search the default on Apple products like the iPhone.

The government has tried to make the case that Google’s dominance, aided by these exclusive deals, creates a flywheel effect, where greater exposure to users leads to more data to make Google’s search results better and attracts more advertisers to the product. That, in turn, generates more revenue that can be used to fund these massive distribution deals.

Meanwhile, the government argues, it becomes even harder for rivals to breakthrough to consumers, and as a result, they miss out on the opportunity for greater benefits or innovations in search.

Nadella affirmed that argument in his testimony Monday, describing the obstacles a general search competitor like Bing faces to gain more market share from Google.

Google declined to comment on Nadella’s testimony.

Pitching a Bing deal with Apple

Microsoft was prepared to take on billions of dollars in short-term losses for Bing to pay Apple enough to make its search engine the default on Apple products, Nadella testified. Not only would Microsoft have to replace the revenue Apple currently receives from Google for default placement, which Bernstein has estimated could be as much as $19 billion this year, Nadella said it would also need to cover the risk Apple would take on by switching the default.

Nadella has “focused every year of my tenure as CEO to see if Apple would be open” to accepting a default offer from Microsoft and they’ve had “a series of dialogues on it.”

The Microsoft CEO said he recognized the reputational risk of switching the default but pointed to an example from Apple’s own history as to why he believed it could be overcome. When Apple first launched its maps app, it was widely panned as inaccurate or incomplete. But after a period of “turbulence,” Nadella said, it’s become popular, in large part due to the fact that Apple makes it the default on its phones.

Williams & Connolly’s John Schmidtlein, representing Google, referenced a document during cross-examination that said Bing’s share on Windows was roughly 24%. Schmidtlein asked why Nadella thought that percentage would convince Apple to switch its Safari default to Bing, given Bing was able to have “100% distribution” on Microsoft Windows.

Nadella said the most important thing was showing that Bing could hold on to users with defaults, despite Google’s dominance. He said that argument “was the only reason they kept engaging,” referring to Apple.

If Apple were to strike a deal with Microsoft, it may choose to use Bing’s technology while branding it as its own Apple search engine, he said.

Schmidtlein also walked Nadella through past attempts Microsoft has made to make Bing the default on various mobile devices, which were met with public criticism or resulted in many consumers switching to Google anyway. For example, he brought up a 2010 Washington Post article that criticized the decision to make Bing the default search engine on a new Android phone offered by Verizon at the time.

But Nadella said that kind of feedback actually informed his later conversations with Apple while seeking to make Bing the default on its devices, because he was clear-eyed about the challenges both companies would initially need to navigate should such a deal occur.

Why Microsoft stays in search

Microsoft releases another wave of A.I. features as race with Google heats up

Throughout his testimony, Nadella discussed why Microsoft has chosen to stay in search despite the difficulties, describing how the company is remaining persistent and continuing to wait for the right opportunity to shake up the market.

The tech company wants to “make search more competitive,” Nadella said, by running it like a “public utility.”

The idea that users have complete choice to switch their defaults is “complete bogus,” Nadella said, adding that changing default settings on mobile platforms is difficult because “they’re all locked up.”

Becoming the default isn’t just about getting an influx of new users. It also involves getting more signals from users about what they’re searching and clicking on. That sort of information can help inform decisions at the search engine to make the results more useful and tailored to users’ needs.

Even though Microsoft remains, as Nadella put it, a “very, very low-share player,” in the general search market, he said the company still believes there’s an opportunity to innovate in what he sees as the “largest software category out there.” He said that when he became CEO in 2014 he focused on making Bing profitable to continue making investments, which it now is.

While maintaining its low-share position, Nadella said he awaits a “paradigm shift” that could create a window of opportunity for Bing, like the one created for Google by the concessions resulting from Microsoft’s own antitrust challenge from the government at the turn of the century.

In the meantime, Nadella estimated that Microsoft has invested about $100 billion in Bing over the past 20 years.

“It’s a hard game to make any breakthroughs, but no one can accuse us of not being persistent,” Nadella said.

Building a new rival from the ground up is very difficult because it involves both fixed costs and costs that scale up as you gain market share, Nadella said. In Silicon Valley, internet search is considered one of the biggest “no fly zones,” he added.

The one place Bing has seen some success is in desktop search, in large part because it’s able to set Bing as the default on its Edge browser, which many PC manufacturers choose to preinstall to receive a discount on licensing Microsoft’s software.

Even there, however, many users opt to use Google’s Chrome browser and its search engine on Windows devices. Nadella said Google’s position on Windows desktops shows how open Microsoft’s own ecosystem is. He admitted, though, that Google is still the most commonly queried word on Bing.

Still, questioning by Google’s lawyer seemed to drive at the idea that Microsoft did not sufficiently invest in mobile search, pointing to emails where executives estimated Google had many more people working on mobile search than Microsoft did. Nadella said he focused resources where they could gain the most traction, like on desktop, and greater distribution would help justify greater expenditure.

Later asked by a government lawyer why Google would pay so much if it were the case that it would retain more Safari search queries even if Bing were the default, Nadella said he’d “love an opportunity” for Google not to have to pay.

“Maybe on behalf of the Google shareholders,” he added.

‘Pound sand’

The state AGs are also seeking to show that Google leveraged its search ad tools to disadvantage rivals like Bing by failing to make them sufficiently interoperable with other products. Microsoft has sought to make it so advertisers can move their campaigns seamlessly between Google and Bing’s search ad tools, but Google hasn’t been receptive, Nadella said.

Though Nadella said he doesn’t remember exactly where everything stands in their discussions, he summarized it as, “We keep asking for them to add some features that we want and I think they ask us to go pound sand.” He said the integration issues with Google’s Search Ads 360 “keeps coming up in escalations” to him.

Through advertiser roundtables, Nadella said he’s found that many believe there’s an opportunity cost they have to weigh between investing time and money into Bing versus Google’s platform, given it’s not as easy as it could be to transfer campaigns, and Google has the bigger audience.

AI could create an ‘even worse … nightmare’

Microsoft CEO Nadella to testify in Google antitrust trial



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