Why a plan to encourage search engine competition failed

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What do PrivacyWall, Givero and Info.com have in common? These are search engines that compete with Google, and you’ve probably never heard of them. | Illustration by Álvaro Domínguez.

Quick, name a search engine.

Did you say Google? The internet giant’s name is synonymous with finding things online, but its dominance has caught the eye of regulators who have accused the company of unfairly excluding competitors.

When the European Commission attacked Google for pre-installing its search engine on devices running its popular Android operating system, the company implemented what seemed like a simple solution: give users more choice. Now, when consumers in 31 European countries set up a new Android phone, they are asked to choose one of four search engines, including Google.

This solution may have satisfied European antitrust regulators. But, as Michael Ostrovsky, a professor of economics at the Stanford Graduate School of Business, concludes in a new working paper, that hasn’t solved the problem it was meant to solve.

Since 2020, Google has been auctioning off the coveted spots on the list of search engines that Android consumers can select by default. As an online auction expert, Ostrovsky was intrigued by this simple approach to settling an antitrust problem. But when the first auction results came in, he couldn’t understand why the obscure search engines – ever heard of Info.com, PrivacyWall or Givero? – appeared on Android screens while more popular alternatives were left out.

In his investigation, Ostrovsky found that a simple feature of the bidding process explained why unpopular search providers won Google’s auctions — and how that helped the company maintain its leadership position. the most popular search engine in the world.

Bundled up

Google’s auctions are a response to a common situation in the tech industry: when the maker of a dominant tech platform also offers a product that works on that platform. “If there is a competing product – even a superior product – and users want to access it through the platform, the platform provider often ends up prioritizing their own product, whether deliberately or not. “, says Ostrovsky.

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The regulatory toolbox does not contain much. And the tools we have tend to be cumbersome, such as “Let’s split Facebook into three parts”, which companies will of course fight tooth and nail.

Award

Michael Ostrovsky

Bundling products together is generally legal, but the practice of “bundling” — forcing consumers to buy one product to buy another — can violate antitrust laws. In 1998, in the most publicized case involving these issues, the US Department of Justice accused Microsoft to crush “browser war” rivals like Netscape by packing Internet Explorer with the Windows operating system. (While a federal judge ruled that Microsoft should be broken up, the decision was reversed and the case was settled in 2004.)

For a more up-to-date example of grouping, you might not have to look further than your smartphone or tablet. Apple, for example, preinstalls dozens of apps like Safari, iTunes, and iCloud on its iPhones and iPads. “It’s everywhere,” says Ostrovsky. “Apple, Android, Windows. They’re all coming together.

This reality leads to an important question: are there ways to level the playing field for competing products without drastic solutions like those proposed by the judge in the “browser wars” case?

Enter the choice screen – a menu that allows users to choose between the manufacturer’s application and its competitors’ offerings. While negotiating with the US government in the 1990s, Microsoft proposed adopting choice screens as a way to make it easier for consumers to consider and install alternative browsers. This idea did not take off in the United States, but it was accepted in Europe. Between 2010 and 2014, Windows buyers in the European Union were offered a choice of browsers including Microsoft’s Internet Explorer and several alternatives.

In 2018, the European Commission fined Google a record $5 billion for linking its Chrome search engine and browser to the Android operating system. The company then agreed to use choice screens to provide Android users with more search options.

“But it raised the question of who decides which search engines are on the choice screen,” says Ostrovsky. After all, it took a lot of money to secure a place on this list: the more users a search engine attracts, the greater its advertising revenue. To allocate these places (and to reward itself for offering this prime real estate to competitors), Google set up a quarterly country-by-country auction system where the three highest bidders appeared on choice screens alongside from Google’s own search engine.

Ostrovsky was intrigued by this approach, as he believes such auctions represent a scalpel-like alternative to antitrust penalties like blackouts. “The regulatory toolbox does not contain a lot of things. And the tools we have tend to be cumbersome, like ‘Let’s split Facebook into three parts’, which companies will of course fight tooth and nail,” he says. “It’s a lighter and more elegant solution than dismantling a business.”

But he quickly found that the results of the screen solution of choice were surprising.

Searching for answers

“When Google announced the results of the choice screen auctions, I found them very odd,” says Ostrovsky.

While some of the winners were well-known providers like Bing and DuckDuckGo, others were those he – and the European acquaintances he spoke with – had never heard of, like the aforementioned Info.com and PrivacyWall, who won the majority of the auctions. .

To figure out what happened, Ostrovsky did “a bit of forensic research” to model how the auction works. He found that a seemingly minor feature of the bidding process has a significant effect on who wins: rather than being asked to bid for every appearance on Android’s choice screen, search engines bid on what that they will pay Google every time someone installs their app. .

This incentivizes less popular – but better monetized – search engines to place high bids, even though fewer users will ultimately choose them. As Ostrovsky explains, “Suppose search engines A and B bid and search engine A monetizes users very aggressively, so they are willing to pay $10 per install to win those users and associated income. Search engine B may be much more popular, but may not monetize users as well because it emphasizes privacy or donates a fraction of its ad revenue to charity, for example. So B can only bid $5 per installation. And search engine A will win the auction.

As Ostrovsky’s model predicted, many search engines that were much less likely to be installed ended up winning the Android auction. By the third round of auctions, popular search engines like DuckDuckGo and Ecosia were almost completely absent from the winners’ lists. Meanwhile, Info.com won prime screen spots in all 31 countries over the three rounds, despite having been installed less than 100,000 times worldwide. (By comparison, Google has over 5 billion installs.) The bottom line: Android choice screens don’t offer much choice, so the vast majority of users are likely to choose Google, making the largely ineffective remedy.

Competing interests

The solution, says Ostrovsky, is not to reject such auctions altogether, but to modify them to be more efficient.

For example, Google could simply auction off spots on its prime screens on a per-appearance basis, so that search engines pay for the right to appear on the prime screen, making the auctions more attractive. for popular search engines that users are. more likely to settle.

Alternatively, Ostrovsky proposes that the design could take an auction page that search engines already use to sell ads. “Originally, in ad auctions, advertisers used to bid for ad rank placements on a per-click basis, but search engines realized that advertisers willing to pay a lot per click could get fewer clicks, which meant lower overall revenue,” he explains. “So they decided to use both what advertisers would pay per click and some measure of expected clicks to decide ad rankings.”

However, Ostrovsky notes that the Android scenario is different from the ad sales scenario in that Google benefits when its most serious competitors fail to gain spots on the prime screen. “In this case, the auctioneer is okay with the dark search engines winning, because the auctioneer’s own search engine is chosen more often as a result,” he says. “That’s not to say that Google is doing it deliberately – just like ad auctions, it will take time to converge on the best design, and it shouldn’t be expected on the first try. In fact, Google and the European authorities should be commended for trying new and creative solutions, but it is important to bear in mind that the incentives for these auctions are not fully aligned.

Ultimately, Ostrovsky thinks the best solution is somewhere between the extremes of locking down one default option and overwhelming users with choice screens for all possible options. “Forcing bids for every item would make buying a phone the most painful thing ever – prime screen for keyboards, prime screen for weather apps, etc,” he says. “But if platforms are to run such auctions for the most important choices, they need to design and run effective ones that actually do what they’re supposed to do.”


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