To win the biggest legal battle in marketing, Google must show who its competition really is

Google might have an 80% share of the search market, but as the investigation by the US Department of Justice will no doubt show there are now many more ways people find information online.

Despite everyone expecting it, it still arrived like a bolt from the blue. Overnight, the Justice Department formally accused Google of illegally maintaining a monopoly over search in the US. Attorney general Jeffrey Rosen claims Google has “maintained its monopoly power through exclusionary practices that are harmful to competition”.

The biggest legal battle in marketing is about to begin and it’s a landmark case for marketers.

All roads lead to California

Despite various attempts in other countries – including the UK – there is virtually nothing that most governments can do to legislate and limit the operations of the giant tech firms. There is an asymmetry in the nature of global platforms that sees businesses like Google, Facebook and Amazon trade internationally while devising corporate strategy within an exclusively American operational context.

British politicians can interrogate senior tech executives at high pressure, unpleasant sessions at Whitehall all they want. Aside from a bit of grumpy showboating these events will achieve zero impact. Without an American jurisdiction, threatened sanctions are almost meaningless. Even the weightier fines meted out by the EU in recent years have had little enduring damage. Indeed, each fine has been met with an immediate increase in the offending company’s share price as the markets ask, is that it?

The only way any of the tech giants will change is because they are forced to, and the force in question has to be applied by the US Government. It was widely thought that the chaotic nature of the Donald Trump White House combined with the inherent free market ideology of the Republican party would restrict, delay or even invalidate any forthcoming case against ‘Big Tech’. But it now appears those expectations were false. The hunt has begun. The US Government is going after Google.

It’s Not Just Google

The reason this case is spectacularly important is not just because Google is so big, but also because it might be just the first behemoth in the sights of the US attorney general. Similar market dominance can be applied to Amazon and, to a lesser degree, Facebook. And hanging over all of these companies is a 50-year-old case study involving a brand that most British marketers have never even heard of: Bell.

In 1974, the same US Department of Justice that is now targeting Google put AT&T in its sights. The telecommunications giant was founded as the Bell Telephone Company in the late 19th Century. Over the next 100 years, AT&T diversified into other industries but through its Bell System essentially owned and operated a monopoly on all telephone calls across the US (and Canada).

The US Government finally stepped in and accused AT&T of antitrust – American for monopolistic behaviour. After almost a decade of protracted legal manoeuvres, AT&T smelled defeat and agreed to relinquish the ownership of its phone network and divest the various Bell subsidiaries.

In 1984, seven regional companies were created, known as the ‘Baby Bells’. Competition increased in subsequent years and the Bell breakup is variously seen as an important exemplar of successful government intervention into anti-competitive corporate structures.

The fear in California is a similar process will now take place across the big tech firms. After years of intractable court proceedings, it is entirely possible to envisage Google (or rather Alphabet, its titular holding vehicle) being forced to split out its search engine from its advertising business and perhaps divest other operations like Gmail and YouTube too.

Over at Facebook, the company’s dominance in social media could see it being forced to break up Instagram, Facebook and WhatsApp. That’s why CEO Mark Zuckerberg has been engaged in an apparently ill-fated move to change its brand architecture from house of brands to endorsement. And why the internal operating systems of the different platforms are being combined so inextricably.

Marketers wondered about the logic of linking scandal-free, sexy Instagram with the more flawed Facebook brand. But the move had nothing to do with marketing strategy or user experience (despite what you may have read) and everything to do with linking corporate arms together to obstruct any future attempt to force Facebook’s constituent brands apart.

Accusation and defence

Read the lawsuit carefully and it is clear that the government’s case against Google hinges on two key arguments. First, the US attorney general must prove that Google is dominant in search. If that can be demonstrated it must then show that this dominance is being protected by deals that Google strikes across all the platforms that consumers use to access search. The end result, argues the government, is an impenetrable market position, less innovation and ultimately poorer outcomes for consumers.

Google cannot argue against the second accusation that it promotes and protects its search engine. Indeed, the company will argue that this is just good business strategy. In the UK, for example, the Competition and Markets Authority found that Google pays Apple a “substantial majority” of the £1.2bn it pays every year to secure its prominence across Apple devices.

That is a very large amount of money, but it becomes even larger when you consider the caveats. It only covers the UK, one relatively unimportant market out of many. And it is the price for just one year and will need to be renegotiated each year, likely at an escalating rate.

Focusing on self-generated competitors versus market-oriented alternatives means companies are often ill-prepared for the unexpected and unseen threats.

That payment does not exclude other search engines from getting access to Apple devices either. The billion quid only ensures Google starts out as the default option on your new iPhone but does not preclude or prevent you switching search engine immediately with – as Google will go to great pains to point out – a simple flick of a digital tab.

Given there is ample evidence that Google does promote and defend the prevalence of its search engine, the crucial issue comes down to whether Google actually has a dominant share of search.

At first sight this would also seem to be a slam dunk accusation. Most current independent estimates give Google at least an 80% share of search in the US. Given the standard global definition of market dominance is any brand that achieves more than a 40% share of its given category, the dominance point also appears easily proven.

But before we accept the 80% figure, draw a red line through Google’s continued existence and close the big bad book of monopolies after chapter one, we must acknowledge the complicating existence of a further caveat and a classic marketing question: what exactly is a category? If we define search very tightly then Google is dominant and Bing and Yahoo pick up the crumbs. But if we approach it from a more expert, and I would argue accurate, perspective then there is a strong case to argue that Google actually squeezes, just, under the 40% threshold.

The categorical problem with categories

To understand why, you must first acknowledge that categories do not actually exist. Sure, they exist in marketing plans and PowerPoint decks, but they are a confection – a dangerous one at that – used to maintain a semblance of logical, simplistic structure to something that has no such thing.

A customer does not walk into a supermarket looking for ‘ambient soup’; they are hungover and need a snack. In this situation the consumer in question criss-crosses the categories like a drunken sailor. Soup competes with noodles and with chocolate and with crisps.

It’s one of the classic lessons of marketing. Before you start getting all competitive, pause and ask the classic marketing question: who is the competition?

Like any marketing question the answer can only be found by asking consumers. Don’t ask executives for a list of competitors, they will inevitably come up with a myopic set of rivals that look very much like the company in question. That is not competition that is similarity. Even the word ‘competitors’ is wrong when you fully grasp the implications of market orientation. These are ‘alternatives’. And you are, if you are lucky, just one of many.

It’s a dangerous blind spot because focusing on self-generated competitors versus market-oriented alternatives means companies are often ill-prepared for the unexpected and unseen threats that sneak into the market from the rear and steal away sales. The competitor most likely to fuck you is the one that you never thought could fuck you until it started doing the fucking and by the time you realise you are being fucked it’s too late to avoid the fucking.

Capitalism is not a game in which the players get to chose who can, and cannot, play. Just as consumers have final sovereignty over their own decision-making, they also enjoy total control over the fiefdom of alternatives that ultimately produces the winning choice.

One luxury brand lost sales because it failed to see Coach as a competitor

I vividly remember attending meetings 20 years ago in Tokyo when I was working for a large luxury brand in which the remarkable growth of Coach, the American masstige brand, was dismissed by everyone present because it was “not a luxury brand” and “not a competitor”. If I had been older, fatter and more experienced I would have put my hand up at that point and suggested the gathering of executives exit the well-appointed meeting room and walk over to Omotesando or Ginza (two affluent districts in the city) and ask the women carrying our bags the killer question: do you also own any Coach bags?

The answer, we would later learn, would have been “Hai” in 86% of cases. Japanese women, it turned out, often traded off one French luxury bag against the prospect of owning three or four from Coach. We did not always lose out, but we sometimes did. We later learned that Coach’s constant newness, radical product turns and fast fashion retailing approach could too often cast a long shadow over our own activities.

Ask the customer

Consideration set data from a representative sample of the market is doubly useful. It’s great data because it allows you to see what proportion of the target market actually consider your particular brand.

But it also provides an empirical, market-oriented answer to the competition question. The only way to work out the true competitive set is to ask consumers which options they are considering or, even better, which ones they did consider prior to making their purchase.

And don’t over-specify the cue question either. Your question is not: Which European luxury brands would you consider for your next handbag? It is: When thinking about a new bag, which brands do you consider?

When you ask that important question the right way the over-simplicity of categorical thinking becomes readily apparent. Cognac competes with Vodka. Scooters with London Underground passes. Life insurance with gym membership. Streaming services with an early night.

The lesson should be clear. Before you pull out the big guns of competitive strategy, reach for the binoculars of market research. And it is essential to appreciate that this research did not make your competitive environment suddenly more complex, it simply revealed the complexity that was always there and that you were previously entirely ignorant of.

There is a helping hand in all this new, market-driven complexity. It is easy to despair once the data has been collected and you are staring down a long, rag tag list of potential alternatives.

Before you pull out the big guns of competitive strategy, reach for the binoculars of market research.

But if you have a proper segmentation of the market (i.e. one that is not full of shit) it is very likely that this long list gets a lot shorter very quickly. Most people know that within a market segment the needs, behaviour and sometimes identity of these customers differs from the rest of the market. But less marketers know that if you look at the consideration set data and then slice it by segment you usually discover that the competitive set differs too.

The case for segmentation is partly based on how much more powerful your subsequent positioning is when you can zoom in on a segment’s specific needs. But it is also founded on the value of being able to position much more tightly against a much shorter list of potential suppliers for those specific needs.

When Gillette famously attempted to upgrade one of its market segments from its cheaper Mach3 razor to its more expensive Fusion product, the competition was ‘continuing to repeat purchase Mach3 blades’. That was a very different competitor from the one identified for the ‘Fusion User’ segment Gillette also targeted. For that segment the competition was not an alternative brand but rather making do with a dull blade for a few more weeks.

In both cases, Gillette’s ultimate goal was to sell more Fusion blades. But the different segments dictated different competitors, which mandated two very different strategic and then tactical responses to achieve that same goal.

Google’s lifeline

So how does the invalidity of categorical construction help Google? If we look at search from an abstract, over-simplistic category perspective then Google’s number is indeed a monopolistic 80% or more. It dominates the number of searches conducted on search engines.

But if we look at shopping and ask where consumers actually search for online information the picture becomes more nuanced. Google is a leading source of online product information but its dominance is questionable. According to Episerver’s most recent research, shown below, consumers also turn to Amazon for their initial and continuing search data in even greater numbers. And those same consumers also engage with retailer sites and social media for a considerable proportion of their product search too.

Source: Episerver

In fact, some estimates suggest that Amazon has actually overtaken Google for product search in recent years. Data from analyst firm Raymond James claimed this month that 70% of its survey respondents in the US, which is the only market that matters for the upcoming court case, began their product search on Amazon.

The firm also notes this is a consistent trend over recent years, with Google’s share of product search, as well as that of all the other search engines, declining significantly over time as Amazon expands.

Analyse any of the more recent independent research that properly approaches the question of market share from a market-oriented perspective and it becomes apparent that Google’s slice of product search in America is almost certainly beneath the 40% threshold upon which the ‘dominant’ label depends. What’s more, that proportion is falling as Amazon tightens its ecommerce grip. That’s important because, as you might expect, dominant market players rarely decline influence over time.

Google will surely predicate much of its upcoming defence against the Department of Justice on one of the oldest but most important caveats in marketing strategy: your competition is not who you might think it is. It is certainly not the immediate members of a self-constructed, myopic category. It is not even based on competitors per se.

Instead, the war for market share takes place on a battleground built from the alternatives considered by each customer. That’s a multi-billion dollar, existential insight for Google and a very handy one for marketers too.