On Monday, Microsoft CEO Satya Nadella showed up at the Google antitrust trial to back the Department of Justice’s argument that “Google used unfair tactics”—most significantly, default search contracts—to block opportunities for search competitors like Bing, The Wall Street Journal reported.
A Microsoft spokesperson provided Ars with a transcript of Nadella’s morning testimony. It excludes approximately an hour’s worth of testimony from the afternoon session (that transcript is not yet available). But it includes about an hour of questioning from DOJ lawyer Adam Severt, during which Nadella said that due to Google’s grip on mobile providers and browsers’ default search placements, the idea that users have real choices when selecting a search engine is “bogus.”
However, Nadella’s efforts to back the DOJ seemingly required that the CEO walk back some of his earliest remarks hyping AI-powered Bing as potentially giving Microsoft a long-sought-after competitive advantage over Google.
At the trial, Nadella said that in Silicon Valley, Internet search is “the biggest no-fly zone,” which the Journal characterized as “the hardest market to crack.” Nadella said that even Microsoft’s seeming lead in artificial intelligence—it invested billions into OpenAI—likely won’t be enough to change that due to the “limits to how much artificial intelligence can reshape the market as it exists today,” the WSJ reported.
While Nadella—during Bing’s rollout earlier this year—had once suggested that the technology represented a “new day” in search, at trial, Nadella attributed his “exuberance” during that rollout to being “someone who has like 3 percent share” of search who started thinking “that maybe I’ll have 3.5 percent share.”
According to the WSJ, as of August, even that modest goal hasn’t happened. Third-party data showed that “Microsoft’s share of the search market has hardly budged” since adding AI features to Bing, but Google’s lead trial counsel, John Schmidtlein, argued that this was “a direct result of Microsoft’s missteps in Internet search,” not due to Google’s command of the market.
Nadella disputed this, telling the court that even ChatGPT isn’t well-positioned to overtake Google in search markets because, for most users, Google is the most readily accessible and obvious choice.
“You get up in the morning, you brush your teeth, and you search on Google,” Nadella said. “With that level of habit forming, the only way to change is by changing defaults.”
Nadella also expressed significant concern that emerging AI technology—rather than providing opportunities for competitors like Bing—could ultimately further entrench Google’s dominance in search without the court’s interference.
“The distribution advantage Google has today doesn’t go away,” Nadella said on the stand. “In fact, if anything, I worry a lot that—even in spite of my enthusiasm that there is a new angle with AI—this vicious cycle that I’m trapped in could even become even more vicious because the defaults get reinforced.” He added: “This going to be even worse of a nightmare to make progress in search, because there’s a new avenue” for Google to “lock up essentially” the “thing that feeds” AI models, “which is content.”
For the DOJ, Nadella’s testimony was meant to show that Google’s dominance in the market is so insurmountable that a company as big as Microsoft, even by investing potentially more than Google, can’t compete.
But that doesn’t stop Microsoft from trying. Nadella told the court that to Microsoft, search is “a hard game to make any breakthroughs, but no one can accuse us of not being persistent.”
“I see search or Internet search as the largest software category out there,” Nadella testified. “We are a very, very low-share player. But we continue to persist in it because we think of it as a software category we can contribute to.”
Google did not immediately respond to Ars’ request for comment.
Judge: Can startups compete with Google?
While Nadella was on the stand, judge Amit Mehta seemed intent on finding out more about how innovation has been potentially hampered by Google’s market dominance. Mehta interjected with his own questions for Nadella “about whether a startup could use innovation in artificial intelligence to wrest market share from Google,” the WSJ reported.
“It’s very hard for a startup,” Nadella told Mehta, claiming that Microsoft has invested more than Google has in search and that, in some ways, Microsoft’s investments have been one of the only things keeping some search alternatives afloat.
“Quite frankly, the investments Microsoft has made in search has even kept all the other search players who contend for it, like a DuckDuckGo, even going because they use our search index,” Nadella said.
It will be up to Mehta alone to decide if Google has an unfair monopoly in Internet searches. His line of questioning for Nadella followed testimony Mehta heard last week from Microsoft business development executive Jonathan Tinter, who claimed that even when Microsoft offered Apple better terms than Google and was willing to lose billions to secure default search placements on Apple devices, Apple still chose to sign with Google, Bloomberg reported. Nadella told the court that Microsoft had been willing to accept years in the red just to make that deal to “break some new ground in this search competition.”
Apple’s default search deal with Google was seemingly so lucrative that the company had no interest in purchasing Bing from Microsoft, Tinter testified. Nadella told the court that because of Google’s obvious lock on search on Android devices and in its popular Chrome browser, the Microsoft CEO Has focused “every year of his tenure” on seeing if Apple “would be open” to making Bing the default search engine on its devices.
He also pointed to the popularity of Apple Maps as being largely due to its placement as a default on Apple devices, calling it the best case study showing “the power of defaults.” According to Nadella, whatever tool Apple sets as the default on its operating system, “they basically king-make” on their devices. (It should be noted that Google Maps is still popular on Apple devices. According to Mac Rumors, even with recent praise for Apple Maps’ overhaul, that “while Apple Maps comes preinstalled on all iPhones, the overwhelming majority of iPhones in the US have Google Maps downloaded as an alternative.”)
Nadella told the court that Google defending its default status is a “game of carrots and sticks.” No matter how much money a competitor offers to try to lure partners away from Google, Google wins, because according to Nadella:
Google has carrots and it has massive sticks, like one big stick is that we’ll remove Google Play if you sort of don’t have us as the primary browser. And without a Google Play, an Android phone is a brick. And so that is the type of stuff that is impossible to overcome.
As another example raised so far during the trial, the DOJ shared an email that Tinter sent to Nadella, advising that Microsoft “take a different approach to how we talk” to Samsung “about search and browser.”
“This is a sensitive topic from Samsung,” Tinter warned Nadella, claiming that Samsung executives didn’t want “to make a big move” with Bing on their mobile devices “because of the partnership with Google.”
“Right now we are stuck,” Tinter wrote in the email.
Startup co-founder: “Google made it very, very difficult”
Following Nadella as a trial witness on Monday was Sridhar Ramaswamy, the co-founder of a startup called Neeva. Ramaswamy also told the court that Neeva’s failure to thrive was largely due to Google’s squeeze on the search market.
Neeva was a potential Google rival launched in 2019 by former Google executives hoping to innovate Internet searches. Those dreams were dashed when the company shut down earlier this year.
To differentiate its search experience, Neeva sought to operate based on a subscriber model rather than an ads-based model. Ramaswamy told the court that he believed that serving ads “had gradually corroded the quality of Google’s product,” Bloomberg reported.
This supposed drop in Google’s quality seemed to leave an opening for Neeva to shake things up, Ramaswamy said on Monday.
“People who tried our AI experience genuinely loved it,” Ramaswamy said. “It was a better, easier, sleeker experience.” However, partly because of Google’s default placements, Ramaswamy said that Neeva couldn’t grow its subscriber base “fast enough” to stay in business.
Apple wouldn’t even add Neeva to the list of search engines users can choose to swap away from Google in Safari, Ramaswamy said, and any promising talks with wireless carriers who had some sway over what apps are preinstalled on Android devices went nowhere.
“The complex nature of contracts that they had with Google made it very, very difficult for them to offer Neeva as even an option,” Ramaswamy said.
Ramaswamy and Nadella told the court that Google’s default placements stood in the way of innovation, but not every Google search rival feels that Google can’t eventually be overpowered.
According to some startups, Google’s dominance may erode over time since younger generations don’t appear to be as sold on Google as older Internet users. To lock in younger search users, creating the next big platform will be key, though, and according to Ramaswamy, Google’s default placements have historically made it harder to attract a broad swath of users to new products fast enough for startups to stay alive.
