How Russia Defeated Google’s MonopolyThis is a chart of the Russian search market. Notice anything? Choice screenscan make a big difference on questions of market power.
By Matt Stoller
This submission is a copy of the July 23, 2019 issue from the newsletter BIG. You can access theoriginal copy of the newsletter issue here. There is also updated data in a follow-on issue fromNovember 25, 2020, which you can access here.

Yes, that’s right. In this search market, there’s competition. In fact, outside ofChina, there is only one search engine market with any rivals to Google, andthat is in Russia.
We hear a lot these days about antitrust, and particularly big tech. But why do
we not hear about the only success story in the entire world? I don’t know, but
my guess is that it’s a social phenomenon. The agency that did the enforcement
was the Federal Antimonopoly Service of Russia, and the story causes a greatdeal of embarrassment for the enforcers in Europe and America. Reporters,enforcers, and fancy prize givers don’t tend to trust the Russian government.
In this case, however, there’s a lot to learn from what the Russians did. The
history of the competitive Russian search market isn’t just about aggressive andintelligent antitrust enforcement. It also involves innovation outside ofCalifornia. So that’s where I’ll start.
The Rise of Yandex
For much of the Cold War period, Silicon Valley in the United States was a key
center of innovation around computers. It wasn’t the only center, but it mattereda great deal, both in hardware and software. The Soviet Union also trained alarge community of engineers and scientists to wage their Cold War, many ofwhom were amazing software creators. Tetris, for instance, was invented inRussia. After the Soviet Union fell apart, some of these engineers started techcompanies.
In 1990, two Russians launched the company that would become the Russian
search giant Yandex, which is now the fifth largest search company in the world
and which has - like Google - become a tech conglomerate. By the mid-1990s
these engineers were experts in Russian language search. In 1997 they launcheda Russian-language search engine, and by 1998 Yandex (named for “YetAnother Index”) was in the contextual advertising business. Yandex chose abusiness model similar to what Google, founded that year, would also
eventually select a few years later.
In the U.S., Google was a better search engine than its competitors (likeInfoseek and Altavista), and beat them to dominate the market with a better
experience and more relevant results. Google used a more efficient algorithm
for indexing the web, had faster servers, and began plowing user data back into
its search results to make the results more accurate. I remember the first time I
used Google search, it was like magic. With the rest of the search engines you
had to go through lots of results, whereas Google just helped me find what I
wanted.

In 2000, Google took its search product global to beat out potential foreigncompetition, launching in ten languages. By 2001, it had an office in Tokyo.
The company was quickly conquering the world faster than local search players
could get up and running. In Russia, however, Google was never able todominate. Instead, Yandex offered a competitive search product; it was as goodas Google, but in Russian.
Google nonetheless came into Russia, and did fairly well. The two searchengines had different strengths; Yandex was very good at indexing Russian,appealed to users in all regions of Russia, and had a smaller index. Google hadsuperior results on technical topics in Russia, had appeal among IT
professionals and young people, and was more popular in big cities. Up until
2012, Yandex held roughly 60% of the search market in Russia.
Google Makes Its Move on Yandex
Google had conquered the market for desktop search throughout most of theworld, but Yandex had a majority (though not overwhelming) share in Russia.
But as is often the case, the most vulnerable time for a monopoly, as well as its
moment of greatest opportunity, at a technological inflection point when a newmarket structure is emerging. From 2007-2014, the computing world shifted tomobile, and this shift was such an inflection point. For example, in 2011,
Facebook was a profitable social network without a mobile ad business, today
the company gets roughly 90% of its revenue from mobile advertising and is farlarger and more powerful. For search, the shift was similarly critical, people
would search on their phones as much or more than they did on desktop
computers, and would include geolocation data and maps in those searches.
Desktop and mobile search are deeply related products, but they operate inslightly different contexts. In the early 2010s, mobile search was growing
rapidly, but nearly all monetization took place on desktop. Google’s strategy toconquer mobile search took shape in 2012, and played out all over the world. It
had to do with the company’s control of a mobile phone operating system,Android, which it bought in 2005.

In 2008, Google experimented by building its first Android phone. Thecompany eventually settled on a strategy of having original equipment
manufacturers (OEMs) like Samsung use Android as the brains of their phones.
The price was irresistible: zero. Google gave away Android, and starting in
2012, gave away their app store known as Google Play. This pricing strategy
was wildly successful. Global Android phone usage hit 1 billion users in 2014,
and 2 billion by 2017. Android and Google Play are immensely valuable partsof the phone. Android offers the phone function, and Google Play and its
service layer lets third party apps operate on a phone. The ‘free’ price and highfunctionality of the operating system was a compelling pitch. Google rapidly
gained share everywhere. In Russia, at the beginning of 2011, Google had lessthan 20% market share of the phone operating system market. By 2012, it hadover 50% market share, reaching 80% by 2013.
In return for a high-quality operating system and app store, Google imposed
conditions on OEMs, forcing them to put Google search on the phone in a highprofile area, and making Google search the default search engine. The company
also in some cases paid OEMs to not install competitive software, like Yandex
search. In other words, this was a kind of leveraged monopoly play, ordominance in a “home” market (Android) leveraged into a “destination” market(mobile search). Such anti-competitive behavior was exactly what Microsoft didin the late 1990s with its Internet Explorer, tying its browser to its Windows
operating system with OEMs in order to beat back Netscape.
Default choices are extraordinarily powerful mechanisms to win power in
consumer oriented network systems, as the excellent Australian Competition
and Consumer Commission (ACCC) pointed out last December. The default
bias problem is so significant that Google, at last count, pays $12 billion a year
to Apple to make Google search the default search on the Safari iPhonebrowser. The ACCC even has an entire section and policy recommendations
based on the power of defaults, and the rest of the world is catching up toAustralia in terms of understanding their power.

In 2013, when the Android market share reached 80% of phones in Russia,
Google search began gaining rapidly on Yandex, especially in mobile search.
Why wouldn’t it? Google could place its search engine at every point of entry
into the phone, and could exclude competitors. Here’s another chart of marketshares. You can see the market share drop.

The Antitrust Cases: EU Versus Russia
In 2015, both the European Union and the Russian Federal Antimonopoly
Service began investigating Google’s Android deals with OEMs. The theory ofharm in both cases was the same, and clear. Google was tying Google
Play/Android to Google Search with unfair contractual arrangements.
Both the European enforcers and the Russians ‘won’ their case. In fact theEuropean Commission team got the award in D.C. earlier this year from Global
Competition Review for best antitrust case for its work on Android. But theEuropean case failed to preserve or create competition, while the Russian one
succeeded. Why?

One reason is because the European Competition enforcers were slow, while theRussians were definitive. Today the European Commissioner for Competition
Margrethe Vestager has a reputation as a tough enforcer, but this reputation isboth undeserved and overstated. She is deeply cautious, and hostile to penalties
that reorganize markets. For instance, she came out strongly against ElizabethWarren’s proposal to break up big tech companies, on philosophical grounds
that such a break-up would be an attack on private property. So while she getsheadlines for big fines, she is largely weak and passive, and tolerated delays.
When she finally did win the case, she even allowed Google to organize its own
penalty.
But to put it all on the weakness of Vestager isn’t quite fair, because she also
faced difficult conditions. President Barack Obama, probably at the behest ofGoogle, attacked her and the Europeans for engaging in protectionism as theyinvestigated. It’s hard to remember now, but 2015 and 2016 was a very different
moment, when Google and Facebook represented a progressive and deeply
profitable vision of social justice and liberation. The idea of criticizing Google
was a bit outlandish.
Moreover, Microsoft, which had been supporting the European case, pulled outof its support in the middle of the fight. In Europe, while Google was dominantnearly everywhere, there was still a small bit of competition in the form ofMicrosoft’s Bing and DuckDuckGo. Microsoft in particular was a key
participant, having financed much of the anti-Google research since the mid2000s and posing the only existing challenge in terms of global indexing toGoogle’s web crawl. But in 2016, in the middle of the case, Microsoft, which
had been leading the charge for the Europeans to enforce against Android, cameto a truce with Google, both companies agreeing to remove all regulatorycomplaints against one another. This truce left Yandex as the only significant
remaining complainant in both Europe and Russia.
Google also slowed the process down with procedural roadblocks and delays.
And while Vestager did eventually come to a decision and fine Google a large
amount of money and end the contractual restrictions, there were two significant

problems. First, the process was very slow. In fact, the case is still on appeal. In
antitrust, speed matters, because speed determines whether rivals can stay alive.
Microsoft ultimately decided it just wasn’t worth trying to compete with Google
anymore (whether they could have done so successfully is a different question).
Second, while Vestager imposed a large fine of $5 billion, she allowed Google
to define the remedy.
Here’s the language of the press release announcing the decision.
It is Google's sole responsibility to ensure compliance with the Commission
decision. The Commission will monitor Google's compliance closely andGoogle is under an obligation to keep the Commission informed of how itwill comply with its obligations.

Google stopped its bundling practices, but without much change to the searchmarket. As if to put a fine point on the remedy failure, Google has alreadymodified its changes once in response to “feedback” from the competition
authority. Going forward, we’ll see how this plays out, but it’s been three yearssince the investigation and seven years since the restrictive practices started,
without a major change in Google’s dominant market share.
In Russia, the anti-monopoly case played out quite differently. The Russians
were not intimidated by American technology companies, not only because ofresidual bitterness over the end of the Cold War and a hostile geopoliticalrelationship with America, but because they had Yandex. Russian engineers andscientists were just as innovative as those in Silicon Valley, and they had theirown search giant to prove it.
The FAS was also hostile to Google because of a very basic problem that thecompany brought upon itself. Google did not take the FAS as seriously as itshould have, under the assumption the FAS would rule for Yandex forprotectionist reasons. It wasn’t an unreasonable assumption, to believe a
Russian government agency would find for a Russian company. But Google
never acknowledged Yandex had a serious argument, even though a respectedeconomic consulting firm, the European arm of Charles River Associates, haddone the economic analysis underpinning Yandex’s complaint.
The Russians ruled in 2015, and again in late 2016, roughly a year and a half
after the start of the case and far faster than that of the EU. In 2017,
Google settled, agreeing to present a “choice screen” to all Android phone users
letting the user pick in a neutral manner which search engine to use.
Immediately upon implementing the choice screen, Yandex recaptured a chunkof market share from Google. And its market share then stabilized.
Outcomes
In Russia, the key outcome was the preservation of competition in desktop
search, and the extension of this competition to the mobile search and mobilesearch ad markets. Tech markets are often prone to ‘tipping,’ which is to say,becoming winner take all markets. For instance, Google has the most data of
any search engine company of how users find things, so it can optimize toimprove its search engine. At the same time, web publishers often optimize theirsites to be found by Google, leading to a feedback loop of a web where on bothsides, users and publishers, Google is the natural intermediary.
In Russia, there are several options for search, both Google and Yandex, forusers and publishers. This creates the possibility of using Google for queries
that are more technical and Yandex for queries that involve more knowledge ofRussian syntax and regional elements of the culture. Google also has less power
to engage in vertical discrimination to block rivals, as it does with Yelp andTripAdvisor in Europe and the U.S.
There’s also more innovation in the Russian search and internet software spacethan there is in much of the rest of the world. Yandex has a whole suite orproducts, including a taxi service, payments, mail, maps, business software, asuperior weather forecasting product, and a voice assistant product called Alice.
It also has a Turkish language product, and there’s antitrust action in Turkey
around Android.

Google is still doing well in Russia. It didn’t pull out of the country, it is making
money, it has a reasonable market share. So reasonable antitrust actions don’t
destroy anything, they simply create more space for more players.
In Europe, by contrast, there’s little evidence of significant changes in searchengine market shares. The Competition authority is toying with the idea ofchoice screens and being pressed on defaults, but it has yet to adopt the firmness
necessary to restructure the market. Google has retained its dominance in themarket, though it has begun charging OEM phone makers for the use of Google
Play. Microsoft is no longer aggressively challenging Google; that ship sailed.
In other words, Google might come out ahead by charging money for what itpreviously gave away, while retaining its search monopoly regardless.