Truth be told, Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) has been accused of operating an unfair monopoly ever since its search engine, the expansive Google, rose to prominence in the early 2000’s. The fact that it’s happening now shouldn’t be a surprise to GOOGL shareholders. It’s par for the course.
On the other hand, a closer inspection of the history of all the antitrust arguments against Alphabet will reveal the tone and timbre (not to mention the frequency) of these allegations is changing. The world has started to proverbially circle the wagons, and they’re not backing down.
While it’s unlikely any of these pressures will dethrone Google’s as the king of internet advertising in the western hemisphere, the effort to loosen Alphabet’s grip on the market may finally be creating a real headwind for the behemoth.
The latest chapter in the ongoing saga: Online business directory and review repository Yelp Inc (NYSE:YELP) claims in a letter delivered to the FTC that Google is illegally using, or “scraping,” images from the Yelp website and inserting them into the results that appear when someone uses the Google search engine; pictures allow for a better overall search experience. That in itself wouldn’t be an enormous problem for Yelp, were it not for the fact that Yelp’s images were being used to promote Yelp’s competition, which in many regards is Google itself… along with Google’s advertising customers.
A thorough review revealed that the practice was indeed happening as Yelp claimed, in violation of an agreement Alphabet made with the FTC in 2012.
The letter materialized before the dust had even settled on the decision from the EU to impose a $2.7 billion fine for antitrust practices. Though Alphabet intends to appeal that ruling, it’s also made clear in the meantime that other, additional penalties stemming from its business practices in Europe could be forthcoming.
Oh yeah, just this month Alphabet, in a rare move, yielded to complaints from News Corp (NASDAQ:NWSA) that Google had removed access to articles from its property, the Wall Street Journal, because a user could only view a limited number of articles; the decision from Google appeared arbitrary, targeted, and perhaps a little self-serving to Google in that it’s developed its own way of being a payment middleman for subscription services.
And it’s that last development that owners of Alphabet Inc. stock should note: the world’s most powerful web presence just acquiesced. In another time and in another situation, Alphabet would have been all too happy to wage a legal battle. Now, it appears unwilling to take it that far, arguably aware that News Corp. is hardly alone in its frustration with Google.
The Shape of Things to Come?
It’s often difficult to distinguish between “operating a monopoly” and “just being really good at what you do.” It’s even more difficult for regulators and interested parties to prove Alphabet intends to monopolize a market when much of operation is behind a curtain (like its top-secret search algorithm).
But, proving antitrust laws have been violated according to the letter of the law isn’t quite as important as it used to be. More recently, regulators, and U.S. regulators in particular, have been satisfied just to see that the spirit of monopoly laws have been violated.
Case in point: Take a look at how a Senate Committee came down on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) last year, claiming that unmerited price increases on many of its specialty drug was tantamount to extortion. While the hearing itself had very little legal impact on the company’s pricing policies, it did in fact effect sweeping, mostly adverse change in the way Valeant determines prices for its drugs.
Then there’s Mylan N.V. (NASDAQ:MYL), which experienced a similar shaming session when enough of the right people pointed out that the price of its Epipen had soared 400% between 2008 and 2016 for no justifiable reason.
It’s not just outrageous drug pricing at least certain slivers of the federal government have had enough of, though. The FTC is even seeking to bar the merger of fantasy sports venues DraftKings and FanDuel, suggesting that even a monopoly within the relatively irrelevant fantasy sports market is intolerable. If the Federal Trade Commission has a problem with two fantasy sports sites, both of which are struggling to survive, pairing up in what would create a monopoly, it’s only a matter of time before regulators are going to act on concerns that a well-funded, high-powered Google enjoys a competition-stifling advantage.
The rhetoric and mindset of what qualifies as antitrust, and is worth combating, has simply changed for the worst for big enterprises.
Bottom Line for Alphabet Inc. Stock
And perhaps it’s the changing rhetoric, and the changing response to it, that should concern current and would-be Alphabet Inc. owners most of all. For the first time in… well, ever, chatter about breaking up giants like Google and Amazon.com, Inc. (NASDAQ:AMZN) is surfacing, and it’s not being immediately rejected as a ridiculous, needless notion. The scraping of Yelp’s images, which at one point would have been outright ignored, has since become not just offensive, but is viewed as a downright arrogant move by Google. It is an arrogance that’s a symptom of being allowed to be a bully for too long and an arrogance that needs to be dialed back a notch or two.
Indeed, though the beleaguered President Trump doesn’t necessarily speak for the entire government (and may or may not actually hold a completely informed opinion on the matter) he himself has voiced concern about the sheer size and scope of Amazon, and people in his inner circle (like Peter Theil) have indirectly indicated that Alphabet Inc.’s Google is too big and far-reaching for the public good and should be regulated or broken up. Neither would be good for Alphabet Inc. investors, even if good for the nation or the world. That doesn’t mean it can’t happen though.
As for when this day of reckoning may take shape, it isn’t clear. The pump is being primed though, now more than ever.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.