Google’s Antitrust Uncertainty Starts to Rattle Investors

[00:00:18] [SPEAKER_03]: Welcome to Tech News Briefing, it's Monday, September 16th.

[00:00:23] [SPEAKER_03]: I'm Zoe Thomas for the Wall Street Journal.

[00:00:25] [SPEAKER_03]: Is artificial intelligence going to fundamentally change everything we do?

[00:00:31] [SPEAKER_03]: Or just enhance the ways we already do things?

[00:00:34] [SPEAKER_03]: Our tech columnist Christopher Mims says increasingly it's looking like the latter option.

[00:00:40] [SPEAKER_03]: He'll join us to explain.

[00:00:42] [SPEAKER_03]: And then, Google is facing a lot of uncertainty.

[00:00:46] [SPEAKER_03]: And investors don't like uncertainty.

[00:00:49] [SPEAKER_03]: We'll tell you what's causing it and how it's changing Wall Street's outlook

[00:00:53] [SPEAKER_03]: for Google.

[00:00:59] [SPEAKER_03]: First, though, big tech companies like Apple, Google, and Microsoft have announced new versions

[00:01:05] [SPEAKER_03]: of their products with AI features.

[00:01:07] [SPEAKER_03]: It could be a sign that this new powerful technology is destined to be integrated into

[00:01:13] [SPEAKER_03]: devices and software we already use rather than served up as its own product.

[00:01:19] [SPEAKER_03]: Our tech columnist Christopher Mims is here to tell us more.

[00:01:22] [SPEAKER_03]: Christopher, can you tell us about an industry where AI is being integrated into existing

[00:01:27] [SPEAKER_03]: workflows?

[00:01:27] [SPEAKER_02]: Yeah, the construction industry is a really interesting case.

[00:01:30] [SPEAKER_02]: Rather than folks going to chat GPT or something like that to try to ask it questions

[00:01:36] [SPEAKER_02]: or analyze data for them or whatever, lots of companies are actually embedding even

[00:01:43] [SPEAKER_02]: generative AI directly in the systems that folks are using.

[00:01:46] [SPEAKER_02]: One person said to me that in the future this could go as far as generative design

[00:01:51] [SPEAKER_02]: for buildings. You might prompt it and say, like, I need an apartment.

[00:01:55] [SPEAKER_02]: It's these dimensions and I need this many units to make a profit.

[00:01:59] [SPEAKER_02]: Design the whole thing for me.

[00:02:01] [SPEAKER_03]: What does the way the construction industry is using AI tell us more broadly about its

[00:02:05] [SPEAKER_03]: development?

[00:02:06] [SPEAKER_02]: What it shows us is that for a company like OpenAI, you might think that their

[00:02:11] [SPEAKER_02]: big future business might be selling as many $20 a month subscriptions to chat GPT

[00:02:15] [SPEAKER_02]: as possible. But even they have told me that they think the future is companies

[00:02:21] [SPEAKER_02]: paying to access their AI and then using those features inside of their own

[00:02:27] [SPEAKER_02]: software.

[00:02:28] [SPEAKER_03]: You mentioned OpenAI, but what kinds of companies could benefit most if AI takes

[00:02:33] [SPEAKER_03]: off as a feature rather than a standalone product?

[00:02:37] [SPEAKER_02]: Here it's definitely an arms race between the usual tech giants Apple, Google,

[00:02:43] [SPEAKER_02]: Microsoft. There are, though, a lot of upstarts.

[00:02:46] [SPEAKER_02]: Like there's a lot of potential for AI first companies to come along and disrupt

[00:02:53] [SPEAKER_02]: existing players. So I'll just give you one example.

[00:02:56] [SPEAKER_02]: We all hate doing expense reports and reconciling invoices within that process.

[00:03:02] [SPEAKER_02]: That's something that AI first companies have already solved.

[00:03:05] [SPEAKER_02]: Now, is SAP Concur going to add that as a feature to Workday before they get

[00:03:11] [SPEAKER_02]: disrupted by these other companies?

[00:03:13] [SPEAKER_02]: I don't know.

[00:03:13] [SPEAKER_03]: Give us an example of how these sort of two approaches, a feature approach and a

[00:03:18] [SPEAKER_03]: standalone product approach can work for some tasks.

[00:03:22] [SPEAKER_02]: So one of my favorite every tasks that AI can speed up is the owner's task

[00:03:27] [SPEAKER_02]: of you get a PDF or a Word doc from your kid's school as a bunch of dates

[00:03:32] [SPEAKER_02]: and times. You need to put it into your calendar.

[00:03:33] [SPEAKER_02]: Right. So this is 30 minutes or an hour of TDM, especially at the

[00:03:37] [SPEAKER_02]: beginning of the school year. Well, if you're on Google's new Pixel phone,

[00:03:41] [SPEAKER_02]: you can just click the action button and be like, hey, Gemini, which is their AI

[00:03:45] [SPEAKER_02]: model. Take this Word doc.

[00:03:48] [SPEAKER_02]: This is what it is. Turn it into dates and times on my Google calendar.

[00:03:52] [SPEAKER_02]: And it will do that. And it will walk you through and ask you, oh,

[00:03:55] [SPEAKER_02]: is this what you wanted for this one, for this one, for this one?

[00:03:58] [SPEAKER_02]: Contrast that with the sort of more chat bot centric approach.

[00:04:02] [SPEAKER_02]: If you want to do that with chat GPT, you've got to have a little

[00:04:06] [SPEAKER_02]: conversation with it, upload the document, and then you've got to know

[00:04:10] [SPEAKER_02]: that you can ask it to export all of that information in a particular

[00:04:16] [SPEAKER_02]: file format, which you will then download.

[00:04:18] [SPEAKER_02]: And then you've got to go upload that to your calendar.

[00:04:21] [SPEAKER_02]: So this model of talking to chat bots, it's fine if you're a coder

[00:04:25] [SPEAKER_02]: and you're comfortable moving things in and out of them.

[00:04:28] [SPEAKER_02]: But for the other 99% of us going forward, it's clear that Google

[00:04:33] [SPEAKER_02]: and Apple's model where the AI is just integrated into things you already

[00:04:37] [SPEAKER_02]: use is going to be superior.

[00:04:39] [SPEAKER_03]: All right. That was our columnist, Christopher Mems.

[00:04:42] [SPEAKER_03]: And I just want to note that News Corp, owner of the Wall Street Journal,

[00:04:45] [SPEAKER_03]: has a content licensing partnership with OpenAI.

[00:04:49] [SPEAKER_03]: Coming up, the full impact of the Justice Department's two antitrust

[00:04:53] [SPEAKER_03]: cases against Google aren't yet known, but investors are starting to

[00:04:58] [SPEAKER_03]: consider the possibilities.

[00:05:00] [SPEAKER_03]: We'll tell you more after the break.

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[00:06:04] [SPEAKER_03]: Google has had a rough go of it lately.

[00:06:06] [SPEAKER_03]: It lost the DOJ's antitrust case over Search, though it's expected to appeal.

[00:06:13] [SPEAKER_03]: Now the company is back in court facing monopoly claims against its ad tech

[00:06:17] [SPEAKER_03]: business. And investors are less optimistic that Google will come out of

[00:06:22] [SPEAKER_03]: both of these cases unscathed.

[00:06:24] [SPEAKER_03]: Here to tell us more is our hurt on the street columnist Dan Gallagher.

[00:06:28] [SPEAKER_03]: So for those who haven't been following this, a federal judge ruled last

[00:06:32] [SPEAKER_03]: month that Google had a monopoly in search and that it suppressed

[00:06:36] [SPEAKER_03]: competition by paying operators of web browsers and phone manufacturers to

[00:06:40] [SPEAKER_03]: make Google the default search engine.

[00:06:42] [SPEAKER_03]: In a second separate case that began last week, the government is making

[00:06:47] [SPEAKER_03]: claims about its ad tech business.

[00:06:49] [SPEAKER_03]: What are those?

[00:06:51] [SPEAKER_01]: They're essentially similar in the sense of they're claiming Google has

[00:06:54] [SPEAKER_01]: too much dominance in this business.

[00:06:56] [SPEAKER_01]: This is a business where Google's kind of has dual sides of the

[00:07:00] [SPEAKER_01]: transaction, has these tools that help advertisers buy and sell ads.

[00:07:05] [SPEAKER_01]: But Google's involved in such a way that a lot of people think that it just

[00:07:08] [SPEAKER_01]: has too much power.

[00:07:10] [SPEAKER_01]: And it's a pretty significant business for them, but it's actually not

[00:07:13] [SPEAKER_01]: relative to their broader search business and other things.

[00:07:16] [SPEAKER_01]: It's actually roughly 10 to 11 percent of revenue, according to some

[00:07:20] [SPEAKER_01]: of the documents filed in the case.

[00:07:22] [SPEAKER_03]: You know, Google and other big tech companies, they have faced threats of

[00:07:26] [SPEAKER_03]: government crackdowns for years now.

[00:07:28] [SPEAKER_03]: So what's different in investors' minds this time around?

[00:07:33] [SPEAKER_01]: Part of that is exactly that.

[00:07:34] [SPEAKER_01]: Investors had this headline fatigue because arguably since the Trump

[00:07:37] [SPEAKER_01]: administration and even the Biden administration, we've had these just

[00:07:40] [SPEAKER_01]: multiple years of threats against what the government's going to do, crack

[00:07:44] [SPEAKER_01]: down, try to break these companies up.

[00:07:46] [SPEAKER_01]: And those efforts have mostly come to naught when there's been, in fact,

[00:07:50] [SPEAKER_01]: tech companies have scored some victories.

[00:07:52] [SPEAKER_01]: Meta had beat back the FTC in one smaller case.

[00:07:55] [SPEAKER_01]: The government really tried to stop Microsoft from buying Activision.

[00:07:58] [SPEAKER_01]: That didn't work.

[00:07:59] [SPEAKER_01]: And so now when you have Google loses a big case and then another big case

[00:08:04] [SPEAKER_01]: starts a month later in which a lot of people think they have even less

[00:08:08] [SPEAKER_01]: of a chance to win, that's forced Wall Street to get their head around

[00:08:12] [SPEAKER_01]: the idea that it's probably not going to be business as usual for them.

[00:08:16] [SPEAKER_03]: So how are analysts viewing the potential of a breakup in

[00:08:19] [SPEAKER_03]: terms of its search business?

[00:08:21] [SPEAKER_01]: Analysts are not putting a high probability on a breakup because one

[00:08:25] [SPEAKER_01]: of the potential remedies would be like Google spinning out Android and Chrome

[00:08:29] [SPEAKER_01]: into separate businesses, but that doesn't really work.

[00:08:32] [SPEAKER_01]: They don't really work as standalone businesses.

[00:08:35] [SPEAKER_01]: There was more of a thought that there's going to be different types

[00:08:37] [SPEAKER_01]: of penalties there, maybe things that would prevent Google from paying

[00:08:41] [SPEAKER_01]: Apple and these other companies for the search placement in a way that

[00:08:46] [SPEAKER_01]: could open up those slots to a company like Microsoft for Bing.

[00:08:50] [SPEAKER_01]: That's what's seen as probably a bigger probability in that particular

[00:08:54] [SPEAKER_01]: case and how that would play out for Google is a big question.

[00:08:59] [SPEAKER_03]: And of course, we won't know what those remedies are for quite a while.

[00:09:04] [SPEAKER_03]: What about in the ad tech case?

[00:09:07] [SPEAKER_03]: What are the potential consequences for Google's business if

[00:09:11] [SPEAKER_03]: it loses that case as well?

[00:09:13] [SPEAKER_01]: That one is seen as like a little bit less significant in the sense

[00:09:17] [SPEAKER_01]: that it's a smaller portion of Google's revenue in there.

[00:09:21] [SPEAKER_01]: And so theoretically, if they had to spin these off, it would be a really

[00:09:24] [SPEAKER_01]: complicated thing though, because Google kind of built up this business

[00:09:27] [SPEAKER_01]: over years, partially through acquisitions of companies like

[00:09:30] [SPEAKER_01]: DoubleClick, it's now tightly woven in.

[00:09:33] [SPEAKER_01]: And so how Google would actually accomplish this kind of spin-off

[00:09:37] [SPEAKER_01]: would be a really complicated thing to do, but it's certainly

[00:09:40] [SPEAKER_01]: possible to do it.

[00:09:42] [SPEAKER_01]: The consensus on Wall Street is if it came to that, it would not

[00:09:46] [SPEAKER_01]: be fatal for Google again, because it's a relatively smaller

[00:09:49] [SPEAKER_01]: part of the revenue.

[00:09:50] [SPEAKER_01]: One important part for the ad tech business is that it's actually

[00:09:53] [SPEAKER_01]: not a terribly profitable business because Google actually shares most

[00:09:56] [SPEAKER_01]: of the revenue from that with partners.

[00:09:59] [SPEAKER_03]: Give us a sense of how the stock of Alphabet, Google's parent company,

[00:10:03] [SPEAKER_03]: has fared compared to other big tech companies.

[00:10:06] [SPEAKER_01]: Lately, it's really showing the effect of this.

[00:10:09] [SPEAKER_01]: It was pretty competitive with the rest of the group in the first half

[00:10:12] [SPEAKER_01]: of this year as the company lost that case and as investors are

[00:10:17] [SPEAKER_01]: starting to think, oh, what's going to happen eventually over the long

[00:10:20] [SPEAKER_01]: term, you've seen a really noticeable decline in the stock and even more

[00:10:25] [SPEAKER_01]: so than the decline we've seen over the last couple of months for the

[00:10:28] [SPEAKER_01]: other big techs because we kind of see the market correction and

[00:10:31] [SPEAKER_01]: investors getting concerned about some broader things in tech.

[00:10:34] [SPEAKER_03]: And so what are analysts saying about Google's prospects?

[00:10:37] [SPEAKER_01]: Well, it's just a big unknown.

[00:10:38] [SPEAKER_01]: And that's part of the problem is that you have this in the search

[00:10:42] [SPEAKER_01]: case, we're not going to see a ruling on that on the remedies until

[00:10:46] [SPEAKER_01]: August of 2025 likely.

[00:10:48] [SPEAKER_01]: And then Google's likely to appeal those, which could tie it up for

[00:10:51] [SPEAKER_01]: another one or two years.

[00:10:52] [SPEAKER_01]: So you've got like just in that case alone, possibly two or three more

[00:10:56] [SPEAKER_01]: years of just this overhang where investors don't really know what's

[00:11:00] [SPEAKER_01]: going to happen ultimately.

[00:11:01] [SPEAKER_01]: And so that's probably going to be a bit of a shadow on the stock.

[00:11:04] [SPEAKER_01]: Now, that doesn't mean the stock is going to stay down forever, but

[00:11:07] [SPEAKER_01]: it might be this overhang relative to the rest of the techs,

[00:11:11] [SPEAKER_01]: depending on how those trend and how their cases work out and other

[00:11:14] [SPEAKER_01]: dynamics.

[00:11:15] [SPEAKER_03]: That was WSJ Hurt on the Street columnist Dan Gallagher.

[00:11:19] [SPEAKER_03]: And that's it for Tech News Briefing.

[00:11:22] [SPEAKER_03]: Today's show was produced by Julie Chang with supervising

[00:11:25] [SPEAKER_03]: producer Catherine Millsop.

[00:11:26] [SPEAKER_03]: I'm Zoe Thomas for The Wall Street Journal.

[00:11:29] [SPEAKER_03]: We'll be back this afternoon with TNB Tech Minute.

[00:11:32] [SPEAKER_03]: Thanks for listening.