Truth to power: a lesson within the famous Google/Apple deal
The future of BigTech may be decided by the structure of partnership agreements.
Apple, Amazon, Google, Microsoft and even OpenAI are facing the most pivotal antitrust lawsuits and investigations in decades - and several of these cases focus on their partnership agreements.
What can you learn from these antitrust cases that will make you smarter as you pursue your own partnership deals?
That is the question TfT will set out to answer.
Today, I’m starting with the case that I view as likely the most consequential: the US Department of Justice’s lawsuit against Google for its search deal with Apple.
We will drill down into 60 words from a fascinating 17-year old email that emerged as evidence during the federal trial against Google.
First, a quick snapshot of what this case is about without legal jargon.
What is this case about?
For nearly 20 years, Google has paid Apple a portion of the revenues that Google generates from being the default search engine on iPhone and other Apple devices. Google now pays Apple an estimated $18 billion - $20 billion annually to be the default search engine for Apple.
Yes, those are billions. That is how valuable search activity on iPhones is to Google.
The US Department of Justice (DOJ) recently argued in federal court that Google’s partnership agreement with Apple unfairly and unlawfully excludes competitors. Their view is that the Google/Apple deal is collusion and that Google is responsible.
During trial late last year the email below from 2007 emerged as evidence; it was sent as Apple was preparing to launch the first iPhone.
Sundar’s email
Today, Sundar is the CEO of Google, a titan of the technology industry. But at the time he sent the email below he was still an up-and-comer. Back then, he was a senior Product Manager overseeing Google Chrome - a product Google hadn’t even launched yet!
Sundar was then just 5 years out of business school. He had worked at Google for only a couple years.
Sundar sent this email to a powerful group - Google's CEO, co-founder, Chief Business Officer and SVP of Product.
Here is the key line in his email:
“I know we are insisting on default, but at the same time I think we should encourage [Apple] to have Yahoo as a choice in the pull down or some other easy option. I don’t think it is a good user experience nor the optics is great for us to be the only provider in the browser. Sergey, do you agree?”
Sundar’s foresight
In just sixty words, Sundar demonstrates three things:
(1) Sundar has a strong point-of-view on the user and his product.
He knows the right thing to do for users. Sundar understands that giving users a choice at the outset of their experience with an Apple device does not pose a material threat. Google had the better search engine. Giving users the ability to select their preferred search engine gave the user a sense of control. To Sundar, that mattered.
That is why he writes “I don’t think it is a good user experience” … for Google to be the sole search engine on Apple devices.
(2) Sundar grasps the broader context of this deal.
Sundar shows that he is a student of history. He knew that nine years earlier the DOJ sued Microsoft for violating antitrust laws by requiring that its OEM partners (e.g. Dell, Compaq) use Microsoft’s Internet Explorer as the default browser on their hardware devices. Microsoft lost that case against the DOJ, costing them billions.
Sundar knew that signing an agreement stipulating a default put Google at risk of violating the same federal antitrust laws that had been catastrophic for Microsoft.
That is why Sundar writes “nor the optics is great for us to be the only provider in the browser.”
Forgive his grammatical error. Here Sundar effectively predicts the federal lawsuit that arrives 13 years later.
(3) Sundar speaks truth to power.
Sundar had the courage to share an uncomfortable truth with Google's leadership. In his email, he advocates for putting user choice ahead of Google’s commercial interests. He advocates for an arrangement where Google is not THE default search engine within Apple products but is AMONG the options that users can select. He argues for showing restraint.
That is why Sundar writes “I know we are insisting on default but at the same time I think we should encourage Apple to have Yahoo as a choice ...”
Sundar states his perspective clearly. But he also anticipates that his view may not be popular among Google's senior leadership, so he enlists Google's co-founder.
He ends with “Sergey, do you agree?”
Ultimately, Sergey did not voice clear support for Sundar’s suggestion. The negotiations proceeded and, in fact, Google insisted that they would only pay Apple if Google was the only default search engine.
That decision has cost Google massive legal fees. And it could come to cost Google much more.
The key lessons from Sundar’s email
As a leader, you need to own your deal. Sundar gives us a masterclass in what that means:
Start with the customer - Whatever your perspective, start with the customer. Start your business case, your deal summary, your emails - start them ALL with what this partnership means to your customer.
Anticipate the implications of your deal - Owning your deal means understanding both the historical context, the motivations and incentives of both parties. You need to see around the corner and anticipate the upside and the downside consequences of your deal.
Speak-up - No deal is perfect. There will be risks. Your task is to make those risks clear to the key stakeholders on your side. Speaking up about deal risk and ways to mitigate those risks is your job.
Postscript
There is another essential line in Sundar’s email: “we should encourage Apple.”
In my view, Google was never in a position to, on its own, limit search competition. Apple manufactures the devices. Apple controls the experience. Apple holds the keys.
As Ben Thompson of Stratechery wrote last year, “Apple is the one with the power to set the defaults, and they are the one taking the money instead of competing; it’s hard to fault Google for being willing to pay up.”
Why did the DOJ sue Google in this case? Why not Apple?
Judge Mehta will announce the verdict in US vs. Google in May.
More reading about US vs. Google
Tech Emails - the full internal email exchange covered in this post
SearchEngineLand - a detailed breakdown of the case for / against Google
