The perfect storm is currently brewing over Google

You might think things are going great at Google right now. Under blue skies and sunshine, CEO Sundar Pichai presented one AI innovation after another this week at the Google I/O developer conference, the company's flagship event. Whether it's traditional search, video generation, or online shopping, Google's artificial intelligence will make everything better and more efficient, he concluded. Even the supposedly dead Google Glasses are experiencing a resurrection thanks to AI.

In fact, the perfect storm is currently brewing for the company. The future of Google's business model is under pressure like never before in the company's nearly 30-year history. Nothing less than the company's commercial foundation is at risk.

First, there are the court proceedings for antitrust violations. These have been ongoing for years, but now two federal judges have concluded in recent months that Google is indeed operating illegal monopolies: in both the search engine and advertising markets. These two markets form the company's commercial pillars. Thanks to the ads draped around search results, Google earned $200 billion from advertising last year, more than half of the company's total revenue.

In the advertising market, Google has long benefited from the obscure and difficult-to-understand nature of the way companies bid for online advertising in an auction process and the prices they pay. But a few weeks ago, a federal judge ruled that Google had used anti-competitive means to keep its competitors at bay and had an illegal monopoly in two out of three segments of the digital advertising market. The courts will determine what measures Google will be required to take to remedy this situation in the coming months.

This so-called remedy phase is already underway in the second case concerning the search engine monopoly: There, too, a federal judge found last year that Google had obtained its approximately 90 percent share of the global search market through anti-competitive means.

The measures against this search engine monopoly that the federal judge is now considering would all be devastating: First, Google could be required to share its search engine index with competitors – that is, its treasure trove of data containing information about all websites on the Internet.

Second, the court could force Google to spin off its Chrome browser. However, Chrome plays a key role in the ecosystem Google has built around its search business: It is by far the most popular browser worldwide and a key gateway for millions of search queries. Furthermore, thanks to Chrome, Google receives important information about users' online behavior, which it can then sell to its advertisers.

But that's not all: Thirdly, the Justice Department's lawyers are proposing that Google should no longer be allowed to pay to be the default search engine on third-party devices like the iPhone. For this exclusive position—known as bundling—Google currently pays Apple, Samsung, and other third-party companies a whopping $26 billion annually. Thanks to these agreements, millions of internet users wouldn't even consider using another search engine instead of "Googling" information online.

The federal judge in charge will decide in August which of these measures Google will be required to take. But one thing is already clear: This is likely to be the most consequential antitrust ruling in the US in decades. Google will almost certainly appeal both the search engine and advertising market cases.

Years could pass before legally binding judgments are issued in both cases. But that doesn't bode well for the company either: The legal proceedings will tie up enormous resources for a long time. Lawyers will be peering over the shoulders of engineers and managers in every conceivable decision. The innovation process is likely to stall.

The legal disputes would be worrying at any time. They are particularly explosive because they are escalating in the era of artificial intelligence. The AI ​​revolution is fundamentally changing the behavior of internet users. More and more people are no longer "Googling" their questions, but rather "prompting" them, meaning they are asking them to chatbots from Open AI, Anthropic, Perplexity, and others. A witness in one of the legal disputes recently confirmed that Google's search engine traffic has declined for the first time in 22 years.

And with Open AI, Google is facing serious competition for the first time in a long time. The San Francisco-based startup unleashed generative artificial intelligence on the world two and a half years ago with the release of Chat-GPT – a technology for which Google's scientists, of all people, had laid the foundation. In a very short time, Open AI has grown into a multi-billion dollar company, whose models and products are now in a head-to-head competition with Google.

If the federal judge actually forces Google to license its search engine index to third parties and spin off Chrome, Open AI would be the third party to win. The company has already expressed strong interest in both, as Chief Product Officer Nick Turley recently testified on the witness stand.

Of course, Open AI is still a dwarf compared to Google: around 2,000 employees compared to 180,000, a valuation of $300 billion compared to $2 trillion, and a loss of $5 billion last year compared to $100 billion in profit. But memories of the last major antitrust case in the US are still stirring: At that time, the tech giant Microsoft was threatened with breakup, and in the wake of the dispute, a startup called Google quietly rose.

CEO Pichai also acknowledged this week the enormous competitive pressure Google is under: In the past, they would save important announcements until the developer conference in May, "but now we announce new AI models on a random Tuesday in March." The gap to the competition has become so small that every day counts.

Google's leadership is responding by uncompromisingly committing to artificial intelligence. The developer conference could just as easily be called "Google AI" instead of "Google I/O": Virtually every product announcement is dominated by AI. Long gone are the days when the company carefully considered whether society was truly ready for generative AI and voluntarily held back products.

In many cases, it's still unclear how advertisers will be able to place their ads in the new AI products, and where ads will even appear in chatbot results. But the strategy seems clear: Google would rather "disrupt" its search business itself than leave it to the competition.

The coming months will show whether this plan will work even if a judge dismantles the search ecosystem.