Microsoft (MSFT.O) chief executive Satya Nadella dismissed as “bogus” an argument by rival Google that it is easy to change defaults on computers and smartphones, as he testified in a landmark antitrust trial against its parent Alphabet (GOOGL.O).
At the trial – the first major antitrust case brought by the U.S. Department of Justice since 1998 – Nadella said that Microsoft, itself a tech powerhouse, had sought to make its Bing search engine the default on Apple (AAPL.O) smartphones but was rebuffed.
John Schmidtlein, Google’s lead lawyer, pressed Nadella on the occasions when Microsoft did win default status on computers and mobile phones but users bypassed Bing and continued to use Google by a wide margin.
Schmidtlein argued that Microsoft had made a series of strategic errors that led to Bing’s inability to grab a foothold, including a failure to invest in servers or engineers to improve Bing and a failure to see the mobile revolution.
Schmidtlein also said Microsoft’s success in becoming the default – on some Verizon phones in 2008, and BlackBerry and Nokia in 2011 – ended with the same result: users bypassed the default and did the vast majority of their searches on Google.
On laptops, most of which use Microsoft operating systems, Bing is the default search engine and has a market share below 20%, Nadella acknowledged.
The government has argued that Google, with some 90% of the search market, illegally paid $10 billion annually to smartphone makers like Apple and wireless carriers like AT&T (T.N) and others to be the default search engine on their devices.
The clout in search makes Google a heavy hitter in the lucrative advertising market, boosting its profits.
“Changing defaults today is easiest on Windows and toughest on mobile,” Nadella said.
“You get up in the morning and you brush your teeth and you search on Google,” he added in a reference to Google’s dominance in search.
Judge Amit Mehta, who will decide the case being tried in the U.S. District Court for the District of Columbia, asked Nadella why Apple would switch to Bing given the Microsoft product’s lower quality.
The question suggests Google’s argument – that it is dominant because of its quality and not because of illegal activity – has caught the judge’s interest.
Nadella responded that Microsoft had sought to show that Bing engineers would be able to “bridge the quality gap” with access to the number of queries made on Apple smartphones.
On the next big tech market – artificial intelligence – Nadella testified that tech giants’ efforts to build vast content libraries to train their large language models “reminds me of the early phases of distribution deals.”
“When I am meeting with publishers now, they say Google’s going to write this check and it’s exclusive and you have to match it,” he said.
Nadella became CEO of Microsoft in 2014, long after the tech giant had faced its own federal antitrust lawsuit. That court fight, which began in 1998 and ended in a 2001 settlement, forced Microsoft to end some business practices and opened the door to companies like Google.
Microsoft, which has a market capitalization of about $2.3 trillion, is bigger than Google by that metric, given Alphabet’s market capitalization of about $1.7 trillion.
As Google, which was founded in 1998, became an industry leading search engine, the two became bitter rivals. Both have browsers, search engines, email services and a host of other overlaps. They have recently become rivals in artificial intelligence, with Microsoft investing heavily in OpenAI and Google building the Bard AI chatbot among other investments.
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