Pod Insights Equity Podcast Perplexity’s bid for Google Chrome could be just the beginning About this episode Perplexity, the AI search startup that hasn't even cracked 100 million monthly users, just made a $34.5 billion cash offer to buy Chrome from Google.
The unsolicited bid comes as the DOJ prepares its remedy decision after ruling Google illegally maintained a search monopoly. The timing makes sense, but questions remain. Perplexity won't name its backers for the massive deal, and the offer is worth far more than the company has raised.
On Equity, we're revisiting a conversation with Neil Chilson, a lawyer, computer scientist and head of AI Policy at the Abundance Institute, to unpack what’s at stake for Google in its search and ad tech battles, and how generative AI could reshape competition in the space.
As always, Equity will be back for you next week, so don’t miss it!
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Transcript 0:00 Speaker 00 This episode of Equity is brought to you by Schneider Electric. Schneider Electric, advancing energy tech.
0:17 Speaker 01 Hello and welcome back to Equity, TechCrunch's flagship podcast about the business of startups. I'm Kirsten Korosec, Transportation Editor, and we're doing things a little differently this week. Perplexity, the AI search startup that hasn't even cracked 100 million monthly users, just made a $34.5 billion with a capital B cash offer to buy Chrome from Google. Reminder, perplexity has raised about, hmm, $1.5 billion to date. The timing of this rather bold offer may not be so random, though. The Department of Justice is days away from deciding how to punish Google after a judge ruled it illegally maintained its search monopoly. Today, we're going to resurface a conversation between senior reporter Rebecca Bellan
1:02 Speaker 01 and Neil Chilson, Head of AI Policy at the Abundance Institute. The pair are going to help us unpack what's at stake for Google in the search monopoly case, how its ad tech antitrust trial could go even further, and how generative AI from startups like perplexity might change both search and advertising as we know it.
1:25 Speaker 01 Hello and welcome back to Equity, TechCrunch's flagship podcast about the business of startups. I'm Rebecca Bellan. Today, we're talking about all things Google, monopolies, and AI with lawyer, computer scientist, and Head of AI Policy at the Abundance Institute, Neil Chilson. Neil, welcome to the show.
1:40 Speaker 02 It's great to be here.
1:42 Speaker 01 So, give me a bit of a background about Abundance Institute and your personal work background, so we can see how that overlaps with what we're going to discuss today.
1:50 Speaker 02 Sure. So the Abundance Institute is a new mission-driven nonprofit that's dedicated to creating an environment for emerging technologies, an environment that's both in the cultural space and the policy space that helps them develop and thrive. We believe that widespread human abundance is driven by technological innovation, and we want to create a cultural and policy space that allows that to happen.
2:11 Speaker 03 Love that.
2:11 Speaker 02 So my own personal background is I spent time as a telecom lawyer, and then I went to the Federal Trade Commission where I was an attorney advisor to Maureen Olhausen, and then was eventually the acting chief technologist of the agency. And since then, I've been doing all things tech policy, but my focus at the Abundance Institute is very much on AI. And AI is basically swallowing all of tech policy. So all of the fights from the internet era are back, whether it's encryption, or privacy, or bias, competition, which we're here to talk about today. All of those issues are sort of being reframed in the lens of AI. And so my work is very similar to the previous 10 years of my work,
2:54 Speaker 02 but with a new, exciting application. So that's what I've been doing.
2:58 Speaker 03 AI certainly is swallowing up our tech reporting as well. So we will get to AI, but we're also here to talk about Google, not one, but two antitrust cases that are still in the works today. So for those who don't already know, on August 5th, US District Court Judge Amit Mehta found that Google had acted illegally to maintain its monopoly in online search. This case has been going on since the DOJ brought it in 2020. There's a lot of chatter about how this is like a major defeat for Google. It could alter the way that Google does business, change the structure of the internet. Google's already told us they plan to appeal. Either way, we are a few weeks out from Mehta actually issuing any remedies. And we'll speculate on that later about what could happen. But
3:40 Speaker 03 there's another Google antitrust case coming up the pipeline. This one is also from the DOJ in eight states, and it accuses Google of creating an advertising technology monopoly that squashes competition, forces publishers and advertisers to use Google's ad tech products. This one was brought about in January 2023, and the trial will begin on September 9. And I think that's when we'll start to hear opening arguments. So Neil, what are you expecting some of these opening arguments to say? What will people argue?
4:08 Speaker 02 Well, like so many antitrust cases, a big chunk of the arguments are going to be over. What is the relevant market here? DOJ is arguing for a narrow market in their complaint that focuses on very specific ad tech stack. This is not search ads. This is display ads. So these are the ones when you go to a website and you see ads on the side. That's what display ads are. DOJ is very focused on that particular segment, but then they're targeted not just at display ads generally, but at a very specific set of display ads that are auctioned in across sort of in an open market. The ad tech ecosystem is very complicated, both technically and business policy wise.
4:49 Speaker 02 And so there's a lot to dig into in this case, but the main argument I think that DOJ is going to make is that we should ignore platforms like Facebook, you know, one of the other major display advertisers. We should obviously ignore all of the other types of advertisement that advertisers might choose from, and we should even probably ignore the sort of in-house ad stacks like the New York Times has where advertisers can directly purchase. And they would say, none of those are in this market. Let's just focus on the market that Google has these particular tools in and many other companies do as well. And let's focus on that. Obviously, Google's going to argue the exact opposite. They're going to say advertisers, when they're trying to figure out how they display ads,
5:31 Speaker 02 they have a lot of options, whether that's on TV or you go to the New York Times, you go to Facebook and that these are all competitors because advertisers are choosing between them when they try to decide how to display advertisements. And so that will be the biggest fight, but there'll be lots of other arguments as well. I think one thing you'll very likely hear from Google is that the DOJ complains about how Google built this monopoly by acquiring different companies. So DoubleClick just 16 years ago or so, Admeld, another one that they talk about. Google's going to come back and say, hey, you approved those deals. Well, DoubleClick was approved by the FTC, but Admeld was approved by DOJ. Like, are you really going to like go back on this now? You said those were fine when we went through the merger process.
6:14 Speaker 02 And so I think you'll see arguments around that as well.
6:17 Speaker 03 Yeah, I also think that when this case was first brought about in a statement, Google wrote that the DOJ is quote doubling down on a flawed argument that would slow innovation, raise advertising fees and make it harder for thousands of small businesses and publishers to grow. Ever the champion for small businesses, Google is.
6:34 Speaker 02 Well, and in some ways, that's a legitimate point. One of the parts of the ad ecosystem are these ad exchanges and Google offers a not very customizable, but very easy to use platform that syncs up with its Google AdWords as well. So the search advertising, if you're going to advertise and search advertising where somebody types in Google and gets a result and there's ads there, they offer a, an easy way to also advertise that same content in a display ad. That's super easy for small, not sophisticated advertisers to use. And so they do have a significant market share around small companies. Whereas companies that can afford to pay an advertising company to do all this for them, those advertising
7:17 Speaker 02 companies tend to have their own custom solutions to this. Google also serves that market quite a lot, but it's a different inroads into the same sort of display advertising market. And so that will be one of Google's points. I think one of the other ones that they'll probably talk a lot about, and I don't know if this will come up in opening the arguments, but it certainly will be part of the factual record, is just the change in costs over time. Google argues that advertisement costs have fallen dramatically online. First of all, for results, advertisement online tends to be more effective. And so Google will say, hey, this whole ecosystem is more effective. But then, over time, the price for online advertising has fallen quite a lot. So Google's going to ask like, what's the problem here? Our prices have been falling.
7:59 Speaker 03 Yeah. Well, maybe you have better stats on this than I do, but I believe I was reading somewhere that in terms of all advertising spend, Google has, what is it, half of all advertising spend, maybe even more. Meta slash Facebook has another 25% and all other publishers are kind of fighting for the rest of that spend.
8:16 Speaker 02 Yeah, it depends on where you draw the line, right? On what is the whole? And so that's exactly the point that everybody's going to be arguing. Like, if we're including all display advertising in all channels, that could include like broadcast TV. Or cable or streaming services Netflix has a big thing Amazon does it include Amazon ads? Like if you include that the pie gets a lot bigger and Google's share goes down if you draw it more like the DOJ wants to draw. Then that number goes up for Google. So that's where the fight's gonna be.
8:41 Speaker 03 Yeah, and I guess over potentially anti-competitive exclusionary unlawful means to eliminate and diminish any threat to its dominance. That'll probably emerge from this.
8:50 Speaker 02 That's that's the language that, you know, under antitrust law in the US, it's not illegal to have a monopoly. And I know we'll talk about the differences with the Google case with the Google search case. But it is illegal to acquire or maintain that monopoly through coercive means that are anti-competitive. And so that's the sort of language. That's the argument that DOJ will be making. But yes, they have a large share of the market and it's because they did X, Y, and Z, which is problematic.
9:15 Speaker 03 Yeah, and that's something for the courts to decide. And one other thing that kind of overlaps into the search case, I guess, or that I expect Google to argue is just like, well, we're really good at this, right? Like people want to advertise on our platform because it's cheap and because we have all of the data to be able to get your ad in front of the right customer eyes. And I feel like that's a similar kind of argument they made for the search case. It's like, well, yeah, we're dominant because we're the best. So.
9:39 Speaker 02 Yeah. And in the Google search case, the judge said, that's true. You are the best. He actually went to some lengths to say that over and over. Now, I think that's not as necessarily obviously true in the search market. There are many, many more. Like I said, the ecosystem is very complicated. So on every part of the ad stack, there are other players. Even if you are just talking about this open like auction for display advertising market. And so it's less obviously true there. And also you tend to be dealing with more sophisticated buyers. But it is certainly true that advertisers, even in the DOJ's complaint, they talk about how Google was getting so much demand on its adwords that it decided to expand that product elsewhere and advertisers loved it.
10:22 Speaker 02 That has been always the big challenge. There is another kind of weird irony in the ad tech case, which is that upfront, the DOJ talks a lot about the effect on publishers and says that this has been driving down revenues for publishers, et cetera, et cetera. A common complaint, but if you dig into the complaint, one of the big ways that they say that Google was favoring its products was that it was paying publishers more to get them to use the platform and therefore charging advertisers more and that that was anti-competitive and that basically that premium was anti-competitive. And so it was the individual advertisers who were having to pick something that was more expensive, in part because Google was subsidizing payments
11:06 Speaker 02 to the publishers to make sure that they would use the Google Ad Server.
11:10 Speaker 03 Oh, man.
11:10 Speaker 02 That will be complicated. That will be interesting.
11:12 Speaker 03 Yeah.
11:12 Speaker 02 There's like two cross-cutting narratives there, which the DOJ may have to explain.
11:16 Speaker 03 Some serious mental gymnastics to understand that one, I think.
11:20 Speaker 02 Yep.
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11:54 Speaker 03 So listeners, just so you know, Neil and I caught up yesterday to talk through some of these cases. And Neil, you mentioned the parallels that you saw.
12:00 Speaker 02 Well, in the search case, the judge went to great lengths to say that Google had achieved its market power through consumers finding them very popular and wanting to use them. Here, there's a different narrative. Here, the narrative is more that Google achieved its market power through these deals that it took and some of its conduct along the way. The Google search case is more about like Google maintaining its monopoly at the top through these, what the court decided were anti-competitive contracts that it was entering, for example, with Apple to have the default position on the iPhone as the searching. There are no contracts in this case the same way. There's nothing that's excluding other people.
12:42 Speaker 02 In fact, people can plug in to Google's tools using lots of different other competitors. There are no exclusive contracts in this case. It's more about how did Google get to this market share through conduct on its way up, whereas the search case is more about how did Google stay at the top by using these exclusive contracts?
13:02 Speaker 03 Right. And I think that those exclusive contracts and the findings from this case will potentially affect the outcome of the remedies, right? I think you and I have spoken about this before. There's a lot of speculation going on about, oh, the DOJ wants to break Google up. What could that look like? Everyone's pointing back to what, you know, almost happened with Microsoft and what ended up happening with Microsoft, you know, when they settled. You don't think that the DOJ or that the judge will force Google to be broken up? Why is that?
13:28 Speaker 02 Well, in the search case, I just think the judge took a very traditional antitrust approach to this. And really, he threw out some of the complaints early on, from the states primarily, that if he had found in their favor would suggest that breaking up would be the remedy. For these exclusive contracts, it's hard to see how breaking up Google is the right remedy here. The obvious remedy is to say that Google can't do those kinds of contracts anymore. And so since the judge didn't say that Google got its monopoly through bad conduct, it's just saying you can't do this type of conduct once you have the monopoly. The obvious solution is to just say you can't do that type of conduct, not break up the company. Here, in the ad tech case, it's a little bit different.
14:11 Speaker 02 The allegations right now are that Google achieved its monopoly through this conduct. And so at least in theory, if that liability is found, an argument for unwinding some of those transactions might make sense. Although you run into a bunch of concerns around rule of law. If you're, you know, trying to unwind 16-year-old mergers, people start to be like, well, if I might get sued in 16 years, if I am successful in this merger, maybe I'll think twice about doing something that I think makes business sense. So for legal reasons.
14:43 Speaker 03 Yeah, could set a precedent there, yeah. Well, then going back to the online search. So if it's not going to be breaking up, is it a data share? Is it sharing APIs? Do you think any of that seems likely?
14:55 Speaker 02 Again, I think the obvious remedy is to prohibit these types of contracts, these exclusive contracts. Some of the other remedies that have been suggested have been things like choice screens. The judge might mandate that Apple, for example, offers a choice screen of which search engines to use.
15:11 Speaker 03 So they can mandate against Apple with this?
15:13 Speaker 02 Well, no, the obvious challenge to that is that Apple isn't a party in this case. So that would be a bit hard to mandate. But some of the other ones, conduct against Google could be things like, yeah, I guess data sharing and things like that could. I mean, I've heard people talk about it. Again, it's hard to see how that solves the default choice problem that the court said was the real problem here. It's not that Google has scale. It's that Google is keeping that scale by forcing, sorry, I shouldn't say forcing, by paying these other gatekeepers quite a lot of money, billions and billions of dollars in order to be the default search engine on their platform.
15:50 Speaker 03 Right. And now it's so culturally a default to people. You just say, I'll Google it, right? So but part of me thinks, and this is something I've heard quite a bit from people, but wanting to get your take on it, but part of me feels like, is this all just happening five years too late? Like AI is changing the search game. It's changing the way that we, yeah, it's changing the way that we search. And Google isn't necessarily the dominant player in search yet. I mean, I think that the DOJ did make some arguments that because of its data dominance, that it might have, you know, an extra leg up in this competition in the future. But we're seeing like OpenAI is really the player, right? We're all asking ChatGPT things, not, we're not really relying on as many of the other models, at least in the kind of mainstream colloquium.
16:31 Speaker 02 Yeah. The irony here is that Google invented some of the modern technology that powers these LLMs, the transformer architecture. But it was other companies, much smaller companies that sort of jumped in and forced Google to start doing something that looks very different than their search. So their Gemini results, those one answer things that come at the top are a total change in how Google produces results because it's seeing the competitive pressure, I think, from these AI companies. You said, is this five years too late? I might say this case is like two years too early, right? Like, the problem here is that Google is facing competition. And we might be bringing this case just as Google's business model is under a pretty serious threat. And so in two years, we might look back and be like, why were we suing Google for being anti-competitive? They're being crushed now. You know, that's possible.
17:16 Speaker 03 So Right. Yeah, like the market kind of will dictate that they're no longer going to be the most anti-competitive force. There is, but I guess if there's precedent that's set from these cases, that that could affect the future of AI search and some of the more promising startups that are coming out of that.
17:31 Speaker 02 That's right.
17:32 Speaker 03 Did you have any thoughts, though? Because obviously, the Google monopoly cases really cover search and advertising technology. Obviously, search is looking different. We're asking full questions and expecting full answers. But how does advertising technology fit into that? It doesn't feel like ads are, you know, doesn't feel like it's the right place for an ad.
17:52 Speaker 02 Well, there's lots of people experimenting with how to monetize their large language chatbots, search engine. Perplexity is the one I think that's made the news recently. And I just was reading up on them a little bit. They're doing something that's very simple, display search. So they're not doing Google's link-based search where you do the query and then you get results that are trying to solve the problem. The main big difference here is that in Google, when you get those results, when you click on them, Google uses that click to determine which advertiser gets the money. And then also, which advertiser has to pay for that ad. So advertisers don't pay until you click on one of those ads. And when you click on that, that's the mechanism by which Google decides who gets paid. The display advertising that perplexity is doing it is much more
18:36 Speaker 02 like the Adtech case, which is just the advertiser pays ahead of time and says, anytime somebody asks about this topic, put my ad next to the response. Right? And so that's not search ads in the same way. That's actually a new entrance into this display ad marketplace that the DOJ is suing Google over right now. So that might play into this case a little bit. But you're right that it's more challenging. You can't do the type of high-powered, high-value search that advertisers want when, for example, you search for health insurance, or sorry, probably like car insurance is a better example. If you search For car insurance on Google, that ad buy is really, really precise because you know
19:19 Speaker 02 somebody's looking for insurance. And if you can get that click, that could be worth hundreds of thousands of dollars over the consumer's lifetime. And so those are very, very useful ads. It's hard to see how that fits exactly with the AI placed ad.
19:34 Speaker 03 Well, it could have, I mean, in terms of precedent set, right? I think the online search case said something about some of the deals that Google might have had with advertisers for those clicks. Is this ringing a bell to you?
19:45 Speaker 02 So the Google search case, part of the alleged allegations in the complaint were around some of the search advertising and some of the deals that were there about sort of like revenue sharing, I think was the main thing.
19:57 Speaker 03 Right, the revenue sharing. Yeah, yeah. So, you know, could prevent that kind of exclusionary revenue sharing with AI companies in the future, maybe?
20:04 Speaker 02 Yeah. Well, I think part of the challenge is that the court didn't buy any of that.
20:08 Speaker 03 Oh, they just ignored that one. Okay.
20:09 Speaker 02 They didn't buy any of those counts. They really focused on the contracts for the search default. They didn't look at the search advertising side of that case at all. So I don't think we can learn much about like what a court might say in the future about AI, display advertising or revenue sharing.
20:24 Speaker 03 Yeah. And just for our listeners who don't already know, you mentioned the perplexity deal. So perplexity, they recently announced an ad revenue share with publishers. They're not super clear about what it'll look like exactly, but basically when a query is returned with an answer, if there's any publishers that have been cited in the answer, those publishers will get a slice of whatever ad revenue comes from that query. So let's say you're looking up like best laptops of 2024 and an article from Fortune comes up saying that, then Fortune might get a slice of ad revenue from Apple. I don't know. Just not to take any of those names seriously, but.
21:00 Speaker 02 And in that sense, it's actually, I hadn't thought of this till just now. So take it with a grain of salt. But in that sense, it might be a very smart play for perplexity, not because it's going to create a giant revenue stream because those ads may not be as valuable, but because it might help them enter more deals with publishers whose content they're using to train their algorithms. And so it might be more of a product almost for those people to say, hey, you can get some money. We'll get you some money if you let us train on your data.
21:29 Speaker 03 Yeah, well, that's something that OpenAI is doing with the publishers, but not for advertising, just in terms of we'll surface your stuff. I'm curious, any hot take predictions as we come to the close of this episode of what antitrust in the AI world will look like in 10 years or something?
21:47 Speaker 02 Well, 10 years out, I think we'll see a dramatically different online ecosystem because these large language models are very good at interoperability. And so one of the remedies has always been, especially for consumer-facing products, is to force them to be portable or let you use your services somewhere else. If we have AI agents that are basically interacting with travel services, our social media, online ordering on our behalf, a lot of those transaction costs become a lot lower. We're basically just interacting with one interface and everything else is just a supplier to that interface. And I think that really does change the antitrust conversation quite a lot. It makes it much harder to build a walled garden service that, once you get a customer into, they have to stay there.
22:31 Speaker 02 So I do think that that will be a big effect. And then there's tons of stuff. I mean, the big challenge with answering that question is that AI is a general-purpose technology, and so it will, I think, affect every single industry, not just the AI industries, the computer industries. And so I think we can expect to see it becoming increasingly efficient to have small firms, where a small firm can punch way above their weight if they have AI on its side. And so I think we'll see a lot of nimble, smaller firms, not like it will totally get rid of big firms. I think you'll see the distribution change. So you'll see a lot of smaller, nimble firms that are using AI to do a lot of the bureaucratic work that big organizations use people for.
23:16 Speaker 03 Yeah, but they'll probably be using like one or two AI models when you come down to it. So I think the monopolies will start to form based on who has the money to keep all those data centers running. But anyway, look, this has been a very enlightening conversation. I'd love to talk to you more, but we're just about out of time. Where can our listeners connect with you online?
23:32 Speaker 02 So on X, I am Neil underscore Chilson. I'm on Substack at outofcontrol.substack.com. And you can always check out the Abundance Institute website at abundance.institute. We have some great videos there and over on YouTube as well about how to create a vibrant, abundant, technology-driven future.
23:52 Speaker 03 Awesome. Well, thanks so much again for joining us on the show. And to our listeners, you can find me on X at Rebecca Bellan, also on Threads at Rebecca Bellan underscore writes, and Equity on X and Threads at EquityPod. Talk to you all Friday.
24:12 Speaker 03 Equity is produced by Teresa Locum Solo with editing by Kel. We'd also like to thank TechCrunch's audience development team. Thank you so much for listening and we'll talk to you next time.
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