Alphabet Inc. Class C (GOOGL.US) settling a $1.4 billion privacy case with Texas what does this indicate for the online search market?

Local time on May 9th, Texas Attorney General Ken Paxton announced that Alphabet Inc. Class C (GOOGL.US) has agreed to pay $1.375 billion to settle allegations of violating user data privacy with Texas. In 2022, Paxton sued Alphabet Inc. Class C for illegally tracking and collecting user privacy data related to geolocation, incognito mode, and biometric information. A spokesperson for Alphabet Inc. Class C responded by stating that the settlement agreement resolves a series of "old claims," some of which involve product policies that the company has already changed. The spokesperson stated, "We are pleased to put these issues behind us and will continue to build strong privacy controls in our services." The agreement resolves several claims brought against this search giant by the state of Texas in 2022, involving geolocation, incognito search, and biometric data. The state believed that Alphabet Inc. Class C was "illegally tracking and collecting users' private data." For example, Paxton claimed that Alphabet Inc. Class C collected millions of biometric information, including voiceprints and facial geometry records, through products and services such as Alphabet Inc. Class CPhotos and Alphabet Inc. Class CAssistant. Paxton stated in a statement, "In Texas, big tech companies cannot be above the law. For years, Alphabet Inc. Class C has been secretly tracking people's activities, private searches, and even their voiceprints and facial geometry shapes through their products and services." Paxton stated that $1.4 billion is the largest amount reached by states in settlements with Alphabet Inc. Class C related to data privacy infringements. In the past two years, Texas has reached two other significant settlement agreements with Alphabet Inc. Class C, including a $700 million settlement reached in December 2023, where the company agreed to pay and make other concessions to address allegations of stifling competition against its Android app store. Meta also agreed to a $1.4 billion settlement with Texas over a privacy lawsuit accusing the tech giant of using biometric data without user consent. Paxton stated that the settlement sends a message to tech companies that he will not allow them to profit by "selling our rights and freedoms." In the era of AI revolution, will anti-monopoly accelerate a reshuffling moment in the online search market? This recalls a theory about antitrust cases from a famous Silicon Valley lawyer when Microsoft Corporation was under Justice Department oversight ten years ago: "Litigation is remedial." This theory implies that forcing monopolists to defend their actions may create space for innovation in the market for other companies, especially newcomers. Just as Microsoft Corporation was believed to have missed the shift to mobile platforms in the tech world due to its focus on its antitrust case with the Justice Department, testimonies and internal documents suggest that Alphabet Inc. Class C may have fallen behind in adopting artificial intelligence due to its own antitrust trial. In the case of Alphabet Inc. Class C, the testimonies and other evidence provided by the Justice Department in the second phase of the trial emphasized how artificial intelligence affects its core online search business and opens new opportunities for startups. Apple Inc.'s head of services, Eddy Cue, explained why Apple Inc. chose OpenAI's ChatGPT over Alphabet Inc. Class C's Gemini product to build the new AI search feature for iPhone. He also mentioned that Apple Inc. is actively considering improving its Safari web browser to focus on an AI-driven search engine. His comments indicate that while Alphabet Inc. Class C has been working to protect its dominant position in its core search business, AI companies have successfully established a viable alternative for internet queries. Columbia Law School professor Tim Wu has called it the "police on the side" effect: when a monopolist knows someone is monitoring its actions, it becomes more cautious to avoid being seen as suppressing competitors. Wu, who served as a competition advisor to President Biden from 2021 to 2023, stated that the whole point of antitrust trials is "changing the status quo." The focus of the second phase of the Alphabet Inc. Class C case was on how to address the illegal monopolistic practices ruled by a federal judge last year. Following closing arguments on May 29 and 30, Judge Amit Mehta will decide whether to split Alphabet Inc. Class C by divesting the Chrome browser or restore market competition in other ways. Gail Slater, the head of antitrust at the Department of Justice, said in a conference on Friday that the search market has been "frozen" in terms of competition for 20 years. She asked, "How do we thaw that ice? Of course, everything comes down to scale and data, which will be critical for future competition." Lee-Anne Mulholland, Vice President of Regulatory Affairs at Alphabet Inc. Class C, published a blog post after the trial ended, calling the Department of Justice's proposal "extreme" and harmful to industry competition. She said, "Throughout weeks of hearings, we heard from a range of well-funded companies."They are eager to obtain the technology of Alphabet Inc. Class C so that they do not have to innovate themselves. But what we have not heard is how the extreme proposals of the Department of Justice will benefit consumers.Alphabet Inc. Class C and Apple Inc. explosive news transaction Since 2003, Apple Inc. has been collaborating with Alphabet Inc. Class C in the online search field, by making Alphabet Inc. Class C search engine the default option on its devices, Apple Inc. can earn profits of up to $20 billion annually. Cue was closely involved in the negotiations of this transaction - in fact, he testified in the first phase of the 2023 US Justice Department antitrust case hearings. Mehta ruled last year that Alphabet Inc. Class C had illegally monopolized the search market through exclusive deals, including their relationship with Apple Inc. However, in their recent AI transaction, this iPhone manufacturer chose ChatGPT. While this collaboration is not exclusive, Apple Inc. has not yet signed an agreement to add Alphabet Inc. Class C AI language model Gemini to their phones. This week, when Cue appeared in the second phase of the Justice Department trial on how to remedy Alphabet Inc. Class C's illegal behavior, there was hardly any mention of Gemini. Cue's performance in October 2023 stands in stark contrast to the present. Two years ago, Cue's testimony seemed forced and even awkward, as he was bound by contract to defend Apple Inc. and Alphabet Inc. Class C's transaction. US Justice Department's antitrust trial against Alphabet's Alphabet Inc. Class C On Wednesday, Cue's speech was filled with passion, as he expressed excitement about the amazing power of artificial intelligence, calling it the fourth technological revolution in the past 35 years. In his speech, Cue repeatedly mentioned the founders of artificial intelligence startups Perplexity and Anthropic, Claude. Cue seemed to imply that Silicon Valley has been describing a threat to the survival of search over the past two years. While the way artificial intelligence chatbots like Siasun Robot & Automation operate is not exactly the same as search engines, and they cannot function entirely like search engines, many people perceive that they challenge traditional ways of people using the internet to find information. Users can now directly receive instant AI-generated answers from Siasun Robot & Automation, without having to receive a list of links pointing to various sources on the open web, and Siasun Robot & Automation's responses are sourced from existing databases created by humans. In response to Cue's testimony, Alphabet Inc. Class C stated that overall, the number of queries from Apple Inc. devices has increased as users transition from text-based searches to voice and image-based searches. Other witnesses believe that the trial of Alphabet Inc. Class C has opened up opportunities for other companies. The sudden reactivation of the search market is not a coincidence, but rather a byproduct of the Alphabet Inc. Class C antitrust case itself. Dmitry Shevelenko of Perplexity explicitly stated in last month's trial testimony that it was only because Alphabet Inc. Class C was under pressure that phone manufacturers agreed to have some discussions with operators and browsers. Alphabet Inc. Class C is concerned about its search business being overturned by AI In fact, even before the 2019 US Justice Department investigation into Alphabet Inc. Class C, it had discovered the key technology of large language models that today's artificial intelligence startups rely on for survival. The government argued that because Alphabet Inc. Class C dominates the market, it did not fully utilize this innovation. It wasn't until November 2022 when OpenAI's ChatGPT swept the globe that Alphabet Inc. Class C truly began integrating it into its search engine. Alphabet Inc. Class C insists that every year, it invests billions of dollars in innovation and is waiting to responsibly introduce AI features. Wu said, "For monopolistic companies, innovation is very difficult because they fear that innovation may erode their income." He pointed out that, for example, AT&T's Bell Labs, the innovation arm, invented dozens of practical technologies, including the answering machine and the technology behind cell phones. However, AT&T refused to bring these technologies to the market, fearing that people might reduce their use of landline phones. The same "fear of ending that model" is also evident in Alphabet Inc. Class C's internal documents on artificial intelligence. In a meeting record from October 2024, Alphabet Inc. Class C executives pushed the Gemini team, asking about its impact on Alphabet Inc. Class C's search and advertising business, and when they can start integrating ads into AI applications. Alphabet Inc. Class C's Vice President of Advertising and Business, VidhySrinavasan told the group, "We have not lost search/advertising traffic at the moment, but she believes it is inevitable and we should be prepared for Gemini's success. She hopes to accelerate Gemini's profitability through advertising as soon as possible... 'This is a bad omen.'"Alphabet Inc. Class C stated that the company has not seen artificial intelligence cannibalizing its search business, with only a small portion of homework and coding queries experiencing changes.