Microsoft chief says Google default agreements make search choice ‘bogus’

During his testimony in an antitrust trial pitting Google against the US Department of Justice, Nadella on Monday aimed the agreements that the US government’s case is challenging. Washington accuses Google of preserving dominance in internet search by paying more than $10bn annually to ensure it is the default search engine on mobile phones and computers.

The company has denied wrongdoing, arguing it is facing tough competition and that its market share is because of the strength of its product.

“Defaults are the key things where network effects in digital products come about,” Nadella said in his testimony, which comes as the trial in Washington enters its fourth week. “Users can love, love, love a product, but will not switch defaults.”

“This entire notion that users have a choice is completely bogus. Defaults are the only thing that matters in terms of changing search behavior,” he added. “You get up in the morning, you brush your teeth and you search on Google. The only way to change is by changing defaults.”

Microsoft is featured in the trial as the most prominent Big Tech group seeking to break Google’s grip on the internet search market via its engine Bing.

Nadella also addressed Google’s agreement with Apple, which makes its search engine the default in Apple’s Safari browser. That agreement has emerged as a central aspect of the government’s case.

Nadella said he had “focused every year” of his tenure as chief executive “to see if Apple would be open” to a default agreement with Bing, which would be “needle-moving” for Microsoft.

A federal prosecutor asked Nadella how much Microsoft was prepared to pay to unseat Google as the default search engine for Apple. He said the cost to Microsoft of doing so could reach nearly $15bn a year, plus any additional expenses.

Google has argued it is easy for users to change default settings. John Schmidtlein, a lawyer representing Google, on Monday suggested while cross-examining Nadella that Microsoft had failed to invest enough in developing its search business, despite having the financial resources to do so. Nadella said that while he was in charge of search at Microsoft, he had sought more investment but generally felt “well-supported and well-funded”.

Schmidtlein also argued that distribution agreements Microsoft had struck in the past had “failed to get Bing scale because users preferred Google and the large majority of users . . . searched on Google instead of Bing”.

Judge Amit Mehta, who is hearing the case, asked Nadella to comment on whether artificial intelligence could help shore up the “delta” between Google and Bing. Microsoft had invested more than $13bn into OpenAI, the developer behind chatbot ChatGPT, Nadella confirmed.

But Nadella said the “vicious cycle” of Google-dominated search “can become even more vicious” if default agreements were reinforced. There could be new ways “to lock up the thing that feeds the power of [large language models], which is content”, he said.

LLMs underpin generative AI, the technology behind tools such as ChatGPT.

The case, which is taking place in federal court in Washington DC, has resulted in the most high-profile monopoly trial since the DoJ accused Microsoft in the 1990s of seeking to quash then-pioneering web browser Netscape with its Windows dominance. A judge ordered a break-up of Microsoft, but the ruling was ultimately overturned on appeal.

The case was initially brought under the Donald Trump administration and subsequently inherited by Jonathan Kanter, now head of the DoJ’s antitrust unit. It represents a big test for the tougher antitrust enforcement stance adopted by Kanter, who was appointed by President Joe Biden in an attempt to crack down on excessive corporate power. He has previously compared technology to the “new oil” in the US economy.