The Department of Justice's (DoJ) lawsuit against Google centers around concerns that the tech giant has used its dominant position in the search engine market to stifle competition and innovation. The primary issue at hand is Google's practice of making deals with other tech companies to ensure its search engine is the default option on various devices and platforms, which the DoJ argues has left little room for competitors to challenge Google's position. The DoJ has proposed both "behavioral and structural remedies," including the possibility of breaking up Google's search business to prevent it from leveraging its other products, such as Chrome, Android, and AI tools, to maintain its market dominance.

Shares of GOOG have slipped approximately 4% on the headlines. The stock is coming in for a key test of the 200-sma ($161). The debate around the "sum-of-the-parts" vs whole entity valuations will start to take hold but we would note a decision on this case is not expected until Q3 of 2025.

The DoJ's call for a breakup of Google reflects its belief that such a move is necessary to effectively end Google's control over search distribution and to promote a more competitive market landscape. The agency has argued that Google's strategy of locking in default agreements, spending over $26 billion in 2021 alone, has been a significant barrier to entry for other companies. To address these concerns, the DoJ is exploring a range of measures, including restrictions on how Google's AI can utilize other websites' data and potentially barring Google from making exclusive distribution deals in the future.

Google, for its part, has pushed back strongly against these allegations, arguing that the DoJ's proposed remedies are excessive and would lead to unintended negative consequences for both consumers and businesses. The company has emphasized that its investments in products like Chrome and Android were designed to enhance competition with rivals like Apple, not to stifle it. Google also warned that breaking up its business units could disrupt its ability to innovate and compete globally, ultimately raising costs for consumers and reducing the value of its offerings.

The debate over the appropriate remedy is set to be a lengthy and complex process, with the court scheduled to begin a trial on these proposed measures next spring and a decision expected by August 2025. The DoJ's focus on behavioral remedies, such as preventing Google from using its market power to control search distribution, suggests a targeted approach aimed at curbing specific anticompetitive practices. However, the suggestion of structural changes, including the potential divestiture of key business segments, indicates the government's willingness to consider more drastic measures if necessary.

Former FTC Commissioner Mozelle Thompson noted that while breakups of this nature are rare and challenging, they could be justified if they are the only way to dismantle Google's monopoly in search. The government's emphasis on reducing Google's ability to leverage its dominance in AI and data collection is seen as a proactive step to prevent future barriers to competition. This focus on AI highlights growing concerns about how Google's control over data could entrench its position in emerging technology markets.

The DoJ's actions against Google are part of a broader effort by U.S. regulators to rein in Big Tech's dominance. This crackdown includes lawsuits against other major players like Apple, as well as inquiries into how tech giants like Microsoft, Amazon, and Alphabet are using their market power in AI and other sectors. The outcome of this case is expected to set a significant precedent for how the U.S. government deals with monopolistic practices in the technology industry.

Google has indicated that it plans to appeal any unfavorable rulings but will have to wait until a remedy is finalized before doing so. The appeals process could drag on for years, which means that while the threat of a breakup looms, any immediate impact on Google's operations may be limited. Analysts like Daniel Ives of Wedbush Securities suggest that a breakup is still unlikely, despite the regulatory pressures, as Google is prepared to fight these charges vigorously in the courts.