(Bloomberg) -- Microsoft Corp. Chief Executive Officer Satya Nadella has a stark warning for a federal court and the tech industry: Google is likely to extend its dominance of the search market into a new generation of artificial intelligence-powered tools.
Taking the stand Monday in the Google antitrust trial, Nadella said Alphabet Inc.’s search giant could accelerate its current lead by using the massive profits it makes from search ads to pay publishers for exclusive rights to content it can use to make its new AI-based search better than rivals.
The testimony is a sharp reversal of his message in February, when Microsoft beat Google with an AI-based version of its search engine, Bing. Back then, Nadella touted generative AI as a way for Bing to get back in the market and make Google uncomfortable.
Nadella’s new stance is key to shoring up the Justice Department’s contention that Google not only dominates today, but if left unchecked, will rule tomorrow as well. Microsoft’s CEO also left no doubt about his perception of Google’s dominance. “You get up in the morning, you brush your teeth and you search on Google,” he said.
Google didn’t immediately comment on whether it will seek to sign exclusive content deals to bolster the AI features in its search engine.
The DOJ has accused Google of unlawfully maintaining a monopoly by paying $10 billion a year to rivals, smartphone manufacturers and wireless carriers to make its search engine the default option on mobile devices and web browsers. Google has denied the allegations.
To help prove its case, the DOJ hopes to use testimony from Nadella and other executives from Microsoft to show how even a company of its size and resources couldn’t unlock Google’s hold on the search market. The government also plans to call founders of smaller search engines this week.
Nadella was instrumental in the development of Bing, created by Microsoft in an ultimately doomed attempt to catch up with Google and capture a chunk of the online advertising market. On Monday he said Microsoft had invested $100 billion in its search engine.
Google’s legal team is seeking to argue that Bing trails because it’s an inferior product and Microsoft has invested less in its development. Under questioning from a Google lawyer, Nadella agreed that Microsoft in 2007 estimated it had half as many search engineers as Google, and was three to five years away from producing a broadly competitive product. By then, Google had become a verb.
Microsoft also failed to amass significant share in the mobile search market despite agreements with Verizon Communications Inc., BlackBerry maker Research In Motion Ltd., and Nokia Oyj to make Bing the default search engine, Nadella conceded under questioning from a Google lawyer.
“I’m competing against someone who has a 97% share,” he said.
Last week, Microsoft business development executive Jonathan Tinter testified that the Redmond, Washington-based software giant failed to secure a deal to put its Bing search app on Apple’s products, even though it was willing to offer far better terms than Google and lose multiple billions of dollars on the agreement. In the end, Apple signed a fresh deal with Google.
During his testimony Monday, Nadella said Apple was using Microsoft to “bid up the price” it receives from Google.“Do you think Google would continue to pay Apple if there was no search competition? Why would they do that?”
Tinter told the court that Microsoft’s Surface Duo smartphone was required to use Google search in order to license the Android mobile operating system and was limited from using Bing on its own devices.
He also discussed a long-running dispute over Google’s Search Ads 360 software, which lets marketers manage ad campaigns across multiple search engines. Microsoft has complained that Search Ads 360 wasn’t keeping up with new features and ad types in Bing. That meant it was easier and better for potential advertisers using that system to buy Google spots than Microsoft ones.
Nadella explained that Microsoft wants to have advertisers be able to click one button to transfer ad campaigns from Google to Bing. “We keep asking for them to add some features we want,” he said. “They’ve asked us to go pound sand.”
While Bing has gained share on desktop computers, where it was integrated with Microsoft’s Internet Explorer and later Edge browser, it has lagged on mobile devices where people overwhelming use Google. Three or so years ago, Microsoft even discussed selling Bing to Apple, a transaction that would have replaced Google as the default option on the iPhone maker’s devices, Bloomberg reported. But a deal never came to fruition.
(Updates with Nadella testimony throughout.)
©2023 Bloomberg L.P.