Enshittification, page 7
Gray claims that Google used the semantic-matching technology to invisibly append brand names to queries—for example, if you searched for kids’ snowpants, the query might have the words North Face silently added to it for the purpose of showing you ads (as though the brand name The North Face were a synonym for kids’ snowpants).
Why would Google do this? Because companies pay Google a lot of money to have their ads triggered when you search for a specific company name. And it’s not just the company you’re searching for that pays to show you those ads. If you search for coke, Coca-Cola has to outbid Pepsi and RC and any other soft-drink maker that might want to appear in the results.
For Google, these are extremely lucrative ads, and by semantically matching generic queries to brand names, Google can trigger large, automated payments by advertisers. Depending on your point of view, this is either merely very sleazy, or it’s actual fraud. Say a North Face competitor promises to pay Google whatever it takes to have ads for its products show up over the query kids’ snowpants. Google can use semantic matching to treat kids’ snowpants (a very common query) as if it were North Face kids’ snowpants (a far more rare, far more relevant query for a North Face competitor). Doing so lets Google charge that North Face competitor up the wazoo for something it never asked for, while telling it, “Google is only serving your ads to the audiences you’ve expressed an interest in and paid to reach.”
Google later claimed that Gray had misinterpreted the exhibits displayed in court—but it declined to explain what she got wrong or to provide those exhibits for public scrutiny. (Google insisted on—and received—an unheard-of degree of secrecy during its trial, with most of the exhibits under seal and courtroom attendees banned from taking pictures or even typing notes on a computer or phone.)
So it’s a bit of a “she said”/“Google said (and refused to explain itself any further)” situation, and it’s entirely possible that Gray got this wrong and Google was doing something perfectly innocent that it declined to explain for … reasons. But this semantic-matching business is just the tip of the ad-shenanigans iceberg.
When the majority of US states, led by Texas, formed a coalition and sued Google for antitrust violations in 2020, they, too, were able to demand access to the company’s internal memos. These contained many bombshells, but none so consequential as Jedi Blue, the code name for a secret collusive agreement between Google and Facebook that rigged the ad market to raise the price of ads while delivering a lower share of the revenue to the publishers who ran those ads.
Google CEO Sundar Pichai, Facebook CEO Mark Zuckerberg, and Facebook COO Sheryl Sandberg had all personally signed off on Jedi Blue. Not only did this conspiracy rip off Google’s and Facebook’s business customers—advertisers and publishers alike—but it also blocked competitors from entering the market and offering a fairer deal to either publishers or advertisers.
All this bad behavior—deliberately worsening search results, rigging the ad markets—started once it became undeniable that Google didn’t have to worry about losing market share to a competitor.
The secrecy of the Google antitrust trial made sure that the biggest antitrust trial in US history barely registered with the public. But a few memos did manage to escape the black hole of courtroom secrecy and make a splash.
None is more indicative of Google’s path to enshittification than the notes for a presentation prepared by Google VP for Finance Michael Roszak. Roszak said that this presentation was prepared as part of a “course on communication” he taught, and that he was writing things he “didn’t believe … full of hyperbole and exaggeration.” I don’t know Roszak, but I have no reason to doubt him. That said, the memo’s contents describe the mindset that overtakes a business relieved of any fear of competitors: that is, the enshittification mindset.
Roszak wrote: “Search advertising is one of the world’s greatest business models ever created … Illicit businesses (cigarettes or drugs) could rival these economics … We can mostly ignore the demand side … (users and queries) and only focus on the supply side of advertisers, ad formats and sales.” Roszak goes on to claim that Google is “able to ignore one of the fundamental laws of economics … supply and demand.” Take Roszak at his word and call this hyperbole—but hyperbole or not, Google is a company that sure acts as though it has transcended the “fundamental laws of economics.”
Google has two great frenemies in Big Tech. When it comes to advertising, Google and Meta rule the internet, and while they may nominally be competitors, they’re also business partners, cooking up sleazy deals like Jedi Blue, CEO to CEO. Google’s other frenemy is Apple, its competitor in the mobile phone duopoly. Apple makes a really big deal out of how it is Not Google, most visibly through a global outdoor advertising campaign touting the company’s commitment to privacy and contrasting that ethos with Google’s surveillance-happy business model.
But then, Apple’s single largest source of revenue is a check for more than $20 billion that Google writes it every year to buy the default search box in Safari and on the iPhone. That $20+ billion check is also Google’s single largest expenditure. This deal is brokered and agreed to by Apple CEO Tim Cook and Google CEO Sundar Pichai at an annual summit between the two leaders. For all Apple’s talk of its differentiation from Google and its “surveillance capitalism,” the company has entwined its flagship products with Google’s business in the most fundamental way.
Keep in mind what this deal means: Google (like other surveillance ad companies) maintains a deep, nonconsensual dossier on the behaviors, social ties, purchases, economic status, employment history, and physical location of virtually every internet user.
The dossier Google maintains on you starts with your search history, one of the most sensitive and revealing sources of data about your innermost thoughts, fears, and intentions. Google is so addicted to this data that it secretly installed clandestine surveillance in Chrome that tracked your internet usage even when you were in “incognito mode.”
In making Google the default search for every iPhone, iPad, and iPod user as well as every user of Safari on a desktop, tablet, or phone, Apple is abetting Google in building and maintaining that dossier.
Which is not to say that Apple’s privacy commitment is all lip service—though it’s still not what it seems. As previously mentioned, in 2021, Apple rolled out a new version of iOS that came with a powerful new privacy option by which users could opt out of all commercial surveillance by all the apps they used by checking a single box. This had huge implications for services like Facebook. Months after the rollout, Mark Zuckerberg issued a warning to his shareholders to the effect that Apple’s new privacy tool would cost the company $10 billion in just one year.
But this privacy story has a twist ending: even as Apple was blocking third parties from spying on its customers, even as it was putting up billboards all over the world trumpeting its corporate commitment to its customers’ privacy, Apple was secretly spying on its users. Updates to iOS instituted a system of totalizing commercial surveillance, collecting the very same data that Facebook and its imitators prized so highly and gathered so indiscriminately. Apple gathered that data on all its users, not just the less than 4 percent who didn’t check the privacy box. What’s more, it gathered that data for the same purpose Google did: to feed an ad-targeting network that competed with the Google/Facebook duopoly.
This was a powerful rebuke to advocates of the idea that some companies practice “good” capitalism because they demand that you pay them, while other companies practice “bad” capitalism by spying on you and giving you services for free.
It turned out that “If you’re not paying for the product, you’re the product” was wishful thinking. It was truer to say, “Even if you pay for the product, you’re the product if the company can get away with treating you as the product.”
Take the media Apple sells you through Apple Music, Apple Books, and iTunes: these are all scrambled before they are sent to your phone. The only programs that can unscramble these files come from Apple, and Apple has designed those programs so that they delete the unscrambled version as soon as you’re done with it.
The fact that only Apple apps can unscramble Apple media, and that these apps don’t let you save the media in an unscrambled state, means that you must use Apple’s programs to play your Apple media. Naturally, these programs don’t run on Android, so switching from Apple to Android means throwing away all the media you’ve ever purchased.
Of course, you don’t have to buy your media from Apple; you could install another app and buy your books, TV shows, movies, and music through that app.
Or you could, except for Apple’s pesky App Store policies. Any app that gets accepted to the App Store has to exclusively process its payments through Apple’s system, and that system creams off a 30 percent commission on every purchase. Thirty percent! For those of you who don’t have to process payments, this is very high.
Here’s some context: Most payments go through a cartel of massive credit card companies (Visa, MasterCard, Amex, and sometimes Discover). These processors have a well-earned reputation as price-gouging scum—for one thing, they have raised the cost of payment processing by 40 percent since the pandemic, even as their costs declined (and Visa is—as of the time of this writing—the target of a DOJ antitrust enforcement action for monopolizing payments).
The sky-high fees that the payment cartel charges? They come out to between 2 and 5 percent. That’s after a 40 percent pandemic greedflation hike.
Apple charges ten times as much. The 30 percent App Tax doesn’t just make it hard to do business via an app—for some media, the App Tax makes it impossible to run a competing business.
For example, the normal wholesale discount for audiobooks is 20 percent. If you make an audiobook app that allows customers to buy new titles within the app, you will lose money on every sale. (That’s why great indie stores like Libro.fm expect customers to use their websites—which are far less prominent than, say, Audible’s—to make purchases, though Apple’s App Store rules mean that they can’t actually tell users to buy books on the Libro.fm site or provide a link allowing them to do so.)
Naturally, Apple’s own stores are exempt from the App Tax, which means its stores have more titles at lower prices than competing apps.
Media sales are just part of how Apple locks users in to the iOS platform. By bundling default email, calendar services, photos, and cloud services with its devices, Apple ensures that most of its users stand to lose an awful lot if they switch platforms. And since Apple has an absolute veto over which apps you can install on your device, it can block or degrade any app that makes it easy to change platforms and keep your data.
These high switching costs explain how Apple ended up using its far-reaching platform control to both protect and abuse its customers … at the same time. When Apple protects you from Facebook spying, it makes the case for you to move into its walled garden and take up residence. Once you’re in the walled garden and you’ve been gulled into putting down roots there, Apple can make life worse for you without worrying too much about losing your business.
Apple isn’t the only company that claims to be better than its rivals because it charges money rather than spying on its customers. Apple’s not even the only company that does so while spying on its customers.
Microsoft is the tech sector’s second great monopolist—and it owes its existence to the attempt to rein in tech’s first great monopolist: IBM, a company that was born in a period of lax antitrust, grew larger under robust antitrust, and then found itself in antitrust’s crosshairs in the biggest tech antitrust case in history.
IBM was founded in 1911, and it always had a well-deserved reputation as a bully that played hardball with its competitors and pressed its advantage with its customers. Despite this, IBM enjoyed a legitimacy born of its status as a pioneering data-processing company, and also because of its deep ties to the US government and military. As the old saying went, “No one ever got fired for buying IBM.”
In other words, IBM would always have customers even if it delivered subpar products and charged a premium for them. That’s what “No one ever got fired for buying IBM” means. It’s just another way of saying “too big to care.” So IBM gouged its customers on some of its products, and used predatory pricing, long-term exclusivity contracts, and engineering tricks to prevent competitors from entering the market. The executives who wrote purchase orders for IBM products overpaid for inferior products, but they didn’t get fired.
Many of IBM’s biggest and most hard-done-by customers were governments and government agencies, including the military. The primacy of IBM in the provision of public services had an ironic and contradictory double effect.
On the one hand, bad experiences with governments that depended on IBM’s low-quality offerings undoubtedly lent credence to the story that governments are intrinsically incompetent and that they should outsource all their services to the private sector. It’s true: government tech deployment (from the $2 trillion Joint Strike Fighter to the creaking systems used to hand out stimulus relief during the COVID-19 pandemic) often sucks—but generally the culprit is a government contractor from the private sector.
On the other hand, the fact that Uncle Sam (and all his nephews and nieces in statehouses and town halls) trusted IBM to run so many consequential government functions also served as a calling card for IBM, generating sales from blue-chip companies that treated IBM’s government business as evidence of its reliability.
But by 1970, those government customers had had enough. The Antitrust Division of the US Department of Justice brought a monopolization case against IBM—a case that pitted the US government against its largest (and richest) technology partner.
For the next twelve years, IBM spent more on outside counsel to fight the DOJ than the DOJ spent on all the lawyers in the Antitrust Division. Every year, year after year, IBM outspent the US government, throwing so many lawyers at its case that the case remained stuck fast for more than a decade.
As expensive as the maneuver was, it was a canny one. IBM outlasted the DOJ, protracting the hostilities long enough to see Ronald Reagan ascend to the presidency. Reagan called off the DOJ, and IBM escaped justice.
But those twelve long years—called “Antitrust’s Vietnam” by Robert Bork, the standard-bearer for the pro-monopoly consumer welfare standard theory—took a toll on IBM’s culture. After more than a decade of having every memo, contract, and deal under the DOJ’s microscope, the IBM C-suite lost its swagger. The company’s executives developed a flinch response to things that would make the DOJ mad.
Which is why, when IBM decided to enter the personal computer market, it broke entirely with its old ways of doing business. Rather than custom-making all the parts in the PC (the “vertical integration” the company had taken so much DOJ heat for), it bought commodity parts on the open market. And when it came time to make an operating system for the PC, IBM didn’t ask its global army of skilled programmers to do the job. Instead, the company approached a couple of kids, Bill Gates and Paul Allen, and asked them to provide the OS.2
Gates and Allen didn’t write the OS, either—they tricked another company into selling them its OS cheap, incorporated a new company called Micro-Soft, slapped the Micro-Soft name on their sucker’s product, and made billions from IBM. Both men became very rich, though Gates got much richer than Allen and, even so, schemed to rip off his business partner for a sizable share of his equity in Microsoft. (They ditched the hyphen and the capital S pretty early on.)
Microsoft owes its fortune to the DOJ, and not just because the Antitrust Division scared IBM so bad that it outsourced its operating system. When a company called Phoenix reverse engineered IBM’s read-only memory chip that sat at the computer’s core, IBM looked the other way. In an earlier era, IBM would have unleashed its most rabid attack-lawyers on Phoenix, but in the wake of their antitrust adventure, IBM’s execs had been conditioned not to take overtly anticompetitive actions. As a result, IBM got competitors. Companies like Dell, Gateway, and Compaq sprang into existence, building PCs around the Phoenix PC-clone ROM—and then they all bought operating systems from Microsoft.
Microsoft learned precisely the wrong lesson from all of this: that if it could form a large enough monopoly before the DOJ took notice, it could use its war chest to outlast the US government and live to fight another day. Which is exactly what happened. Microsoft used exclusivity deals with PC makers to ensure that there would never be any market oxygen for a rival OS. Why make another OS if every PC maker already has an exclusive contract with Microsoft?
If this sounds familiar, here’s what you might be thinking of: Why make a search engine if every search box on every platform belongs to Google?
Then Microsoft tied applications—like Microsoft Office and Internet Explorer—to its operating system. Because Microsoft controlled the OS, it could let its own programs use features that its rivals couldn’t access and sometimes didn’t even know about. It also tweaked new releases of its OS to deliberately break popular apps that competed with Microsoft products. (The spreadsheet Lotus 1-2-3 was the number one competitor for Microsoft Excel, hence Microsoft’s internal slogan “DOS isn’t done until Lotus won’t run.”)
Microsoft owed its existence to IBM’s forced conversion from cheating bully to accommodating partner, but the lesson it learned from the IBM affair was that cheating paid. Microsoft was charged with breaking the same laws as IBM, in the same ways, declaring war on the internet itself, creating a string of proprietary alternatives to the public internet that leveraged Microsoft’s control over its OS to attempt to dissuade Windows users from joining the real internet in favor of its enshittification-ready walled garden.
