The Open Web or the Google Web?

Day 14: Microsoft's CEO testified about Google's grip on the market and a former Google executive explained why he tried to build a rival search engine.

After we heard from two different Microsoft executives across four days of testimony last week, today we finally got to hear from their boss: Microsoft CEO Satya Nadella.

Microsoft CEO Satya Nadella provided the entirety of his testimony in open court. (Photo by Sean Gallup/Getty Images)

Not surprisingly, Nadella’s testimony re-hashed many of the themes that came up last week — the feedback loop that powers Google’s advantage over Bing (Nadella referred to it as a “vicious cycle”), the importance of search defaults, and Microsoft’s willingness to bet billions of dollars in losses in its effort to strike a deal with Apple.

But Nadella’s testimony also looked to the future as he faced questions about Microsoft’s partnership with OpenAI and the new battlefront to integrate large language model technology such as ChatGPT into search.

The “AI Revolution” has been described as a “paradigm shift” that presents “one of the biggest threats to [Google’s] long-established position as the internet’s main gateway.” Nadella himself has contributed to this narrative — in the last year, he’s done interviews in which he’s talked about wanting to “make Google dance” and compared Microsoft’s innovations with the AI-powered Bing Chat to Google’s original innovations that rendered Alta Vista obsolete.

During his testimony, Nadella didn’t fully back down from the possibility that AI could usher in a more competitive search engine market. But those hopes were couched within a fear that Google’s dominance could become even more entrenched: “Despite my enthusiasm that there is a new angle with A.I., I worry a lot that this vicious cycle that I’m trapped in could get even more vicious.”

Nadella explained his concerns stem from the prospect that Google could secure exclusive deals with content publishers that prevent Microsoft from accessing the content needed to train its AI models. “What is publicly available today, will it be publicly available tomorrow? That’s the issue.”

For Nadella and Microsoft, the realization of that fear would only solidify the observation he shared elsewhere in his testimony: “Everybody talks about the open web, but there is really the Google web.”

Here are some other tidbits from Nadella’s time on the stand, which included cross examination from Google’s lead lawyer John Schmidtlein:

• In response to a question from Judge Mehta about why Apple would ever want to switch to Bing, Nadella said there were two main reasons: 1) “We have proven that if we get the user data from [Apple’s] query share, we can bridge the quality gap”; 2) In the long run, it is better for Apple if search is more competitive because that will give Apple more options when negotiating future search default deals and designing the best product.

• On the incentives that Android device-makers and carriers have to maintain their default agreements with Google: “Google has carrots [in the form of revenue share payments], and it has massive sticks like we’ll remove Google Play…and without Google Play, an Android phone is a brick.”

• On direct examination from the States, Nadella briefly testified about Microsoft’s disputes with Google regarding the implementation of Microsoft features on Google’s SA360. He said his high-level view was that “we keep asking them to add Microsoft features to SA360, and they keep telling us to go pound on sand…that’s kind of where we are.”

• On cross examination, Schmidtlein confronted Nadella with multiple examples of Microsoft’s failures over the decades to build a competitive search engine in addition to data about users switching to Google even when Bing was pre-set as the default.

  • This isn’t the first time Schdmidtlein has tangled with a Microsoft executive in a Washington DC courtroom. In the early 2000s, Schmidtlein represented a group of States challenging the proposed settlement in the landmark antitrust case against Microsoft. As part of that litigation, he examined Will Poole, a Microsoft vice president.

Why did Neeva fail?

After Nadella completed his testimony, the DOJ called Sridhar Ramaswamy, a former Google ads executive who left Google and co-founded the now-shut down search engine Neeva.

Neeva has been portrayed as yet another victim of Google’s dominance — but the story Ramaswamy told is different than the one we have heard from DuckDuckGo, Microsoft, and Branch about the battle over Google’s search default deals.

To be sure, that was still a part of the story for Neeva, which struggled with user growth throughout its existence. Ramaswamy testified that he received anecdotal feedback from mobile carriers that their contracts with Google made it difficult for them to be able to offer Neeva as an option for users looking to change their default.

But Neeva was different from other search engines in that it sought to fully liberate its users from advertisements. This allowed Neeva to offer users options that weren’t possible on Google or Bing; for example, Neeva enabled users to specify sources that it wanted to prioritize or block content from.

It also meant, though, that Neeva had to find a different way to make money, which Neeva attempted to do by charging users subscriptions at $5 a month or $50 a year. (Neeva deployed a free version too as it sought to convert the users of its free version to paid subscribers.) While Ramaswamy said subscriptions were growing, Neeva’s annual subscription revenue was at less than $1 million as of earlier this year.

Neeva had venture capital funding, a clear value proposition to users, and a compelling origin story as Ramaswamy was inspired to start the company after becoming disillusioned with the “conflicts of interest” created by search advertising. But Neeva shut down the search engine and was acquired by Snowflake this past May, within just a few years of launching.

Perhaps Neeva’s short lifespan was what prompted Judge Mehta to ask Ramaswamy a pair of directed questions: “Why did you think you could compete with Google?” and “What is your explanation of Neeva’s ultimate inability to compete?”

Ramaswamy mentioned multiple factors in his responses, but he said that the “lack of access to consumers is a self-fulfilling prophecy.” In the case of Neeva, though, it’s just not as clear if the lack of access to consumers stemmed from Google’s default deals or charging for a product that consumers are accustomed to receiving for free.

That’s all for today. There will be a bit more from Ramaswamy tomorrow before we are expected to hear testimony from Joshua Lowcock and Adam Juda.