What if Google Just Broke Itself Up? A Tech Insider Makes the Case.

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What if

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Just Broke Itself Up? A Tech Insider Makes the Case.

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has lost two important antitrust cases in the past year. Its search business is threatened and its stock is stalled. Federal prosecutors are pushing for it to divest various businesses. Unless the company can pull off a few miracles in court, it will be forced to shrink.

There’s another possibility. Instead of resisting change,

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could accelerate it. It could spin off huge chunks of itself into independent entities.

That would be a very Silicon Valley power move: Break yourself up before courts can break you up. In an era when Big Tech is under suspicion, a maneuver like this would probably be applauded across the political spectrum. For a company that used to have the motto “Don’t be evil,” such redemption might be irresistible.

The Department of Justice wants

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to sell its Chrome browser and its ad network, and maybe its Android mobile business, to fix its monopoly problems. But Gil Luria, a technology analyst with D.A. Davidson & Co., an investment firm based in Montana with $6 billion under management, is thinking *******. Much *******.

He published a research note on May 12 saying

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had become a conglomerate. This was not a compliment. He meant that

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offered an array of products and services that often have little relationship to each other, including the Waymo self-driving taxi service,

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, a cloud storage business, a search firm and an ad network, among other things.

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’s $2 trillion stock market valuation is driven by search advertising, which generates more than half of its revenues. Search is also the part of the company under the most pressure as artificial intelligence begins to answer queries.

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searches in Apple’s Safari browser fell for the first time ever in April. That’s one big reason

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shares are down more than 9 percent this year.

Other parts of

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are not getting their due. If Waymo were publicly traded, Mr. Luria argued, investors might give it something closer to Tesla’s $1 trillion valuation, especially since Tesla’s self-driving cab ambitions are little more than a concept at this point. The same goes for

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when compared with its rival

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, a Wall Street darling.

Mr. Luria estimated that all the parts of

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could separately be worth more than $3.7 trillion, or nearly double the company’s valuation now. “Investors want a big-bang breakup, not isolated spinoffs,” he wrote.

The benefits would not just be financial, he said. Competition would be stoked. Unleashed engineers might create things as amazing as the original

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search engine, which awed people who first used it a quarter-century ago.

Mr. Luria knows his proposal is a long-shot. “The likelihood of the

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board proceeding in this direction is probably less than 10 percent,” he said in an interview. “But it goes up every day.”

The analyst’s analysis got a fair amount of traction in the financial press. The moment was right:

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was arguing to Judge Amit Mehta of U.S. District Court in Washington that its punishment for illegally monopolizing online search should be relatively light.

The government and

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met in court again on Friday for closing arguments in the penalty phase of the trial. A decision by Judge Mehta might come this summer.

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has said it will then appeal. Barring some sort of a wild card from President Trump, the process could slog on for years.

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’s troubles were compounded by a second antitrust trial. That one, over

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’s advertising technology, resulted in April in another decision against the company. The penalty phase will take place later this year.

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is likely to appeal that case, too.

Other asset managers say the logic of a breakup is clear to them.

“While breakups often promise to unlock shareholder value in theory but fail in practice, this case appears to be an exception, one where real value could be realized,” said Gene Munster, managing partner at Deepwater Asset Management.

There is a precedent here. In the early 1980s, the national phone company, AT&T, had been fighting off the Justice Department for many years. Worried that it would lose the case, AT&T agreed to voluntarily break itself up. It kept the long-distance lines and shed the seven regional companies that offered local calling. For the next decade, at least, competition reigned.

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declined to comment directly on Mr. Luria’s arguments. A spokesman pointed

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that said the Justice Department’s “proposal to split off Chrome and Android — which we built at great cost over many years and make available for free — would break those platforms, hurt businesses built on them, and undermine security.”

It also sent a list of ways it was still innovating. Among them: Nielsen has ranked

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the No. 1 streaming platform for the last two years.

Adam Kovacevich, the chief executive of Chamber of Progress, a trade group funded by

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and other tech companies, said

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needed to be big and think big.

“It’s a company the size of a cruise ship,” he said. “Could it split itself into four yacht-sized companies? Sure. But what would be gained?

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is locked in an intense competition against the other cruise ships — Apple, Meta,

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. And there are some opportunities only a cruise-ship-sized company can tackle, like A.I.”

If a split encourages competition, proponents argue, that will benefit

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’s ad customers, who will see lower prices. Employees might be more challenged working for a smaller company, where it is easier to move higher.

“The breakup of

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would only hurt people who would otherwise benefit from unlawful market power,” said Barry Barnett, an antitrust lawyer at Susman Godfrey. “These might include

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executives, whose compensation could fall; start-ups, which could get lower buyout offers from

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or none at all; and rivals like Apple, which could see chances to share revenue vanish.”

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currently pays Apple $20 billion annually to be the default search engine on the Safari browser.

Looming over any discussion of a voluntary breakup is the weight of history. Beyond AT&T, there are few examples of a successful company willing to pull itself apart. Companies that are in permanent slumps have regularly done it, however.

General Electric, whose roots go back to Thomas Edison in 1892 and was once as iconic as

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, split itself into three companies last year after skittering close to death. Hewlett-Packard, another iconic company suffering a long-term decline, broke itself in two in 2015.

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, an earlier antitrust target, is often cited as a company that may have benefited from either an imposed or voluntary breakup. The government won its monopoly case against the company in 2000 and the judge ordered it to divide in two. That decision was reversed on appeal, and the parties settled.

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took a confrontational approach to the case from the beginning and in the end, it paid off.

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is taking the path now that

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went down 25 years ago, Mr. Luria said.

“It’s saying, ‘We are not breaking up and we’ll fight you tooth and nail in court,’” he said. “

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might have won, but the stock was flat for 10 years. They were so focused on fighting the Department of Justice they didn’t notice the rise of mobile devices or cloud computing.”

After the government sued

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, David Readerman of Endurance Capital Partners said, “Litigation was a major distraction to

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business unit heads: email retrieval, depositions, et al. There were Xerox document copying centers fenced under the buildings for security reasons.”

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did not recover its momentum until Satya Nadella became chief executive in 2014.

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’s competitors would presumably be happy with smaller Googles, although maybe not. IBM had a dominant position in computing for years if not decades, probably even greater than that of

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now. The government pursued an antitrust case against it starting in the late 1960s.

Some in the industry thought this was a problematic move. ***** Brandon of Brandon Applied Systems, a computer consulting firm, told The New York Times in 1972 that “I would prefer to compete against one I.B.M. than two, three, four, or even eight similarly managed competitors without the present gloves that have been tied on in fear of antitrust action.”

Another issue shadowing any talk of a breakup: Owing to

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’s unusual share structure, major changes could never be undertaken without the approval of the two founders, Larry Page and Sergey Brin. And founders tend to be emotionally attached to what they have created.

But “never say never,” said Mr. Kovacevich, who worked in public policy at

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for many years.

“Larry and Sergey like bold, unconventional moves,” he added. “Could they decide at some point this would be beneficial to the company? Sure. Any business leader should keep all options on the table.”

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#

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#Broke #Tech #Insider #Case

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