32 Comments

Summary:

A Washington Post columnist argues that Google has grown so large and dominant it should be prevented from buying new companies, even those in completely new markets it doesn’t have a presence in. But is that really what we want antitrust laws to do?

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While Google is busy trying to compete with the growing power of Facebook, there are still those who believe the government needs to do something to blunt the growing power of Google. Washington Post business columnist Steven Pearlstein is the latest to join this crowd, with a piece entitled “Time to Loosen Google’s Grip?,” in which he argues the company needs to be prevented from buying its way into new markets and new technologies. Not surprisingly, Google disagrees; the company’s deputy general counsel, Don Harrison, has written a response to Pearlstein in which he argues that Google competes fair and square with lots of other companies, and that its acquisitions aren’t likely to cause any harm.

So who’s right? Obviously, the government has the authority to approve or deny acquisitions such as Google’s potential purchase of ITA, the travel-software firm Google agreed to acquire in July. Some have argued the purchase would give Google too much control over the online travel search-and-booking market, since ITA powers dozens of other sites and services in that market. But does Pearlstein’s argument hold water? Not really. More than anything, his complaint seems to be that Google is really big and has a lot of money, so we should stop it from buying things.

Pearlstein starts out by noting that Google isn’t just a web search company any longer, but is moving into “operating system and application software, mobile telephone software, e-mail, Web browsers, maps, and video aggregation.” Not to be unkind, but did Pearlstein just notice that Google has a mapping service and is doing video aggregation? Surely those wars are long over now. But no, the WaPo columnist suggests the company shouldn’t have been allowed to buy YouTube, because it had a “dominant position” in its market. This, of course, ignores the fact that there wasn’t even a market for what YouTube had when Google bought it, which is why many people thought the deal was a bad idea.

Pearlstein’s motivation becomes obvious when he says things like “The question now is how much bigger and more dominant we want this innovative and ambitious company to become,” or that he has a problem with “allowing Google to buy its way into new markets and new technologies.” Since when do we decide how big companies are allowed to become, or whether they should be able to enter new markets? Antitrust laws were designed to prevent companies from using their monopoly power to negative effect in specific markets, not simply to keep companies from becoming large. But Pearlstein seems to be arguing that they should be broadened to cover any big company that buys other big companies:

Decades of cramped judicial opinions have so limited application of antitrust laws that each transaction can be considered only in terms of how it affects the narrowly defined niche market that an acquiring company hopes to enter.

The Washington Post columnist also trots out the “network effect” argument, which he says results in a market where “a few companies get very big very fast, the others die away and new competitors rarely emerge.” So how then do we explain that Facebook arose out of nowhere and completely displaced massive existing networks like MySpace and Friendster? And while Google may be dominant in search and search-related advertising, the company has so far failed to extend that dominance into any other major market, including operating systems (where it competes with a company you may have heard of called Microsoft), mobile phone software and web-based application software. In fact, Google arguably has far more failed acquisitions and new market entries than it does successful ones, and is having increasing difficulty just getting things done.

Google’s deputy counsel also makes a fairly powerful point in his defence of the company’s acquisitions, which is that antitrust laws are meant to protect consumers, not other businesses or competitors, and — so far at least — there is virtually no compelling evidence that the company’s purchases have made the web or any of its features either harder to use or more expensive for consumers, or removed any choice. If anything, in fact, Google has been the single biggest force in making formerly paid services free (although along the way it has raised some troubling questions about privacy). That’s going to make an antitrust case pretty hard to argue, regardless of what Mr. Pearlstein thinks.

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  1. Well put.

    My sense is that questions exists today, concerning companies with large web presences, which people are generally unable to articulate. It is like a word, unknown to us, but yet somehow stuck on the edge of our tongue. I, at least, feel this way.

    To pick on Google for a moment, what does it mean for Google to offer a huge array of web services? Does it matter that they are free? One might feel that there are similar questions to be asked of Apple, Facebook, and so on.

    Things are different, we’re really starting to appreciating that fact, and we’re (more than) a little concerned. Questions will help us, but we should *hesitate* to use notions that are comfortable to us (“monopoly,” “antitrust,” etc.), in describing something new.

    1. Well said, Jack. I agree that there are things we should be asking about Google’s influence, etc. — but trying to make the case, as Pearlstein does, that because they are large they should not be allowed to buy anything is not helpful. Thanks for the comment.

  2. I love reading these sorts of comments. Beyond the whole grass is greener issue, it puts my irritation over perceived slants in context. Sure, I may be opinionated (academically trained to have opinions, actually), but I’m not an outlier!

  3. Technically, the only consumers who “buy” from Google are the businesses that purchase ad space from Google. Most people are just users of Google services. Google needs “users” to make the ad space valuable. Google has attracted users by providing a good quality service(search, etc). Advertisers like Google since they have provided high quality ad space, thus resulting in advertisers bidding up the cost of high quality AdWords.

    If Google was prevented from improving the quality of its ad space, then that would hurt the consumer, not help them. Antitrust action is only needed if it is proven that Google is deliberately emphasizing it own services over competing products. With that being said, the algorithms that Google uses are more complex than a congressmen can possible comprehend. If congress wants to scrutinize each variable that Google uses, then the astroturfing and fraudsters of the internet will win. The fraudsters will claim that Google is limiting consumer choice.

    The value is determined by an auction conducted by Google for selling ad space (AdWords). Certain words are more valuable than other words because of the relative traffic.

    Being a monopoly within a market is not evil, abuse of monopoly power is evil. I don’t believe Google is a monopoly, but we must always be diligent and hold companies accountable for their actions. So far, Google has proven to me to have the best interest of their users at heart, and therein derives (advertising) value out of a that end-user relationship.

    1. Thanks for the comment, Brian. Well said.

    2. They clearly ARE a monopoly in search and advertising. And there is more and more indication that they ARE abusing it. But that doesn’t change the fact that this article is stupid since that means NOTHING about them branching out into other markets where they are generally considered a joke.

      If they are determined to be abusing their search/advertising monopoly, then they should be dealt with there. Not in areas where they have ZERO power over the market.

  4. Brett, have you read any of the posts I’ve written about Google and its attempts to add social features — including the one linked to in this post? It doesn’t seem that way, since I (and others) have been anything but kind. And I’m not sure what Google spyware you think we’re running, but we don’t have anything that fits that description, I assure you.

    1. Matt, if you can’t see it, you must be covering your eyes. Click “View Source” and look for the spyware scripts from “googleadservices.com” and “google-analytics.com”. Both plant and follow Google spyware tracking cookies, and also demonstrate the provenance of the advertising on this site (which is almost entirely ad-sponsored).

  5. Matthew,

    ” — there is virtually no compelling evidence that the company’s purchases have made the web or any of its features either harder to use or more expensive for consumers, or removed any choice”

    Suppose that PG&E got into the aluminum smelting business which uses huge amounts of electricity. PG&E can corner the market in aluminum. PG&E will raise rates for business users while keeping rates unchanged for consumers. Consumers indirectly pay for this, since the price of all other goods and services go up.

    1. That’s a fair point, Vito — any evidence that Google cornering the market in something (assuming that has happened) has raised the prices for anyone?

      1. Matthew,
        Google has a monopoly on online advertising.
        When Google shows ads or links for its own properties, it reduces the available inventory for advertisers on Google. That causes the CPC bids on the remaining inventory to rise, thereby raising prices.

      2. In reply to Vito leoni in this same thread…I disagree that Google has a Monopoly in online advertising. Display advertising is a big market and no company has more than 25% market share. Google could be considered a monopoly in search advertising since that is where they have a commanding lead over competitors.

        I believe the results that a search engine returns is immaterial for an is not an antitrust case. If Google decided to up the cost of advertising on Google because the there were no competition, then that would be anticompetitive (or dropped the price of advertising to bankrupt competitors). Ultimately Google doesn’t really control the cost of AdWords since it is auction based, the free market controls the pricing based upon advertiser demand. The advertisers must be getting ROI for their advertising dollar with Google, otherwise they wouldn’t spend it or go elsewhere.

        Regarding Google linking to Google sites and services, search engine results should be considered free speech, it is just that most people seem to like what Google search results (and advertisements) have to say.

      3. @brianb: “Ultimately Google doesn’t really control the cost of AdWords since it is auction based, the free market controls the pricing based upon advertiser demand”

        There is no free market since google has a monopoly on CPC advertising.

      4. Okay, so let’s assume Google does have a monopoly on CPC advertising (not really a discrete market, I don’t think, but just for the sake of argument) — so the bids go up on the remaining inventory, and that affects me how exactly?

      5. Yes…there have been PLENTY of accusations of htem abusing their search monoply. Whether by driving up prices, or by giving their own services preference in search results. But of course, since htey are google, and you desperately want o know the taste of Sergey’s semen, you just automaticallly dismiss those accusations as having no merit. And before you say there is nothing wrong with promoting your services over others…tell that to Microsoft and the EU.

    2. Matthew,

      Suppose your electric utility gave away electricity free to consumers and made up for it by gouging business customers. As a consumer you might think it’s wonderful. But you indirectly pay more for everything you consume.

      That’s how Google’s monopoly on CPC affects you. You pay more for everything you buy online as a result.

      1. I would like to see some proof that what you describe is actually happening. If there is enough market pressure, businesses would just have to become more efficient in the power example you use.

      2. Matthew,
        Happens. Thats why we regulate pricing for utilities.

      3. Matthew,
        Yes, online retailers experience a “Google effect” for items where there is a great deal of competition. The cost of driving traffic for high margin, popular items is very high and consumers do pay for this when online retailers do not discount as heavily from MSRP as they could otherwise. Is this due to Google acting as a monopolist or is this due to the participants in the marketplace (the online retailers) competing against one another?

  6. Google is a monopolist – pure and simple.They bought Youtube because they saw that 15% of the world’s searches took place on that platform.They leveraged its dominance of online video,built upon massive copyright infringement, to buttress their position in the search market. This enabled them to hinder the emergence of a competitor and reap supernormal profits. The only reason it makes sense for Youtube to subsidise the world’s bandwidth is because it strengthens their monopoly in the search market. Never mind that it prevents content creators maximizing the return on their assets.Just as long as Google make big profits.

  7. Great response and post, Matt. Pearlstein’s piece doesn’t hold much water.

    1. Thanks, Bernard.

  8. I find this funny. Mainly because he thinks Google ads are enough to sustain any publication of this caliber.

  9. What’s up with all the Google apologist articles here on gigaom? Obviously, you’re getting something out of them for all this, even if it’s just better access.

    Google is already a dangerous entity, with way too much personal data on individuals in their hands, and control of access to too much information. It’s time now to reign them in, before the damage becomes visible. Privacy is a necessary condition for freedom, and Google is a clear threat to individual privacy, a threat that will only grow with every acquisition. That and their complete disregard for intellectual property and other laws makes them essentially an outlaw company that cannot be trusted.

  10. Talk of Google, Facebook, Apple, heck, even Microsoft as a “monopoly” has always amused me, given what the term actually means. Just because one company or another has a significant market share does not a monopoly make. The fact that there exists other options outside of Google – Bing, Startpage, Yahoo!, etc. for search, Vimeo, and other video services (as opposed to YouTube), iOS, Blackberry, WM7 (as opposed to Android) show just how far from a monopoly Google is. Just because they’re the most popular, or most user friendly or whatever the perception may be, they are no more a monopoly than Walmart or Microsoft is. Do I agree and support everything each of these companies do and how they do it? No. But the fact remains that I still have choices in every arena in which Google competes, thus making the absurd claim they are a monopoly just that: absurd.

    1. Right. Your electric company is not a monopoly since solar power is everywhere.

    2. What defines a monopolistic firm is that they use their position to:

      A. Undermine any competition from entering the market or gaining market share through unethical means

      B. Attempt to extort from customers exorbitant costs due to the lack of competition in that market

      Microsoft was considered a monopoly (and to some degree still is), because they used their position in Windows and Office to extort high licensing fees and repeatedly undermined competitors (Netscape, Linux, etc.)

      Google so far has not done anything monopolistic. That is not to say that it never will and should it ever do so, I think that the firm should be broken into 2 or 3 pieces.

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