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Summary:

After years of finger-pointing by competitors, Google is finally coming under the scrutiny of federal antitrust regulators. But just like a similar investigation into Microsoft a decade ago, a federal inquiry into whether Google’s behavior is illegal is likely to be a giant waste of time.

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After years of suspicion and finger-pointing by competitors and would-be competitors, Google is finally coming under the scrutiny of federal antitrust regulators, with a Senate committee hearing scheduled to begin on Wednesday in Washington. Its critics say that the web giant has a monopoly in both search and search-related advertising, and that Google uses this market power — and the billions in cash it generates — to harm its competitors and to finance the company’s moves into new markets and services, giving it an unfair advantage. But the fact is that just like a similar federal investigation into Microsoft over a decade ago, subjecting Google to an antitrust inquisition is likely to be a massive waste of time and effort.

The hearing before the Senate Judiciary Committee on Antitrust, which is entitled “The Power of Google: Serving Consumers or Threatening Competition?,” is separate from the inquiry launched by the Federal Trade Commission earlier this year, but the issues that are being investigated are fundamentally the same — namely, is Google simply a strong (and possibly even dominant) web player that is competing fairly, or is it using its market position to tip the balance in its favor and crush its competitors?

After initially saying it wouldn’t testify before the committee, Google has sent chairman and former CEO Eric Schmidt to give evidence, and others who have been asked to appear include Yelp co-founder and CEO Jeremy Stoppelman and lawyer Thomas O. Barnett, a former federal Assistant Attorney General for Antitrust.

Is Google playing favorites in search?

The testimony from Stoppelman in particular could be interesting, since Google has had a somewhat tumultuous relationship with the restaurant-review site over the past year or so: after trying and failing to acquire the company in 2009, Google started including Yelp reviews in its Google Places service, but was slammed for doing this by Stoppelman. The search giant then removed Yelp reviews, and agreed to buy review-aggregation service Zagat. Google has been through something similar with group-buying service Groupon — it failed to acquire the company for $6 billion, and has been buying up other group-buying services to bulk up its own Google Offers business.

One thing that Yelp’s CEO said about Google’s behavior could lead to some fairly pointed questions from the Senate committee. In an interview with The Telegraph, Stoppelman said that when he complained about Google scraping Yelp’s reviews, the company told him that if he didn’t like it, he could have his service’s results removed from Google’s entire search index altogether. To some, this might sound like an ultimatum — if you don’t play ball with Google and let your reviews be scraped, we’ll make sure you disappear from search.

That sums up one of the core complaints about Google and its dominance. Because it controls an estimated 65 percent of the online search business, and because search is still one of the central ways in which people experience the web, the company has a huge amount of influence over the traffic that goes to websites and services like Yelp. And because the company doesn’t talk about how it ranks results — and tends instead to offer platitudes about its desire to help users find the best content and make the world a better place — there are all kinds of suspicions and conspiracy theories about how Google promotes certain companies and demotes others.

Does Google use its monopoly power to enter new markets?

To compound the problem, Google now plays in a lot more markets than just pure search, and some of those moves have effectively made it a competitor to companies like Yelp and Expedia, and to companies like Apple as well, thanks to its growing Android platform and operating system. In addition to companies like Zagat, Google has also acquired travel-information site ITA — which provides the data that services like Expedia rely on — and has agreed to acquire Motorola, which will give it control of thousands of mobile-technology related patents that it can use to bolster Android.

So the charges are two-fold: one is that Google uses its dominance in search to steer users toward its own properties and services, and away from those of its competitors — instead of engaging in what some call “search neutrality,” by providing completely objective search results. The second is that Google uses the cash generated by its monopoly position in search and search-related advertising to fund money-losing businesses that compete with others, such as its Android business. Just as Microsoft used its monopoly on operating systems to promote its own products and services such as Internet Explorer, so Google tips the scales in its own favor, its critics say.

This comparison to Microsoft is where the case gets the weakest, however — and the lessons learned from the software giant’s antitrust case (if any lessons were learned at all) suggest that a full-fledged investigation of Google would likely be a waste of both time and money. When it comes to abusing market power, being able to theoretically force computer vendors to put copies of your OS and links to all your related services on their PCs is significantly different from what Google is able to do: as the company often points out, no one is forced to use Google to do a search of the web if they don’t want to.

Is Google disrupting others, or being disrupted?

Not only that, but as Google has come to realize, the search business itself is changing rapidly. Now, social activity that occurs on networks like Facebook and Twitter drives huge amounts of traffic and influences behavior far more than a raw search arguably does — which is why Google has made repeated efforts to get into the social-web game, with Google+ its most recent attempt. It needs to be able to figure out the social signals that are occurring on these networks, which make both Facebook and Twitter competitors of sorts — or potential competitors. But despite its growth, Google+ is still far from being a dominant player, just as Android is far from being a dominant force in mobile.

Supporters of the Microsoft antitrust trial might like to argue that it was a success, but what did it really accomplish? At most, it made Microsoft a little less aggressive, and tied it up in red tape and hearings for several years, which made it less able to adapt to the changes going on around it — and that was the real penalty. As one prominent study of the Microsoft case and other similar antitrust cases has argued, dominant players in the world of technology like Microsoft and AT&T are rarely unseated by governments or antitrust moves — in most cases, they are overtaken by the rapid changes in their industry, which disrupt them far faster and more completely than any government could.

In every other market apart from search, Google is either an also-ran or a relatively minor player, despite its billions of dollars in ad money. And in search, its dominance arose from providing a service that was quantitatively better than others — one that neither companies nor individuals are forced to use — and it exists in a market with virtually no barriers to entry and a large and well-funded competitor. As even a former antitrust expert involved in the Microsoft case has argued, it’s going to be awfully tough to construct a compelling antitrust argument on that kind of shaky foundation.

Post and thumbnail photos courtesy of Flickr user Mark Strozier

  1. While I agree with the final conclusion that an anti-trust investigation into Google is a waste of time, you made some very silly statements along the way:

    1. “it exists in a market with virtually no barriers to entry”
    Good to know immensely complex algorithms, huge data centers and millions of servers all over the world aren’t much of a barrier. You do not seem to understand how search works, and perhaps confuse barriers to entry with lock-in. A new player in this space has to either be huge (MS, Baidu) or have another very significant advantage (Facebook potentially, and again Baidu).

    2. “In every other market apart from search, Google is either an also-ran or a relatively minor player”
    I guess you haven’t recently checked Google’s revenue breakdown… They have very big billion-dollar businesses in display ads (YouTube), mobile ads (Android). That’s not just search. Both of these platforms are very dominant in their space.

    More on topic, I think two points need to be stressed in this argument:
    1. Search is inherently a subjective matter. There is no such thing as a best result “objectively”. That does not mean manual alteration of results to harm competition should be encouraged, but things need to be kept in perspective.
    2. Under no circumstances should search engines be forced to reveal their algorithms and ranking systems. The spam and shady SEO tactics would ruin the internet as we know it. It’s already a difficult battle, revealing more of the workings of search engines would tip the scales completely the wrong way.

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    1. Thanks for the comment, Nadav. I do understand the search business a little, so I certainly agree that you need a few servers and some algorithms to launch a search engine — but Powerset and Cuil and others have done it. There may be certain things you need (not everyone can launch one) but those don’t qualify as unscalable barriers to entry by any means.

      As for YouTube and Android, they are large businesses, but I question whether YouTube is dominant in display ads — unless we’re defining video display ads as a specific market, and even then I’m not sure they qualify as dominant. Android and mobile ads are in the same category, I think — clearly large businesses but far from the kind of market control that illustrates a monopoly.

      Thanks for the comment. I’m glad we agree on the conclusion at least :-)

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      1. Ah, but what are the market shares of Powerset and Cuil? I don’t have hard data myself, but I doubt you can even plot them on the same graph as Google.
        The fact remains that since Google took over search, no startup has made a dent in their armor, and not for lack of trying. Only the big guns had any effect.

        Regarding YouTube:
        http://www.reelseo.com/youtube-1b-revenue-2011/
        I don’t see how you can describe it as a minor player with such revenues.

        On to Android:
        IIRC it is closing in fast on 50% global market share. Even if Google doesn’t profit directly from sales, that doesn’t mean a lot of money doesn’t exchange hands via ads etc.
        Once again, claiming Android is a minor player or an also-ran is a very strange claim to make at this point.

        Please note that I did not say either YouTube or Android were anywhere near dominant enough to be considered monopolies. I am simply arguing against your statements about their supposed insignificance.

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  2. Unlike Microsoft that had physical products (DVD with their software), all of Google’s products leave no trace. Today there is no credible alternative for search. You don’t stand up in a company meeting saying “I researched our options on yahoo”. One second Google can pretend they are your friend, the following hour, they can wipe you off the face of the global phone book and eliminate you from all searches. There is zero oversight of this giant schoolyard ogre, zero. They can do anything they like to the other kids, faster than Microsoft and more surrepticiously than at any time before. Their PR stunt of pretending to have messed up here and there is only an ogre pretending to be a bit clumsy and not so dangerous or hungry for lives.

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    1. I hate to be the one to break common sense to you, but simple being on top is not a reason to be investigated. IT is USING your dominance to unfairly keep competitors down. And THAT is what Google has been accused of doing (by several sources with credibile evidence)

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    2. Hamranhansenhansen Wednesday, September 21, 2011

      Facebook has not gone around stealing intellectual property from market leaders and releasing free products in order to destroy the profitability of that market and then dominate it with ads.

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  3. ‘s a mistake becuase you dream of sucking Sergey’s cock every night.

    Nope..Google should NOT be allowed to use its search dominance to keep down competitors in other areas. Just lke Microsoft was not allowed to use its OS dominance to keep Netscape down.

    When SEVERAL sites have provided evidence of their site dropping from the top 3 sites all the way to page 3, while sites go from non-existent to the top result just ONE DAY after Google acquires that site, that is illegal. Period.

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    1. If I type in Maps into Bing, guess what the first result is? Google Maps. If that is the case, why would it be illegal for Google to list Google Maps as the first result at Google.com? Since when has it become illegal to promote your own companies? Or do you think that I should be able to buy Apple products at Sony.com?

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  4. ” dominant players in the world of technology like Microsoft and AT&T are rarely unseated by governments or antitrust moves — in most cases, they are overtaken by the rapid changes in their industry”

    Antitrust regulations are not made to help the big competitors like Microsoft , Facebook or Google..they’re here to help the little players who don’t have capital to compete but only their ideas and quality work. In Microsoft case it is helping Firefox and Opera . In Google’s case (if things go fast enough) it won’t displace youtube, but it will give a chance to Yelp, MapQuest , Expedia…

    my 2 cents

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  5. Dan,

    I agree with your premise, and hence your conclusion. The premise that the action governments (both the US and the EU) have taken and are taking against Microsoft isn’t so much that they’re dominant — but rather that they used their position of dominance to restrain others from entering into the market.

    In Google’s case, that is exactly what the problem is. Certainly, Yelp could choose to opt out of Google, but in doing so, it would lose most of its traffic; nobody would ever see Yelp as an alternative review site. When Google then acquires a direct competitor, based on results it is likely to have its own site show up higher in the rankings than Yelp’s would. That’s restraint of trade, no matter how Google wants to spin it.

    It also controls both sides of the advertising equation. It sells to businesses, and then controls which other businesses receive the advertising, based not on any objective criteria, but on criteria it alone determines — and it doesn’t tell you what those criteria are.

    There is even evidence that Google employees’ personal relationships with some people can affect the rankings of those people’s competitors. It’s not conclusive — but it walks like a duck and looks like a duck, so if it starts quacking…

    http://www.badgerthoughts.com/random-thought/gfail-redux/

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    1. Hamranhansenhansen Wednesday, September 21, 2011

      You agree with the author’s premise that Google should not be investigated, but you think they are breaking the law?

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  6. Ooops… should be “I DISagree with your premise, and hence your conclusion….”

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  7. the whole antitrust thing is stupid imo… it’s like you let a company grows but then you only let them grow to a certain point, anything beyond that it becomes anti-competition, unfair…

    back then people didn’t say anything about microsoft being dealt with it (because microsoft is a bad boy, ugly looking), and now Google (good boy & good looking), the tone is almost a 180

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  8. Hamranhansenhansen Wednesday, September 21, 2011

    I couldn’t disagree with this more.

    I’m deeply offended by your suggestion that Google should be able to break the law with impunity. They operate in a country that leads the world in prisoners; where half of those prisoners are non-violent recreational drug users, most of them taxpayers; where marijuana arrests are UP this year; where the economy has been smashed by the banks and Wall Street and yet no arrests; and where African American men are hunted down and shot in the street by police who are completely out of control. There’s a cop who tased a little girl recently. Why should Google be able to break the law?

    The Microsoft anti-trust trial did have positive effects. We learned about all the illegal stuff Microsoft had been doing and they were forced to stop doing it. We lost all respect for them, including Bill Gates. He left the industry only a few years later. Microsoft stock has been flat since it came out that they did not earn their past success, and so therefore could not be counted on to earn any future success. It came out at the trial that Microsoft had told Apple to kill QuickTime or lose Microsoft Office, the highly-profitable office suite that Microsoft had been making at that point for the Mac for over 10 years. Without Microsoft Office, maybe Apple doesn’t survive to get to deliver Mac OS X, but without QuickTime, no iTunes. After the trial, Microsoft suddenly was willing to commit to Mac Office for 5 more years, including moving it to Mac OS X, and without QuickTime having to be killed. If not for QuickTime, Microsoft goes on to dominate post-CD music with their Windows Media Audio that only plays on Microsoft devices, instead of Apple dominating it with standardized ISO MPEG-4 audio that plays on any device, not just Apple devices.

    So if not for the Microsoft anti-trust trial, we may not have had iPod, iPhone, iPad and Intel Mac. Not because there were better alternatives, but because Microsoft abused its IBM-given monopoly over IBM PC systems to try and gain a monopoly over audio video. What Google alternative is being killed right now by anti-competitive behavior and we’re not defending it?

    And to be clear: competition is when you work hard to become the best figure skater, and you skate a better performance than anyone else, and you win; anti-competition is when you win the same figure skating competition by hitting a better skater in the knee with a pipe so that they are not even allowed to compete. Yes, we have a responsibility to stop anti-competition. It is in everybody’s interest to have a fair market where consumers see a fair competition between all vendors. Otherwise, your only choice is Windows 98 and liking it.

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    1. Boris Ivan Babic Saturday, October 1, 2011

      LOL -best way to describe your comment

      The article doesn’t in any way say that Google should be allowed to break the law, nor that anti-competition is okay. Did you even read the article?

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  9. Hamranhansenhansen Wednesday, September 21, 2011

    When Google releases their “GoogleOm” product and GigaOm falls to page 8 in search results, then you will change your tune.

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