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Google wins: a plain English guide to the FTC’s big ruling

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Critics who say Google(s goog) is too powerful have nagged the government for years to regulate the company’s search listings. But today the critics came up dry: a federal agency finished a two-year investigation by saying it would leave Google’s listings alone. Here’s a quick guide to what happened, including a tally of the winners and losers.

So why were the feds investigating Google in the first place?

A group of Google competitors, many of them tied to Microsoft (s msft), claimed the company was breaking antitrust laws by kicking competitors down its search rankings. Sites like Yelp and Kayak complained that Google favored its own search and travel businesses ahead of theirs in the search listings.

The Federal Trade Commission responded by “exhaustively” investigating a wide range of Google’s business practices, including its ad business and use of patents.

So what did the FTC find?

Today, the FTC concluded that Google didn’t break any laws in the way it displayed its search results. The agency said that Google did change the way its search algorithm sorted results but that those changes were “plausibly connected” to efforts to improve its user experience — not simply to crush competitors.

The FTC did say that Google misbehaved by using standards-essential patents (ones it is supposed to share at reasonable royalty rates) as a weapon. Google responded by saying it won’t do that anymore.

So why is this a big win for Google?

It’s a win for Google because the government won’t get all up in its search results. Microsoft and others had hoped the government would impose some sort of “search neutrality” requirement on Google but that won’t happen now. The end of the investigation also means that Google won’t have to reveal any of the “secret sauce” that it uses to order the search results.

The company also avoided a so-called “consent decree” about its search practices; these decrees set out what the agency thinks a company has done wrong and how it must behave in the future. Consent decrees also act as a magnet for private lawsuits.

As for the patent issue, it was just a sideshow that has little effect on Google’s core business or strategy.

So Google can do what it likes with its search results?

Pretty much. In the past, the company claimed its results were strictly objective but more recently it has argued that search listings are simply a matter of opinion protected by the First Amendment.

The company did, however, make a voluntary pledge today to remove snippets from Yelp reviews and other such sites if the company in question asks them to; Google also said it won’t punish those who opt out.

Is this bad news for consumers?

Not necessarily. So far, Google has stayed more or less true to its stated mission of helping people find any type of information (search “Google sucks” for instance). It’s only in so-called “search verticals” like shopping that Google, like rival Bing, has really been putting its thumb on the scale and favoring certain partners. But in the future who knows what Google will do.

So who loses?

The biggest loser is Microsoft(s msft), which funded a long-running cloak-and-dagger lobbying campaign to convince the public and government that its arch-enemy had to be regulated. Sites like Yelp, Kayak and Expedia also lose in the sense that Google can now push them down its search listing with impunity (though there is no sign for now that Google is actually doing this).

The FTC is also a loser because it ran a high profile two-year investigation but came up dry. In this context, the patent ruling is just a minor victory that lets the agency save face.

Did the FTC simply cave in to Google?

Not really. The FTC was in an awkward spot because it didn’t have a slam-dunk case. The agency would have had to prove the existence of a Google monopoly and that Google abused that monopoly; it would also have to clear the First Amendment issue. Rather than risk the embarrassment of losing a lawsuit, the FTC decided to fold its cards instead.

But aren’t European regulators going to force Google to bend on search rules?

The European Commission suggested in December it will come down harder on Google. According to a source familiar with the matter, the outcome is likely to be a “commitment decision” in which Google promises to behave a certain way or else be fined. The source added, however that the rules of a European “commitment” do not expose companies to private lawsuits so, unlike in the U.S., Google will be willing to enter a binding agreement.

It’s too soon to know what that outcome will be but we’re likely to find out in the next month.

(Image by Kzenon via Shutterstock)

4 Responses to “Google wins: a plain English guide to the FTC’s big ruling”

  1. Hard to believe Google is asserting ‘free speech’ corporate rights (a result of the Supreme Court ruling that Corporations are now the equivalent of a single Citizen as far as the Constitution and Bill of Rights goes. Who 250 years ago was thinking a 500 billion dollar Corporation was a Citizen?

    Too bad corrupting search results is OK by the FTC. No one should have to hold Google accountable, they should do it themselves, but the FTC has lost my confidence by simply knuckling under and agreeing Google has ‘free speech’ rights in its software.

    I expect anything I use with a Google in it, Android, Google Docs, Gmail, G+ etc, Google will now claim any mis-behavior is ‘free speech’ .. Trust isn’t something Google should have messed with, irrespective of the FTC’s allowing it to go south. The Judge will be the market, unfortunately. I think the FTC could have saved Google’s bacon.

    • In the end Motorola was way cheaper than 12.5 billion for Google.

      ‘At $12.5B, Motorola is Google’s largest acquisition to date. Google paid $40 / share in cash, but received ~$11 / share in cash and $8 / share in deferred tax assets. Thus the value ascribed to operations + patents was about $21 / share, or $6.3B, reflecting a multiple of ~0.5x sales and 12x EBITDA. Now adjusting this further for the $2.35B total consideration Google is expected to receive for the Motorola Home business, we get a purchase price of just under $4B for Motorola’s handset business and patent portfolio (17K patents and 7.5K patent applications). This compares very favorably to recent patent deals such as Apple, Microsoft, RIM, Sony, Ericsson, and EMC paying $4.5B for 6K patents (July ’11) and Microsoft paying $1B for 800+ AOL patents (April ’12). Based on a sum of the parts, one could conclude Google acquired either the handset or its patents for a very minimal cost.’

    • Felipe your sums are off Motorola has lost nearly 900 million dollars in the first three quarters of 2012, and when the last quarter is counted Motorola will have lost nearly 2 billion in 2012, that isn’t a win except in some Geek’s basement.