{"id":260496,"date":"2011-06-06T12:21:00","date_gmt":"2011-06-06T17:21:00","guid":{"rendered":"https:\/\/mathewingram.com\/work\/?p=260496"},"modified":"2024-04-19T12:22:23","modified_gmt":"2024-04-19T17:22:23","slug":"google-fighting-shadows-with-antitrust-inquiry","status":"publish","type":"post","link":"https:\/\/mathewingram.com\/work\/2011\/06\/06\/google-fighting-shadows-with-antitrust-inquiry\/","title":{"rendered":"Google: fighting shadows with antitrust inquiry"},"content":{"rendered":"\n
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A decade ago, Microsoft finally settled a long-running antitrust case that was launched against the software giant<\/a> by the Department of Justice, based on accusations that the company was using its monopoly on computer operating systems to crush competitors. Now it is Google\u2019s turn to face the antitrust spotlight: Although it is not the subject of a formal government case yet, the search behemoth is involved in an official inquiry by the Federal Trade Commission<\/a>, which is investigating whether Google is distorting the market for web search and search-related advertising.<\/p>\n\n\n\n

What makes this case more difficult than the one against Microsoft \u2014 and ultimately a lot harder to prove \u2014 is the question of what a monopoly even means in the age of the web, when the browser has taken over from the operating system as the primary way in which we use our computers and mobile devices. Does Google have a monopoly in any real sense? And if it does, can it be shown that the company is using that position unfairly<\/a>, causing harm either to competitors and\/or to consumers of web services?<\/p>\n\n\n\n

Critics of the company argue that both of these things are true. And the list of Google\u2019s enemies is a fairly long one, including fellow giants like Microsoft \u2014 one of the main proponents of the antitrust allegations, somewhat ironically \u2014 as well as large web services like Expedia and the recommendation service Yelp, who argue that Google is giving its own competing services preferential treatment and thereby distorting the market. And Google isn\u2019t just facing antitrust inquiries in the U.S.: It is also under investigation in several European countries<\/a> for similar alleged offences.<\/p>\n\n\n\n

A monopoly on search and search-related ads<\/h2>\n\n\n\n

The charges being leveled at Google are twofold. One is that it has a monopoly on search and on search-related advertising and that this gives it an unreasonable amount of control over how content is found online \u2014 since search is the primary way that many people discover websites and services \u2014 as well as an ocean of cash from search-related advertising. The second allegation is that Google uses the money from its advertising monopoly to develop or buy services that compete with those from other companies and that it then uses its control over search to give those services preferential treatment in its search results, which provides an unfair advantage.<\/p>\n\n\n\n

So in the case of Yelp, whose founder and CEO, Jeremy Stoppelman, testified in a recent Senate hearing regarding Google\u2019s behavior<\/a> (which wasn\u2019t part of the official FTC investigation but raised many of the same issues), the claim is that when Google couldn\u2019t acquire the company for its local recommendations, it first tried to steal Yelp\u2019s content and use it without asking, threatened to remove Yelp from Google\u2019s search results altogether and then bought a competing service called Zagat.<\/p>\n\n\n\n

This effectively pulls in all the different aspects of the antitrust case against Google, to the extent that there is a case: the use of its giant cash reserves to try and take over Yelp; the \u201cscraping\u201d of Yelp\u2019s content for use in Google\u2019s own local service, Google Places; the pressure on Yelp to play by Google\u2019s rules or face deletion from its all-powerful search index; and finally, the acquisition of a competitor, to which Google is allegedly giving preferential treatment<\/a> in its search results. Expedia made similar allegations about Google following its purchase of ITA, which provides travel-related information that is used by Expedia and other services (a deal that was reviewed by the FTC).<\/p>\n\n\n\n

Having a monopoly isn\u2019t enough for antitrust<\/h2>\n\n\n\n

As I tried to explain in a recent GigaOM post, antitrust law in the U.S. doesn\u2019t make having a monopoly in a particular market illegal<\/a>. What the Sherman Act is designed to fight are monopolies that have been achieved through illegal means (i.e., collusion or restraint of trade) and\/or monopolies that are being used to harm a particular sector. But it\u2019s even more complex than that. Unfortunately for Yelp and Google\u2019s other critics, it\u2019s not enough just to show that a company with a dominant market position is being unfair to its competitors. It has to be proven that being unfair has some tangible impact on the market, either by restricting choice<\/a> or raising prices or both.<\/p>\n\n\n\n

So Yelp might argue that Google is being unfair by a) taking its content without asking and b) giving its own Zagat results a higher ranking in search (assuming it can even be shown that Google is doing this). But does Google\u2019s behavior have any impact apart from being unfair to Yelp? Does it restrict consumer choice when it comes to recommendations services in any real way? And if it does, will consumers have to pay more for those services? Similar questions would have to be asked about Google\u2019s dominance in search itself or search-related advertising. Does that dominance affect consumers in a tangible way?<\/p>\n\n\n\n

Thomas Barnett, the former head of the Justice Department\u2019s antitrust division, argued in a presentation to the Senate committee<\/a> that Google\u2019s control over search-related ads would lead to higher prices for those ads and that consumers would pay more because the companies buying those ads would inevitably pass those higher costs on to their customers. But this is not obvious at all. Even if someone could prove that prices for search ads are higher than they should be (whatever that means), an antitrust case would then also have to prove that companies were passing those costs on instead of just absorbing them.<\/p>\n\n\n\n

One of Barnett\u2019s counterparts, a former antitrust specialist with the New York attorney\u2019s office who worked on the Microsoft case, argues that Google simply doesn\u2019t fit the description of an illegal monopolist in the same way<\/a> that Microsoft did. One of the main reasons for this is that Google provides a web service that is free to anyone and that has multiple well-funded competitors (including Microsoft itself). Users are not forced to search in Google, nor are they forced in any real sense to pick Zagat\u2019s reviews over Yelp\u2019s, or Google Travel\u2019s results over those from Expedia or Travelocity.<\/p>\n\n\n\n

Dominant web players rarely last long<\/h2>\n\n\n\n

I\u2019ve argued before that one of the most powerful arguments against a federal antitrust case against Google<\/a> is that such investigations rarely have much impact, in many cases because they drag on too long and involve so much complicated testimony that is difficult to prove. Also, the market for technology itself usually does a good enough job of destroying or disrupting monopolies without the government\u2019s help. A research paper that looked at several high-profile cases, including Microsoft\u2019s and AT&T\u2019s<\/a>, came to a similar conclusion. In almost every case, technological change had more of a tangible effect than any government investigation or penalty did.<\/p>\n\n\n\n

Google, for example, is under significant pressure from the socialization of the web<\/a>. The way that people find content and services is being altered by the popularity of social networks like Facebook and Twitter \u2014 to the point where search may no longer be the primary way that people find new services. Google is trying to take advantage of that phenomenon by building its own Google+ network, and by adding \u201c+1\u201d recommendation features to its search. But will this be enough? It\u2019s entirely possible that Facebook\u2019s social search (which is currently powered by a partnership with Microsoft) could become a significant competitor to Google.<\/p>\n\n\n\n

If and when Google does wind up testifying to the Federal Trade Commission or the Department of Justice, it might even argue that Facebook is the real threat \u2014 due to its control over the social-networking market, its refusal to release data to competitors such as Google and its powerful relationships with Microsoft, Skype and other competing services<\/a>. That might seem like a legal gambit, but there is a lot of truth to it as well. The web is still changing so quickly that even a seemingly unassailable monopoly like Google\u2019s could be over before the government gets around to investigating it.<\/p>\n

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A decade ago, Microsoft finally settled a long-running antitrust case that was launched against the software giant by the Department of Justice, based on accusations that the company was using its monopoly on computer operating systems to crush competitors. Now it is Google\u2019s turn to face the antitrust spotlight: Although it is not the subject of a … <\/p>\n

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