U.S. Google Antitrust Probe Spurs Internet-Regulation Debate

The Federal Trade Commission's antitrust investigation into Google could have unintended consequences for U.S. innovation

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Since going public in 2004, Google has built a dominant position in the Internet-search market. As Google’s market share has grown, its rivals have waged an increasingly vigorous campaign arguing that the company is abusing its search power in violation of federal antitrust law.

After nearly two years of investigation, the U.S. Federal Trade Commission is on the verge of suing Google, according to multiple reports. Four of the five FTC commissioners believe that Google has used its market power to harm its rivals, according to a Reuters report. Agency investigators are circulating a draft memo recommending legal action against Google, according to Bloomberg, with a final decision expected as early as next month. If it happens, this lawsuit would be the most dramatic action taken by the U.S. government against a major technology company since the Department of Justice challenged Microsoft in the 1990s.

The FTC is under enormous pressure to crack down on Google. In my opinion, the Feds should think very, very carefully before pursuing such a lawsuit. It’s not at all clear that the FTC would win this case, for reasons I’ll discuss below, and a loss could harm the FTC’s credibility as it brings antitrust cases in the future. As a result, the chances of an actual trial are slim. Google and the U.S. government will likely settle this matter within the next six to 12 months. In the near term, no FTC action is expected until after the presidential election.

Even if the FTC case is strong — and we haven’t seen the government’s evidence yet — federal regulators would be wise to tread carefully in the rapidly changing Internet space. In two decades, the Internet has become one of the most dynamic commercial platforms ever. Over that time, regulators have largely, and wisely, taken a hands-off approach. If government bureaucrats start bigfooting around the industry, they could hamper the development of one of the most powerful economic engines in U.S. history.

(MOREGoogle, Facebook, Twitter in Social Spat as Antitrust Probe Looms)

For years, several of Google’s competitors and sympathetic interest groups have been urging federal action against the search giant, which has amassed a 70% market share. This loosely knit coalition opposing Google includes the FairSearch.org consortium, which is composed of several of Google’s competitors, most notably Microsoft, which has been waging a not-so-clandestine campaign against Google for years. FairSearch.org argues that Google has been using its market power to harm competitors illegally.

Specifically, the group argues that Google has been using its dominance to “foreclose competitors from the search marketplace — particularly in high-traffic specialty segments, like travel, jobs, health, real estate, media and local search.” In other words, the companies charge that Google unfairly demotes rivals  — i.e., them — in its search-engine results in order to steer users toward Google’s own competing products.

Take the travel industry. When Google announced plans to buy online travel firm ITA Software in 2010 for $700 million, rival travel-search firms, including Expedia and Kayak, cried foul. (Expedia and Kayak are both members of FairSearch.org.) In order to win U.S. Justice Department approval — and to dismiss a threatened antitrust lawsuit — Google agreed in 2011 to license ITA’s technology to its competitors for five years. That settlement telegraphed the current dispute over whether Google uses its market clout to favor its own products.

One year later, it’s not hard to see why Google’s travel rivals are still angry. A simple Google search for “Miami flights” displays a large Google results box underneath the top sponsored links featuring airfare quotes from Google’s partners. One could argue that since Google owns its search page, it has the prerogative to display its own services, but this kind of apparently clear favoritism goes to the heart of why Google is facing charges that it discriminates against rivals in its search rankings. One of Google’s most prominent critics is Scott Cleland, president of the Precursor Group. In a recent blog post, he said:

At bottom, Google’s antitrust defense is that Google is better for consumers and for innovation than competition or the competitive process, based on all the consumer benefits and innovation Google has so graciously given the user to date. The fallacy in this self-serving and circular Google position is the broad and deep market experience we have that monopolies have less competitive pressure to improve and tend to lose sight of consumer/customer interests and the need to innovate — the longer they are a monopoly.

Google’s rivals are entitled to press their arguments to regulators. However, it’s hard not to interpret their campaign as sour grapes, as many experts have observed. Having failed to defeat Google in the marketplace, these companies appear to be seeking relief in the regulatory arena, according to experts. “It’s an old D.C. adage that if you cannot win in the marketplace, try to win through political influence,” Glenn Manishin, a partner at the law firm Troutman Sanders and a leading antitrust expert, wrote in a recent blog series exploring this issue:

Pursuing government regulation of market rivals entails a risk — a big risk — of untoward results. As the financial crisis of 2008 shows, once government deems an economic sector “essential” it takes on an implicit responsibility to regulate everyone, whether they have monopoly power or not. As we discuss last in Part V, this is an especially high risk in the potential case of FTC v. Google, because its proponents seek to extend the law into an uncharted realm to justify handicapping a rival. It may, and probably will, come back to bite the entire technology sector in the ass.

(MOREApple-vs.-Google Is the Most Important Battle in Tech)

Antitrust law is a fairly complex area, so let’s take a look at some of the key big-picture points. First, it’s crucial to understand that having a monopoly in a given market is not, in itself, illegal. What’s illegal is seeking to achieve or maintain a monopoly through anticompetitive practices. According to Google’s defenders, the company has built a dominating position not through anticompetitive methods — as Microsoft was accused of doing with its bundling of Internet Explorer with Windows — but rather through the merits of its superior product.

Google is simply more useful to users than rival services are, according to its boosters, but the day that fact ends, competition will be just one click away. And indeed, the rise of Facebook and Twitter — and Google’s contemporaneous failure to make inroads into social networking — illustrates how fast things can change in the Internet industry. Google also emphasizes that the fundamental purpose of U.S. antitrust law is to protect consumers; most of the complaints directed against Google are coming from its competitors, not consumers.

In building their case, FTC lawyers will have to define the “relevant market,” a legal term of art that helps shape the scope of the lawsuit. Let’s say the FTC defines the relevant market as the Internet-search market. Monopoly power is defined as the “power to control price or exclude competition.” But Google’s search engine is free for users, and it’s not doing anything to prevent users from switching to a rival search engine — other than providing a superior service.

“Google’s share of search by itself is therefore almost meaningless,” Manishin wrote. “Even if the relevant market is confined to search, moreover, there is nothing that enables Google to prevent users from switching, instantaneously, to another of the scores of search engine providers on the Internet.”

Now imagine that the FTC defines the relevant market more broadly, to encompass the larger Web advertising market. Here, the FTC would likely be on shaky ground, because it would be hard-pressed to prove that Google has a monopoly in this broader market. Google’s search advertising products compete with many other types of online advertising, including display ads and mobile ads, not to mention traditional forms of advertising (print, TV, radio, etc.). Manishin:

Taken together, all of these factors suggest strongly that the relevant antitrust market for assessing Google’s alleged monopoly power cannot properly be narrowed to Internet search advertising, and likely not even to Internet advertising to the exclusion of legacy advertising media. In an “Internet advertising” market Google’s share is almost certainly well below the 70-80% required as the minimum from which to infer monopoly power … In an “advertising” market Google undoubtedly has a share hardly worth worrying about.

(MOREPatent Peace: Apple’s Tim Cook, Google’s Larry Page in CEO Talks)

The FTC could face an uphill battle in trying to convince a federal judge of its case. But setting aside the potential merits of the government’s case — and we emphasize that we haven’t seen the evidence — any federal lawsuit against Google could have broad negative consequences. Google has revolutionized information discovery worldwide without government interference, and the company faces no shortage of well-funded, hard-driving competitors, including Apple, Facebook and Twitter. Online innovation is proceeding at breakneck speed. Does the U.S. government really want to step into the path of the digital revolution?

As for Microsoft and its FairSearch.org consortium, there’s something unbecoming about companies that have been beaten in the marketplace appealing to Uncle Sam for relief. It’s kind of like a child who loses a schoolyard ballgame and then runs to the teacher claiming that Johnny didn’t let him win. Microsoft and its anti-Google allies have spent untold millions waging an overt and covert campaign designed to persuade regulators to hobble the search leader. Perhaps if these companies spent a little less time complaining and a little more time innovating, they’d have a better chance of competing in the marketplace.

27 comments
cdesq1
cdesq1

Yeah, and spare me from Bing. I almost went nuts trying to delete that from my new computer.

cdesq1
cdesq1

Really?  There are other search engines besides Google?  Google is a company?  I thought that was a verb that means "look for something on the internet", lol.

AJAJ
AJAJ

GOOGLE search engine and establishment need to be regulated and their market share must be cut down by anti monopoly law enforcement..

Google has an unfair monopoly and way it is run at the moment they are just forcing things on common people.

Google is not serving the common man anymore and has became a tool of corporates and spy's!


 Google has a monopoly over search industry and doing their best hurting budding small timers big time. They made it so difficult for someone to grow from scratch. Their directors and recent interviews and policies show open discontent towards small players.

most surprising and alarming part is that fact that Google is even making it difficult for genuine start-ups to grow or even survive at the moment. their algorithm changes and recent changes only serve big huge establishments and they just want their wealth shared between huge corporations.

I feel like they are run by a bunch of internet gangsters lol they say one thing and then they act completely opposite. they just cant make their mind up and we have to oblige cos their is no efficient alternative to google.

If there is a better competition they cant act this way anymore. in general people have starting to feel little fed up!

Earlier google is penalised and regulated for this unfair monopoly is better for the interest of overall internet users.

hayda
hayda

And It's terrible logic you're relying on - as bad as microsoft saying that google favors itself. If people wanted Bing results they would just use bing. People choose google because they WANT GOOGLE. Well to sum up ı ll alwasy use google Because its Best .

http://www.hayda.net/

bcfred
bcfred

By this logic, Amazon should put the products of other retailers above its own even though it owns the platform.  Give me a break.  The Internet has been both the greatest equalizer and wealth creator since the industrial revolution.  So naturally the nice people in government won't be able to keep their hands out of the pie.

jnffarrell1
jnffarrell1

What FTC lawyers? The FTC had to hire contractors to prepare its Brief against Google. I say proscribe the FTC from double dipping against the taxpayer. Ban the agency from contracting out activity that its Congressional charter expected to be done in house.

Calipenguin
Calipenguin

I don't understand the plaintiffs.  Google owns its own web site and search results and can highlight any business partner it wishes.  The plaintiffs can raise their rankings by buying ads from Google, but they want to get free advertising.  The plaintiffs are hypocrites because their own web sites also highlight business partners and excludes non-paying freeloader advertising.  

gvnmcknz
gvnmcknz

Bing, Yahoo etc. etc., just don't work for me.

If I want to find what I want I don't Bing or Yahoo it.

I Google it!

Need I say more?

gvnmcknz

PulSamsara
PulSamsara

Google innovates - Google disrupts the conventional  - all WITHOUT building a giant shiny white garden wall around itself.

f_galton
f_galton

The government going after Google won't help consumers but it will provide a lift to lawyers and bureaucrats.

philbutler
philbutler

Google needs to wise up, backstabbing 50 million publishers out there with their Panda efforts, and making enemies of millions more businesses, the bottom line may get nasty. I say sue the pants off Brin, Page, Schmidt, and Google investors. 

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Gentler_Reader
Gentler_Reader

 There is no obvious garden wall, and so far that garden wall is not having too much of an impact on peoples' day to day. But Google's programs and apps are very far-reaching and highly intrusive (to be fair, though, all programs and apps are getting this way in terms of how much personal information and "permissions" they require to function at the most basic level) , and the quantities of "personalized" advertisements are becoming insane. My opinion is that all of these companies need to be reigned in, for the sake of competition and in the name of personal privacy.

Kyle Crewdson
Kyle Crewdson

 This is a case of google being "too successful". Other search engines complain, but that complaint boils down to "people are using google instead of us".

I get on my Xbox and I see a Bing search option. Why no google? It's the same fundamental complaint, except that I understand the basic concept that I chose a Microsoft machine. If I choose to search with Google, I'm choosing to see Google results. Simple as that.

proletaria
proletaria

I don't know that one can really distinguish between those groups. Indeed antitrust mythology needs to die. The fed should be busting the "natural" monopolies it created and supports, not punishing successful businesses who still have real competition.

Belisarius85
Belisarius85

Those "50 million publishers" are already on the way out. Google is just providing them a clean, relatively quick execution. And they aren't even charging them for it.

Adnan7631
Adnan7631

Don't forget the Youtube atrocity. It's becoming borderline ridiculous how painful it is to sit through those commercials over and over and over again. 

bpcofny
bpcofny

Google pays Apple to do the search on the iOS platform, and embeds the search in Android.  It buys its way into one platform and gives away free in another. What is the market share of Google in the fastest growing internet market segment? How can others get into the market?    Unix is free source OS, does it come with its own search engine?  If Google wants to put out free mobile OS, it should strip all the Google products packed with it and let consumers pick and choose the apps/functions that they want.

Tracy-K-Stelzer
Tracy-K-Stelzer

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optiontradingbasics09
optiontradingbasics09

@Belisarius85 There's no doubt competition in the travel space is brutally tough, but there is definitely a question as to whether Google is using its search monopoly to create other monopolies - which is what trust busting is supposed to be about. Even tiny niche publishers get no relevant space in this market.

R0tten
R0tten

Then don't watch it?

I feel your pain, but this is not a paid service.

Kyle Crewdson
Kyle Crewdson

"If Google wants to put out free mobile OS, it should strip all the

Google products packed with it and let consumers pick and choose the

apps/functions that they want."

I can't see how you could see this as a serious, thought-out comment. If google is putting it out there, for free, people are already CHOOSING the google mobile OS. It's terrible logic you're relying on - as bad as microsoft saying that google favors itself. If people wanted Bing results they would just USE BING. People choose google because they WANT GOOGLE.

Bruce Miller
Bruce Miller

 Android doesn't come with the Google apps (gmail and pals).  The individual manufacturers add that, after licencing the software from Google.  The manufacturers are free to do whatever they want with Android, as are you.

Also, you can change the default search engine in Android, or just add the Bing app to your front page.  But, you know all this already, because people have told you whenever you post this same drivel over and over again.

Constantine Augustus
Constantine Augustus

You're free to do that if you like, there are several non-google android devices out there, you can find the source code at http://source.android.com/ and install stock android without Google apps on any of your android devices. You can even package it with your own apps and distribute it (like Amazon has). And if you want a search engine locally installed on Unix, you have several options: http://www.searchtools.com/too... Of course, most people prefer to use a webpage, but apache is also free on linux, so feel free to set up a web server, have it crawl the web, then serve the results through your apache webserver. Of course, you'll probably be disappointed by the quality of the results; it's very easy to build a basic search engine, it's much more difficult to build one of the same caliber as Bing or Google, which really aren't all that good either. IBM's Watson most likely represents the next generation of search and has already made Google seem dated (though they're in the process of slowly improving the AI behind their results, their algorithms, on the whole, are still fairly primitive).

justinguru
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