Google Antitrust Case – Google+ Defiant in the Shadow of Harvey Birdman

July 12th, 2011 by Search Influence Alumni

Over the past few years, Google has been investigated by the FTC over most aspects of their business, largely circling around their aggressive acquisition of properties to vertically integrate other services into their core search. As Google has added features such as Products, Maps, and Video searches and integrated them into the main search results, competitors have seen their traffic decrease as users stay on Google-owned sites.

Making good on a somewhat threatening letter from the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights two weeks earlier, on June 23, the FTC continued their impression of Harvey Birdman. Issuing a subpoena “relating to a review… of Google’s business practices, including search and advertising,” the FTC has opened an investigation to “address fundamental questions of business operations.” These questions, though immediately unclear to Google (if their admission and response on their blog isn’t just rhetoric), have been speculated on rather endlessly by pundits.

Starting from their blog, Google lists a few ways that they believe they put the user, i.e. their consumer in economic terms, first in their decisions. Search neutrality, vertical integration of search, the relationships involving paid search, clarity of function and policy, and consumer choice and freedom of movement, are all core facets upon which Google prides itself. Similarly, SEO dominatrix Matt Cutts discussed with Bloomberg news about the case, but managed to deflect most of the more interesting questions.

On first glance, this investigation seems to parallel the Microsoft case that crippled the company’s ability to innovate on its OS, but not its market share or company size. The Findings of Fact from that case, which were not overturned in the successful appeal, offer insight into the kinds of inquiry Google will endure. However, it’s quickly becoming clear that substantive differences may doom the FTC’s case.

Much of the argument for monopoly power in the Microsoft case stems from an inability for consumers to effectively and seamlessly switch from platform to platform. If you have a PC, you’ll either have to run Windows or put in serious effort to run your computer like Windows. But in Google’s case, they are more like the open-source alternatives in that there is a high level of customizability and a large number of competitors that are easy to switch to. Google and Microsoft both benefit from the positive feedback loop (or arguably vicious cycle, if you’re a competitor) caused by being the dominant firm in the industry. Consumers and business partners (read: surfers and webmasters) use and develop for Google first and primarily, as it is the best-known way of finding things on the Internet.

Google’s close-to-first-mover advantage is, of course a major effect on competitiveness of the industry, outstripping Yahoo and, so far, with more panache than Bing. Furthermore, Google’s dominance isn’t just in search. Their maps and directions have all but relegated Mapquest to vintage sites; YouTube is clearly the most-used video site on the web; the image search, though lacking some of the features of TinEye, certainly is used more; Google Docs is infinitely more well-known than any of its competitors, including offerings from Microsoft Office and Adobe; and their forays into social platforms, though rather unsuccessful, may have finally found its niche, cutting into Facebook shares per article across the top 100 tech sites. Google might even suffer the same fear of pre-installation, as three of four major browsers, one of which is owned by the company, search on Google by default.

Sure, Google has the majority of search share, between 60% and 70%. But do the influences of Facebook’s social search, Twitter’s massive linksharing search, the vertical search engines, and the distinctive qualities that truly separate Google’s broad search competitors from the Big Panda really have no effect on the breadth of choices the consumer has to find content on the web? Even more so, many of the features of Docs are better implemented outside of a browser. And ever-lurking behind that success is the fact that technology, and especially non-physical products and services, have a habit of being fleeting or changing focus rapidly — case in point: Mahalo. Google isn’t invulnerable — their social networks so far have been rife with deep enough privacy issues to be all but shuttered by a class-action settlement.

Even further complicating the antitrust case is the increasingly incestuous relationship between Google and the US government. “Only” $40 million (.13%) of Google’s revenue comes from government contracts, but it’s extraordinarily clear that even having government contracts gives a major foothold in emerging markets, amplifying the first-mover advantage already in place. These contracts range from simple things like email (using Google’s Apps for Government) and Analytics to more bizarre agreements involving Google Earth for the Pentagon, FBI, and DEA and aircraft parking deals with NASA. Even more sticky is the enormous amount of lobbying Google has done over the past 5 years, increasing their budget from $800,000 in 2006 to over $5.1 million in 2010. Eric Schmidt, former Google CEO, is a close friend of President Obama, and the company came in 5th for campaign donations to his campaign.

But the obvious monopoly power wasn’t even the focus of the Microsoft trial — it was, in fact, a bait-and-switch on the general public to garner support for much more complex antitrust issues. The trial was to “address fundamental questions of business operations” concerning how it licensed the APIs differently to different companies to limit competition. While on the one hand Google has relentlessly supported open source coding, helping create a transparent and easy-to-enter market, they are also constantly involved in boxing out competitors, though this doesn’t minimize that coalitions have gathered to do the same to Big Panda too.

A slough of allegations regarding Google’s advertisement business have cropped up in the wake of the announcement of the investigation. Two arguments are at the center of the debate: that Google unfairly affects the Adwords bidding process in favor of Google-owned entities, and that Google unfairly affects the organic rankings in favor of high-revenue Adsense partners. Both of these arguments fly in the face of official Google policy.

Those claims must be on the radar of FTC officials, but judges and prosecutors will almost certainly either be too unfamiliar with the system to be able to parse out the technical details in place, or be baffled by the ubiquity of Google ads across the internet and lose the forest for the trees — such relatively outlandish accusations drive attention away from more prescient issues in the advertising system, such as uneven application of standards for content. These arguments break down even further on investigation, since social sharing likely drives more traffic to larger content farms, such as perennial slacker favorite and Demand Media flagship Cracked, which enjoys a vibrant social share rate. It would be extremely surprising if either of these accusations turn out to be true; however, if they are, Google will have to answer for significantly more than anyone expected.

The other side of the allegation coin is significantly less conspiracy-theory. The massive vertical integration Google has committed since moving away from simply being a text search engine, starting with Images and moving towards Maps and GIS systems, Books, shopping, and travel links. Such rapid expansion into every money-making part of the web leads some to ask “How many industries is Google allowed to index under search and deprive the creators of an ability to monetize it?”

That would be a valid question if two factors weren’t in play. First, modern economic theory finds vertical integration to be more economically efficient and better for consumers — the real victims of noncompetitive markets for antitrust theory, as opposed to the monopoly’s competitors. But this isn’t enough — if the only portal to websites were search engines, it would be a travesty to allow search engines to keep eating up website business models and including them as “search.” But why would a company solely rely on a third party to provide traffic? Certainly the reason why one would go to Kayak or Expedia is because of more traditional marketing they’ve done to draw attention to their site. Where the internet is concerned, many e-businesses seem to forget that their branding isn’t their top-ranking keyword — it’s actually having a business that people will want to use and recommend to their friends.

Recommendations are not only through social media sites, either. +1 and Facebook and Twitter and whatever else is around the bend isn’t the only kind of endorsement e-business can enjoy — whatever happened to meatspace? Yelp, Foundem, and Kayak have all registered complaints against Google, saying that the vertical search integration has damaged their businesses irreparably. The short answer is “get over it;” the longer one involves some stern words to the companies’ marketing departments.

But Google+ is different, and may be taken as a gigantic pyrotechnic middle finger to the FTC. Facebook and Google do compete, but the lines have always been in different business models, even as Facebook includes more and more Internet searching into their platform. Google+ is the first real competitor to Facebook, as Orkut was pre-existing and woefully underpopulated in the US and Buzz was more of a Twitter competitor. This kind of vertical integration and attempt to eat up more of people’s time on the web is exactly the wrong kind of publicity Google needs, even as it avoids the problems of stagnation that Microsoft had when it was under investigation. It’s hard to believe the competition-themed sales pitch Google cooked up after receiving the FTC notification, when even the Economist sees Google+ as a direct competitor to FB in order to return Google to its position as the “main conduit via which people access the web.”

Regardless of the intent or timing of Google+, the expansion and Internet buzz around the new service shows the power of the already-abandoned mantra “Don’t be evil.” The Economist likened the “addictiveness” of Google to chocolate instead of cigarettes; Internet analyst Greg Sterling mentions Google’s “capacity to evoke a certain kind of enthusiasm when it tries to do something that is difficult;” and everyone’s Facebook feed seems to have one friend who’s closing up shop and scooting over to feed El-Goog because they somehow trust Singhal, Schmidt, and Cutts over Zuckerberg.

And that consumer trust, despite the wails of webmasters of various types and complaints of those who work closely with Google, might be the deciding factor in this case. In general, we choose to search, share, and produce with Google, despite the fact that we might be more than gently directed recursively back to other Google properties. While this FTC investigation could spell the end of Google dominance, the tipping point is a filing of a complaint, not the start of the review, and even former FTC official David Balto assumes that there is likely no explicit wrongdoing. This FTC case, however, may give Bing its golden ticket to significantly differentiate itself from Google and become a more significant competitor.

The AP reported a 1.4% drop in stock value immediately following the FTC announcement, but the stock has since recovered.

For edification, here are the Bing and Google organic results pages for a variety of broad Google Services.