Where Google is Vulnerable to the FTC Probe

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Where Google is Vulnerable to the FTC Probe

Google has responded to the FTC probe regarding its potential monopolist practice of directing users to its network of sites and in a blog post from Amit Singhal, a Google fellow they explain that their focus is primarily on users. A salient excerpt follows:

It’s still unclear exactly what the FTC’s concerns are, but we’re clear about where we stand. Since the beginning, we have been guided by the idea that, if we focus on the user, all else will follow. No matter what you’re looking for—buying a movie ticket, finding the best burger nearby, or watching a royal wedding—we want to get you the information you want as quickly as possible. Sometimes the best result is a link to another website. Other times it’s a news article, sports score, stock quote, a video or a map.

Further in the post they say the following:

Today, when you type “weather in Chicago” or “how many feet in a mile” into our search box, you get the answers directly—often before you hit “enter”.

google-weather-chicago.png

So I did google weather in Chicago and not surprisingly I did see the weather forecast. I remember when Google decided to allow users to see the weather instantly – before they even hit enter and from the moment I saw them do this I thought about how many jobs could be lost by websites who provide weather news.

Of course the counter-argument is Google sends the weather sites lots of traffic but still, if you have a website which just surpassed a billion users in a month giving away information you provide it has to hurt your company.

The argument can be made Google is helping users as a result of slowly disintermediating site after site and slowly choking industry after industry which provides somewhat-generic information. But if the consumer wins the FTC may not have the ability to win a lawsuit against the search giant. After all Wal-Wart has put retailer after retailer out of business but in doing so it has consistently been lowering prices and as a result consumers win and Wal-Mart is able to grow unabated.

Section 2 of the Sherman Antitrust Act says “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.” The obvious point is Google does have competition and is not a monopoly in that competitors can launch search engines and compete. Obviously they have dominant share and no one has been able to do take much share but holding marketshare in a market where others are free to compete isn’t a crime.

Some analysts believe Google is vulnerable if its advertisers are deemed its customers. And if Google unfairly directs traffic to its own network of sites which in-effect reduces the traffic to competing sites, then Google’s prices could be increased and as a result customers are harmed. But the challenge here is if Google is able to generate many new page views to its own site and its auction-based advertising model is truly fair, it could conceivably provide lower prices per click to its advertisers based on supply-and-demand. But over time if competing sites are drowned out of the market then Google becomes the sole destination to run ads in a specific area and subsequently will see its prices rise – thus hurting its advertising consumers.

Some experts believe Google is vulnerable to Section 5 of the FTC Act which prohibits companies from engaging in unfair & deceptive act in interstate commerce. Unfair is described as follows: (1) it causes or is likely to cause substantial injury to consumers; (2) the harm to consumers is not outweighed by any countervailing benefits; and (3) the harm is not reasonably avoidable by consumers.

Obviously this is a complex case but you can make the argument that Google is becoming the Internet and as they help put companies out of business #3 applies to its advertisers. Moreover, there is the Google Panda update – designed to ensure sites like eHow are reduced in rank via algorithmic changes. Last I checked, eHow competes with Google – is this the intentional targeting of a competitor while hiding behind the algorithmic defense of improving search quality?

Sure Google argues it has hundreds of algorithm changes per year but when a single one is estimated to arbitrarily shift a billion dollars of revenue to large publishers from small ones, is that fair?

And then there is the white list of exemptions Google has. I wonder what is on this list, what has been on it historically and why Eric Schmidt was able to assume he could alter it for his own personal benefit. I raised the alarm bells on this matter on April 1st of this year predicting teams of lawyers were getting ready to act.

This case could be mighty interesting and as someone who uses Google for so much, I love it and couldn’t live without it. Still, I applaud the FTC for getting involved and ensuring there is a level and fair playing field. As my loyal readers know, I am not a fan of government intervention in so many areas but allowing free and open competition where capitalism can thrive benefits consumers most.

 

 



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