THE BLOG

Federal Government Hurting America's Internet Economy

10/16/2012 04:14 pm ET | Updated Dec 16, 2012

While the worst of the recession may now be behind us, America's economic recovery is still in its nascent stages. It seems every day there is news of an economic indicator showing yet another fit and start, as companies small and large struggle to hire more workers and grow their businesses.

Despite the slow recovery, one bright spot throughout the last several years has been the thriving Internet economy. Innovation is alive and well in America, with new startups launching practically every day, competing to become the latest and greatest in tech. This Internet economy is not only responsible for the creation of many small businesses, but also turning these small businesses into large companies that employ thousands of workers and provide goods and services to millions of people. According to the Boston Consulting Group, the Internet accounted for 4.7 percent of U.S. GDP growth in 2010; if it were a national economy, the Internet would be the world's fifth-largest by 2016.

Here in New York City, the IT sector experienced 28.7 percent job growth between 2007 and 2012. Media, IT and tech companies grew from a combined footprint of 3.8 million square feet in 2010 to six million square feet in 2011. Tech sector growth is critical to the diversification of New York's economy, particularly in light of Wall Street's job contraction in the recession.

While the Internet economy has caught fire despite the broader recession, the federal government is unfortunately standing in its way instead of fostering more growth. Most notably, the Federal Trade Commission has been investigating for over the last year whether Google is operating fairly. The FTC is even considering whether the search results you see should be regulated. For example, the FTC is looking at regulating whether a Google map or a Mapquest map appears at the top of a search page for a restaurant location. Rather than allow Google's search algorithm to offer listings that best meet a particular user's query, the FTC would seek to regulate search.

What makes this fishing expedition so troublesome is that consumers are not the ones taking issue with Google's search results. It's clear that if consumers were unhappy with Google, they would switch to another provider such as Bing, DuckDuckGo, Yahoo or Quora. Additionally, the proliferation of the app ecosystem allows people to bypass search engines entirely. For example, while Yelp has cried foul over how its service is displayed in Google's search results, 40 percent of its traffic now comes from mobile apps. Apple's Siri allows iPhone users to skip their web browser and search via voice instead.

The Internet is a level playing field -- competition and choice is just a click away, with plenty of free options available for users to choose from. Indeed, an IBOPE/Zogby poll commissioned this year by the National Taxpayers Union found that 87 percent of respondents felt they could easily switch to competing search engines -- and 79 percent thought the government should not regulate search engines.

Putting aside whether there are any merits to the FTC's investigation, an equally important question is whether federal regulators understand how fast-paced competition moves and evolves on the Internet. Internet behemoths of yesterday are regularly overtaken by lean startups -- a powerful incentive for companies to continue innovating, knowing that new competition may be just around-the-corner.

For example, in 2008, MySpace attracted more than 70 percent of social networkers; just three years later it had dropped to barely 1 percent. Today, you may have even forgotten that MySpace still existed, an online portal filled with more tumbleweeds than actual users. Yet a few months ago, the FTC announced that it would subject MySpace to privacy control audits for the next 20 years.

Such action shows how little the FTC understands the pace of tech innovation. Think about what has happened in the 13 months since the FTC announced its investigation of Google. Few had heard of photo sharing startup Instagram, until it grew so fast that Facebook ultimately bought it for $1 billion. Apple had yet to announce Siri, which totally bypasses traditional search engines by utilizing voice commands instead of text. Facebook and Yelp were not public companies, and rumors had not started swirling that Facebook was looking to enter the search business and capitalize on its audience of millions of users.

All told, competition in tech is alive and well. Companies are continuously innovating to become the next great startup that takes the Internet by storm. The success of the Internet economy has been led by entrepreneurs and innovators, certainly not the government. And government regulators are not doing our recovery any favors by carrying out investigations against industries that have been the backbone of America's economic growth -- especially when the evidence shows that consumers are benefiting from a marketplace that has more choice and competition than ever before.