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The Case for Antitrust Action Against Google

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Congressional calls to investigate Google for antitrust violations are heating up. The Senate Antitrust Subcommittee plans to look at the company's likely antitrust violations, with Chairman Herb Kohl, D-WI, saying in a release:

In recent years, the dominance over Internet search of the world's largest search engine, Google, has increased and Google has increasingly sought to acquire e-commerce sites in myriad businesses. In this regard, we will closely examine allegations raised by e-commerce websites that compete with Google that they are being treated unfairly in search ranking, and in their ability to purchase search advertising. We also will continue to closely examine the impact of further acquisitions in this sector.

Ranking Member Michael S. Lee, R-UT, also supported hearings on Google because, "the powerful position Google occupies in the general search arena creates myriad opportunities for anticompetitive behavior." Senator Lee also argued that Google's dominant position feeds the company's refusal, as in the wi-spy scandal, to take consumer privacy seriously:

Google's powerful position as an Internet gatekeeper reduces the company's incentive to compete with other search engines by providing enhanced privacy protection for consumers. The combination of behavioral and personal information enables Google to generate consumer data that is unprecedented in scale and scope. These activities raise serious privacy concerns and may be indicative of an important market that is largely unconstrained by competition.

The Congressional investigations are just paralleling rising scrutiny of Google by antitrust authorities in both the US and in Europe. J. Thomas Rosch, one of two Republicans on the five-member Federal Trade Commission, said he favors a review of the search industry. The European Commission in November started investigating whether Google is illegally directing users of its search engine to websites it owns or is affiliated with and whether Google is stopping websites from accepting competitors' ads. The U.S. Justice Department is reviewing Google's acquisition of travel data firm ITA Software on antitrust grounds. And Texas Attorney General Greg Abbott is conducting his own investigation and wants Google's formula for setting advertising rates.

Personally, I have some sense of déjà vu from my own experience ten years ago at NetAction where I led an effort examining Microsoft's dominance of the industry and why antitrust investigations were needed. A lot of people -- then with Microsoft as now with Google -- said the dominant company in question was just delivering a popular product with consumers and those looking to use the antitrust law just hated the companies. A decade ago, some of those going after Microsoft were Mac users who hated PCs, but I was a PC/Windows user (and still am) just as I'm a heavy user of Google products -- but it's actually the convenience of using the dominant product that highlights why antitrust concern is warranted.

Monopolies Don't Start out Inefficient: One intellectual mistake in understanding antitrust law is believing that monopolies always hurt consumers initially. In fact, many monopolies arise precisely because they are more efficient initially than a bunch of competing companies. J.D. Rockefeller's Standard Oil gained monopoly power by being more efficient than its competitors and integrating all aspects of the oil production process. Other rising monopolies of the past got there by outmaneuvering the competition with better products.

The problem comes with what a company does with a monopolistic position once attained. It can use that position not only to gain economies of scale but to reinforce that dominance with constraints imposed on contractors, customers and others that make it impossible for smaller competitors to achieve similar efficiencies. Customers look around and wonder why the "best" company is being politically attacked, when that company is using its position to prevent the competition from delivering a similar level of service.

And once a company is dominant in a core industry position, it doesn't have to worry as much about consumers defecting based on other concerns -- i.e. consumers will ignore privacy concerns of using Google because they think it's delivering their top priority of strong search results. The quote from Senator Lee above captures the idea that Google's seeming unconcern about violating privacy is driven by its complacency in dominating an uncompetitive search marketplace.

What are the Antitrust Concerns About Google:
One of the reasons antitrust scrutiny of Google is rising both in the United States and globally is that the number and range of antitrust complaints and concerns has been multiplying so rapidly. Here are just a few:

  • Violating Privacy for Anti-competitive Purposes: Like others, I've highlighted the wi-spy scandal where Google collected personal data from millions of people around the world using it's Street View cars eavesdropping through wi-fi connections in peoples' homes. Add in other privacy breeches by Google and a lot of privacy advocates end up seeing Google as a prime enemy of data protection. But what gives the issue an antitrust twist is that Google is in the business of reselling aggregated data, so if it is breeching privacy systematically in illegal or unethical ways that help it resell the rest of its products through better targeting of search results and/or advertising, those privacy breeches become an anti-competitive advantage for Google as well.
  • Manipulating Search Results to Favor Google and Shut Out Competitors: Google is accused of artificially inflating the search rankings of its own services while deceiving consumers into thinking the rankings are objective. For example, this led Google Maps to displace MapQuest as the most visited online mapping site, displaced local restaurant listing sties with its own Google Local, and undermined many other non-Google services.
  • Manipulating Search Results to Penalize Competitors: The European Commission is investigating claims that Google used its control of over 90 percent of natural and paid search in Europe to lower the ranking of unpaid search results of competing services and likewise lowered the 'Quality Score' for sponsored links of competing vertical search services. For example, Google is accused of making Foundem, a UK-based search engine that in 2008 was named the UK's best price comparison site, effectively disappear from Google's natural search results for three years.
  • Exclusive Dealing to Shut Out Competing Search Providers: Google is accused of enforcing its dominance in search by imposing exclusivity restrictions in dealings with advertising partners, such as third party websites and PC manufacturers. At any given point, Google has locked up an overwhelming percentage of the search syndication market through exclusive deals on search and toolbars with PC manufacturers, Internet service providers, software vendors, and others.
  • Restricting Data Portability to Prevent Use of Competing Online Ad Platforms: Google is accused of using contractual restrictions on advertisers that make it unreasonably difficult for them to port their data to competing ad platforms. Since Google's paid search ad platform, AdWords, is widely considered a "must buy" for businesses that advertise online, if companies can't easily port their data from AdSense to other platforms, it can become cost-prohibitive for them to advertise on multiple advertising platforms. This can just reinforce decisions to advertise exclusively on Google.

And while Google's obviously not dominant in the browser or operating system fields, there is concern that Google's Android mobile operating system and Chrome browser qua operating system could be used to further entrench Google's search dominance.

Unfair Competition, Not a Bad Product:
You don't have to think Google is producing a bad product to be concerned about how lack of competition may erode pressure on Google and others to innovate in the search and related markets. We don't want to live in a "winner take all" economy where a strong product allows a company to pull up the ladder behind it and destroy its competitors.

The real question is not why to investigate Google, since the problems listed above are obvious. The question is why not force Google to act more competitively? Antitrust restrictions will likely make Google products better and allow new competing products a better chance to reach consumers (and in turn force Google to innovate in response). For example, if Google's other products don't get special treatment in its search results, won't that force Google to improve those product to win fair-and-square by Google's own algorithm rules? If data in Adsense is portable to other advertising venues, won't that encourage Google to improve its services to advertisers to keep their business? And if Google knows its privacy violations can't be used for anti-competitive purposes, maybe the company will become a better guardian for consumer privacy.

Crossposted from Tech-Progress.org

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