03/01/2012 06:27 pm ET Updated May 01, 2012

Solving the Google Privacy Problem Will Largely Solve the Google Antitrust Problem

We seem to be having two debates about Google -- on the cultural side, the question is whether the company violates user privacy too much and, on the business side, is Google a monopoly threat in the marketplace?

But these are not separate issues at all.

Larry Page and Sergey Brin did not create Google because they are prurient people interested in rifling through peoples' personal lives. I don't think they could care less. As the saying goes, for them it's just business.

Because Google's business model is based on obliterating user privacy as much as possible, solving the Google privacy problem will largely solve the Google antitrust problem.

Start with one basic reality: users of Google Search, Gmail, YouTube and the rest of its services are not Google's customers. They're the product. Those services are honeypots used to attract users, strip them of personal data, and then package them using their demographic and behavioral data for advertisers -- Google's real customers.

Today, Google's most recent move to completely integrate user data generated on different company sites, with a single privacy policy governing all services takes effect. This just ratifies the reality of an integrated market for user data across the Googleverse. In Europe, the Article 29 Working Party of data privacy regulators in Europe has demanded Google reverse this decision. As the French data agency CNIL wrote in a letter to Google this week, speaking on behalf of European regulators:

[O]ur preliminary analysis shows that Google's new policy does not meat the requirements of the European Directive on Data Protection... Moreover, rather than promoting transparency, the terms of the new policy and the fact that Google claims it will combine data across services raise fears and questions about Google's actual practices...

The CNIL and the EU data protection authorities are deeply concerned about the combination of data across services and have strong doubts about the lawfulness and fairness of such processing.

Stating that they intend to act to change the policy by Google, the European regulators are aiming at the heart of the Google problem, but there should be a more explicit regulatory discussion linking the privacy and antitrust aspects of this issue.

Regulators need to more clearly recognize that when Google moves into a new sector and gives a consumer product away, the destruction of rival businesses is just a byproduct of its goal of annexing more user data to its Borg-like mass of data.

Google doesn't even have to completely control any of those sub-sectors, since no rival in any of them have its integrated access to user data across so many different services. And that control of user data gives Google an almost complete monopoly on its core real business of selling search advertising. While a user of a search engine may be able to think that competition is "just a click away," the reality for advertisers is that there is no alternative.

For advertisers, the choice is between Google, which in Europe has intimate personal information on over 80% plus of online users, versus competitors like Bing of Yahoo with a tiny percentage of search user information and without Google's comprehensive multi-sector reach into user private information.

And the failure of competition shows up in the prices charged to online advertisers. In theory, if competition was functioning, while Google would make more money overall with more users clicking ads, the cost per click should be nearly the same for Google competitors. However, Google actually gets a premium prime per click, even in the United States where Bing has a more significant share of searches, indicating serious monopoly power with the power to get a monopoly price from its advertising customers. According to analysts, Google receives anywhere from twice to five times as much for the same ad using the same kind of search terms. So the result is that while Google is printing money from its online advertising operation, Microsoft lost an estimated $2.6 billion last year on its Bing operation.

However, if regulators act to tighten privacy policy, they will in turn restrict the source of Google's monopoly power as well.

A good first step is the Article 29 Working Party's demand that Google not collapse privacy policies across its different services. Users should retain the ability to choose which data they share with Google on each and every individual service they use--and not have the data from one service used on another by advertisers.

Requiring a clear "opt-in" agreement by users for each and every use of their personal data will also help encourage users to demand full economic value for their data and refuse its use for the most exploitive purposes. And users should have clear ways to see exactly what data is known and revoke access to that data for marketing purposes at any time.

The end-product of tighter user control of their privacy will be less data controlled by Google, more room for alternative companies to compete by accommodating those privacy concerns, and less antitrust concerns about Google. Google will be forced to compete based on better technology again, not pure brute control of user data, and the company itself will be all the better for it.