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Google Free to Extend Web Search Lead as U.S. Ends Probe

January 04, 2013

Google Free to Extend Web Search Lead as U.S. FTC Ends Probe

The FTC’s decision clears the way for Google to continue adding features that have helped it beat back Microsoft Corp. and Yahoo! Inc. to become the world’s top search provider and most valuable Internet company. Photographer: Simon Dawson/Bloomberg

Google Inc. (GOOG:US) is free to extend its dominance of the $50 billion Internet-search market after U.S. regulators ended an investigation into whether the company unfairly disadvantaged competing websites by favoring its own services in search results.

The Federal Trade Commission, after a 20-month antitrust probe, concluded Google was motivated more by wanting to improve its search results and the user’s experience than by a desire to stifle competition, said Chairman Jon Leibowitz, who drew a distinction between dominating a market and doing so unfairly.

The FTC’s decision clears the way for Google to continue adding features that have helped it beat back Microsoft Corp. and Yahoo! Inc. (YHOO:US) to become the world’s top search provider and most valuable Internet company.

“Nothing in the decision is a serious blow to any of Google’s ambitions,” Whit Andrews, an analyst for technology research firm Gartner Inc., said in an interview. The FTC didn’t get into the question of “where the boundaries are going to get drawn” in the search business, he said.

Google, which makes money by selling advertising next to search results, should grab 76 percent of the U.S. search market this year, up from 75 percent last year. Microsoft should get 9 percent while Yahoo may land 6 percent, according to EMarketer Inc.

The global Internet search market is expected to grow to more than $50 billion this year, up 15 percent from the year-ago period, ZenithOptimedia, an advertising research unit of Paris based Publicis Groupe SA (PUB), said in a report last year.

Manipulating Searches

The FTC investigation looked into allegations that Google manipulated its search algorithms to promote its own products and services, harming competitors and consumers. While some evidence suggested Google was trying to eliminate competition, its “primary reason” for changing the look and feel of search results was to improve user experience, Leibowitz said at a news conference in Washington yesterday.

The agency’s decision to close its probe without enforcement action is a blow to competitors including Microsoft, Yelp Inc. (YELP:US), and Expedia Inc.. (EXPE:US) An alliance of e-commerce and Web- search companies pressed the agency to bring an antitrust lawsuit.

Google Concessions

Google made some concessions, agreeing in a letter to the FTC to let websites remove their content from focused search services like Google Shopping or Google Local without removing or demoting that content in the main Google search engine.

Advertisers will also be able to compare data from other search engines within third-party services that use Google’s AdWords software, Google said in a blog post yesterday. The FTC said the commitments are enforceable.

The FTC’s resolution of the matter is “weak and -- frankly -- unusual,” Dave Heiner, a Microsoft (MSFT:US) vice president and deputy general counsel, said in a blog post yesterday.

“Google has long said that it merely aims to offer customers the most relevant answer to their query, and the FTC commissioners accepted that view,” Heiner said. “Yet we know that Google routinely and systematically heavily promotes its own services in search results.”

“Is Google+ really more relevant than Facebook?” he asked. “Are Google’s travel results better than those offered by Expedia, Kayak and others?”

‘Hand-to-Hand Combat’

Search-engine competitors made many of the same product- design choices Google did, “suggesting that this practice benefits consumers,” Leibowitz said yesterday.

Some companies or people may think the agency should do more “because they are locked in hand-to-hand combat with Google around the world and have the mistaken belief that criticizing us will influence the outcome in other jurisdictions,” Leibowitz said.

Google also agreed in a consent decree to limitations on when it can seek to bar sales of competitors’ products that rely on so-called standard-essential patents. Industry-standard technology helps ensure products such as mobile phone antennas and global-positioning system software can operate together when made by different manufacturers.

Google paid $12.4 billion to buy Motorola Mobility, an early pioneer in the mobile-phone market, in part to get access to its standard-essential patents. Motorola Mobility has been locked in licensing disputes with Microsoft and Apple Inc. in courts and at the U.S. International Trade Commission over their use of those patents in smartphones, tablets and gaming systems.

‘Bad Precedent’

FTC Commissioner Tom Rosch, a Republican, said that while he believed Google’s conduct in search didn’t warrant action, the agreement the agency accepted “creates very bad precedent and may lead to the impression that well-heeled firms such as Google will receive special treatment at the commission.”

“Instead of following standard commission procedure and entering into a binding consent agreement to resolve the majority’s concerns, Google has instead made non-binding commitments with respect to its search practices,” said Rosch, who steps down today. “After promising an elephant more than a year ago, the commission instead has brought forth a couple of mice.”

The FTC announcement is “maintaining the status quo,” Danny Sullivan, founder of the industry blog Search Engine Land, said in an interview. “I doubt it will result in any significant change in how consumers interact with search engines or to the market share of respective competitors.”

European Regulators

It’s now up to European antitrust regulators to determine whether any restrictions should be placed on Google’s search practices, said William Kovacic, a former FTC commissioner and chairman and a professor of law at George Washington University.

Google has agreed to offer the European Union detailed commitments on how it would resolve regulators’ concerns, including how Google’s own services are promoted above those of rivals and how it uses and displays other content on search services.

“The European framework is more amenable to enforcement than the U.S. one is,” Kovacic said. “That gives the Europeans a bigger margin to demand concessions.”

Consumer Watchdog, an advocacy group, pressed the U.S. Justice Department and state attorneys general to investigate Google’s “monopolistic behavior in search results” in the wake of the FTC announcement.

“The FTC rolled over for Google,” John Simpson, director of Consumer Watchdog’s privacy project, said in an e-mail.

To contact the reporters on this story: Eric Engleman in Washington at eengleman1@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editors responsible for this story: Bernard Kohn at bkohn2@bloomberg.net; Michael Hytha at mhytha@bloomberg.net; Tom Giles at tgiles5@bloomberg.net


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