Gigaom

A Google Monopoly Isn't the Point


Much has been made of Google (GOOG) Chairman Eric Schmidt’s admission on Wednesday that the Web giant might be a monopoly, which came during his testimony before a Senate hearing into Google’s market dominance and its effect on consumers and the marketplace. Despite howls of outrage at Google’s size and power in the search market, the fact remains that—for the purposes of U.S. antitrust law, at least—being a monopoly isn’t illegal. What is illegal is either acquiring that monopoly by nefarious or anticompetitive means or using that dominant position in a way that harms the market for those services. The problem with applying this to Google is that even if you assume it has a monopoly and is behaving in an anticompetitive manner, it’s not at all clear how that is bad for consumers.

As Stacey Higginbotham described in her post on the hearing—which was convened by members of the Senate Judiciary Committee on Antitrust, Competition Policy & Consumer Rights and entitled “The Power of Google: Serving Consumers or Threatening Competition?”—the committee heard from Schmidt as well as from a number of Google critics, including the co-founder and chief executive officer of Yelp, Jeremy Stoppelman. He said the search company took user reviews from his service without his permission and then threatened to remove Yelp altogether from the Google index.

The committee also heard from such antitrust experts as Thomas Barnett, the former assistant attorney general who for several years headed the Justice Dept.’s antitrust division. Barnett is now an adviser to Expedia (EXPE), one of the companies most critical of Google’s entrance into new markets such as travel-information. In a statement filed with the committee and made available on Scribd, Barnett laid out the case against Google in some detail, but summed it up with these four points:

1. Search is the critical gateway by which users navigate the Web. As a Google executive has noted: “[S]earch is critical. If you are not found, the rest cannot follow.”
2. Google dominates search and search advertising.
3. Google is expanding its dominance into a broadening range of search-dependent products and services, which also protect and reinforce its search dominance.
4. As one company gains control over access to further products and services on the Internet, consumers can expect to face higher prices and reduced innovation.

No Question That Google Rules

The first three of Barnett’s points are fairly obvious. Search is unquestionably the main interface for many people when it comes to the Web, although social networks and social media are growing rapidly as sources of traffic. While Barnett doesn’t come out and say Google is a monopoly, he notes that the company clearly has a “dominant position” in search and search advertising—true, given a market share estimated at 65 percent for search and 80 percent for search advertising. It’s also true that Google is expanding into new products and services, although how “search dependent” they are is debatable.

The hard part comes when Barnett says Google’s dominance in these areas affects consumers because they face higher prices and reduced innovation. This is the core of an antitrust case. (The Senate hearing isn’t technically addressing antitrust, but an investigation is currently underway at the Federal Trade Commission and possibly the Justice Dept. as well, since both share responsibility for antitrust.) It’s not enough that a company such as Google has a dominant or even monopolistic market position. As Judge Learned Hand wrote: “The successful competitor, having been urged to compete, must not be turned on when he wins.”

It’s not even enough to argue that a company with a monopoly is using its position unfairly. It has to be proven that consumers or the marketplace as a whole are being harmed by that behavior, either through higher prices, reduced choice, or both.

The problem with a company such as Google—as opposed to a company like Microsoft (MSFT), the subject of the most recent major antitrust investigation in the technology sphere—is that users don’t pay for the vast majority of Google’s products and services. Microsoft’s behavior arguably affected commerce in such physical goods as computers and software, which people had to pay for. What does Google’s behavior affect? I’m not paying any more to use Google Maps than I would for a competing service, nor am I paying more to use Yelp because it has somehow been disadvantaged by Google’s attempts to “scrape” its content for local recommendations.

How Does Google Affect Prices?

How does Barnett try to answer this point? He uses Google’s dominance in the search-related advertising market as a side door to the pricing argument. In other words, since Google controls a majority of the market for search advertising, Barnett argues that it influences prices in that market, causing advertisers to pay more. The higher prices are then passed on to consumers.

That’s an interesting argument, though it will be tough to make the case. For one thing, Google’s ad prices are set by open auction, so how are Barnett or antitrust officials going to prove they are  higher than they should be? What’s the actual market value of a click on an ad? Even if a court accepts the argument that prices are higher because Google controls the market, it’s not clear that the end user or consumer has to pay more for a particular product or service simply because advertising it on Google searches costs a penny or two more than it might otherwise cost.

Even arguing that innovation is being reduced is a tough sell. Rich Skrenta, the founder of one of Google’s most innovative competitors—a search engine called Blekko—has said that he doesn’t support an antitrust investigation into Google. Has Google’s move into mobile with Android, or into local recommendations or travel, or any other new market caused innovation in that market to decline and thus affected consumers or choice? There are few tangible signs of it. As I’ve pointed out before, innovation has disrupted more monopolies than government has.

Everyone likes to beat up on large companies—including the New York Times, which has written editorials about the danger that Google will become too large. (My response is here.) Being big is not illegal and no one (or at least no one credible) seems to be arguing that Google achieved its market size through nefarious means. Simply being unfair to competitors isn’t against the law, either.

This leaves it to the government to prove that the company is somehow harming consumers by its behavior. That’s going to be a very difficult case to make.

Also from GigaOM:

Google and the Ghost of Silicon Valley Past (subscription required)

At HP, the Broad Board Problems

First Solar Won’t Get Loan Guarantee for $1.9B Project

Apple’s A4 and A5 Processors Under Fire in New Lawsuit

Gartner: Still No True iPad Challengers Through 2015


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Companies Mentioned

  • GOOG
    (Google Inc)
    • $539.78 USD
    • -4.20
    • -0.78%
  • EXPE
    (Expedia Inc)
    • $81.53 USD
    • 1.69
    • 2.07%
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