Reback: Antitrust Investigation of Google Long Overdue

Posted May 17, 2010 at 11:47am

For years, just about everyone accepted Google’s representation that the company prospered “without doing evil.” Perceptions have changed. Suddenly, Google faces scrutiny on many fronts. Recently, for example, the company’s policy for protecting confidential user data has come under fire. But other complaints that have attracted less press attention will likely, in the long run, prove far more significant.

[IMGCAP(1)]Website publishers, advertisers and Google’s competitors, both large and small, have flooded the Department of Justice with allegations that Google’s business practices violate the nation’s antitrust laws. Earlier this month, a well-known consumer protection group joined the chorus demanding a formal government investigation of Google’s conduct. These complaints raise troubling questions about the future of Web-based commerce and warrant the government’s immediate attention.

According to the Justice Department, Google already controls a monopoly share — well over 70 percent — of the markets for Web search and for search advertising. These markets are special and different, even from other Web markets.

Google’s dominant share in these markets means that companies doing business on the Web (which is just about every company these days) secure much of their sales revenue through “referrals” from Google’s search engine or advertisements placed by Google’s ad software. The dominant market share makes Google the arbiter of each Web business (books or medical supplies, as examples). In each case, Google decides which company succeeds and which company fails by its placement in search results and ad listings on the Google site.

Google has long claimed that it uses neutral, mathematically based algorithms to prioritize search results and ad listings. “Our users trust our objectivity and no short-term gain could ever justify breaching that trust,” the company’s website proclaims. But the inner workings of the algorithms remain closely guarded company secrets. The potential for abuse looms large. The lack of transparency raises fears among advertisers and website publishers of manipulation by Google.

And in fact, over the last few years, Google has spread beyond general search into a number of Web markets and services such as maps and driving directions. In 2007, the company announced a new policy of bundling these products and services into its general search results. Critics charge Google went even further, giving preference in both search results and ad listings — the equivalent of top billing — to its own properties and services over those of competitors, the neutral algorithms notwithstanding.

Once Google started bundling its other properties into general search results, typing an address into google.com, the company’s general site, produced a preferentially placed link to Google Maps, despite the fact, according to critics, that neutral Web metrics — based on consumer searches and overall traffic — favored MapQuest, Google’s competitor. Eventually, Google stopped providing links from its main site to competitors like Yahoo Maps and MapQuest altogether.

As antitrust authorities stood by, Google entered the markets for financial information, music, health, patents, news, journal articles, movies, books, video (YouTube) and real estate listings — in each case bundling and highlighting its own properties over those of competitors. Google’s tactics, according to the company’s critics, override consumer choice, distort competition on the merits and unjustly damage competitors, thereby permitting Google to extract monopoly overcharges for advertising on its own site.

Particularly insidious is Google’s alleged treatment of niche competitors, such as specialty search and shopping sites where consumers can compare product prices and features. Such sites, at least in the aggregate, threaten Google’s core search franchise. Most Google users return to that site after exploring links provided in response to a search query. But once directed to a comparison shopping site by Google, users more often remain on that comparison site and use it to formulate additional search queries, instead of returning to google.com for additional searches.

Google’s own product comparison site, first introduced in 2002, fared poorly until 2007, when Google gave it preferential placement over competing comparison sites in general search results from google.com. Google’s comparison site quickly became the largest specialty shopping site despite “inferior usability and presentation,” according to one well-respected industry publication.

And this time, Google did not stop with just a ranking preference. Rather, the company met the new strategic challenge by imposing secret penalties on competing specialty search sites, making them literally disappear from user search results. In addition, by discriminatory targeting, Google raised the price for advertising placement to prohibitive levels for these competitive sites, meaning that they could not reach consumers even by paying for ads on google.com. These tactics, according to critics, enabled Google to illegally maintain a monopoly that would otherwise have eroded from free market competition.

Securing market dominance by inducing the reliance of Web publishers and advertisers through representations of neutral treatment — and then changing “the rules” (or lying about neutrality from the beginning) in order to maintain market control once dominance is achieved — constitutes a serious antitrust offense. U.S. antitrust authorities have brought charges against other companies for this type of conduct many times in a wide variety of situations.

These and similar allegations of illegal conduct by Google now animate formal complaints to the European Union, filings in private U.S. court cases and submissions to U.S. antitrust enforcement authorities. Perhaps they are all unfounded. We simply don’t know for sure because the Department of Justice has yet to open a formal investigation.

In high-tech markets, competition is difficult to restore once market dominance by a single firm is achieved, whether through lawful conduct or otherwise. The government needs to investigate these serious charges before further economic injury moots effective antitrust enforcement altogether.

Gary Reback is a Silicon Valley antitrust lawyer who helped spearhead the effort to get the government to sue Microsoft in the 1990s.