Google: Sure it's Big. Is That Bad?
CNBC
IN the 1990s, Gary Reback, a Silicon Valley lawyer, almost single-handedly brought the antitrust weight of the federal government down on that era’s high-tech heavyweight, Microsoft . Now Mr. Reback contends there is a dangerous new monopolist in the catbird seat: the search giant Google .
This month, Mr. Reback shepherded Adam and Shivaun Raff, the husband-and-wife entrepreneurs behind the London comparison shopping site Foundem, around Washington. The three held meetings with Congressional staff members and antitrust enforcers at the Department of Justice and the Federal Trade Commission.
Their goal was to air the Foundem couple’s complaint that in 2006, Google’s supposedly objective algorithms suddenly dropped Foundem into the netherworld of Google search results. They say Google also raised the rates Foundem had to pay to advertise alongside search results. These moves, the couple say, pushed their comparison shopping site out of view, and Google later put the spotlight on its own shopping listings.
Google is the “arbiter of every single thing on the Web, and it favors its properties over everyone else’s,” said Mr. Reback, sitting in a Washington cafe with the couple. “What it wants to do is control Internet traffic. Anything that undermines its ability to do that is threatening.”
“Google won a lot of good will by presenting itself as neutral to a lot of different content,” this person said. “The question is, are there real examples of chinks in their armor in their claims of neutrality?”
Google says its mission is to give users the information they’re looking for even if that means giving its own content priority and de-emphasizing sites it believes offer poor experiences. “Telling a search engine that it cannot innovate and show results in a way that benefits users would undermine the very goals of our competition laws,” says Matthew Bye, a Google lawyer.
But the search giant’s decisions on such matters may soon be judged by higher authorities. Over the last several years, it has become the canonical way to search the Web, an information doorway that dictates what kind of knowledge is visible to the browsing public. That growing market power has generated both sky-high profits and unwanted regulatory attention.
Almost a decade after Google promised that the creed “Don’t be evil ” would guide its activities, the federal government is examining Google’s acquisitions and actions as never before, looking for indications that the company’s market power may be anticompetitive in the worlds of Web search and online advertising.
“They are not just on the radar screen. They are the at the center of it,” said Tim Wu, a professor at Columbia University and the author of a forthcoming book on technology monopolies, “The Master Switch : The Rise and Fall of Information Empires.” “If you are in the federal government and are interested in antitrust, you are looking at Google.”
Google has managed to squeak by most regulatory reviews. On Friday, the Federal Trade Commission approved Google’s $750 million acquisition of AdMob, a mobile advertising start-up. Staff members had initially planned to oppose the purchase, even saying in a statement that the deal “raised serious antitrust issues.” But the agency ultimately endorsed the deal , assuming that Apple ’s entry in the market would facilitate competition.
Nevertheless, the search giant may get an indication this summer of just how uncomfortable Washington can get for such dominant firms. Federal Judge Denny Chin is expected to rule in the next few months on Google’s amended settlement with authors and book publishers and whether the agreement gives the search giant too much control over the millions of library books that it scanned. The Department of Justice has opposed the settlement on two occasions.
At the same time, Google’s own missteps have prompted a new round of scrutiny. This month, it admitted that its camera-equipped cars, which drive around photographing the world’s neighborhoods for Street View images within Google Maps, had inadvertently collected fragments of communications from people using unsecured WiFi networks. Privacy advocates howled, while the F.T.C. and regulators in Europe said they were looking into the matter.
Taken together, these inquiries are a litmus test for the federal government’s willingness to challenge a widely liked and admired company and to take on some profoundly difficult questions.
Can monopolies exist online, when competition is only a click away? What constitutes anti-competitive behavior in the complex networked economy, where the very size of big companies allows them to operate more efficiently, and thus grow even bigger? Are consumers harmed if various services are bundled together, but everything is free?
Google executives acknowledge the scrutiny. “We’re getting larger, and we have been very disruptive within some industries,” says Alan Davidson, head of United States public policy at Google. “We know we have a giant bull’s-eye on our backs.”
IN Washington, there is significant disagreement over the proper scope of competition regulation and what the future should hold for Google — and both sides have big financial stakes.
On one side are companies like AT&T and Microsoft, which vociferously lobby against Google in the policy arena.
AT&T is Google’s staunchest foe in the battle over “net neutrality ,” a term used by Google and others who fear that telecommunications providers might throttle bandwidth for certain Internet services, discouraging innovation. Microsoft provides e-mail and other services in competition with Google and has a rival search engine, Bing, which controls 11.8 percent of the market in the United States. (Google has 64.4 percent, and Yahoo 17.7 percent, according to comScore .) Microsoft is also a paying member, along with Amazon.com and Yahoo, of the Open Book Alliance, a group founded by Mr. Reback to oppose the Google Books settlement.
Google oozes a confident, seemingly cavalier attitude. Its Washington office, a few blocks from the White House, has all the casual accouterments of other Google spaces, like massage chairs and foosball tables. Furthering the idea of an open, freewheeling atmosphere, the company uses a public meeting space at the office to present regular events that are available to the public, like conversations with authors and a recent panel about home energy use with Carol Browner , a senior energy official at the White House.
When it comes to government scrutiny, the company’s executives challenge the premise that Google is a monopoly, even as the company’s share of the search market inexorably rises, arguing that Google is still a minor player in the overall advertising market, which totals $800 billion a year.
Google also says that linking prominently to its own services over those of rivals is good for consumers and not malicious. Its famous search algorithm, conceived by one of the founders, Larry Page , at Stanford in the 1990s, uses a series of complex and opaque formulas to rank the sites within a set of search results. The algorithm is responsible for what Google calls the “organic” listings that appear on a search results page.
But increasingly, above and mixed throughout those search listings, Google presents links to its own services, like maps, YouTube videos, local business results and product search listings. Executives argue that providing these easily accessible results clearly benefits users. Rivals claim that this is self-serving, and that Google promotes its content even though there may be better material elsewhere.
Behind the scenes, Google is taking its challenges in Washington seriously, adding to its staff, increasing expenditures and meeting criticism head-on.
“As we have a bigger impact, we have to expect to have more kinds of scrutiny, and we have to adjust,” said Vic Gundotra, Google’s vice president of engineering, when asked whether Google could ever again make large acquisitions, like YouTube, without stiff government resistance. “It also means we have a lot of resources today that we didn’t have when we were tiny. So we have a lot of choices.”
To fight these and other battles, Google employs a dozen or so policy experts, including nine registered lobbyists, and a public relations staff of four. It also retains at least four Washington public affairs and communications firms.
According to public records, Google spent more than $4 million lobbying in 2009, a 160 percent increase since 2007. Much of that money was spent through entrenched Washington lobbying firms like the Podesta Group and the Franklin Square Group.
The search giant is still outgunned by its primary adversaries: AT&T spent $14.7 million on lobbying in 2009. Microsoft spent $6.7 million.
IN many ways, Google’s Washington push appears to be largely successful. In the last few years, the company has won battles over net neutrality, advocated making new parts of the wireless spectrum open to a multitude of devices, gotten all of its acquisitions approved by regulators and kept new privacy laws at bay.
Even last month, privacy activists, who have long focused on Google, were frustrated when Congress released a draft of a privacy bill meant to regulate data collection practices on the Web — which would be a first for the United States.
Provisions in the bill called for Web sites to discard customer data after 18 months or make it anonymous, and to offer users access to a “profile manager,” which would allow them to see why they were being shown certain ads. Both are already policies at Google. The company lobbied while the bill was being written and it was seen as largely favorable to the company.
The bill “demonstrated Google’s ability to frame the issue to their own benefit,” said Jeffrey Chester, director of the Center for Digital Democracy . “Google likely dodged a bullet.”
Google representatives declined to characterize the bill as any kind of legislative victory, saying they still had concerns about it. The response, Google allies say, is consistent with the company’s overall attitude in Washington.
“They don’t want to be a Washington player. They want to be seen as a technology company that explains to Washington what they’re doing,” said Markham C. Erickson, executive director of the Open Internet Coalition , an industry trade group of which Google is a member.
Mr. Erickson said that Google executives thought they were doing the right thing for consumers and the Internet, and that simply by educating lawmakers on Google’s good intensions, they would ultimately win the day.
But even Mr. Erickson acknowledges, “Once you’re big, you’re not cute any more.”
There is ample evidence that Washington regulators think Google has already outgrown its cute stage.
Jon Leibowitz , the chairman of the Federal Trade Commission since last March, has shown his willingness to stand up to Google, most recently with the F.T.C.’s inquiry last year into the board-level relationships among Google and two of its rivals, Amazon and Apple. That investigation caused several prominent Silicon Valley business leaders, including Eric E. Schmidt , Google’s chief executive, to give up board seats at other companies.
In January, Howard Shelanski, an F.T.C. economist, underscored the agency’s attention to Google. In a speech at the University of Colorado , Mr. Shelanski said that the concern over network neutrality should also apply to a dominant online search engine that might unfairly discriminate against individual companies.
Though he did not name the search engine, the implication was clear: the F.T.C. was worried that Google could show prejudice against competitors — exactly the complaint that has been levied by some comparison shopping sites, including Foundem.
Leading the Department of Justice’s antitrust division is Christine A. Varney , an assistant attorney general, who represented Netscape during the antitrust case against Microsoft over its practices promoting Internet Explorer. Ms. Varney has publicly said she thinks Google may merit antitrust scrutiny. “Microsoft is so last century,” she said in a 2008 speech. She said Google could be a problem because it had “acquired a monopoly in Internet online advertising.”
One person at the Department of Justice, who spoke on the condition of anonymity because he was not authorized to talk about the situation publicly, said that the antitrust division was constantly examining Google’s behavior, trying to gauge whether the company was living up to its claims of neutrality.
“Google won a lot of good will by presenting itself as neutral to a lot of different content,” this person said. “The question is, are there real examples of chinks in their armor in their claims of neutrality?”
But Google itself may be giving regulators and legislators more reasons to take a closer look. Its collection of private data over WiFi networks followed a similar misstep in February over the Buzz social network, which publicly exposed the contacts of Gmail users with little warning.
Google’s high-profile mistakes hurt because they convey the impression that Google’s behavior is increasingly inconsistent with its “Don’t be evil” mantra.
One of Google’s founders, Sergey Brin, acknowledged the mistake last week at the company’s annual conference for developers in San Francisco. “We screwed up, and I’m not making excuses about it,” Mr. Brin said. “Trust is very important to us, and we’re going to do everything we can to preserve it.”
Mr. Reback, the lawyer, is one person who does not trust Google to do the right thing. He is eager to talk about legal remedies to antitrust concerns, including appointing an independent expert to monitor Google’s algorithm to ensure that it does not unfairly penalize rivals like Foundem.
It sounds far-fetched. But Mr. Reback says that a serious conversation has started about Google’s power. “The government is finally onto the notion that they have to start asking questions about Google,” he said. “Google started off saying they were going to treat everything on the Web neutrally. That is the basis on which they secured dominance. And now they’ve changed the rules.”
