Wednesday, September 22, 2010

Is Google A Monopolist?

That was the title of last Friday's Wall Street Journal presentation of two editorials arguing the question.

It's nice to have a topic to discuss that involves more pure business and strategy than government intervention, although, the very question actually begs the latter.

The Google case seems, on the surface, to resemble that of the infamous browser wars in which Microsoft drove Netscape into oblivion. That certainly is the contention of one of the editorialists, Rick Rule, now retained by Microsoft and other firms in an anti-trust action against Google.

However, as I thought about this question over the weekend, I found myself believing that Mr. Rule is engaging in a deceptive and erroneous comparison.

Google offers a free search engine to anyone wishing to use it. But it is not the only search engine available. In fact, so robust is the search engine market that Microsoft re-entered the fray recently with its branded Bing service. And just this past week, a co-anchor on CNBC announced that she had gone back to Yahoo's search engine and found it better than the other two.

Since one accesses Google's search engine as an online service, it immediately begins to depart from the browser example, in that those software programs were coming pre-loaded on personal computers of the day.

If memory serves, one of the major anti-competitive behaviors by Microsoft involved tying its browser to its Windows personal computer operating system when selling the latter to PC producers such as Dell. The argument against Microsoft was that it was illegally using the ability of Dell to sell PCs pre-loaded with the most popular operating system, Windows, to force it to also pre-load the included Internet Explorer web browser, and exclude Netscape's or any other firm's browser.

As such, Microsoft's alleged anti-competitive behavior involved violating the Robinson-Patman Act's provisions involving illegal tying.

Google, however, isn't tying anything to a product for which money is paid.

No, the current argument is really about advertising market foreclosure. Even the debate concerning Google's alleged manipulation of search results is baseless in that nobody pays for searches.

Thus, despite a long-winded diatribe, Mr. Rule's only real well-founded point is that Google's share of online advertising exceeds 70%, which he claims exceeds the Sherman Act's "consensus" threshhold.

However, again, online advertising isn't "sold" to users. It's bought by those wishing to advertise, and they can choose all three search engines, if they wish, on which to advertise their products and services.

It reminds me of my local, freely-distributed weekly 'newspaper.' Many communities have them. A local publisher prints and distributes variants of the same weekly paper to many nearby towns through contracted carriers. Nobody pays for these nuisances, and often they receive multiple copies. Thus, it could be said that the publisher in question has a monopoly, in that every house in a town is given at least one copy of the paper. Companies pay to advertise in the paper, but nobody suggests that these small entities have a harmful monopoly on advertising.

Mr. Singhal, a Google fellow and the Journal's choice to represent Google's viewpoint in the other editorial, argues that Google is always vulnerable to its search engine being eclipsed by a better one, thus upsetting its business model. I wrote a post several years ago contending precisely this case. Everything else that Google has pursued has necessarily been dependent upon revenues from search-related advertising. If search goes down, Google's entire empire is in jeopardy.

As an aside, while I understand that Google's, and other search providers, receive their ad revenues from those wishing to place product and service ads, I continue to marvel that companies do this. My own behavior almost never results in purchasing goods or services directly from an ad on an online search. True, a company purchasing a keyword might get a click-through from me, but rarely a purchase.

In any case, businesses do see value in buying various search words and terms, fueling Google's, Yahoo's and Microsoft's search-related advertising revenues.

But none of those seem to even remotely pass the test of current anti-trust laws which require the guilty party to actively foreclose markets to suppliers or predatorily price goods or services to buyers in order to eliminate competitors.

It seems that, like it or not, existing anti-trust laws do not easily apply to the world of online search and advertising. Google's predominance, when viewed objectively, would not seem to be a result of any illegal activity, whether it is a monopoly, or not.

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