For anyone who followed Microsoft's testy battles with competition regulators 10 years ago, Google's current antitrust problems may provoke more than a modest sense of deja vu.
Google dominates the Internet search advertising business and has allegedly used that hegemony to thwart rivals in adjacent markets. Regulators in the United States and Europe are looking into claims by smaller niche search companies, such as 1plusV, which runs the Ejustice.fr site in France and MyTriggers.com in Columbus, Ohio, that Google is manually altering search results, demoting where rivals show up in its ranking, making it harder for customers to find their services. Google points out that its algorithms naturally push those sites down in rankings because those search engines offer little more than links to other sites, created solely to generate revenue as a middleman.
Dial back to 1998: The centerpiece of the Justice Department's case against Microsoft was the company's illegally leveraging its Windows monopoly to give its Internet Explorer browser an unfair advantage over Netscape's Navigator. When consumers booted up a Windows PC, Internet Explorer, included as part of the operating system, was automatically the default browser, giving users less reason to seek out alternatives.
There are even similarities in the defense that Google offers for its actions and Microsoft once did. Google is also being called to task for giving away services that other companies charge for, such as its Android mobile phone operating system or its Google Docs word processing service.
For consumers, it's hard to beat free, something Google senior competition counsel Dana Wagner noted in a blog post two years ago. "When a company provides products for free on a stand-alone basis, however, it's not requiring anyone to buy anything. It may take business away from other companies trying to charge users for similar products, but that's hardly an antitrust issue," Wagner wrote.
In Microsoft's case, the courts ruled that giving away Internet Explorer was a predatory tactic that helped maintain its Windows monopoly. While no one has said giving away the Android OS for free is verboten, or even alleged that it violates antitrust laws, there's little question that free--coupled with quality--has had a major impact on the smartphone market. A new IDC report expects Android to grab the lead in the global smartphone operating system market by the end of 2011 with a 39.5 percent share, climbing to 45.4 percent by 2015.
In the next few days, the Justice Department is likely to wrap up its inquiry into Google's proposed $700 million bid to acquire airline flight and ticket information provider ITA Software. AllThingsD reports that the eight-month review is likely to conclude with regulators approving the deal, albeit with conditions requiring Google to honor existing agreements with partners, some of whom are Google rivals. Regulators have already tripped up Google's attempt to partner with Yahoo in the advertising search business over antitrust concerns.
And just last week, concerns about market power put the kibosh on Google's ambitious attempt to digitize every book ever published. A federal judge rejected a settlement the company reached with publishers, in part, on the grounds that it would have been anticompetitive to Google's tech rivals. A handful of rivals, including Amazon and Microsoft, opposed the settlement.
Skirmishes over search
None of the parallels with the Microsoft case is lost on antitrust watchers. Silicon Valley lawyer Gary Reback, a Microsoft nemesis during its antitrust battle, has turned his attention to Google. The similarities to the Google's tactics and its response to criticism virtually mirror Microsoft's strategy and defense. "If you were to bore down, you'd find the practices are identical," said Reback, who is representing a collection of start-ups, such as the British price comparison site Foundem, trying to compete with Google in niche search markets.
In its defense, Google suggests that it'd be wrong to define the market it's in as merely search advertising. According to eMarketer, Google tallied 71.4 percent of total U.S. search advertising spending in 2010. Google, rather, says it competes with print advertisers, television advertisers, and a host of others. Defined that way, Google is hardly dominant.
And while Google dominates the Web search business, switching is easy, the company says. Web surfers can simply type www.bing.com. Or they can search for airfare at Travelocity, health care information at WebMD, job postings at Simply Hired. "For us, competition is literally one click away," says Google spokesman Adam Kovacevich. "While Microsoft's behavior in the 90s was driven by a desire to cripple competitors and lock in users, our only goal in search is to give users the most useful answers possible--while also giving them the freedom to leave any time."
What's more, Google faces new rivals all the time. Facebook now accounts for more user time than Google. If it were to put a search bar into its service as was rumored, though dispelled, last week, Google could see a significant chunk of its search business siphoned away.
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But even those arguments ring familiar to those who watched the Microsoft case. Just consider Microsoft's argument, one the court rejected, that the market Windows is in needed to be defined more broadly that merely PC operating systems. One Microsoft expert witness, Richard Schmalensee, the then-dean of the Sloan School of Management at the Massachusetts Institute of Technology, testified that Windows competitors included anything that might be a platform on which other software programs could run, including handheld computers, Web browsers, and the Java programming language. U.S. District Judge Thomas Penfield Jackson reject that logic, defining the market far more narrowly as Intel-compatible PC operating system, and ruling that Windows was a monopoly.
Reback, who represented Netscape and was a catalyst for the Microsoft case, says it established precedent that relates to the Google's tactics. "It's galling to me," Reback said of Google's defense. "It's not that they're well-worn arguments. They were rejected."
Just as with Microsoft, Google is facing antitrust allegations on multiple fronts. Claims by niche search rivals in France, Ohio, and elsewhere have triggered lawsuits, which in turn have sparked investigations. The European Commission began its probe of Google late last year, examining questions about the company's ability to restrict advertisers from taking their business to search rivals. In the United States, a coterie of state attorneys general are also contemplating taking some sort of legal action to curb alleged abuses. Bloomberg reported earlier this month that Google may find itself in the crosshairs of Ohio, Wisconsin, and Texas regulators.
Scrutiny from Capitol Hill
At the federal level, lawmakers are beginning to circle as well. In early March, Sen. Herbert Kohl (D-Wis.) put Google on notice. Kohl chairs the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Right, which announced its agenda for the 112th Congress in early March, saying it will "closely examine allegations raised by e-commerce Web sites that compete with Google that they are being treated unfairly in search ranking, and in their ability to purchase search advertising." And Sen. Richard Blumenthal (D-Conn.), who led a multistate probe of Google's collection of data about people's online activities from unsecured Wi-Fi networks with its Street View as Connecticut's attorney general, has urged for hearings examining Google's competitive tactics. Microsoft watchers will recall that Blumenthal was one of lead state attorneys general pursuing antitrust claims against the software giant a decade ago.
One federal agency that hasn't shown much interest yet into Google's business practices is the antitrust division of the Justice Department, the biggest thorn in Microsoft's side during its antitrust battles. When President Obama named Christine Varney to lead the division, there was much discussion that she'd target Google, in part because she noted to a gathering sponsored by the American Antitrust Institute that Google "has acquired a monopoly in Internet online advertising."
But rather than investigate Google, the Obama administration has held it up as a paragon of innovation. In the 2011 state of the union address, Obama called out Google as a great innovator. "What we can do--what America does better than anyone else--is spark the creativity and imagination of our people. We're the nation that put cars in driveways and computers in offices; the nation of Edison and the Wright brothers; of Google and Facebook," Obama said. Speculation emerged two weeks ago that Obama is close to nominating Google's departing chief executive, Eric Schmidt, as his next Commerce Secretary.
Reback believes Obama's admiration of Google might discourage trustbusters from probing the company. "It's problematic, even unnerving, that the president continues to call out the company for innovation when the government should be conducting an investigation," Reback said.
Reback isn't alone in his fight. Competitors are feeding regulators allegations of Google's misdeeds, just as they did against Microsoft. A decade ago, Microsoft rivals such as Sun Microsystems and RealNetworks met privately with trustbusters to help lay out their case. Just last year, one of Google's competitors acknowledged meeting with regulators in the United States and Europe to discuss Google and posted concerns about the benefits Google derives from so-called network effects, the idea that the value of its search business grows as more people use it.
"Both search and online advertising are increasingly controlled by a single firm, Google," the rival posted in a blog. "That can be a problem because Google's business is helped along by significant network effects (just like the PC operating system business). Search engine algorithms 'learn' by observing how users interact with search results. Google's algorithms learn less common search terms better than others because many more people are conducting searches on these terms on Google."
The rival that posted that item: Microsoft. The blog was written by Microsoft vice president and deputy general counsel Dave Heiner, one of the company's lawyers who waged war with the Justice Department.