Google adjusts to life with trustbusters
Google's greatest challenge as it heads into its second decade may very well be innovating without ticking off Uncle Sam.
The position taken by the Department of Justice two weeks ago on the Google Books search settlement marked the second time in about a year the U.S. government has taken an active step to rein in one of the tech industry's signature companies. Google now is in the process of renegotiating a deal it once called "a historic settlement," one that gave it sweeping and exclusive rights to digitize certain kinds of books that competitors and activists feared would allow Google to gain more control of access to digital information.
Unlike the famous technology antitrust cases of the last century--IBM, AT&T, Intel, and Microsoft--Google has not drawn government scrutiny based on allegations of past conduct. Rather, the focus is on what the company might do or is about to do, which should be both comforting and troubling for Google executives.
Such scrutiny means that almost every product launch will be examined for signs that Google is abusing its dominant search position by moving to control other areas of the tech world. You can double that level of scrutiny for any potential acquisition. And it also means the company will need to aggressively court government officials, who are getting an earful from companies like Microsoft, Amazon, and AT&T about what a bully Google has become.
In short, it means Google has entered a new era where its cost of doing business has changed.
"I don't think Google wants to start imposing limits on itself," said Eric Clemons, a professor at the University of Pennsylvania's Wharton School of Business. But it may not have any choice, if the Justice Department proves continually willing to impose such limits on Google's behalf.
Scrutinizing what it is about to or might do
How did Google get here, without actually being accused of anything more than hubris? Just 10 years after its founding, and five years after its IPO, Google has evolved from scrappy start-up to innovative game-changer to domineering titan in less time than it took to prosecute the Microsoft antitrust cases of the 1990s.
There's no real hard-and-fast rule concerning when a company turns the page from big to too big. That's because it's not illegal to be big: what is illegal is using that heft to expand into other areas or fend off challenges to a company's dominance.
Microsoft, for example, was prosecuted under two separate areas of the Sherman Act, the 100-year-old law that governs antitrust investigations in the U.S., said David Turetsky, co-chair of the antitrust practice at Washington, D.C., law firm Dewey & LeBoeuf and a former deputy assistant attorney general for the Justice Department during its prosecution of Microsoft. It was investigated for the onerous contract terms it imposed on its customers as well as its plans to bundle Internet Explorer with Windows, which conflict with Section 2 of the Sherman Act.
No allegations like that have been made against Google. Instead, Google has been scrutinized for what it is about to do or could do, such as when it proposed the purchase of DoubleClick in 2007 (which was approved) or its proposal of a search advertising deal with Yahoo (which came within hours of a Justice Department lawsuit before Google folded its hand).
In the Yahoo case, the government objected to a deal that would have put almost 90 percent of the search advertising market in the hands of a single company. It had several bones to pick with the Google Books deal, which it called "anticompetitive" and an abuse of the class-action settlement process.
Now that it has had its hand slapped twice, Google's lawyers will have to advise caution among product development executives, adding antitrust concerns to the normal practice of getting legal to sign off on a new product or strategy. Kent Walker, Google's general counsel, in a fine example of trying to make lemonade from lemons, argues that might actually burnish Google's image before the government.
Kent Walker, general counsel for Google.
(Credit: Google)"The whole shift of antitrust law in the U.S. and Europe of the last 20 years has been in the direction of protecting consumer welfare," Walker said. "That makes it relatively easy to advise management, because the goal is consistent with the values that (Google co-founders) Sergey (Brin) and Larry (Page) set out, which is about making the Internet an open place."
Walker admitted Google had a few lessons to learn following the Justice Department's indication that it would sue to prevent Google and Yahoo from pooling their search advertising. Google has embarked on an educational campaign since then, posting videos featuring chief economist Hal Varian explaining how Google's ad auction process works and devoting more time to projects like the Data Liberation Front, which works to make sure Google users have simple ways to export their data from Google should they wish to move on. This has probably helped Google in the court of public opinion, but it's not clear whether government regulators have been swayed.
One concern often advanced by competitors and detractors is that Google can use the cash cow it enjoys from its dominant position in the search advertising market to subsidize businesses in ways that other companies can't afford to do, thereby driving everyone else out of the market. Last quarter, Google generated $1.4 billion in cash. The Android operating system and Google Apps often come up in those types of discussions, because there aren't many companies who could afford to invest that much money in software development only to give the product away for free.
Walker, as might be expected, doesn't buy that line of thinking. "The Internet is not a place where you can lock out competition," he said, arguing that the barriers to entry in the Internet applications market are low and that Google could never get away with trying to charge money for things it previously gave away for free, government scrutiny or not.
Of course, Google didn't exactly invent the concept of the loss leader. Microsoft does something similar with its Internet strategy, using the immense profits from sales of Windows and Office to allow it to lose money competing with Google in search and Yahoo on portal services.
Google is taking this increased government scrutiny seriously. It has built a D.C. operation from scratch over the past few years to help lobby its case in Washington, and lawyers assigned to product teams now consider antitrust issues along with the usual assortment of legal concerns.
And Google CEO Eric Schmidt has taken a very active public policy role over the last few years, stumping for President Obama during his campaign in 2008 and serving as a technology adviser to the administration. It's not clear whether that has had any effect--the current administration seems much more intent on scrutinizing big business than the Bush administration--but a fair number of ex-Googlers have taken positions in the administration. Perhaps most notable is Google's former head of global public policy and government affairs, Andrew McLaughlin, who is now deputy chief technology officer for Internet policy under federal CTO Aneesh Chopra.
The case against Google
Wharton's Clemons think Google's antitrust issues start with its bread-and-butter business. Google, he believes, could be taken to task if the Justice Department thinks about Google's search business as a distribution channel, rather than advertising-based.
Clemons' argument is that Google controls so much of the information that is presented to Internet users through both search results and search advertising that it creates a disincentive for companies to do anything that runs afoul of Google. As of August, according to ComScore, Google held 64.6 percent of the U.S. search market, compared to Yahoo's 19.3 percent and Microsoft's 9.3 percent.
It also means, according to Clemons, that Google's practice of allowing companies to purchase ad keywords bearing their competitors' trademarks forces companies to overpay for ad keywords they arguably own and can deceive the Web searcher if a competitor's ad is placed among the prominent search ads accompanying a search for the original company's trademark. Lawsuits over this practice are pending, and could potentially add another headache for Google's lawyers down the road.
"Monetization of misdirection frequently takes the form of charging companies for keywords and threatening to divert their customers to a competitor if they fail to pay adequately for keywords that the customer is likely to use in searches for the companies' products; that is, misdirection works best when it is threatened rather than actually imposed, and when companies actually do pay the fees demanded for their keywords," Clemons wrote as a guest author on TechCrunch in March.
Not surprisingly, it's a controversial and perhaps extreme view; Clemons was taken to task by several search industry veterans including Search Engine Land's Danny Sullivan regarding two articles he guest wrote for TechCrunch espousing that view. "Search advertising is one of the most powerful forms of advertising precisely because it does not misdirect searchers, nor interrupt them but instead provides answers that they seek," Sullivan wrote in response to one of Clemons' articles.
There's no indication the Justice Department is looking seriously at this argument, but it's an example of the kind of opposition Google can expect to face if it remains the dominant player in the search market.
In Google we trust?
Google is an unlikely robber baron. The company's public image is carefully crafted to seem warm, open, friendly, and respectful. No doubt, Google execs have learned from their competitor's mistakes: Microsoft continues to be haunted by what some saw as the company's arrogant and condescending performance during its own antitrust defense.
"They (Google) seem to be able to move forward with energy and creativity despite whatever antitrust issues they've encountered," Turetsky said.
However, Jeff Jarvis, author of the book "What Would Google Do?", believes there is a disconnect between how Google sees itself and how a growing portion of the public sees Google. "Google thinks (it's) Snuffleupagus--big but cuddly and good--and just doesn't realize that some people see it as a potential bully and so it has to act accordingly. With size comes responsibility," he wrote in a blog post last week.
Few deny Google's important contributions to advancing the story of the Internet. Even Google's fiercest critics of the book search settlement agree that a digital library would be a tremendous asset to the world, and that few other companies, organizations or governments seem willing to invest the time, effort, and money into such a product.
But Google, simply because of its success in becoming synonymous with "discover information on the Internet," makes people uneasy about granting it a further lock on information. And with the number of companies with a serious chance of challenging it in the search market set to dwindle to one, that uneasiness is not going away.
Tom Krazit writes about the ever-expanding world of Internet search, including Google, Yahoo, online advertising, and portals, as well as the evolution of mobile computing. He has written about traditional PC companies, chip manufacturers, and mobile computers, spending the last three years covering Apple. E-mail Tom. 
I understand the concern, but at the same time, if it's only to impede what good Google can do, why stop it? Throw some government regulation into it and call it good, if we're all really that scared of it dominating.
As for other companies, I'm all up for them thriving, but they have to come up with something that actually trumps what Google has to offer. That's competition and innovation. If you're going to come up with some crappy software or technology and it doesn't sell, how much better would it be just to bark up Uncle Sam's leg and ask for help? Surely, Google can't be the ONLY innovator around here...
Forgive me if I sound like a fanboy, but it's hard to dispute (IMHO) that there's a better or equivalent alternative to GMail (although I hear that Yahoo is close nowadays), Google Docs (although Microsoft Office online as a cloud concept would be pretty cool since most of us are very used to the Office environment), etc. I still like Mozilla Firefox over Chrome, although I haven't given Chrome another shot since beta. (Chrome might be a decent alternative now... it chalks up as much attraction as Opera to me.) Microsoft Office will always be on my desktop because it works and I've used it forever, but with how things are going with the gay ribbon bar, I might be looking elsewhere to upgrade. Never had an interest in Picasa since I'm an Adobe guy when it comes to photos.
Innovation drives competition. Build it and they will come. If you're going to offer a crappy product, don't expect people to flock to you. If you have an outstanding product, throw some focus onto marketing it. Make it so that people have at least heard of it. Don't whine and whimper to Uncle Sam because you suck at what you do.
The beginning of this article hit the nail on the head--it's not actual crimes Fedzilla is going after, but hypothetical "future crimes". Or anything The Party doesn't happen to agree with.
We've already seen a handful of industries grabbed, bills to give Big Brotha control of the internet, and proposals for wonderful new controls in the name of net "neutrality" (as determined by the Ministry of Fairness, no doubt).
An "internet Czar" with a background of command-and-control advocacy is surely just around the corner.
The truth is nothing Google does or offers to the public is free. They only do things that they can use to increase the draw to their sites and services, which in turn allows them to increase traffic and market share of the search field. All of their services are focused on one thing and that is generating them advertising income and gaining power and position which they use to pressure others into adopting standards, asking for changes regulations, and general shaping the internet and information in a way that benefits them above everyone else, including the public.
They use their clout to get things done that really are not in everyones best interest if it serves their interest, such as the spectrum auctions and the book deal among others.
Also people seem to over look the fact that nothing they offer is free to use. You may click a link and download the file without charge, but the products you use everyday are paying for those applications and services. Goods and services from other companies are more expensive as a result of the money they devote to advertising through Google, or through increased advertising through other sources to compete with those that choose to use Google. Your local businesses are seeing a loss of traffic and raising prices as a result or closing their doors. Google is not doing anything because they want to give something back to the world. They are all about the money. People want to say the other corporations are evil, but at least they are honest about the fact that they are self-serving in their actions.
The cost of the goods and services we purchase do include th cost of advertising. I'll give you that much. But if Google were to disappear tomorrow the cost of said goods and services would not decrease. That money would simply be diverted to other forms of advertising. So to say that Google is driving up the cost of goods and services seems to me like a little bit of a stretch.
Also, Google has been so wildly successful because it has done everything with its users needs and desires in mind AND is able to make an abundant profit doing so without charging its users single a penny. In that way Google is NOT like all other companies. Other companies demand a simple exchange for their products; my money for their products. Google has perfected the art of siphon money from companies seeking advertising (money that was going to be spent on advertising anyway whether or not Google is around to take it) and provide great services to the masses at no charge. Maybe I'm just a fanboy but I think Google is brilliant and has been a priceless asset to the growth of the Internet.
I think it is safe to say that Google's business model has always been to enrich the Internet at no cost to its users. I can understand the concerns people might have that such might not always be the case, but I don't think Google has done anything to deserve being labeled as evil.
They didn't even invent the browser and took out the lion share with illegal bundling.
Last time I looked, that crappy browser still comes bundled as does Media Player and Messenger.
All they need to do now is bundle Search. Oh hang on, they already have.
Oh, except for all wise, all knowing Apple of course. Macs don't come bundled with their Safari, QuickTime, and iLife. Oh hang on, they do. And when was the last time they were in court for it? Never.
Microsoft does it, it's illegal. Apple does it, it's innovation.
The only thing that will happen is google will pull out of the settlement and fight the copyright case, which they got more than a fair chance of winning. Who loose, we the public loose, the authors loose, the winners Amazon and Microsoft who both would not have to spend hundreds of millions to keep up with google.
Microsoft would all loose because it would loose any chance it would have to gain cheap access to books an so would still have to invest the money into developing there own internal digital library if it want to remain competitive in the search and knowledge engines markets. Which is the sole reason Microsoft join the anti gang an same applies to Amazon there aim is not to defeat the settlement but to get the best deal they can the last thing they actually want is the court to chuck out the settlement.
All google has to do is share its wealth capital hill and suddenly the justice department will take less interest in them.
My idea "Virtual World" is selected in Google - Project 10^100.
Please vote for it to make it real!
http://googleproject10tothe100th.blogspot.com/2008/10/google-project-10100-idea-virtual-world.html
Thank you.. :)
- by ralis002 October 15, 2009 11:57 PM PDT
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- by ralis002 October 25, 2009 4:49 PM PDT
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(20 Comments)I am terrified of google.
I lost the income that was crucial to my business (which was a nonprofit). I lost employees, then my job, girl friend, and the person I used to be. I think about it every day.
Google is redefining human innovation and productivity. One of the most important and essential contributors to the future of Man and our moral, economical, philosophical, and of course technological based developments and will lay the first brick and mortar of the future roads leading us in the optimal directions of future innovation.
I love the foundation and ground principles of which they so wisely adhere and abide by. They are pushing the human race in a direction that will eventually take us to the stars and perhaps beyond. This is a core belief of mine. Google has taught me not to decide or judge between right and wrong but rather decide upon the basis of the optimal outcome or consequence of the proposed choices.
But Google has taken away the roof I once slept under. The life I knew is a distant memory and regaining it is a dream that I would...
i think what hurts the most about the whole thing is that all it would of taken to correct the "risk" is an email.
You know Google has dedicated there existence to expanding the horizon and ability of everyone they serve. Most won't even notice what went into the development of such innovative platforms they offer free to all users.
But they have not paid a dollar to any of their owners, they have an unusually high turnover rate and problem keeping their best and brightest. What does Google do when the economy gets tough...?... Despite having one of the largest savings accounts, no debt, and hundreds of millions of writers, directors, and other dedicated content providers slaving a way just to hand over their content for this cuddly giant to monetize.
They steal from them. They stole thousands of dollars from me. They raped my life, my effort and my dream. 50 weeks ago i was 24. I was in the top 7% of my class, one of two juniors to be accepted into a very prestigious honor program for nationally recognized students of business and administration, luckily once your in your in for life.
I quit school, I stepped down as the director of Marketing from a company that I slaved over and developed. I was just a dumb kid who was to dumb to know i couldn't.
I quit all that... I was putting together a start up Non-stock corporation, paying for school, providing for myself and my girlfriend and our new apartment. I even had a 25,000 dollar portfolio.
I never considered how google even made money, I never built or knew how to build a website. What was a blog?
Then I built a website, the next day I took google up on the 50$ ad credit. the next day I explored this vast new world that i didn't even know existed, the next day i accepted their offer to monetize my site with their ads.... "hedge the advertising costs is what I thought."
that 2nd half of the month i made less then a 100
But i had already realized the potential.... i was certain.
the next i made over 10 fold that of which i made the first.
The next I made 3 fold of what i did the last
I was on track to make twice of what i made the last, thats 60-70 times more then the first, Then with out a care they took it. about 60 days worth. over half of which they had already confirmed.
I am broke, depressed, 50k in debt trying to figure out how to pay for school.
I have no job.
how about a hug.
- Looking for you EricShit...
Life might be BETA but Google is a slave driver. Period.
They pay for nothing. They take risk away from their clients by transferring it to their providers. Then for the dismal reward of providing the labor and raw materials thy need to create the digital harvest to be auctioned. They may pay you... if your lucky.
They are so inviting and friendly until it comes time to cut that check... then comes the email. there is no freaking click fraud from any type of publisher who makes a living and a life from this 6-10 year beta experiment, they hide behind beta its a license to rape. Nor do they say or mention click fraud in the email. but everyone says or theorizes that this is the catalyst... I call ********. Google is the fraud. They Lie.
They asked me to join... They ruined everything for me. I am to much of a determined prick to let this set back haunt me forever.... I will find my way.... But I am different I am forever changed and betrayed. They spit in my face!! They never said why.
They thanked me in advance for my understanding.
I would like to reassure them that the pleasure will be all mine.
XOXO
I am a bit upset with the comment that I left and would like to apologize for the crude nature that much of it takes the tone of.
I am obviously frustrated with how my google relationship started off.
in all fairness I had no business having an adsense acct at that time simply bc I had no idea or grasp of the fundamentals and foundation that adsense was built on and must maintain. the same can be said about the standards of content creation and more importantly the use of that content.
Though I do now. at least enough to know that even now with all the effort that i have and continue to put in to my work online, I would not yet use adsense. I am getting very close but I am still not there in my opinion (like many other adsense users)
But i am still mad and I still feel as if i was led in and targeted and despite my missing privacy policy and copying and pasting my own work on to other pages, and other dumb misc errors that a newbie who had but a few weeks on line and a site-builder would make. The way things were and the way things worked just was not apparent.
But I will always be a part of google.
Sorry
and
thanks