Image via CrunchBase
As U.S. and European antitrust regulators probe Google for possibly abusing its dominant position in Internet search, Google executives must be asking themselves: Since when did success become a crime?
The company's ascent from startup to $200 billion behemoth took a little more than a decade. Most of that time Google was the underdog, fighting far bigger competitors like Microsoft and Yahoo! with an innovative search technology that eventually won the battle for user popularity. Now the Federal Trade Commission has hired Beth A. Wilkinson, an experienced outside litigator, to head up an investigation into, among other things, whether Google tweaked that search engine to advance its own interests.
The accusation sounds slightly absurd: Everything Google has done since it was founded by Sergei Brin and Larry Page in 1998 has been to advance its own interests. But things change when you win. Tactics that are perfectly legal for a company with 5% market share -- like Apple's longstanding refusal to sell its operating system unless it came with an expensive Apple computer -- become suspicious or even illegal when a company has 60% share. Google's right to "improve" its search algorithm, which was virtually unlimited when the company was a fraction the size of Yahoo!, suddenly becomes entangled with its obligation not to squelch competition.
"If you are a company with 60% market share in the U.S. -- or 35% to 40% market share in Europe -- you have additional obligations that smaller companies don't have," saidNicholas Economides, an antitrust expert at New York University's Stern School of Business. Regulators want "to make sure competition is not restricted by companies with very large market share."
It's not known exactly what Wilkinson will be looking for at Google but Economides said a parallel European probe appears to be driven by complaints that Google has altered its search algorithm to push down sites that could be seen as competitors. "Price aggregators" who pull together price quotes for products, for example, complain they've been pushed off the front page of Google search results because they serve as a sort of mini-Google focused on shopping for specific products. U.K. website Foundem, for example, has complained that Google uses "penalty filters" to drive it down in the rankings."The aggregators say `We're in the same business, in our own small niche of the market, as Google,'" Economides said. "Google puts us on the fourth page because we compete with them."
The argument is persuasive, but masks a common misunderstanding about antitrust law. The law isn't designed to protect competitors, but competition. The two are different.
"Many antitrust authorities are suspicious of competitor claims, when people say `They must be doing something wrong -- they're killing me,'" said Christopher Yoo, who teaches antitrust law at the University of Pennsylvania Law School. "If they drive you out of business, it sucks to be you," Yoo said, but that doesn't necessarily mean antitrust laws have been broken.
Microsoft learned the penalty for success in the early 1990s, when the Justice Department sued for various practices including bundling its Windows Explorer browser with its dominant operating system and thus driving Netscape out of business. Critics of the case -- which resulted in a 1995 consent decree Microsoft still operates under -- say Microsoft was being penalized for giving a valuable product away for free, a clear benefit to consumers. Antitrust authorities argued Microsoft had a more nefarious plan: It feared that Netscape, combined with programming languages like Java, could create an online alternative to the Windows operating system. The government turned up internal e-mails suggesting Microsoft executives feared as much. By killing giving the browser away for free, it destroyed Netscape's ability to compete in a different market Microsoft controlled.
This two-stage reasoning could be used against Google. By constantly tinkering with its search algorithm, the company could keep potential competitors off-base and thus protect its dominant market share in search. That might help Google maintain its dominance as an Internet advertising broker (possibly another avenue for the FTC probe). Diehard antitrust regulators might demand, therefore, that Google disclose its algorithms to competitors so they can "reverse engineer" the code to remain on top of the search results.
Yoo is skeptical of such arguments, however. Kodak faced similar accusations back in the 1970s when it unveiled its Instamatic cameras with a new style of film cartridge. Competitors complained it put them at a disadvantage in the film market because they weren't prepared to supply the new cartridges. But the 2nd Circuit Court of Appeals rejected that argument in a widely cited 1979 decision, finding that "a firm may normally keep its innovations secret from its rivals as long as it wishes, forcing them to catch up on the strength of their own efforts." In the end, of course, Kodak lost its monopoly when film went the way of 8-track tapes.
"What the virtuous cycle of improvement requires companies to do is lay down terms of battle and tell competitors to get better or die," Yoo said.
That may be true, but it won't insulate Google from an expensive investigation here and in Europe. The technology industry and the powerful effects of network economics are partly to blame.
"The big problem in the high-tech industry is companies can very quickly go from a small market share to high market share, and the culture doesn’t change so quickly," Economides said. "They did the same things when they were at 15% market share and suddenly they're at 60% and they're in trouble.
"You can see this happened at Microsoft," he added. "The e-mails in that antitrust case show they still thought they were a small company fighting to survive, even at 90% market share."
