ICOMP

The pressure on Google to come clean about its business practices and behaviour as a dominant player was raised in the US this week as two leading senators made a formal plea for an investigation into Google.

Senators Herb Kohl (a Democrat) and Mike Lee (a Republican), both members of the Senate Antitrust Subcommittee, released a letter supporting an investigation by the Federal Trade Commission into Google. The clear implication is that following the subcommittee’s hearing in September Google still has many questions to answer. In the press release accompanying the letter the following paragraph is pulled out:

“We believe these allegations regarding Google’s search engine practices raise important competition issues. We are committed to ensuring that consumers benefit from robust competition in online search and that the Internet remains the source of much free-market innovation. We therefore urge the FTC to investigate the issues raised at our Subcommittee hearing to determine whether Google’s actions violate antitrust law or substantially harm consumers or competition in this vital industry.”

ICOMP wholeheartedly supports these views and applauds the Senators for continuing to press on these issues. It is evident that Eric Schmidt’s testimony in front of the Antitrust Subcommittee did little to allay their fears that it was both a dominant force in search and that its practices continue to raise cause for concern.

ICOMP member Foundem commented at the time on Schmidt’s evasion and lack of clarity in answering many of the senators’ questions, posting this blog highlighting the areas in which it felt Google’s answers were not sufficient. It seems that the Senators’ shared their views.

Significant amongst the Senator’s comments was the concern that Google was stifling competition. For all its PR and public policy behind encouraging entrepreneurs, it seems Google’s practices are seen by some as harmful to the innovation that is the oxygen of development and competition on the Internet. The letter calls out comments from Jeremy Stoppelman, CEO of Yelp!, and Jeffrey Katz, CEO of Nextag – both erstwhile Google partners, that suggests they would not be given the chance to exist in the environment Google has now created:

“Indeed, both CEOs testified that they would not attempt to launch their companies today given Google’s current practices, raising serious concerns about the impact of these practices on innovation.”

At a time when a number of jurisdictions are engaged in, or considering investigations into Google’s abuse of its market position, or related topics, this letter and pleas to the FTC is clearly a significant development that will help to assure regulators that Google does have a case to answer, and that its practices have attracted the attention of their colleagues and peers around the world.

ICOMP echoes the penultimate paragraph of the letter:

“It is important to note that the concerns raised in this letter are not an effort to protect any specific competitor. Rather, our interest is to ensure robust competition in this vital market. We recognize that the internet is fast evolving and subject to rapid technological change. We are motivated by a strong desire to protect the Internet’s openness, competitiveness and capacity for innovation.”

This closely mirrors our own principles and we welcome the Senator’s drive to ensure that they are respected by all parties.

Regards
The ICOMP Secretariat

It is not difficult to argue – when the powers of the marketplace are concentrated into one body or organisation, competition and innovation are stifled. The evidence for this is boundless. This themes are set out in the Australian Institute paper What you dont know can hurt you; How market concentration threatens internet diversity, which examines the detrimental effects of market dominance.

Market competition breeds new ideas and in the online sphere, new content, greater choice and lower prices for the consumer. In many industries competition law has been introduced in order to maintain these effects and protect the end user.

Market dominance can also lead to further temptation for organisations to chase after even greater profit margins, often at the expense of competitors by squeezing out viable alternative options.

Just this month a ZenithOptimedia survey indicated that the internet is unequivocally dominated by one single player. The results of the survey state that it this organization has, “increased its share of the internet ad market from 34.9% in 2006 to 44.1% in 2010” and simultaneously, “tightened its grip on global search (raising its share of searches from 72% in 2006 to 85% now)”. Comparatively, “combined market share fell from 33.1% in 2006 to 13.8% in 2010”.

These statistics note how market dominance translates across industries.

Google is generally thought of as being a search engine first and foremost. However as mentioned in the Martin Cave and Howard Williams paper, The Perils of Dominance, the majority of its business revolves around online advertising profits. The recent survey also notes that in 2011 the US online advertising market was worth approximately 72,842 millions of which Google dominance has grown from “34.9% in 2006 to 44.1% in 2010”. And this is set to rise.

Consequently the online advertising industry should feel at risk, if it is not already. The emergence of a single dominant player in the industry, combined with the increased ‘digitalisation’ of our everyday lives means that this oasis of online advertising is at risk

ICOMP is one of a number of voices, making itself heard in efforts to limit the damage to innovation, competition and the advertising industry.

Regards,

The ICOMP Secretariat

As businesses across Europe struggle against a daily barrage of economic challenges at home, they could be forgiven for overlooking more bad news from across the Atlantic. But on Friday, the U.S. Department of Justice added to their woes by approving Google’s acquisition of AdMeld, a leading provider of services that help websites maximise their revenues from ad space on their sites.

Why, you might ask, does a deal between two U.S. businesses matter for Europe? For two reasons.

First, the deal is bad news for Europe’s online publishers and for the millions of European businesses that advertise online. Google already holds a monopoly grip over Europe’s search advertising sector, with market shares over 90% in some Member States. With AdMeld, Google will further extend its display advertising activities–the other major form of online advertising–allowing it to control as much as 65% or more of the display ads served through online ad exchanges.

Until Friday, Google and AdMeld competed fiercely for online publishers’ business. That competition has now been eliminated, and it is only a matter of time before Europe’s online economy pays the price.

Second, the deal strikes a blow to online competition and innovation just when we need them most. AdMeld was particularly successful in offering innovative new services for some of the most valuable websites on the Internet. This success was what allowed it to mount a formidable challenge to Google –and why Google was so keen to eliminate this threat. With that competition now gone, innovation will surely suffer.

We’ve seen this film before, of course. Google has a long track record of buying up innovative companies that threaten core parts of its business, then using their assets to extend its grip over the online economy–YouTube, DoubleClick, Android, AdMob, ITA, the list goes on and on. The AdMeld decision makes one wonder if competition regulators are powerless to stop the Google juggernaut.

Regards,
The ICOMP Secretariat

On 5 December 2011, the Commission will hold its first Innovation Convention of the EC. This historic convention marks the one-year anniversary of the Commission’s flagship Innovation Union Initiative – the EU’s “roadmap to turn Europe into a more innovation-friendly and competitive continent.”

Innovation is at the heart not only of Europe’s plans for growth and recovery, but is a cornerstone of the global economy. So whilst we welcome the Commission’s convention, and applaud the high-level delegates it has amassed to discuss this crucial issue, we must draw attention to the damage that we and our members feel that Google has done, and is doing, to innovation in Europe and worldwide.

Dominant players can abuse their position by preventing new innovations or new entrants from being discovered; by temporarily lowering prices to ensure that new entrants are unable to compete profitably; and by leveraging their market power into new markets to prevent competition from establishing itself. This is why Google’s market share in online search and search advertising has grown to over 90% in some parts of the EU.

Consequently, as Eric Schmidt presents on the value of innovation at the Convention this week, ICOMP would like him to answer some simple questions:

Does Google acknowledge that its overwhelming dominance (at or above 90% in some markets) in European search and online advertising impose special responsibilities on it under EU competition law?

Despite exceedingly high market shares, especially in Europe, Mr. Schmidt recently claimed under oath before the Committee that Google is not dominant in search or any other market. This contradicted his earlier sworn testimony that Google was “in [the] area” of a monopoly.

If Google is genuinely interested in contributing to Europe’s innovation agenda, will Google commit to refraining from acting in abusive ways?

Does Google agree that companies that develop innovative online content have exclusive rights in exploiting that content?

At recent Senate Committee hearings in the US, innovators Yelp and TripAdvisor claimed that Google populated its own Google Places product by taking and exploiting content from them without their authorization – content which they had invested millions to create and cultivate. Is Google prepared to end such practices and allow content creators to determine how their content is used?

How does Google respond to the criticism that it is leveraging its dominance in search and related markets to strong-arm innovators into allowing Google to use their content for Google’s own commercial ends?

In Europe, French-language Belgian newspapers claimed a victory against Google in a legal battle that challenged Google’s practice of scraping content from Belgian newspapers for its Google News service. In response, Google reportedly removed these newspapers from its general search results.

Does Google agree that the practice of a dominant search engine favoring its own offerings in its search results could deny innovative businesses and users of the commercial opportunities they would receive if Google ranked sites based on relevance alone?

Search engines can be powerful tools for users to discover innovative new web sites and services. Several companies, however, claim that Google manipulates its search results to favor its own services and disfavor competitors. Independent research has shown that these Google offerings consistently appear within the first few “natural” results on Google’s search pages. Conversely, critics claim that Google frequently demotes competing sites. Indeed, a major focus of the EC investigation of Google is its practice of lowering the rankings of sites that pose a competitive threat, such as smaller search engines specializing in travel, price comparison, health and other vertical services.

Does Google dispute that, by locking down key content, locking in advertisers, and engaging in exclusive deals, Google impedes the ability of competitors to obtain the scale they need in order to compete effectively?

Critics claim that Google uses several tactics to make it hard for consumers and advertisers to “click away” from its dominant search and search advertising platform. For example:

• Locking down content. Since 2004, Google Book Search (GBS) has scanned over 15 million books without authorization of the respective copyright owners. A U.S. court rejected a proposed settlement of a lawsuit by authors and publishers against GBS, holding that the settlement would “arguably give Google control over the search market” and that “Google’s ability to deny competitors the ability to search orphan books would further entrench Google’s market power in the online search market.” Google likewise for many years blocked competing search engines from efficiently indexing video content from its #1 video sharing site, YouTube.

• Locking in advertisers. Among the abuses under investigation by the EC is Google’s practice of restricting the ability of advertisers to port data associated with Google’s AdWords advertising platform to any other ad platform using third-party tools that would make the process simple or even automatic. Because of these restrictions – which only Google and no other search ad platform imposes – managing an ad campaign across any platforms in addition to Google AdWords forces advertisers to manually cut and paste data (or use similarly burdensome procedures) that for most SMEs is too costly, error prone, and time consuming to undertake.

• Exclusive dealing. Google has entered into a broad network of exclusive search syndication and distribution deals with websites, web browser companies, software developers and device manufacturers (among others). These deals have made it impossible for competing search engines to achieve the number of users and search queries necessary to compete effectively with Google. At any given point, Google has locked up roughly 90% of the search syndication market through these cumulative exclusive deals. This is a startling number, considering that search syndication accounts for over one third of all Internet search queries.

How does Google respond to claims that it is better at buying up innovations developed by others than at innovating on its own?

Google claims that its success is a direct result of its innovative culture. Yet the company has spent billions for several years acquiring innovative companies, rather than inventing new ideas on its own. Since 2001, Google has acquired 103 companies, 30 of which have been acquired in the last twelve months. Among the innovative technologies it has purchased are mobile operating systems (Android – 2005), video sharing and search (YouTube – 2006), display advertising technology (DoubleClick – 2008), mobile advertising technology (AdMob – 2010), and travel search technology (ITA – 2011). In August 2011, Google announced it would buy a major mobile device manufacturer, Motorola Mobility Holdings, for $12.5 billion – its largest transaction to date.

In conclusion, given Google’s dominance of search and related markets, its deep pockets and relentless march to control more and more aspects of the digital market – is it really the right organization to be providing Europe with advice on how to innovate?