No honeymoon for Larry Page
The co-founder of Google faces a heavyweight fight with federal regulators as he steps into his new role
Wednesday 06 April 2011
When Google's chairman, Eric Schmidt, said in January he would hand over the day-to-day running of the search engine giant to its co-founder Larry Page, he declared "adult supervision [was] no longer needed". And as Mr Page's ascension to the chief executive post this week marks a coming of age for him, Google itself is also coming of age in another way. These have been a pimply adolescent few years, as it appears to morph in the public mind from being the cute start-up that revolutionised the internet to being the privacy-invading, competition-squashing goliath that everybody loves to hate.
Its coming-of-age moment could be at hand here in the US, if the Federal Trade Commission (FTC) launches a full-on investigation of Google's dominance in search. The anti-monopoly regulator is certainly itching to. Google's competitors are crying out for the FTC or the Department of Justice to step in. And in Europe, the European Commission's competition authority is already launching its own inquiry.
Forget Facebook or Twitter or Groupon. The biggest threat to Google might be regulators.
Little wonder that Mr Schmidt's duties as executive chairman include "government outreach". Google has to marshall its legal and lobbying efforts to fend off regulatory incursions that could cut it down to size, or crimp profits that are pouring in at the rate of $1m per hour. The company is just at the start of a push into new areas, taking it far beyond its original business of selling adverts alongside search results and moving into display advertising (the kind of graphics-rich or video adverts that appear on websites across the internet), ebooks, and on to mobile phones with its Android operating system. Mr Schmidt has been charged with looking for new areas of business, but his biggest task may be keeping open the ones that Google has already identified.
A broad-based investigation into Google's business by the FTC would be the largest regulatory investigation in the US since the Department of Justice fought to break up Microsoft more than a decade ago. The FTC has hired advisers to help it to understand the evolving business of the internet, including Edward Felten, the Princeton professor famous for cracking the music industry's digital-copyright protection software, who became the agency's chief technologist last year.
It is not hard to see why Google makes a target. As its critics and supporters never fail to point out, it is the "'on' ramp to the internet". More than two-thirds of search queries in the US go through Google. Microsoft – which runs its own search engine, Bing, and the technology behind Yahoo!'s search box – has just 29 per cent of the market. In Europe, Google dominates perhaps 95 per cent of the market.
This is enormously consequential for every company doing business in the digital era, not least advertisers who want to reach internet users and website publishers who need to appear high in Google results if they are to attract traffic.
The European Commission launched its investigation last November, following complaints from three little companies: Foundem, a husband-and-wife-run website in the UK, France's ejustice.fr, and Ciao, which is owned by Microsoft, which complained that Google demoted them in search results. Last week, Microsoft added its own complaint to the EU.
Brad Smith, Microsoft's general counsel, set out a list of ways Microsoft believes Google abuses its dominant position or has conflicts of interest. His complaints included that Google unfairly promotes its YouTube video site on Android smartphones, disadvantaging phones that use Microsoft's operating system, and that the lack of interoperability between Google's dominant search advertising system and others means that advertisers are discouraged from running campaigns through Yahoo! or Bing.
Meanwhile, Google's attempt to buy ITA, a company that provides data on airline timetables and ticket prices, is under scrutiny in the US after online travel agents said it should be blocked. If Google gets its hands on ITA, it will be able to put flight times and prices at the top of its search results, they fear, and traffic to their own sites will collapse.
The FTC is expected to decide whether to launch the much broader anti-trust inquiry into Google's business practices after its sister regulator the Department of Justice has completed its work on the ITA deal. Google could hear within weeks.
Rory Maher, at Hudson Square Research, said investors are getting used to the idea that Google will be tied up with regulatory inquisitions for years to come. "The ultimate risk is that Google is forced to share its algorithm... but I see this as somewhat unlikely," he said. "The main problem is that this will simply be a very long and very expensive process for Google, but I think investors are getting comfortable with the fact that lobbying and defending legal actions are going to be another expense line for the company from now on."
As well as the European investigation, the attorney-general in Texas is considering whether Google is breaching monopoly laws. Wisconsin is considering weighing in against the ITA deal. And the Senate Judiciary Committee may hold hearings, too.
Internally, Google sees the increased scrutiny as an inevitable part of growing up, and it hopes in turn to help regulators on both sides of the Atlantic to come of age in their own approach to the fast-changing digital landscape. Executives – for now – are taking a relaxed approach, seeing any investigations as a chance to explain their changing business to regulators, politicians and the public.
While the company has beefed up its lobbying and legal departments, they remain small compared with the large and aggressive departments at places such as Microsoft. While the complaints may be mounting, the company does not believe it is breaching competition law. Recent investigations in Italy and France did not find the company had a dominant position, much less that it was abusing one. The bottom line: Google doesn't believe it has much to fear.
"Our competition is only a click away and users can easily switch to alternatives," a spokesman said. "Advertisers also have choices to make, with online options, print, television and radio ads in direct competition. We will continue to compete fairly, ensuring users and advertisers never are locked in to our products."
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