Monday, December 28, 2009

Google's Internet Monopoly

A recent op-ed raises concerns over Google's near monopoly position, read on for my response.

AS we become increasingly dependent on the Internet, we need to be increasingly concerned about how it is regulated. The Federal Communications Commission has proposed “network neutrality” rules, which would prohibit Internet service providers from discriminating against or charging premiums for certain services or applications on the Web. The commission is correct that ensuring equal access to the infrastructure of the Internet is vital, but it errs in directing its regulations only at service providers like AT&T and Comcast.

Today, search engines like Google, Yahoo and Microsoft’s new Bing have become the Internet’s gatekeepers, and the crucial role they play in directing users to Web sites means they are now as essential a component of its infrastructure as the physical network itself. The F.C.C. needs to look beyond network neutrality and include “search neutrality”: the principle that search engines should have no editorial policies other than that their results be comprehensive, impartial and based solely on relevance.

The need for search neutrality is particularly pressing because so much market power lies in the hands of one company: Google. With 71 percent of the United States search market (and 90 percent in Britain), Google’s dominance of both search and search advertising gives it overwhelming control. Google’s revenues exceeded $21 billion last year, but this pales next to the hundreds of billions of dollars of other companies’ revenues that Google controls indirectly through its search results and sponsored links.

One way that Google exploits this control is by imposing covert “penalties” that can strike legitimate and useful Web sites, removing them entirely from its search results or placing them so far down the rankings that they will in all likelihood never be found. For three years, my company’s vertical search and price-comparison site, Foundem, was effectively “disappeared” from the Internet in this way.

Another way that Google exploits its control is through preferential placement. With the introduction in 2007 of what it calls “universal search,” Google began promoting its own services at or near the top of its search results, bypassing the algorithms it uses to rank the services of others. Google now favors its own price-comparison results for product queries, its own map results for geographic queries, its own news results for topical queries, and its own YouTube results for video queries. And Google’s stated plans for universal search make it clear that this is only the beginning.

Because of its domination of the global search market and ability to penalize competitors while placing its own services at the top of its search results, Google has a virtually unassailable competitive advantage. And Google can deploy this advantage well beyond the confines of search to any service it chooses. Wherever it does so, incumbents are toppled, new entrants are suppressed and innovation is imperiled.

Google’s treatment of Foundem stifled our growth and constrained the development of our innovative search technology. The preferential placement of Google Maps helped it unseat MapQuest from its position as America’s leading online mapping service virtually overnight. The share price of TomTom, a maker of navigation systems, has fallen by some 40 percent in the weeks since the announcement of Google’s free turn-by-turn satellite navigation service. And RightMove, Britain’s leading real-estate portal, lost 10 percent of its market value this month on the mere rumor that Google planned a real-estate search service here.

Without search neutrality rules to constrain Google’s competitive advantage, we may be heading toward a bleakly uniform world of Google Everything — Google Travel, Google Finance, Google Insurance, Google Real Estate, Google Telecoms and, of course, Google Books. (more)

The reason Google has a near monopoly is because it offers relevant searches and useful services. Other search engines that started to place paid sites at the top of their queries quickly lost market share and are now all but dead. Google has always made it clear what is a paid placement and what isn't. There's a line that everyone can see separating the two and it works well. Their algorithm works well, that's the #1 reason they enjoy such a dominant position. Recently Microsoft's Bing has come up with a search that works either just as well, or nearly as well, but it's interesting that they've not been able to come up with a search that clearly works better than Google. Even so, Bing is gaining market share, though mostly at the expense of other search engines.

Google maps is far superior to Mapquest. Google maps will lead you to Google Street View, which is a great way to look around the neighborhood without having to drive there. I can only imagine the amount of money and resources it cost to photograph every single street and address from several different views and make it accessible.

In short, Google has a near monopoly because it's good, it's better than the competition, and because there are low barriers to entry, it has to keep on being good or else some other startup will take over. Only a few years ago, people were concerned that AOL and Yahoo would consolidate their monopoly positions as search/gateways to the internet. These concerns have proven to be ill-founded. If anything, AOL and Yahoo are fighting for their lives, fighting to keep relevant in a fast moving and very competitive online marketplace. I believe Yahoo finance is still the #1 finance site on the internet because it's the best. Google finance is not quite as good even though it has certain features Yahoo doesn't.

The internet is the last place government needs to worry about monopoly power and unfair competition. Government should be focusing on Ticketmaster and its monopoly of ticketing, this is an obvious monopoly that tries to inhibit competitors and offers very little yet charges outrageous fees that can be easily 50% of the ticket price. Just try and buy a bleacher ticket to a Dodger's game. $8 for the ticket, but add to that convenience fees of $3 and then mailing fees and service chargers of $2.50 and an additional $5.50 is added on a $8 ticket! How they can be allowed to merge with LiveNation is a mystery to me, where are the anti-trust regulators? Where is the Justice Department on this one? It's so obvious it's a joke.

Regulations can only work if the regulators do their jobs. That's why I'm so skeptical about new regulations and new government agencies that will supposedly cure all of our ills. If only they would start doing their jobs and uphold their current duties, I would be more willing to view regulation as a viable and even superior solution. Please do your jobs government bureaucrats! Perhaps we need a regulation that requires regulators to regulate.

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