Does Google deserve the Microsoft treatment?

The search engine giant is feeling the antitrust heat. Not all of it is justified -- but some is

Topics: Google, How the World Works,

Does Google deserve the Microsoft treatment?Eric Schmidt

Here is what happens when one company controls 40 percent of the $30 billion U.S. online advertising market and 65 percent of online search. The knives come out — and they’re sharp.

It’s been a long year for Google. In February, European antitrust regulators launched an investigation into whether Google was using its search results to privilege its own services over those of competitors. In June, the Federal Trade Commission started looking into whether Google’s relationship with handset manufacturers using the Android operating system improperly promoted Google search. In August, Texas’s state attorney general joined the fun. And on Wednesday, Google Executive Chairman Eric Schmidt will testify before the Senate Judiciary Committee’s subcommittee on Antitrust, Competition, and Consumer Rights. The name of the hearing: “The Power of Google: Serving Consumers or Threatening Competition?”

My first reaction to that title was a semi-serious, Wait, why is that an either-or question? Can’t they do both? It is something of a stretch to question whether Google is “serving consumers.” Google’s success is built on the bedrock of giving consumers exactly what they want, better and faster than anyone else. And for free! That’s a pretty good deal, and I and millions of others are happy to take advantage of it multiple times a day. I personally made my peace long ago with the fact that Google knows an uncomfortably large amount of information about how I live my life via the combined power of Gmail, Search, Google Reader, Google+ and other services. My bottom line? The price — zero — is right.

In the past, the fact that Google has refrained from digging its pound of flesh — à la Microsoft — out of my hide has encouraged me to take a skeptical stance about the merits of Google antitrust enforcement. Back in the good old days of the epic antitrust showdown between the Clinton Justice Department and Microsoft, my feelings were different, even though, superficially, the circumstances seem pretty similar. In the ’90s, a hugely profitable tech company was obviously leveraging its control over the PC operating system to crush competitors and promote its own products. Today, a hugely profitable tech company is suspected of leveraging its dominant share of the search market to do exactly the same thing.

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But we would all do well to recall that after President Bush took office, the Justice Department dropped its suit. Microsoft ended up losing its unrivaled supremacy over the tech ecology, not through the pressure of regulators, but because competitors like Apple made better products and upstarts like Google took advantage of the opportunities presented by the Internet to grab consumer attention. It’s tough to stay at the top in the age of the Internet. Remember Friendster? MySpace? Google is obviously self-serving when it notes, in its perhaps overly defensive Guide to the Senate Judiciary Hearing, that users “can switch with just one click,” but that doesn’t mean it isn’t true. Facebook, alone, is a bigger threat to Google every single day than any single company posed to Microsoft in its heyday.

Nonetheless, constant scrutiny and pressure from regulators is not out of place. The online search marketplace is continuing to evolve quickly, providing new opportunities for mischief. To take just one recent example, just two days before Schmidt’s testimony, Google announced a new product: Google Wallet. It will be interesting to see whether any senators quiz Schmidt on the provocative implications of this newest offering. Because if you think it through, nothing Google has done recently makes it easier to understand how Google can use its power over search to steer consumer behavior.

Google Wallet is the latest entry in a market space crowded with big financial institutions, tiny start-ups and great technological ferment. The goal is to make it easy to use your phone to pay for products at the retail establishment of your choice. No more labored effort swiping a plastic card. Just click — and cha-ching.

Google Wallet won’t be an instantaneous 800-pound gorilla. The service will only be available on the Sprint Nexus S and a limited number of retailers. But even if it might seem ridiculous to think that what the modern capitalist world needs right now is a way to make purchasing stuff even easier, there is still good reason to assume that sooner or later most smartphones will offer mobile payment services. Consumers might not crave the option — but advertisers and search providers certainly do.

SearchEngineLand’s Greg Sterling theorizes that mobile payment systems open up the possibility of creating a “closed loop” that stretches from online-intent-to-buy to advertisement to offline-purchase. That’s kind of a big deal.

Here’s how it could work. Suppose you are wandering San Francisco’s Chinatown looking for a Buddha pendant. You pull out your Android smartphone and enter “Buddha pendant” in the Google query box. Your GPS-enabled phone knows exactly where you are, and Google Maps pops up with a list of nearby retail establishments that offer more Buddhas than you can shake a joss stick at. Even better, a text ad appears at the top of your screen offering you a discount if you purchase your Buddha at the Buddhas-R-Us around the corner. A couple minutes later, you are waving your Google Wallet at a barcoded Avalokiteshvara and clicking the cha-ching button.

As a consumer, I might find this experience pretty neat. As an advertiser, I’d be extraordinarily happy with the ability to exquisitely judge the impact of targeted ads on offline consumer activity. But the potential for trouble is also obviously great. Whose ads get served and what retail outlets get promoted? What if the best selection of cheap Buddha pendants is at some tiny outlet that doesn’t steer any advertising dollars to Google at all?

The integration of Google-owned services into Google search results has clearly hurt some competitors of Google. Google Maps offers a terrific example. When Google started including a Google Maps thumbnail at the top of its search results for relevant queries, Yahoo’s MapQuest service saw its traffic crash. MapQuest is now a has-been.

The story is complicated by the fact that, in my view, at least, Google Maps was a far superior product to MapQuest. So I was delighted when Google started integrating Google Maps into its search results. It made my life better, even as it made Yahoo’s worse. Consumers were served and competitors were threatened.

But the closer the lines get drawn between search-advertisement-and-purchase, the more opportunities there will be for crossing the line inappropriately. There are enough blemishes on Google’s record to make any unthinking trust in its “Don’t Be Evil” mantra more than a little unwise. Will it serve me if Yelp and Kayak and Shopzilla all go the way of MapQuest, unable to compete with Google’s dominance over mobile search? Probably not. 

Break up Google? Not necessary, yet. But watch ‘em like a hawk? Absolutely.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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