Editor’s Note: This is the first post in an ACSblog debate on antitrust scrutiny of Google between Harvard Business School Professor Benjamin G. Edelman and George Mason University School of Law Professor Joshua D. Wright. This online debate follows a recent U.S. Senate hearing on whether Google’s business practices “serve consumers” or “threaten competition.”
By Benjamin G. Edelman, Assistant Professor, Harvard Business School
The Senate Antitrust Subcommittee recently held a hearing to investigate persistent allegations of Google abusing its market power. Witnesses Jeff Katz (CEO of Nextag) and Jeremy Stoppelman (CEO of Yelp) demonstrated Google giving its own services an advantage other sites cannot match. For example, when a user searches for products for possible purchase, Google presents the user with Google Product Search links front-and-center, a premium placement no other product search service can obtain. Furthermore, Google Product Search shows prices and images, where competitors get just text links. Meanwhile, a user searching for restaurants, hotels, or other local merchants sees Google Places results with similar prominence, pushing other information services to locations users are unlikely to notice. In antitrust parlance, this is tying: A user who wants only Google Search, but not Google’s other services, will be disappointed. Instead, any user who wants Google Search is forced to receive Google’s other services too. Google’s approach also forecloses competition: Other sites cannot compete on their merits for a substantial portion of the market – consumers who use Google to find information – because Google has kept those consumers for itself.
But Google’s antitrust problems extend beyond tying Google’s ancillary services. Consider advertisers buying placements from Google. Google controls 75% of U.S. PC search traffic and more than 90% in many countries. As a result, advertisers are compelled to accept whatever terms Google chooses to impose. For example, an advertiser seeking placement through Google’s premium Search Network partners (like AOL and The New York Times) must also accept placement through the entire Google Search Network which includes all manner of typosquatting sites, adware, and pop-up ads, among other undesirable placements. While these bogus ad placements defraud and overcharge advertisers, Google’s U.S. Advertising Program Terms offer remarkable defenses: these terms purport to let Google place ads “on any content or property provided by Google ... or ... provided by a third party upon which Google places ads” (clause 2.(y)-(z)) -- a circular “definition” that sounds more like a Dr. Seuss tale than an official contract. Even Google's dispute resolution provisions are one-sided: An unsatisfied advertiser must complain to Google by “first class mail or air mail or overnight courier” with a copy by “confirmed facsimile.” (Despite my best efforts, I still don't know how a “confirmed” facsimile differs from a regular fax.) Meanwhile, Google may send messages to an advertiser merely by “sending an email to the email address specified in [the advertiser's] account” (clause 9). This hardly looks like a contract fairly negotiated among equals. Quite the contrary, Google has all the power and is using it to the utmost.
Google likes to claim that “competition is one click away.” I disagree. Google CFO Patrick Pichette recently defended Google’s large investments in Chrome by arguing that “everybody that uses Chrome is a guaranteed locked-in user for us.” He’s right about Chrome’s effective lock-in, and the lock-in is bigger than Chrome: Google also buys premium placement in Firefox, and Google’s Android platform also offers preferred placement for Google Search. Even on non-Google mobile platforms, Google serves fully 95% of searches thanks to defaults that systematically direct users to Google. (Indeed, when Google then-CEO Schmidt was also on Apple’s board, Google sealed a sweetheart deal for iPhone search traffic. Competitors never even had the chance to bid for this traffic.) In addition, Google’s web syndication contracts assure exclusive long-term placement on most top web sites. Google has spent billions of dollars to establish these relationships, with the necessary consequence that users systematically and predictably run their searches on Google.
The Google of 2004 promised to help users “leave its website as quickly as possible” while showing, initially, zero ads. But times have changed. Google has modified its site design to encourage users to linger on other Google properties, even when competing services have more or better information. And Google now shows as many fourteen ads on a page; users with mid-sized screens often must scroll to see the second algorithmic result. By adding bias and filling its site with advertising, Google has effectively raised prices to consumers – a price paid not in dollars but in attention, yet with consequences equally real. Meanwhile, prices charged to advertisers – set through a secretive process with details known only to Google – climbed sharply as Google grew. Finally, as Yelp and Nextag leaders told the Senate last month, Google’s current practices make it infeasible to launch businesses like theirs – presaging a world where myriad sectors are off-limits to competition because Google effectively blocks every service but its own.
Search and search advertising are the foundation of online commerce – crucial to users and sites alike. With Google increasingly dominant, exceptionally opaque, and continuously invoking its power in search to expand into ever-more sectors, it’s time for antitrust authorities to take a closer look.