The Daily Caller

The Daily Caller
Bing Bing's search engine service launch went something like this: "You can use us to search stuff! See, we're trendier than Google! We have Wiz Khalifa! Please love us!"   

What if Microsoft exited the search business?

Photo of Scott Cleland
Scott Cleland
Chairman, NetCompetition

Amazingly, most everyone totally ignores a linchpin competitive assumption when they talk about search competition and Google’s antitrust liabilities – that Microsoft will always be a competitor in the search advertising business.

If Microsoft decided to stop losing $2 billion a year and reasonably exited the business for financial reasons like Yahoo did in 2009, it would change everything, from laying bare Google’s global monopoly power to cratering Google’s Microsoft-dependent antitrust defense.

This naive competitive assumption comes from widespread ignorance that Microsoft-Bing has never earned a penny of profit from search advertising and has little prospect of making a profit in the foreseeable future. In fact, no material search advertising competitor to Google in the U.S. or Europe earns a profit. Competition is not “one click away;” definitive monopoly is but one exit decision away.

Only some professional investors are aware that Microsoft has cumulatively lost about $15 billion trying to compete against Google in search advertising. Microsoft loses about $2 billion a year in search, while Google profits $25 billion gross a year in search. Not only are Google’s search revenues ten times bigger than Microsoft’s they are growing faster too, meaning Microsoft is falling further behind.

Who could blame Microsoft if it decided for financial and shareholder reasons to stanch the ~$2 billion in search losses, shut the business down and repurpose the data center infrastructure and personnel more profitably for cloud services?

If Microsoft can’t earn a profit in search after several years of trying, what company reasonably can in the foreseeable future? What other company has the interest, risk appetite, and financial wherewithal to sustain such a massively unprofitable business with such low chances of a profit going forward?

If Microsoft exited the business, it would lay bare the monopoly case. It would expose that advertisers have no other alternative to broadly reach the global Internet audience than Google.

It would spotlight much under-appreciated barriers to entry — extraordinary global scale, scope and reach in business relationships, infrastructure, and resources. It would expose Blekko and Duck Duck Go as utterly inconsequential search advertising competitors to Google.

It would bring to light the economy-wide risk to the Internet ecosystem of one company having the monopoly power to divert Internet traffic from everyone else’s content, products and services to it.

A Microsoft exit would also lay bare the FTC’s recent naïve antitrust analysis absolving Google of search bias, that apparently imagined search as a free consumer charity — not a for-profit advertising business, and that assumed profit is not a necessary pre-condition for sustainable competition.

Unlike the FTC, the experts at the DOJ and EU have long understood the stark reality of the search advertising business because they approved the highly-unusual combination of #2 Yahoo and #3 Microsoft search advertising competitors in a three competitor market in a last ditch effort to salvage a competitive search market.

Interestingly, if Microsoft exited for financial reasons, Microsoft would enjoy strong evidence for a private antitrust lawsuit against Google for huge treble damages. For starters, Google’s share of search and search advertising in the U.S. would quickly exceed 90% and consumers would be harmed by the loss of competition and competitive innovation.

Microsoft could argue many Google practices were anticompetitive restraints of commerce and attempts at monopolization. Google broke-up Microsoft’s attempt to acquire Yahoo and delayed Microsoft-Yahoo’s eventual partnership for two years to stifle competition and entrench its dominance. Tellingly, DOJ blocked the Google-Yahoo Ad Agreement as attempted monopolization and later approved a Microsoft-Yahoo search partnership.

Google alone copied 20 million books without copyright owners’ permission or payment to seize an unbeatable qualitative advantage in search and search translation that law abiding competitors could not match. Federal Judge Chin followed DOJ’s recommendation and rejected the Google Book Settlement, because it “would give Google a significant advantage over competitors, rewarding it for wholesale copying of copyrighted works without permission.”

And with the benefit of facts about how Google’s acquisitions actually “substantially lessened competition” in the marketplace over the last few years, Microsoft could argue that Google violated the Clayton Antitrust Act’s prohibition of acquisition of market power three different times by acquiring YouTube, DoubleClick and AdMob.

Google Video was inconsequential before Google acquired #1 online video distributor YouTube. YouTube is now the second largest generator of searches in the world. Google gained this online video dominance by operating in a way no law abiding competitor could match. In Viacom vs. YouTube Federal Judge Stanton said: “a jury could find that the defendants [Google-YouTube] not only were generally aware of, but welcomed copyright-infringing material being placed on their website.”

Google’s acquisition of #1 global ad-serving company DoubleClick illegally tipped Google to monopoly by combining the only dominant online advertising companies in the world. In one fell swoop, DoubleClick provided Google with access to most all of the business relationships it did not have among the world’s advertisers, publishers and users.

Google’s acquisition of #1 mobile application display ad provider, Admob, despite the FTC’s “serious concerns,” enabled Google to rapidly extend its dominance into mobile advertising. Google commands a dominant 56% share of U.S. mobile advertising per emarketer and 97% share of mobile search advertising per Search Engine Land.

In short, a Microsoft exit of the search advertising business for financial reasons would end Google’s charade that it is not dominant or a monopoly, and put the focus back where it belongs — on Google’s systematic illegal and anticompetitive behaviors to entrench and extend its market power throughout much of the online economy.

Ironically, Google blames Microsoft for all its antitrust woes. However, without Microsoft as a competitor, Google’s antitrust liabilities would skyrocket.

Scott Cleland is President of Precursor LLC, a consultancy serving Fortune 500 clients, some of which are Google competitors; he is also author of “Search & Destroy: Why You Can’t Trust Google Inc.