Google and antitrust nayers deliver usual responses to FTC and EU Commission

Mark Corallo Contributor
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The recent attention on Google’s vulnerability to antitrust enforcement by the Federal Trade Commission and European Commission has brought out the usual responses from Google and from the antitrust naysayers on the right.

Google’s response to every criticism is that choice is just one click away and (as they claimed in a response to an article that appeared in the Wall Street Journal) that they “build search to help users, not for websites.”

The antitrust deniers — those who believe that the antitrust laws and jurisprudence that have been carefully developed over the last century are completely illegitimate — cannot bring themselves to admit that any dominant company is not just one better idea away from going out of business.

In the real world, dominant companies and monopolies like Google can retain their market dominance legally through better innovation and better service, or illegally by using their dominance to punish nascent and direct competitors, thwart innovation and deceive consumers.

The antitrust regime has been developed to judge the facts and protect consumers who may not even know that a monopoly is harming them. Google is the latest test case of that proposition. While there are extremists on both sides of the issue, there are also voices of reason from both political philosophies who see a limited role for antitrust in this case.

First of all, let’s all grow up. Google does not build search for users. Google builds search to make billions of dollars in annual profits from advertising. There’s nothing inherently wrong with that – as long as Google is not violating antitrust laws by leveraging its monopoly power to maintain or extend its dominance into new markets.

Google can claim that they don’t manipulate their algorithm to benefit their own products at the expense of competitors, but that claim rings hollow when the company refuses to let in the smallest sliver of sunlight on how and why they make changes to their super-secret algorithm.

The anti-antitrust argument goes like this: Why shouldn’t Google be allowed to bias the results to favor their products? After all, Google is a business operating in the free market? The consumer doesn’t have to use Google. Well, that’s at least an argument – and it’s up to the agencies enforcing the law, and the courts that review those decisions, to decide if the argument holds water.

The problem with that argument is that it assumes that the consumer knows that Google manipulates the results. The fact is that consumers are largely unaware that Google can and does bias its search algorithm to benefit its own, often inferior products at the expense of competitors with better products.

When a person types in a search term, they assume that the results are strictly based on some objective, unbiased, magical math problem that spits out the best answers in order. When I made that point in a recent radio interview, a few callers changed their minds about Google because they just didn’t know that Google routinely makes adjustments to the algorithm and that those changes can have immediate, dramatic impact on a company.

Most Google users also do not know that the company uses one algorithm to decide how to display its own properties at or near the top of its display of results, and another algorithm for everyone else’s website.

Google claims that its “auction-based advertising system, which takes into account relevance and bids, is designed to provide a level playing field on which placement is not automatically awarded to the highest bidder.”

But Google is a dominant company with over 80% of search advertising in the U.S. and an even greater share worldwide. When a company has that kind of dominant position in the market, no less a conservative as Supreme Court Justice Antonin Scalia has said that such a dominant company must be viewed through a different lens.

Google controls search advertising prices primarily in three specific ways. First, Google assigns advertisers a “quality score,” which can be lowered without warning and with no explanation. By lowering an advertisers’ quality score, Google can manipulate paid search to make it more costly or difficult for competitors to buy advertising on Google to reach consumers.

The placement of ads on Google is determined through an auction in which advertisers submit bids for search terms. The bid is the amount that the advertiser is willing to pay each time a user clicks on its ad. The lower the quality score assigned to a bidder, the higher a price the advertiser has to bid to win the auction.

Second, Google sets the minimum bid price for keywords, many of which are so specific that they have only a few bidders to begin with. While technically correct that advertisers bid to win keyword ads, don’t overlook the fact that Google sets the minimum bid.

Moreover, after assigning a quality score to each advertiser that determines how much more one advertiser must pay than another to win the same keyword, Google is creating an environment driven by auctions.

Even more dishonest is the fact that Google often bids their own funds to win keyword auctions for their own sites, essentially paying nothing while happily letting other companies shell it out.

Third, having established that Google has a dominant market share in general search and search advertising, its paid search advertising platform, AdWords, is a “must buy” for businesses that advertise online. Google says advertisers are free to use whatever platform they want.

Just imagine, if you control your company’s online ad budget, and you tell your CEO you plan to give up on reaching 80%-plus of the online market that uses Google, you’ll be looking for a new job immediately.

Google, which often touts the value of ‘openness’ and ‘transparency’, uses its power to lock in advertisers, imposing technological barriers to advertisers’ ability to port their own campaign data they enter into AdWords to other ad platforms using third party tools.

Google also prevents advertisers from syncing updates or changes to their campaign data across multiple platforms. In fact, this is just one of the many concerns that the aforementioned European Commission is currently investigating.

Which brings me back to the need for the antitrust enforcement regime and its application to Google, first through observation and if necessary through enforcement. If Google can prove that the company is playing by the rules, then there will not be a need for enforcement action. But simply reverting back to the tired old claim that competition is just one click away is no longer a legitimate response.

Google needs to answer the European Commission’s questions. I have a feeling that if they simply try to give the EU the stiff arm treatment, then they will also be finding themselves on the wrong end of questions posed by US authorities.