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January 11, 2010

Google’s Monopoly Power And A Rant

Google’s Monopoly Power And A Rant30/12/2009

Posted by opemipo3655 in Attempts at HumourBusinessCompetition Policy,EconomicsGoogleMarket ContestablityMarket StructuresMarkets,MonopolyMurdochNews CorporationNewspapersNewspapers vs Internet
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Mark Thoma:

It is not illegal to have monopoly power, but there are limits on how that power can be used. Has Google crossed over the line?:

Search, but You May Not Find. by Adam Raff, Commentary, NY Times: …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 [at]… “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. …

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… Google now favors its own price-comparison results…, its own map results…, its own news results…, 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. …

The preferential placement of Google Maps helped it unseat MapQuest from its position as America’s leading online mapping service virtually overnight. … 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.

Some will argue that Google is itself so innovative that we needn’t worry. But the company isn’t as innovative as it is regularly given credit for. Google Maps, Google Earth, Google Groups, Google Docs, Google Analytics, Android and many other Google products are all based on technology that Google has acquired rather than invented. Even AdWords and AdSense … are essentially borrowed inventions…

Google … now faces a difficult choice. Will it embrace search neutrality…? Or will it try to argue that discriminatory market power is somehow … harmless in the hands of an overwhelmingly dominant search engine? …

Thoughts (just on the search engine market):

Why did Google then acquiesce to Murdoch’s demands for charging when linking to his sites (five free links then you are directed to the payment page)?Probably because the internet search engine market isto a large extentacontestable market; even though there is a dominant firm (Google), other firms are in market (Bing which also powers Yahoo! Search is the major one)who can gain market share from Google by making a deal with Murdoch to become the sole search engine for News Corporation whose size cannot be sniffed at. [Wall Street Journal(US), Fox (US & Australia), The Times(UK), The Sun(UK), Sky (UK) among many others. It is important to remember that News Corp is not made up of only newspapers, it is a complete media conglomerate (world’s 3rd largest in entertainmentand 2nd largest media conglomerate)].

It is not a contestable market due to the high entry costs (servers, staffing, massive computers etc); they will also need massive advertising campaign(s) to even register in public consciousness which is difficult on its own but also adds to entry costs. This means that there can be no credible threat of entry into the market except if an already large (preferably IT) company decides to set up a search engine (though costs could still deter them).

I’m not completely sure which would suffer most if Murdoch decided to make Bing the only search engine that can “find” News Corp material. I think, however, that Google is big enough and so much ingrained in the public’s mind, that any “war” with News Corp would not affect it. People are satisfied with Google, with it achieving a score of 86 out of 100 in a study and its closest rival Yahoo! on 77. Also I read somewhere (I can’t find it now), that the majority of readers don’t stick with one newspaper website but tend to go with whoever has a story (nowadays everyone has the same story, if you restrict it in any way, people will get it from somewhere else). That is, they might hear about a story, type it into a search engine and go to any of the sites that has the story. This suggests that if for instance, readers don’t see The Washington Postor The Sunor The Timesin a Google search (which has 71% and 90% of the market in the US and UK respectively), or they have to pay for it, then they will read it from somewhere else; The New York Times, BBC, and the Guardianwhich are all free (I haven’t seen any indication that they want to begin charging). I imagine that if these were the sort of readers that compose the majority of  News Corp publication’s readers then this will affect News Corp’s advertising potential and revenues and finally its profits (ceteris paribus). This may change in the future if Bing becomes the major search engine, but in the short to medium term at least News Corp would lose.

My view on newspaper charging (for now) is that it will not work without cooperation among the media moguls (and their egos) and some very harsh laws on copying from web articles and news networking. If there is no cooperation it will fail for anyone that moves unilaterally to a pay-for-news model. Even if there was cooperation among the ‘old-world’ print news media, they would have to contend with internet-only operations which don’t seem to have the same vision of the future of journalism such as Politicoand The Huffington Post,which has a rather good Dumbest Quotes of the 2000s.Why is it that you only get these sorts of sites in the US and not here in the UK? (Are we more in awe of the gentleman journalist?). Without cooperation people will change allegiance to the free papers. In less than a year I changed from reading to The Daily Mail (sorry), to The Timesand finally The Guardian all before my 18th birthday and I was paying for the papers.

They would also have to find and kill a lot of bloggers to stop them stealing what their journalists have wrongly reported. It could become the next witch-hunt after middle-easterners. Jack Bauer torturingusing “enhanced coercive interrogative techniques” on bloggers; 




If people get a cheaper deal (free) when they change their allegiance (if they have one) then the pricing scheme will fail woefully as it will lead to lower site traffic and lower advertising revenue

So, my advice to Google, as a Business Consultant par excellence/ first-year student is “Screw Murdoch, what’s he gonna do? Bite you?” To which I will get laughed out of the building, rolling in a trash can.

* I did do a Google Search for these names and nothing came back. If your publication is any of them, my sincere apologies for the unintentional coincidence... seriously.

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  • Great post. This is exactly the area of news and debate I am following myself. Have you read all the… by on this entry

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