The proposed seminal book settlement of the publishers/authors class action suit against Google, if ratified by Federal Court this June, has the potential to de facto legislate for the U.S. and much of the world, both the monetization mechanism and competitive trajectory of much of the digital books market -- a highly strategic segment of the world's digital knowledge base.
- The competitive stakes are high because books represent some of the highest quality searchable content available in the world.
- Moreover, the seven million books digitized by Google and covered by the settlement dwarf any other digital library in the world.
- Furthermore, the settlement would de facto grant Google exclusive control over the "orphan works" covered by the settlement, which comprise the vast majority of the seven million digitized books.
As an expert analyst on the future of Internet competition, the central question I ponder is whether the mechanism and trajectory that the Google book settlement would entrench -- is competitive or anti-competitive?
- More simply, is antitrust pertinent to the Federal court's disposition of this proposed copyright-infringement settlement?
- The facts and analysis show antitrust is highly relevant to this potential supra-constitutional, court-created, digital book marketplace.
First, the core facts suggest antitrust concerns are relevant to the ratification process of the proposed digital book settlement.
- Google's mission "is to organize the world's information and make it universally acessible and useful."
- The proposed settlement would create a de facto, supra-constitutional controlling authority for by far the world's largest standardized library of digital books, over seven million titles.
- The settlement grants Google special gatekeeper rights to this unique library, especially for orphan works, rights that competitors are not granted.
- In its review of the Google-Yahoo ad partnership, the DOJ concluded (11-5-08) that Google was by far the largest provider (70+% share) of search advertising and search advertising syndication.
- The DOJ opposed the Google-Yahoo ad partnership because the pact would have extended Google's dominance by making its top competitor more of a collaborator than a competitor for a signifiant portion of the search advertising business.
Second, the competitive effects of the settlement could extend Google's dominance in search advertising significantly and uniquely.
- The important new insight here, if there is one, is that the book settlement effectively extends Google's dominance in search advertising by granting Google exclusive control over most of a strategic searchable digital information set (SSDIS) that is prohibitively difficult for a competitor to replicate.
- To the extent that the book settlement library becomes an important digital information set that people want to search, or from which to generate searches, Google will control it and competitors won't be able to search or present the content.
- Ironically, ratification of the settlement has the potential for rewarding alleged systematic copyright infringement by Google with a de facto permanent systematic anti-competitive advantage for Google.
I am positing a new and analogous antitrust theory to the theory I offered last year in Google Yahoo, that the competitive problem with the Google-Yahoo partnership was that it further cartelized search wholesaling. The DOJ effectively agreed with that theory in concluding that Google also dominated search syndication (wholesaling) and that the Google-Yahoo deal would have anti-competitively reinforced and extended Google's search advertising monopoly.
The "aha" here is that the Google book settlement is part of a second strategic ring of competitive foreclosure (The first ring of competitive foreclosure being wholesaling search to AOL, MySpace, Ask.com, Craigslist, and Amazon -- and attempting to wholesale search for Yahoo in the proposed Google-Yahoo partnership.)
The second strategic ring of Google's competitive foreclosure is to exclusively control as many strategic searchable digital information sets as possible that will be increasingly important to the search index in the future, and also to the ever-important learning effects that emanate from access to unique and exclusive information sets.
The antitrust significance of the book settlement is that it officially could legitimize a permanent extension of market power by granting Google exclusive rights to search and profit from much of this strategic searchable digital information set.
What's important to understand about this insight is how the book settlement is part of a brilliant Google strategy and pattern of acquiring, by a wide variety of means, an extension of market power by creating exclusive access to a wide variety of strategic searchable digital information sets, which enjoy strong first-mover advantages and network effects.
- Court ratification of the settlement, could have a similar dominance extending effect in digital books as the DOJ's approval of Google's purchase of YouTube did in user-generated video. DOJ enabled Google through acquisition to gain exclusive control over the most strategic searchable digital information set for Internet video, YouTube. In less than two years YouTube has become the second largest originator of search queries in the world, surpassing Yahoo.
- Court ratification of the book settlement would also be similar to the FTC's approval of Google's purchase of DoubleClick to gain exclusive control over the uniquely dominant strategic searchable digital information set, i.e. the world's largest database of information relevant to behavioral advertising -- which display ads are served to which of the world's websites.
- Google's acquisitions of the technology for Google Earth, Google Maps, Google Latitude and Android, have enabled Google to garner exclusive access to the leading and highly strategic searchable digital information set of location-based information.
- Google's acquistion of Grand Central will grant Google exclusive access to the highly strategic searchable digital information set of voiceprints, voice recognition, and voice transcription learning effects.
- Acquiring Twitter would provide Google with exclusive access to the newest strategic searchable digital information set, real time or immediate information/news/reactions i.e. the popular "pulse."
In sum, antitrust is highly relevant to the court's pending review and ratification of the Google book settlement. What I find most interesting is how the proposed settlement helps connect-the-dots of how owning/controlling exclusive rights to highly strategic searchable digital information sets could reinforce and extend Google's dominance of the Internet-monetized content economy.
