Antitrust

After reading most all of the coverage of the demise of the Google-Yahoo ad partnership, I wanted to flag what I thought was the best, which was in the Breakingviews.com section of the New York Times today by Constantine Courcoulas and Robert Cyran.

• See this link  to the Breakingviews.com story, but be sure to skip the first unrelated story at the top and go the second story "Google Backs Off."

I couldn't agree more with it -- you can see why by checking out one of my earlier posts: "Why Google wins from Google-Yahoo postponements -- lessons from Machiavelli."  

The DOJ released a statement explaining why it would have sued to block the Google-Yahoo ad partnership had Google not backed out of the arrangement.

In a nutshell, the DOJ said it was prepared to sue in Federal Court to block the proposed Google-Yahoo ad partnership because the DOJ concluded that:

• The proposed agreement was anti-competitive and illegal;
• Google has dominant market power in two "relevant anti-trust markets":
  • Internet search advertising, and
  • Internet search syndication;
• Yahoo would have become a collaborator with Google rather than a competitor "materially reducing important competitive rivalry between" Google and Yahoo.

Bottom line:

Google has hit a very real antitrust wall. More importantly it is now front and center on the DOJ's radar screen as an aspiring Internet advertising monopolist willing to push the antitrust envelope -- unless the DOJ steps in to preserve Internet competition. 

While Google may not realize it, the world is now a very different place for Google -- it no longer has free rein to do whatever it pleases.

Google announced it was backing out of the Yahoo agreement just a few minutes ago on its blog.

Commentary will follow.

Kudos to Peter Osnos of The Century Foundation for connecting the dots in his piece: "The Platform: make Google pay."

• Mr. Osnos asks the pertinent question: Now that Google has conceded the principle that infomation is not free in its $125m settlement with authors/publishers, why don't newspapers and magazines insist on getting paid for their content?
• It's a thought-provoking piece read -- I recommend it. 

Mr. Osnos' central thesis becomes even more important when you consider that Mr. Schmidt recently suggested to advertising executives that they should consider if the business model for journalism should become a not-for-profit model!

What many in the journalism industry do not appreciate is that Google is quietly cheering on the demise of modern journalism and Big Media so that it can be replaced by citizen journalists that will of course use their platform predominantly through, Blogger, YouTube, and Google Knol.

• Google believes it can provide anyone and everyone a more efficient digital content platform than anyone else.
• Apparently Google's real mission is to organize all the producers of the world's information -- to work for Google!

Google and Yahoo have agreed to cut back their initial proposed agreement from 10 years to 2 and to a revenue cap of 25% of Yahoo's search business -- per WSJ reports -- in an effort to salvage their proposed ad partnership.  

What does this mean?

In practical terms, the agreement would go from being worth ~$800m to Yahoo (or almost half of Yahoo's search business) to ~$400m to Yahoo (or no more than one quarter of Yahoo's $1.6b annual search  business.)

Bottom line:

The DOJ is unlikely to agree to this new offer because:

• This agreement would still make #2 search competitor Yahoo unacceptably dependent on #1 search competitor Google for its growth, profits and valuation. 
  • The agreement would still make Yahoo more interested in cooperating with its single biggest business relationship, Google, rather than competing with them.

Lastly, the DOJ understands, if they let even a cut back agreement go forward, it would be extremely difficult for the DOJ to ever "unscramble the eggs that this agreement would scamble" if the agreement proved problematic for competition in the future.

• As a general rule the DOJ does not like to get into arrangements that they can't get out of if they need to.
• It's just common sense.  

Google's $125m settlement with authors/publishers is an excellent window into how Google intends to anti-competitively extend its de facto search advertising monopoly market power to other content markets.

• Think about it; if Google only has to pay a penalty of less than a penny on the book-selling dollar, why wouldn't Google be emboldened to steal all the entertainment property of others, and just settle for less than a penny on the dollar like it has with books? 
• What a cheap and easy way to extend and cement one's monopoly market power in search advertising into other content markets.    

Kudos to Professor James Gibson and his op-ed in the Washington Post today, "Google's New Monopoly" where he spotlights the anti-competitive effects of the Google-book settlement because a deal cut with no competition can embed barriers to entry so that competition can never emerge to compete with Google going forward in digitized books. 

• I made a similar point in my post "Google proves crime does pay -- if you have enough market power." 

More on Google extending its monopoly market power:

Google claims the settlement is not an extension of market power because Google is not requiring an exclusive arrangement from authors or publishers. This is brilliant misdirection. Google doesn't need a formal exclusive because their Machiavellian scheme grants them a practical exclusive arrangement.

Yahoo deserves a seat in the Sucker Hall of Shame for how badly it has bungled its strategic options over the last year.

• Reuters reports that "Google may scrap Yahoo deal" and reported that ""Yahoo wants the deal and they are willing to have Google sign anything at the Justice Department to have them do it," said the source."  

In strategically choosing to go with an ad agreement with Google over a search deal with Microsoft, Yahoo bet the farm that the Google-Yahoo ad agreement could pass muster with the DOJ. oops!

• To make matters worse, Yahoo negotiated a one-sided desperate ad agreement with Google.
• They gave Google a poison pill of $250m if Yahoo were bought by another entity, (i.e. Microsoft), yet they did not protect their own interests by holding Google to a more standard firmer committment to do everything necessary to consumate a Google-Yahoo deal -- like fight for it in court. 
• It will soon be apparent that Yahoo's lawyers and executives did not protect themselves very well legally. 

Yahoo's leadership should be panicked now realizing that they were suckered badly by Google.

Google, in settling with authors/publishers for $125m over their copyright infringement lawsuits, has cleverly leveraged its market power to tip, and lock in, another Internet segment to de facto Google monopoly control – access to most of the world’s books online. The untold story here is how this settlement:

·         Enthrones Google as the de facto gatekeeper to access most of the world’s books online;

·         Establishes a “new model” for online content distribution;

Google, the most-sued intellectual property infringer in the world, just settled a class action lawsuit with authors and publishers for $125m and a revenue sharing deal going forward;  this deal has much broader implications than most would think for Google, for other companies suing Google for theft, and for the pending Google-Yahoo ad partnership.

Implications for Google: After steadfastly maintaining that they had done nothing wrong and that they were protected by the concept of fair use, Google has now de facto conceded that it was broadly infringing on authors' and publishers' copyrights, while also signalling it feared losing in court.