Antitrust

The House Judiciary hearing on "Free Speech and the Internet" this afternoon was perilously close to being a non-event.

• While Net neutrality activists will claim and spin victory and momentum in getting a congressional hearing on the subject, anyone who listened to the hearing would have been surprised by how little actual support net neutrality got out of this hearing. 

What I found most interesting and telling at the hearing is that Michelle Combs of the Christian Coalition, who testified in support of net neutrality, was completely unable to answer simple softball questions by Ranking Member Sensenbrenner. Like a proverbial "doe in headlights" she could not answer the simplest of questions for a witness; she had to ask for help from her fellow panelists, which made it obvious that she was only a symbolic figurehead on the subject and did not understand even the most basic parts of the net neutrality issue. These were the two questions and answers paraphrased:  

EU clearance of the Google-DoubleClick merger is a much bigger deal for Google than the economy-obsessed marketplace appreciates.

(Investors: don't miss the last part of this post.) 

Sources indicate that the EU is poised to approve the pending Google-DoubleClick merger soon in what insiders described as a "close call."

The long-awaited new Net Neutrality bill is finally coming out from House Telecom Subcommittee Chairman Ed Markey and Rep. Chip Pickering -- it's now called "The Internet Freedom Preservation Act of 2008."

After reviewing the draft version circulating among the media this evening, here are my initial takeaways on the new proposed legislation.

First, the proposed legislation attempts to rebrand the controversial "net neutrality" issue as "Internet Freedom" and "broadband policy."  

• While most all of the net neutrality buzzwords still pepper the legislation (open, discrimination, blocking, degrading, etc.) conspicuously absent from the legislation is the well-known and never fully defined "net neutrality" brand. 
• This is odd given all the effort Markey's supporters have put into branding this issue over the last two years. 
• It is doubtful that most people on the Hill, in industry, and in the press will stop calling it Markey's new Net Neutrality bill. 

Second, the bill's primary purpose is a bold attempt to reverse longstanding United States broadband policy by amending Title I of the 1934 Communications Act. This Markey bill would:

In reading most all the major press reports on the Microsoft-Yahoo bid, there has been plenty of reporting on the personalities, the price and the process, but precious little analysis of the core assumption whether Yahoo truly has a credible alternative strategic option -- in outsourcing its search to Google. 

• One can't get a true handle on the likely endgame of this transaction without a more rigorous testing of this outsourcing pillar assumption:
  • Is outsourcing Yahoo's search function to Google a viable and real strategic option given recent antitrust concerns?
• No. Upon close examination of the facts, this alternative is a weak bluff by Yahoo at best -- designed to buy time and create the perception that Yahoo has more maneuvering room than Yahoo really does.

Would antitrust officials allow Yahoo to outsource its search function to Google? Highly unlikely. 

Kudos to Kim Hart's dead-on insights in her Washington Post article: "Some Businesses at Mercy of Google See Hope in Bid." 

• Forester research analyst Shar VanBoskirk: "There does seem to be an attitudinal shift," she said. "Two years ago, Google was everyone's salvation," because it enabled small Web site owners to easily make money by selling ads, she said. "Now people feel like it has too much control. They may prefer to work with a player that doesn't have as much power in the market."

• "Google has the edge right now. Its unmatched reach on the Web, both through its dominant search engine as well as its large base of advertisers and publishers, has allowed it to wield so much power that it can shape markets, anoint winners and declare losers, and set prices for advertising, leaving customers like Davies feeling they're at Google's mercy."

 Well said. Enough said.

Since the beginning of the year, Google's stock has fallen over 25% -- about 2-3 times the fall of the relevant indexes.

• The good news for Google shareholders is that most all of Google's stock price problems are self-inflicted, so they could fix them -- if they wanted to.
• The bad news for Google shareholders is that Google is unlikely to change its problematic bahavior -- because "leopards don't change their spots."

Why is Google its own worst enemy?

First, Google routinely alienates its friends and allies.

Google must have been caught off guard last week by the Microsoft-Yahoo bid because they are reacting quite rashly and arguably in a way that is not in the best interests of their shareholders...

First, is it wise for Google to be proactively and angrily  "kicking the antitrust bee hive" in the U.S. and in Europe when their DoubleClick acquisition is still pending with EU regulators?

• Did it ever occur to Google that they could take the close call in the EU over their pending merger -- that previously was trending in their favor -- and give opponents of the deal in the EU -- more ammunition that this market is too concentrated and that antitrust officials should be more concerned about this market?
  • Has Google forgotten that they have 90% search share in Gemany/Spain and 75% share in France/UK? 

Second, in leading the charge against Microsoft-Yahoo in Washington, has it occurred to any adult in Mountain View that this will only accelerate Washington interest and attention to adopt the FTC's (5-0) proposed behavioral advertising privacy principles/regulation, which would require opt-in and "affirmative express consent" before Google could use "sensitive data."?

After last quarter's earnings report by Google, I questioned whether Google was more interested in "empire building" spending than in rewarding shareholders (see point three of this previous post.)

• I've heard lots of explanations why investors have soured on Google's stock:
  • Economic downturn (Google said no on its call)
  • Pay-per-click rates; (Google downplayed this in its call)
  • slowing traffic/searches... (ditto)
• My simple explanation is that the "momentum pixie dust" that Google has been flying on for a long time -- simply came to back to earth.
  • Investors know what fuels "momentum pixie dust" is actual and expected earnings acceleration.

What blew away the "momentum pixie dust" surrounding Google's stock? At least for the time being?

I can't say I'm at all surprised to see Microsoft seek to acquire Yahoo. 

• It makes obvious business sense for both Microsoft and Yahoo -- because it is the only viable and timely strategic option for either company to become a serious and credible competitor to Google-DoubleClick's rapidly increasing dominance of search and Internet advertising.
• And given the FTC's surprisingly-strong consolidation-endorsing analysis of the Google-DoubleClick merger -- a previously-perceived yellow antitrust light to such a merger by Microsoft -- now has a bright blinking green light for approval.
  • Timing-wise it's obvious to Microsoft to get approval now while the getting is so good.