October, 2008

While I am always skeptical about the EU's regulatory approach, it is encouraging that the EU Commissioner is discussing a reasonable approach to net neutrality that:

• competition and transparency should be the guiding principles;
• network management and traffic prioritization are/can be necessary and important; and
• The EU already has the tools in place to deal with anti-competitive bahavior.

Per a post by PublicTechnology.net of EU Commissioner Viviane Reding:

Senate Antitrust Subcommittee Chairman Kohl sent a letter to the DOJ on the Google-Yahoo ad agreement stating "we conclude that important competition issues are raised by this transaction."

"These issues include: 

• Whether the agreement will lead to higher advertising prices;
• whether search and display are interchangeable and substitutable; and 
• Whether this transaction will strengthen Yahoo as a competitor or perpetuate its decline and even exit from this market; and
• whether there are significant barriers to entry impeding new competitors in this market."   

The letter ends with the thought that they "...would encourage the Department to intervene to protect competition..." if this deal now or in the future were to "...cross the line into an unacceptable, anti-competitive collaboration among competitors..."

Kudos to Tom Hazlett and Vernon Smith for a cogent free market stance against Google's attempt to communalize the airwaves for Google's benefit -- in a great Op Ed in the Wall Street Journal today.

The authors are dead right to challenge Google's "free the airwaves" campaign on spectrum.  Google does not use the word "free" the way most people use it. When they say "free the airwaves," Google is saying, like it does in its push for net neutrality and open access, that it seeks to turn the airwaves in to a public commons where spectrum is communalized, not owned or licensed, available to anyone at no cost to use.

I wrote a new white paper, Googleopoly III, to answer the core question in the Google-Yahoo deal: Would Yahoo compete as vigorously with Google Post Agreement?

• My detailed analysis concludes Yahoo would not compete as vigorously, because the deal would make Google Yahoo's single most important business relationship -- effectively making Yahoo financially, operationally, and strategically dependent on Google.
• I also describe the agreement as a "Hotel California deal" where Yahoo could check out but never leave...

I wrote this white paper now because, there are many indications that the DOJ will decide to bless or block this Google-Yahoo deal next week before the parties' October 11 review deadline.

The abstract of my 10 page White Paper is below:

Google is on the wrong side of its customers -- as aspiring monopolists often are. Isn't it a hallmark of competitive markets that companies are responsive and solicitous of customers, especially their biggest customers? Isn't competition about supply meeting demand?

• A New York Times article reminds everyone that Google's customers are among the biggest critics of the Google-Yahoo ad partnership.  
  • “Google and Yahoo claim these are auctions,” said Robert D. Liodice, chief executive of the Association of National Advertisers. “Many of our marketers don’t necessarily believe that these are real auctions.”

In a customer-friendly deal that truly offered innovative benefits to customers, customers would be flooding the DOJ with support for it, not flooding it with opposition like they are. 

Just when the DOJ is investigating if the Google-Yahoo ad partnership is anti-competitive, eBay bursts onto the antitrust stage with "investigate us too!" acquisitions of Bill Me Later and more classified ad businesses. (See NYT article  and post, and WSJ article for excellent background.)

Why are the eBay acquisitions relevant to the Google-Yahoo investigation? 

First, they spotlight how dominant and incestuously interdependent the primary Internet players are.

Google continues to rapidly take revenue share of overall U.S. Internet advertising, per the latest released IAB industry figures.

As the overall Internet advertising growth rate slows from 26% in 2007 to 15% for IH08, Google is strengthening its relative grip  on the overall Internet advertising market in the United States, not just the search market that Google is well known to increasingly dominate with 71% share of searches per Hitwise.  

• What the IAB overall data show is that:
  • Google's market power and networks effects appear to extend more broadly into the overall Internet advertising market; and
  • If allowed to partner with Yahoo, Google-Yahoo, in one fell swoop, would dominate the overall U.S. Internet advertising market that IAB measures. 

Per the new IAB data on the overall U.S. advertising market:

The best evidence of market power is when a company utterly disregards its customers' best interests -- because they know their customers have no real competitive alternative. 

• How Google designed its new Chrome browser, to tie its dominant search bar to the previously separate and neutral address bar, into one single 'Omnibox (see p.19),' is Exhibit I in how Google is anti-competitively leveraging its search dominance to its own advantage and to the serious detriment of its advertising customers.   

Advertisers/brand marketers who already are concerned that the Google-Yahoo ad partnership is anti-competitive, and that Google's auctions are anti-competitive because they are not in fact true auctions, should be triply troubled by the anti-competitive implications of Google's Chrome browser technology which efffectively disintermediates brands -- by design.

The untold story of the Google-Yahoo ad partnership is the exceptional closeness of the founders/leaders of Google and Yahoo -- and whether that exceptional closeness undercuts the credibility of Yahoo's assurances that Yahoo will compete with Google as vigorously after the agreement as before.

Consider how the leading authors who have written books about Google, describe the relationship between the founders of Yahoo and Google. 

First, as background, Yahoo founders, Jerry Yang and David Filo, and Google's founders Larry Page and Sergey Brin were all computer science PHDs at Stanford University a few years apart in the 1990's. 

Google's CEO Eric Schmidt had the temerity to suggest that journalism consider becoming a not-for-profit enterprise -- at a recent Google program for magazine executives.

• See Ad Age's article: "Google's Schmidt says Internet 'cesspool' needs brands -- Says the solution is quality content; tells publishers and editors to 'increase your relevance'. 
  • From the article: "...when asked where the industry ends up if there aren't outlets willing to pay journalists to create quality content, Mr. Schmidt was a bit Palin-esque, saying that he didn't have an answer but one thing to look at is whether journalism should be a for-profit enterprise."

Google's CEO must think journalism-business people are stupid.