Google: Antitrust's Pinocchio?

First, antitrust's modern day Pinocchio claimed that competition is just "one click away," now Google is claiming that the notion that scale is important to search competition is "bogus."

• Google's Chief Economist, Hal Varian is pushing a preposterous, self-serving argument in CNET that scale is not important to search competition:
  • "...the scale arguments are pretty bogus in our view because it's not the quantity or quality of the ingredients that make a difference, it's the recipes. We think we're where we are today because we've got better recipes...  I also think we have a better kitchen..."

Why is Google's "bogus" claim bogus?

First, does Google think for a minute that antitrust enforcers' investigations have not assembled substantial evidence/quotes from Google itself about the importance of scale in search?

• Just this June in a UK Wired article, Google CEO Eric Schmidt said: “One day, Larry and Sergey and I were sitting in a room, and Sergey looked at us and said, ‘It’s obvious what our strategy should be. It’s to work on problems on a scale that no one else can.’”
• Just in May, an official Google blog post recommended another Wired article "as a must read for policymakers" where Hal Varian himself boasted of the advantages of Google's scale: "Anything that increases Internet use ultimately enriches Google, Varian says... more eyeballs on the Web lead inexorably to more ad sales for Google."
• Ironically, a primary argument Google uses to defend itself in the Google Book Setttlement, which is in hot water with the DOJ, is that without Google's scale and willingness to copy several million books without rights holders permission -- humankind simply would not have access to these books in digital searchable form. 

Second, read most any in-depth article or book on Google and it will discuss one of Google's signature obsessions --  thinking big and seeking scale. The primary gating factor for any Google application is its potential to "scale."

• The most recent book about Google, "Google Speaks" captures Google's founders' obsession with scale:  "In one strategy meeting, Brin and Page were annoyed at the presentation. Page complained that the engineers weren't ambitious enough.... We want something big, said Page. Instead you proposed something small. Why are you so resistant?"    

Third, any true techie should guffaw at the notion that scale does not matter in tech or the Internet. If Google wants us to believe that scale does not matter in search, will it also try and argue that scale does not matter to:

• Intel in microchips?
• Ebay in online auctions?
• Microsoft in OS software?
• Oracle in enterprise software?
• Cisco in networking gear?
• Apple in online music?
• Facebook in social networking?

Finally, the notion that scale does not matter in search, an Internet application, ignores the central role that scale plays in Metcalfe's Law, which states that the value of a network is proportional to the square of the number of users.

• I seriously doubt Google will ever risk its credibility by trying to debunk the widely-accepted scaling insight of Metcalfe's Law, since it has been so integral to Google's strategy, business model and success.

Finally, Internet scale naturally implicates network effects, which are like ever-increasing positive feedback loops.

• In my white paper that I submitted to the DOJ Antitrust Division as part of their investigation into the proposed Google-Yahoo Ad Partnership, I catalogued for the first time, 26 different scale-related network effects that reinforce Google's exceptional market power. (I have listed them at the bottom of this post -- for anyone who still doubts that scale matters in search competition.) 

In closing, Google still seems to think that anything they say will be reported as gospel by bloggers and the media; accepted as fact by policymakers; and won't be fact-checked by others.

• As a result, Google's credibility appears to be declining.
• If they are not careful, they could become the antitrust's proverbial "Pinocchio."

 

 

Google's 26 scale-related network effect advantages in search:  

1. Google’s scale efficiencies:

 

1.      Biggest global Internet audience wins as it generates highest ad rates;

§         Google’s audience is ~4x larger than Yahoo’s, ~7x times larger than Microsoft’s; 

2.      Biggest network of advertisers wins as it generates most cash flow to reinvest;

§         Google has ~1,000,000 advertisers, Yahoo ~300,000, Microsoft ~75,000;

3.      Biggest network of publisher relationships wins as it attracts most advertisers;

§         Google has hundreds of thousands of relationships vs. thousands for competitors;   

4.      Most search market share wins as it funds more users, advertisers and publishers;

§         Google has ~70% U.S. search market share, ~90% share in Europe. 

5.      Most information searched wins as it attracts the most searchers;

§         Google has indexed a trillion web pages vastly more than any competitor;

§         Google uniquely is copying all books, photographing every street view, etc.

6.      Most traffic acquired from top sites wins as it funds highest traffic acquisition price;

§         Google pays more to acquire search traffic, than competitors’ search revenues;

7.      Most sites using outsourced search toolbar wins as it attracts the most search traffic;

§         Google’s search is used by ~65% of the top 50 websites that outsource search;

8.      Largest server-farm network wins as it has the lowest operating cost structure;

§         Google operates million plus servers, hundreds of thousands > competitors.

 

1. Google’s scope efficiencies:

 

9.      Broadest Internet use tracked wins as it enables targeting of most relevant advertising;

§         Google can track ~90% of all Internet users, dramatically more than competitors;

10.  Broadest web application platform wins as it enables the widest variety of uses;

§         Google dominates in video streaming, blogging, news aggregation, Earth, etc.  

11.  Broadest offering of languages and translation wins as it enables most use and users;

§         Google has interfaces in ~118 languages, several dozen more than competitors;

12.  Broadest ad syndication deals wins as it facilitates most ad brokerage/ad exchange;

§         Google has several times more ad syndication deals than either Yahoo/Microsoft;

13.  Broadest advertiser tools platform wins as it enables broadest campaign measurement;

§         Google-DoubleClick dominance in usage data makes tools platform most useful.

 

1. Time efficiencies:

 

14.  Fastest search wins as it encourages the most users and usage;

§         Google has much faster loading homepage and search response than competitors;

15.  First mover releasing new applications wins as it lands early adopters who improve apps;

§         Google routinely/frequently releases apps in beta to keep first-mover advantage;   

16.  Fastest crawler of the web wins as it provides most up-to-date results for breaking news;

§         Google crawls web many times more an hour, or a day, than any competitor; 

17.  First to offer integrated cross-platform ad management wins with first-mover advantage;

§         Google is far ahead competitively integrating search, TV, audio, classified, etc. 

 

1. Google’s standards efficiencies:

 

18.  Most recognized search brand wins as it attracts the most users, advertisers and publishers;

§         Google is the world’s fastest number one brand ever;

19.  Most used search engine wins in that it becomes the de facto technology standard;

§         “Google’ has become a verb, defines the category -- diminishing competitors;

20.  Most used retail search engine wins as it becomes the wholesale standard as well;  

§         Google’s competitors are not one click away, most sites wholesale Google search.

 

1. Google’s bundling efficiencies: (Primary driver of Google’s inexorable market share gains.)

 

21.  The default search download of Adobe software wins large steady market share gains;

§         Google is downloaded with every upgrade of Adobe’s 98% dominant software;

22.  The default search download of Mozilla’s browser wins large steady market share gains;

§         Google search is downloaded with every Mozilla (and Chrome) browser adoption;

23.  The default search download of Real Networks software wins steady market share gains;

§         Google search is downloaded with every Real Networks upgrade.   

 

1. Google’s network effect efficiencies:

 

24.  Scale efficiencies compound – audience x advertisers x publishers x traffic… 

25.  Scope efficiencies compound – users x data x integration x languages x tools…

26.  All efficiencies compound – scale x scope x time x standards x bundling x network effects…