Google openly represents its value in the marketplace as supplying users with "free" services: free search, free email, free docs/spreadsheet/other applications, free content, etc.
- Google likes to represent itself as the de facto "Internet Santa Claus" -- who only gives and never takes.
- However, remember what we were taught as kids, "don't take candy from strangers" and "...if it looks too good to be true, it is."
Let's pull back the superficial and populist verneer of Google's candyman personna; to learn the systematic misrepresentation of Google's "free" services -- by better understanding the real-life "costs" that Google users in fact "pay" to Google.
- Don't be fooled that because actual money does not exchange hands that Google services are "free".
- They are no more "free" than any other unofficial barter arrangement is "free".
- Make no mistake, in every Google service, users do indeed "pay" for the service -- it just is not clear or obvious to the user what thing of value they are giving/paying Google in return for the represented "free" service.
Let me explain the deceptive ways Google extracts non-monetary value, or gets "paid" from users in return for Google's alleged "free" services.
- Forfeited property rights payment;
- Sacraficed personal privacy and security payment;
- Trust in conflicted recommendations payment;
- Special treatment from politicians payment; and
- Facilitated market power payment.
First, forfeited property rights payment. Thanks to ZDNet's Joshua Greenbaum great post spotlighting that "the content in Google apps belongs to Google."
Users of Google's "free" docs and spreadsheet applications are legally forfeiting some of their property rights to Google in agreeing to Google's terms of service.
- "By submitting, posting or displaying Content on or through Google services which are intended to be available to the members of the public, you grant Google a worldwide, non-exclusive, royalty-free license to reproduce, adapt, modify, publish and distribute such Content on Google services for the purpose of displaying, distributing and promoting Google services. Google reserves the right to syndicate Content submitted, posted or displayed by you on or through Google services and use that Content in connection with any service offered by Google. Google furthermore reserves the right to refuse to accept, post, display or transmit any Content in its sole discretion." [Bold added]
- Let me translate: If you use Google applications to produce content that might someday be for public use, the user grants Google ownership rights in advance to profit off that content in most any way Google sees fit.
- Most lawyers would consider this a contract of paying for services with content rights.
- The IRS may consider barter arrangments like this as "payment" in kind.
Second, sacraficed personal privacy payment. How is Google making $13b a year in revenues when they don't get paid a dime by those who use the search engine?
- Google makes money by targeting online advertising.
- They claim they only serve "relevant" ads, meaning users only see ads on subjects that are likely to interest them.
- But how does Google know what you might be interested in?
- Because they archive and analyze all users' search queries, which include much of the most personal and private information people have.
- Advertisers find private information extremely valuable, the more private and comprehensive the better, because it enables the advertiser to push individual users "hot buttons" to buy or act on an ad.
- EPIC and other privacy groups have a suit pending with the Federal Trade Commission against Google for deceptive and unfair trade practices.
- Per the complaint, "A January 2006 poll of 1,000 Google users found that 89% of respondents think their search terms are kept private, and 77% believed that Google searches do not reveal their personal identities.31 These numbers indicate that Google’s practices violate the public’s expectation of privacy with respect to the collection and use of search history data."
- In other words, users "pay" for their search services with their forfeited privacy, which by the way, the vast majority of users are not aware that they are doing.
Third, trust in conflicted recommendations payment. Google does not get paid a dime by its hundreds of millions of users; it gets paid by hundreds of thousands of advertisers. Google works for advertisers not users.
Google consistently says that they would not be successful if they did not respect the needs and privacy of their users. That is true to the extent that users accept Google's assertions at face value and do not learn the hidden costs they are indeed paying Google.
- Google search is not free because users are paying in their trust that Google will not make them unknowingly vulnerable to fraud, false advertising, and misrepresentation.
The question is not whether Google has a big financial conflict of interest, it obviously does.
- The question is whether Google, in all of its representations and branding efforts, is fairly representing to the American public that it is in Google's financial interest to put the interests of its advertisers ahead of its users.
How is this conflict of interest a potential problem?
- An obvious example... does a search for information on a medical condition or treatment yield the best treatments for the patient or do they yield the information from the highest paying advertiser?
For those who dismiss this concern as alarmist, ask those people who lost their financial or retirement security in Enron, WorldCom, or dotcom stocks because they were unaware of the conflicts of interests inherent in investment banking research.
- To make matters worse, Google is subject to near zero accountability. Their search engine and business practices are a complete black box to outsiders. Even advertisers, the customers, aren't told where their Google ads are run and how, they just get a check and zero audit trail.
- Who is to know if these powerful conflicts of interest are not making consumers more vulnerable to fraud, false advertising and misrepresentation?
- In other words, who knows the vulnerability price consumers are paying Google in their completely blind trust?
Fourth, special treatment from politicians payment. Congress just passed a new ethics law that supposedly cracked down on influence peddling in the wake of scandals where lawmakers were given "payment in kind" in trips, gifts and other things of value. The new law understands that gifts and favors from special interests are not "free."
- A recent front page Wall Street Journal article: Google goes to Washington with its own brand of lobbying" gives a chilling account of Google's supposedly "free" influence peddling:
- "...about 150 young Democratic operatives-in-training recently munched on animal crackers as Google Inc. executives pitched the Internet company's offerings. Google's newly hired team leader for political sales, Peter Greenberger, explained how attendees could use online ads and other services from Google to help their candidates win. ... "It's free." Free in the sense that Google isn't charging money for the service. But the Internet giant is ultimately hoping for something in return: greater influence in the nation's capital. As Google's ambitions grow...the company is relying on people like Mr. Greenberger to reinvent corporate influence-peddling for the Internet Age. Instead of just hiring a roster of lobbyists and tossing out millions of dollars in campaign contributions, Google has embarked on a quiet march through the conference rooms of Washington to explain how its products can help politicians get elected." [Bold Added]
- In this heightened political awareness about ethics, influence peddling, and full disclosure, does anyone think Google's giveaway of political campaign assistance is truly "free?" What's the quid pro quo?
- People may have been naive about these supposedly "free" gifts to lawmakers in the past, but not anymore.
- I am sure eyebrows were raised at the Federal Election Commision or the FBI when they read the WSJ sentence: "reinvent corporate influence-peddling for the Internet Age."
- That sentence may become famous just as WorldCom investment banking analyst Jack Grubman's line did: "conflicts are synergies".
Fifth and finally, facilitate market power payment. I made this point in detail in a previous post: Googleopoly: Can you say Predatory cross-subsidization?
Let me summarize it here. Google is systematically creating a protective moat of "free" services around Google's core money making franchises of AdWords and AdSense. Whether these actions will be viewed as benign benefits of natural free-market competition or are the nefarious activities of a budding monopolist seeking to foreclose competition -- will require the FTC to eventually determine intent, which can be difficult, unless Google was stupid enough to leave an email evidence trail.
- In short, "free" in a user sense may not be "free" in a competitive sense.
- It may facilitate the accumulation of market power that ultimately ill serves consumers.
Bottomline: Much of Google's perceived power and invulnerability is wrapped up in the populist appeal of "free." What could be wrong with "free?" At least five major things as I explained above.
