Debunking the Google-Yahoo Antitrust Myths

In advance of the Senate and House antitrust hearings on Google-Yahoo, I thought it would be useful to debunk some of the primary antitrust myths you will likely hear.

Myth #1: There can’t be an antitrust problem as long as consumers are just one click away from a competitive search engine.

• This is intentional misdirection.
  • Google does not get paid by users, but by advertisers and websites. 
  • The antitrust concern here is not about “competition” for free search engine use, but competition for paid search advertising.

Google is exploiting the “Internet choice paradox” where because users have near infinite choices to reach Internet content, they assume content businesses must have as much choice in advertising to Internet users as users have in reaching content. They don’t.

• The fact is Google is becoming a de facto essential facility for advertisers seeking to reach the global Internet audience.
  • Any advertiser who seeks to get action (clicks) from most all of the global Internet audience of users who have shown interest in their product/service, -- has no practical business choice, but to use Google. For example:
    • Yahoo with a ~1/3^rd of Google’ search audience and ~4/11^ths of Google’s search monetization capability, Yahoo offers advertisers only about ~1/8^th of Google’s functional advertising capability.
    • Microsoft with a ~1/6^th of Google’s search audience and ~3/11^ths of Google’s search monetization capability, Microsoft offers advertisers only about ~1/33^rd of Google’s functional advertising capability.
  •  Google’s unprecedented “Inter-network effects fuel Google’s market power; Google has by far the largest networks of: users, advertisers, websites, data on user intentions, searchable content, feeder/referral relationships, and search advertising infrastructure.
    • Google’s CEO Eric Schmidt candidly admitted these network effect advantages in a 5-16-07 interview with USA Today:
      • “…We get more users, and that gets us more advertisers. More advertisers give us more cash, more cash gets us more data centers, more data centers means we can get engineers who want to build even bigger data centers…That cycle is very real at Google.”

Myth #2:  There can be no antitrust problem because Google and search advertising comprise such a small percentage of the advertising market.

• This is more misdirection.
• The relevant antitrust market is search advertising because there is no competitive substitute for search advertising.
  • As Google has successfully convinced advertisers, search is a unique way to reach consumers because people self-identify their intentions through active search that they don’t do when they are a passive consumers of mass media advertising through: TV, radio, newspapers, magazines, billboards, or direct mail.
  • Moreover, the search medium enables collection of unprecedented private information about intentions, preferences, economic suitability, etc., which enables unprecedented “targeting” of users with “relevant” advertising that consumers will be most receptive to.
  • Most importantly, the FTC, in its 2007 review of the Google-DoubleClick merger, concluded that:
    • "...search engines provide a unique opportunity for advertisers to reach potential customers." and
    • "Google, through its AdWords business, is the dominant provider of sponsored search advertising..."

Myth #3:  There is no antitrust problem because Google is not doing what Microsoft did wrong, i.e. requiring exclusives or onerous restrictions.

• This is false logic – there’s more than one way to break the law.
• This is also a false analogy. Google’s dominant business is search advertising, while Microsoft’s dominant business is PC software.
  • These are very different business models with different business leverage points, sales processes, network effects and business practices -- meaning any anti-competitive tactics to foreclose competition could be different as well.

Myth #4: There’s “no evidence of suspect behavior” per a New York Times article. 

Why would the DOJ and state AGs be investigating the Google-Yahoo deal at all, if they did not consider it “suspect behavior?

• Google is right in claiming that there is nothing illegal about being the best and the biggest.
• What is illegal, however, is as a dominant provider, openly impeding competitors from being able to compete more effectively.
  • When a dominant provider, proactively and successfully breaks-up a competitively-threatening combination of their #2 and #3 competitors by paying the stronger # 2 competitor to “partner” with #1 -- is this not “evidence” of “suspect behavior?”
  • More specifically, has Google proactively and successfully ensured that their only real competition, Yahoo and Microsoft, are both individually and collectively, less able to compete fully with Google going forward?
• The #2 search-provider, Yahoo, is not the only evidence here.
  • Other competitors to Google, #4 IAC’s/Ask.com and #5 AOL, previously outsourced significant parts of their search business to Google and the market result was a steady decline in market share to Google.  

Myth #5: This isn’t a big deal, if the DOJ does not like the Google-Yahoo partnership, the companies just won’t go through with it.

• This is not an investigation of whether the Google-Yahoo deal is acceptable to the government or not.
• This is now a broad antitrust investigation of whether:
  • Google and Yahoo are illegally colluding to reduce competition and/or fix prices;
  • Google is more broadly abusing its market power illegally to impede competition from its #2 and #3 search advertising competitors Yahoo and Microsoft; and
  • Google is abusing its market power in a myriad of ways,  for example, “raising the minimum bids on keywords swiftly and steeply.”
• In other words, Google is now under intense and ongoing antitrust scrutiny from the Department of Justice Antitrust Division and several State Attorney Generals.
  • In brazenly admitting that Google was defending itself in thwarting a Microsoft-Yahoo transaction, Google has begged intense antitrust scrutiny of all of Google’s competitive behavior.
  • In making it less likely a competitive counterweight will emerge, Google has frightened advertisers out of their complacency and triggered a flood of anti-competitive complaints by advertisers about the lack of competition in search advertising and Google’s myriad of heavy-handed practices.

Bottom line: This antitrust investigation of Google is much deeper, broader, and more serious than the market appreciates.

• Where there is this much smoke, there’s fire.