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Google: the mother of antitrust battles?

The internet, and how to own it

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Embarrassingly, Google had to license the patents from Yahoo! just before its IPO to avoid a damaging court decision. How Yahoo! owned the future, then threw it away, deserves a story to itself. But all we need to take away here is that Google won fair and square, by executing the same idea better. Yahoo! targeted SMEs and set barriers to entry for its ad program. Google realized that scale was important, and so opened the doors to all. If you merely had a one page website on Chihuahuas, for example, then you could join the market, and potentially get a share of advertising revenue related to Chihuahua products. Google made it a simple self-service model for both advertiser and hoster. Yahoo also failed to leverage its scale, and ran into execution difficulties with Project Panama, its second generation ad program.

Now for the crunch: what harm does it do? Leave aside for a moment that Google's opponents here - including Microsoft and the telecoms companies - have less-than-fragrant reputations in the marketplace themselves.

And leave aside too the red herring of "Search". Yes, you can change a search engine with a mouse click. But this isn't about search engines at all.

It's about the cost of doing business on the internet, and if a monopoly exercises its power, then that cost rises. Long-time Google advertisers have already seen prices go up with no explanation. Remember that Google is a "black box" - and Google alone sets the price of advertising through its programs. It does so based on demand - and a magic fudge factor, which critics say represents how much it needs to meet its quarterly numbers.

As Scott Cleland, who represents telecoms clients pointed out this weekend - "there is no competitive substitute for search advertising". And he's right.

This is also a market that's a lot less "dynamic" than many suppose, because of something we heard a lot about in the 1990s, the "network effect". IBM and Apple offered superior PC products to Microsoft's Windows - but application developers went for volume, and people went where the applications were, creating a circle that was hard for any competitor to break into. Similarly, advertisers go where the market is. If Yahoo! and Microsoft with their respective scale can't crack paid search advertising, then who on earth can?

Much like Microsoft, Google's company ethos leaves no room for competition. Its network strategy is to own the middle tier of the internet, where its large data centers will dominate, while squeezing the profits out of the access networks.

Google's singular triumph has been one of misdirection. Thanks to "Net Neutrality", Richard Bennett pointed out in a recent San Francisco Chronicle op-ed, Google's subtle war on P2P is designed to usher content "consumers" into its datacenters, and away from exchanging material person to person.

Where it differs is that while Microsoft dreamed of dominance, Google succeeds. Microsoft never had the power to change the meaning of words, as Google does today. No media company ever has.

But for now, antitrust regulators need to demonstrate that there's actual harm. Is the cost of business really increasing? That's the immediate challenge for the DoJ and State Attorneys. The greater challenge is to wean our political, media and academic elites off their Google addiction.

A good question the regulators may want to ask is - if "Web 2.0" is everything the politicians, wonks and newspapers hype it up to be - the future of business - then why should only one company be permitted to control it?®

Comments welcome here.

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