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Google antitrust suit: Is there a case?

The New Free Market

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Should Google be allowed to skew sponsored ads toward favored business partners?

At face value, the answer would seem to be "Yes." In a free market, after all, businesses are allowed to partner with whomever they want, and advertising hardly seems to be the kind of industry susceptible to monopolistic profiteering. Of course, an unrestrained market is not necessarily the same as a competitive market, in which economies of scale serve, rather than screw, the consumer.

In a recent lawsuit filed in the Southern District of New York, SourceTool.com - a business-to-business search portal - argues that Google has become so dominant in search that it does just that: It strangles more efficient competitors in their virtual cradles by freezing them out of Google’s own AdWords platform.

The idea of Google as a problematic player in the search business is hardly novel. When the company attempted a search ad pact with Yahoo! - the market's number two player - Microsoft complained bitterly about Google’s dominant position, and the Department of Justice responded. Google eventually spiked the deal after the DoJ threatened a lawsuit of its own.

Using market position to squeeze potential competitors - a tactic with which Microsoft, ahem, has considerable expertise - is not in and of itself illegal or bad. And is Google really required to steer business traffic to potential competitors?

Assuming search-based advertising is an industry unto itself, it appears to have the potential to be monopolized in ways unthinkable for the traditional advertising industry. But should search-based advertising really be considered a market unto itself, separate and distinct from the broader advertising market? Really, what’s to prevent SourceTool from advertising on television, for example?

Well, the internet-savvy consumers on which SourceTool bases its business model probably are much more likely to get their information from the internet rather than traditional media.

SourceTool, a subsidiary of TradeComet, does what’s known as “vertical search,” in which a search site is typically focused toward a particular industry, such as shopping or travel. The potential consumers are self-selecting, which makes the advertising that much more targeted, efficient, and lucrative. Such a platform does appear to pose something of a threat to Google, which is, at its heart, an advertising Goliath masquerading as a touchy-feely, passive search tool.

The lawsuit alleges a variety of unfair business practices and anti-competitive behavior in the way that Google sells its targeted ads, the ones that typically appear in the upper right of the screen. Google sells keywords via a "second price" auction, in which the winner of an auction pays the price of the second-highest bidder, on the theory that an appreciative bargainer will make a more honest bid. Fair enough, right?

Not necessarily. Google shoves bids through a top secret algorithm before deciding who wins and who loses, and the company limits participation with a minimum bid - though it no longer calls it a minimum bid. Then, some time between May and August of 2006 - oddly, subsequent to a high-level meeting between SourceTool and Google executives, at which Google probed SourceTool about its business plans - Google introduced a new variable into its auction procedure, a criterion known as "Landing Page Quality."

Exactly what “Landing Page Quality” is remains opaque, but SourceTool claims in its suit that it is nothing more than a subjective tool for Google to steer business to its preferred business partners, such as Business.com, another vertical search tool.

However it’s done, SourceTool - one of Google’s “sites of the week” in January 2006 - saw the minimum bids on its keywords rise by 10,000%, and its traffic dwindle by 90%, from a high of 600,000 per day. A glance at Google’s preferred partner site, www.business.com, hardly inspires confidence in the “quality” part of “Landing Page Quality.”

Whether a jury will believe search advertising is a distinct enough market to warrant antitrust action against Google is debatable, but Google’s “do no evil” mantra seems at last to have come face to face with the heart of capitalism, in which leverage and influence are to be exploited mercilessly for pecuniary gain. Freedom is moving easily in harness, and all free markets are fenced in by the laws that define them. Antitrust is only a part of that, and whether Google has reached the limits of its phenomenal growth remains to be seen. ®

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