Original URL: http://www.theregister.co.uk/2011/03/25/google_and_the_feds/

Why US antitrust regulators should probe Google search

To boldly know where no one has known before

By Cade Metz

Posted in Government, 25th March 2011 20:34 GMT

Comment The word is that the US Department of Justice may sue Google over its proposed $700m acquisition of flight data outfit ITA Software. And we can only hope that the feds have far more than flight data on the brain. As it investigates whether Google could use its web search monopoly to erect a second monopoly in the flight search market, the DoJ must also ask whether the company could do much the same thing in who knows how many other markets.

In its recent paper analyzing Google's ITA acquisition (pdf), the American Antitrust Institute explores the deal's potential effect on flight search, but it also looks beyond this particular merger. "One has to wonder about antitrust scrutiny for any future Google acquisitions – including vertical acquisitions that might otherwise appear benign in traditional commercial settings," writes the AAI, a thirteen-year-old independent antitrust watchdog intent on protecting the American consumer.

"Questions about the prospect that Google might leverage a broader search monopoly into dominance of distinct vertical search markets through acquisitions seem destined to crop up again."

According to Robert Lande – a director of the American Antitrust Institute, a professor at the University of Baltimore law school, and former antitrust prosecutor with the Federal Trade Commission – the institute's added concern is that as Google moves into new vertical markets, its search engine will only become more dominant, further separating itself from its last real competitor: Microsoft.

"Our big fear is that as Google gobbles up these related markets, including the travel search market, that will sound the death knell for Microsoft," he tells The Register. "What happens in a world with one search engine?"

At the moment, neither Google nor ITA offer a vertical search service directly to internet users. But when you consider the Google web search monopoly – which controls an estimated 85 per cent of the market, if not more – a combined operation would seem to have all existing flight search firms "surrounded", in the words of Lande and the AAI. This threat is compounded by the fact that ITA supplies flight data to many of those firms, including Kayak and Orbitz. But as the AAI indicates, even without this wrinkle, Google's web search engine is a potential threat to fair competition whenever the company expands into a new vertical search market.

"Questions will persist if Google’s suspected online search monopoly is or is becoming entrenched, as will questions about how fairness and neutrality in something as complex and subjective – and necessarily lacking in transparency – as search engine algorithms can ever be monitored and effectively regulated," the AAI says.

Randy Stutze, who authored the institute's paper, says these questions can't be answered without more insight into how Google actually works. "These are questions that internal analysis is probably going to have to reveal. It's hard for outsiders looking in to know," he tells us. "With [DoJ and FTC] and their subpoena power, being able to look at internal documents, they can form a real opinion."

Stutze believes that as it probes Google's ITA deal, the DoJ must indeed look at whether Google could use its search engine to unfairly dominate vertical markets beyond travel. "It seems wise, in this case, to take a broader view," he says.

In the European Union, investigators are already working to answer these questions. As part of its EU antitrust complaint against Google, UK-based vertical search outfit Foundem has accused Google of transforming its search engine into an "immensely powerful marketing channel" for its own services. With its so-called Universal search setup, Google inserts links from its own services – including YouTube, Google Maps, and Google Product Search – into prominent positions on its search results pages.

"[Universal Search] allows Google to leverage its search engine monopoly into virtually any field it chooses," Foundem says in a FCC filing that mirrors its EU complaint, which remains under seal. "Wherever it does so, competitors will be harmed, new entrants will be discouraged, and innovation will inevitably be suppressed."

Google Product Search is a direct competitor to Foundem. Both are price comparison services, although Foundem also offers travel search, jobs search, and property search. But as Product Search received prime placement on Google's primary search engine via Universal Search, Foundem was practically unreachable through Google. In 2006, when Mountain View introduced a new algorithm that targeted vertical search engines, Foundem vanished from Google's search engine. The site was also priced out of Google's AdWords search advertising system when the same algorithm reduced its landing page "quality score", sending its minimum ad bid sky-high.

The added twist is that some vertical search engines were not affected by the new algorithms. Apparently, they were whitelisted, though Google refused to acknowledge this publicly. In its complaint to the EU, Foundem argued that the combination of Universal Search and the secrets of Google's search engine penalties created an unfair competitive landscape.

"You have an overwhelmingly dominant search engine," Foundem CEO Shivaun Raff has told us, summing up the company's complaint. "If you add to that that search engine's ability to apply discriminatory penalties - they're discriminatory because some services are manually rendered immune through whitelists - and you add the ability of that search engine to preferentially insert its own services at or near the top of the search results, all of that adds up to an unparalleled and unassailable competitive advantage."

Google in black and white

Last February, when word broke of Foundem's complaint, Google European corporate counsel Julia Holtz denied that the company uses either whitelists or blacklists. "We don’t whitelist or blacklist anyone,” she told journalists in Brussels, according to The Financial Times. This contradicted phone and email conversations Foundem had had with Google employees, and now, more than a year on, Google has admitted that it uses both whitelists and something that's effectively a blacklist. The company acknowledged that it will manually demote sites that it believes have misbehaved.

Google also announced that when companies appeal their placement on its search engine, it will only consider an appeal if a site has been manually demoted. The appeal will not be considered if the demotion was algorithmic. Over the years, Foundem appealed its Google penalties time and again, not realizing – because Google hadn't made the policy public – that its algorithmic demotion could not be appealed through the company's official online channels.

Mountain View's admissions underscored one of the other chief problems with Google's search monopoly. It's painfully difficult to understand even the basics of how it works.

Google argues that it can divulge only so much about the inner-workings of its search engine because if blackhats learn too much, they'll game the system. This is what the AAI means when it says that a search engine's algorithms are "necessarily lacking in transparency". But there's more to this than algorithms. After years of painting its search engine as completely objective, Google is finally starting to freely acknowledge that it's not. It's telling that after denying the existence of whitelists and blacklists for so long, Google admitted to both when faced with an antitrust probe.

Before Foundem filed its antitrust complaint, Google whitelisted the company back into web search and AdWords. This happened only after Foundem criticized Google's practices in a New York Times op-ed piece and it was subsequently granted a meeting with an "influential Googler". This is further evidence, Foundem says, that Google's appeals process is broken. In the end, Foundem was able to appeal its algorithmic penalty, but only because it managed to force a real dialogue with the company. Unlike thousands of other websites, it was able to show, the company says, that Google's algorithms had made a mistake. Google's official appeals process, Foundem says, ignores the fact that Google's algorithms are fallible.

It's unclear whether the DoJ is examining such issues as it investigates the ITA acquisition. Lande of the AAI tells us that the organization met with the DoJ when researching its paper, but he says the feds did not divulge the details of their investigation. "We made a pitch to the Department of Justice," Lande stays, "and they were stone-faced." The AAI also met with Google, Microsoft, and the online travel outfit Expedia, among others, according to Lande.

Asked if he believed the DoJ could expand its investigation to other markets, Lande says it could. "But that is not something to be done lightly," he tells us. He also believes that the DoJ – or the FTC, the country's other regulator – will not rely on the European Union to address the broader questions. "We're playing psychology here. We're getting into the mind of [the DoJ's assistant attorney general for antitrust] Christine Varney here. It really comes down to one person," he says. "Will she defer to the Europeans to protect American consumers? I think the answer is 'no'. One could imagine that interest of Europeans might be very different from American consumers."

According to Bloomberg, citing people familiar with the agency, the Department of Justice and the FTC are not pursuing a broad antitrust inquiry of Google. But it would appear that the FTC is closely tracking the situation.

In December, Melanie Sabo, an assistant director for anticompetitive practices in the bureau of competition at the FTC, delivered a talk at a conference in Washington, D.C. in which she brought up many of the questions being addressed in the EU – though she said she was expressing her own views and not those of the FTC.

Among other things, she discussed Google's ability to insert vertical search services into its main search engine, and she mentioned the company's claims that it does not use blacklists. It should be noted, however, that Sabo didn't get all her facts straight. At one point, she apparently mistook Google's new Caffeine infrastructure for something akin to Universal Search.

It was the FTC that reviewed Google's acquisitions of ad outfits DoubleClick and AdMob. But the DoJ has stepped in for the ITA acquisition, and at this point, if the FTC wants to open a broader antitrust investigation, it will probably have to wait for the DoJ's probe to play out. "Given that Justice is [investigating the ITA merger], there would be a Battle Royale if the FTC decided to step in [and start a broader probe]," Lande says. "[FTC head] Jon Leibowitz and Christine Varney would go at it. These organizations are very competitive."

Whichever regulator takes the lead, one of them must start examining the big questions. As the AAI recognizes, the ITA acquisition is merely one problem area in a seemingly endless list of problem areas. "As Google has expanded its business from online search into various other products and services, sometimes quite successfully and sometimes less so, an underlying question repeatedly arises. What is the nature and potential reach of Google’s economic power owing to its online search dominance?" the AAI asks.

"Until this issue is understood to an adequate degree, all of Google’s acquisitions...seem destined to be shrouded in confusion and subject to protracted regulatory scrutiny. Outside the high technology sphere, competition principles ordinarily welcome entry by innovative and well-funded players into new markets."

"But online markets are different from traditional markets. Both businesses and antitrust enforcers are still learning the extent of the role that online search and search advertising play in online commerce."

The only way to truly understand that role is pull more information out of Google. Both the DoJ and the FTC have the power to do so. And one of them should use it. ®