Original URL: http://www.theregister.co.uk/2011/04/04/baby_googles/

Baby Googles: The answer to the Chocolate Factory dominance?

There are alternatives. We discuss a few...

By Andrew Orlowski

Posted in Applications, 4th April 2011 12:21 GMT

Lawyer Jeremy Phillips of the useful and fun IPKat blog floats an interesting idea. Google won't reform or be chastened, he writes. We should consider breaking up Google into a number of "Baby Googles" – just as AT&T was once broken up into a number of "Baby Bells".

He writes:

"It is effectively impossible for any other business to compete with the combination of forces – Google Book, Chrome, YouYube, AdWord and AdSense – which together will inexorably drive so much individualised information into its marketing and advertising facilities that no other electronic or printed media will be remotely able to provide value for the money advertisers are prepared to spend in marketing their goods and services."

There are merits and drawbacks to this, and similar proposals were floated 10 years ago, when Microsoft faced corporate dismemberment. But whatever remedy may eventually be imposed, there may ultimately be a complementary solution that's far simpler. And it's one Google could help itself by thinking about.

Before we do that, let's quickly recap what the latest antitrust complaint from Microsoft entails. Readers of a certain vintage may permit themselves a chuckle or two – but every case should be taken on its merits.

According to Brad Smith, Google abuses its monopoly position in six ways. Google blocks access to content owned by book publishers; it blocks both search engines and non-Google mobile clients from accessing YouTube on equal terms; and it prevents advertisers from accessing valuable data, as well as several more abuses. (Smith's fifth and sixth points are actually several, such as demoting the prominence of would-be competitors).

There's another way of looking at it which doesn't negate the calls for corporate restructuring. It's best summarised as: You get what you pay for.

Google is tied to one specific revenue model, and Google's dominance represents its excellence at exploiting this one particular revenue model: monetising free stuff through advertising. Almost all of the internet today is based on this, and with it, the absence of paying content markets. While there are occasional success stories (you're reading one now, for example), that have flourished in free-through-ads, to propose that this is all we'll ever have – free via ads – is simply not credible. The internet's reliance on "free" is really a sign of its immaturity.

It has other consequences. The reason companies such as Google and Facebook are so cavalier with our personal data is because they're chained to this model. So instead of treating us like customers, they peer down their microscopes for behavioural traces we leave behind. Huge amounts of personal data are traded and spliced. That's a direct consequence of free.

So when, today, Google paints itself as the embodiment of everything good people think about the internet (and by this false reasoning an attack on the company becomes an attack on the internet itself), politicians and policy-makers BS detectors should prick up.

For the internet to mature technically and economically, it needs many more revenue models than free-via-ads, and this represents the most promising opportunity Google has to sidestep antitrust concerns. It would mean a whole new Google, but the antitrust authorities may ultimately decide that this is what's needed anyway.

If we paid even pennies for Facebook or Gmail, some interesting things would happen. The companies would no longer be quite so reliant on advertising, and so would start to treat us very differently. As paying punters, we'd be free to switch to alternatives. With real cash now circulating, instead of abstractions such as "attention" and "behavioural intent", investors would start to be interested in funding better Facebooks and Gmails. And with real market competition instead of an oligopoly of fairly cosy giants, everyone would have to raise their game. Who knows where this might lead... A healthier marketplace, perhaps?

Markets don't cure everything, but at the risk of being accused of sounding like Milton Friedman, new markets for internet content and services could be very helpful to the health of the interwebs. I'm not approaching it from an ideological position, but something much simpler. It is, very simply, the reality that you get what you pay for – and there is nothing inevitable about the ad-centric, free, Chocolate Factory vision of that which Google sells to policy makers (and regulators) as the One and Only Way.

The green, green bread of Google

As a thought experiment, imagine that – as if by magic – all our bread was left mouldering on our doorsteps each morning, and that it was usually too damp, too dry, or too mouldy to eat... and that was the only bread we could get. We'd soon start to wonder if we couldn't find something better to eat – perhaps a marketplace of bakers and delivery boys, or dedicated outlets to sell a new wonderbread? Imagine if we were told that this mouldy product was "an emergent property of the pavement", that bread would always be free (but rubbish). We'd think this absurd.

So treating people as paying consumers would even be good for Google.

Mountain View should also observe how Microsoft spent 15 years fighting the competition authorities and in the process became bloated, complacent and inefficient. Google appears to be gearing up for a fight of similar intensity and duration. Several hundred antitrust and privacy lawyers now work for the Chocolate Factory. Dozens more are engaged in lobbying. This is not Google's core business. This is not what its good at. Google may find it is defending an obsolete business model.

You'd think, employing as it does so many clever economists, that somebody at Google would be able to tell the management the benefits of helping online markets mature. Maybe they already have. But the current management (which has been there a very long time, and belongs to another era) either isn't listening, or doesn't want to know.

As for the Baby Bell "solution", we should note that Microsoft was formally given the same treatment, after Judge Penfold declared there should be two giant "Babysofts" – the splitting of Microsoft into Office and Windows companies. The industry reaction was that this would make the problem worse, not better. And as I pointed out the other day, after the AT&T split the many RBOCs simply coalesced back into two giants. It took over 20 years, but what was the point? ®