Why a Google antitrust investigation is a mistake

After years of suspicion and finger-pointing by competitors and would-be competitors, Google (s goog) is finally coming under the scrutiny of federal antitrust regulators, with a Senate committee hearing scheduled to begin on Wednesday in Washington. Its critics say that the web giant has a monopoly in both search and search-related advertising, and that Google uses this market power — and the billions in cash it generates — to harm its competitors and to finance the company’s moves into new markets and services, giving it an unfair advantage. But the fact is that just like a similar federal investigation into Microsoft over a decade ago, subjecting Google to an antitrust inquisition is likely to be a massive waste of time and effort.

The hearing before the Senate Judiciary Committee on Antitrust, which is entitled “The Power of Google: Serving Consumers or Threatening Competition?,” is separate from the inquiry launched by the Federal Trade Commission earlier this year, but the issues that are being investigated are fundamentally the same — namely, is Google simply a strong (and possibly even dominant) web player that is competing fairly, or is it using its market position to tip the balance in its favor and crush its competitors?

After initially saying it wouldn’t testify before the committee, Google has sent chairman and former CEO Eric Schmidt to give evidence, and others who have been asked to appear include Yelp co-founder and CEO Jeremy Stoppelman and lawyer Thomas O. Barnett, a former federal Assistant Attorney General for Antitrust.

Is Google playing favorites in search?

The testimony from Stoppelman in particular could be interesting, since Google has had a somewhat tumultuous relationship with the restaurant-review site over the past year or so: after trying and failing to acquire the company in 2009, Google started including Yelp reviews in its Google Places service, but was slammed for doing this by Stoppelman. The search giant then removed Yelp reviews, and agreed to buy review-aggregation service Zagat. Google has been through something similar with group-buying service Groupon — it failed to acquire the company for $6 billion, and has been buying up other group-buying services to bulk up its own Google Offers business.

One thing that Yelp’s CEO said about Google’s behavior could lead to some fairly pointed questions from the Senate committee. In an interview with The Telegraph, Stoppelman said that when he complained about Google scraping Yelp’s reviews, the company told him that if he didn’t like it, he could have his service’s results removed from Google’s entire search index altogether. To some, this might sound like an ultimatum — if you don’t play ball with Google and let your reviews be scraped, we’ll make sure you disappear from search.

That sums up one of the core complaints about Google and its dominance. Because it controls an estimated 65 percent of the online search business, and because search is still one of the central ways in which people experience the web, the company has a huge amount of influence over the traffic that goes to websites and services like Yelp. And because the company doesn’t talk about how it ranks results — and tends instead to offer platitudes about its desire to help users find the best content and make the world a better place — there are all kinds of suspicions and conspiracy theories about how Google promotes certain companies and demotes others.

Does Google use its monopoly power to enter new markets?

To compound the problem, Google now plays in a lot more markets than just pure search, and some of those moves have effectively made it a competitor to companies like Yelp and Expedia, and to companies like Apple as well, thanks to its growing Android platform and operating system. In addition to companies like Zagat, Google has also acquired travel-information site ITA — which provides the data that services like Expedia rely on — and has agreed to acquire Motorola, which will give it control of thousands of mobile-technology related patents that it can use to bolster Android.

So the charges are two-fold: one is that Google uses its dominance in search to steer users toward its own properties and services, and away from those of its competitors — instead of engaging in what some call “search neutrality,” by providing completely objective search results. The second is that Google uses the cash generated by its monopoly position in search and search-related advertising to fund money-losing businesses that compete with others, such as its Android business. Just as Microsoft used its monopoly on operating systems to promote its own products and services such as Internet Explorer, so Google tips the scales in its own favor, its critics say.

This comparison to Microsoft is where the case gets the weakest, however — and the lessons learned from the software giant’s antitrust case (if any lessons were learned at all) suggest that a full-fledged investigation of Google would likely be a waste of both time and money. When it comes to abusing market power, being able to theoretically force computer vendors to put copies of your OS and links to all your related services on their PCs is significantly different from what Google is able to do: as the company often points out, no one is forced to use Google to do a search of the web if they don’t want to.

Is Google disrupting others, or being disrupted?

Not only that, but as Google has come to realize, the search business itself is changing rapidly. Now, social activity that occurs on networks like Facebook and Twitter drives huge amounts of traffic and influences behavior far more than a raw search arguably does — which is why Google has made repeated efforts to get into the social-web game, with Google+ its most recent attempt. It needs to be able to figure out the social signals that are occurring on these networks, which make both Facebook and Twitter competitors of sorts — or potential competitors. But despite its growth, Google+ is still far from being a dominant player, just as Android is far from being a dominant force in mobile.

Supporters of the Microsoft antitrust trial might like to argue that it was a success, but what did it really accomplish? At most, it made Microsoft a little less aggressive, and tied it up in red tape and hearings for several years, which made it less able to adapt to the changes going on around it — and that was the real penalty. As one prominent study of the Microsoft case and other similar antitrust cases has argued, dominant players in the world of technology like Microsoft and AT&T are rarely unseated by governments or antitrust moves — in most cases, they are overtaken by the rapid changes in their industry, which disrupt them far faster and more completely than any government could.

In every other market apart from search, Google is either an also-ran or a relatively minor player, despite its billions of dollars in ad money. And in search, its dominance arose from providing a service that was quantitatively better than others — one that neither companies nor individuals are forced to use — and it exists in a market with virtually no barriers to entry and a large and well-funded competitor. As even a former antitrust expert involved in the Microsoft case has argued, it’s going to be awfully tough to construct a compelling antitrust argument on that kind of shaky foundation.

Post and thumbnail photos courtesy of Flickr user Mark Strozier