Online Privacy

The top Senators overseeing Antitrust matters, Senate Antitrust Subcommittee Chairman Herb Kohl (D-WI) and Ranking Republican Member Orrin Hatch (R-UT), wrote a strong letter to the FTC urging serious scrutiny of the Google-DoubleClick merger. (see pasted copy of the letter at the bottom of this post.)

Having testified before their Senate Subcommittee in opposition to the merger September 27th, I was gratified to learn of the subcommitttee's serious bipartisan concern about the merger and also their very strong grasp of the potential anti-competitive issues arising from the merger.

There are three big takeaways from the letter.

First, the Subcommittee defines the relevant market as Internet advertising, "...combining these two companies' leading positions in these two forms of Internet advertising could cause significant harm to competition in the Internet advertising marketplace."

• The subcommittee has adopted the same market definition as opponents of the deal.
• Google had hoped the Subcommittee would, and still hopes the FTC and EU will, define the market as advertising overall.
  • If the FTC agrees with their Senate overseers that the relevant market is the ~$20B Internet advertising market, and not the ~$300B overall advertising market, the merger is at higher risk of disapproval.

Second, the subcommittee has concluded Google has market power in Internet search, another key conclusion of opponents of the merger. 

Ironically, just as the EU is gearing up to conduct an "in-depth investigation" of the Google-DoubleClick merger, the FTC investigation is apparently wrapping up with a whimper. What accounts for this divergence in approaches to this merger review?

The first and obvious explanation is differences in the process and timing.

EU antitrust authorities have launched a rare "in-depth investigation" of the Google-DoubleClick merger. What does this action mean? 

First, in calling Google and DoubleClick "the leading providers" respectively of online advertising/intermediation services and ad serving technology, the EU has tipped its hand in its assessment of a central fact in the investigation that it views these two companies as #1 in the world in their specialties. This obviously troubles Google as they have portrayed DoubleClick as a minor player because of its smaller revenue base in the $300m range. The EU obviously did not buy that Google spin.

Second, the EU rejected Google's blanket assertion that "the parties' activities do not overlap" which is Google's fancy way of saying Google and DoubleClick are not competitors. Well the EU pointedly rejected that Google assertion of fact in stating: "The Commisssion will, in particular, investigate whether without this transaction, DoubleClick would have grown into an effective competitor of Google in the market for online ad intermediation." The obvious implication of this statement is that the EU does see Google and DoubleClick as competitors. And it has framed the question in a way that must trouble Google, which is that they are analyzing the merger through the lens of how competition would develop without this merger. hmmm 

I was very impressed with Ohio State law Professor Peter Swire's insightful analysis of why, in the context of the FTC antitrust review of the Google-DoubleClick merger, privacy harms are relevant to the traditional antitrust analysis.

• "In brief, privacy harms can reduce consumer welfare, which is a principal goal of modern antitrust analysis. In addition, privacy harms can lead to a reduction in the quality of a good or service, which is a standard category of harm that results from market power. Where these sorts of harms exist, it is a normal part of antitrust analysis to assess such harms and seek to minimize them."
• "To the extent proponents of the merger seek to justify the merger on efficiency grounds, such as personalization, then privacy harms to consumers should be considered as an offset to the claimed efficiencies."

In my Googleopoly analysis and my Senate Judiciary Subcommittee testimony on the Google-DoubleClick merger, I viewed the massive aggregation of customer clickstream data to be highly anti-competitive as it would create a tipping point and unsurmountable barriers for others to compete.

Isn't it illuminating that eBay, the online auction monopoly with 95% market share per Jupiter Research, and the owner of Skype that is lobbying hard for regulation and legislation to force the "unlocking of phones" and mandate net neutrality regulation -- is so uncooperative with law enforcement trying to crack down on organized theft?

• Could it be that calling for others to be "open" is just code, cover and justification for stealing other's property or property rights?

Reuters reported last week: "U.S. retailers want online sellers to fight theft." 

•  "U.S. retailers and police called on Congress on Thursday to require online auction sites such as eBay to post the serial numbers of items for sale to help crack down on gangs of professional shoplifters." 

• ""Operators of sites such as eBay have historically failed to provide any meaningful information to retail investigators," said Karl Langhorst, director of loss prevention for Randall's and Tom Thumb stores, a division of Safeway Inc.""

Seems like more hypocrisy and situational ethics from eBay, where they seek corporate welfare from government, while not cooperating fully with law enforcement to fight "organized theft."

• Maybe there is "Honor among thieves."

I think I see the beginning of a backlash trend against those advocating unfettered "openness" on the Internet. 

According to the Columbus Dispatch, the Ohio Fraternal Order of Police is pushing for legislation to limit the availability of police and firefighters' property records to anyone on the Internet.

•  ""Our major concern is the criminal element that's using the Internet for a number of criminal ventures, one of which is to seek retribution on law enforcement," said Mark Drum, a lobbyist for the Ohio FOP."

I'll be surprised if their isn't a growing number of people, from all walks of life, who will want to protect their privacy/safety and be able to remove some of their information from public view on the Internet.

Kudos to the Wall Street Journal for a highly-illuminating page-one story: "Google under fire over controversial site" because it provides a rare window into the soul of the company who's purported company's motto is "Don't be evil." 

At its core, Google is a "math cult" of mathematicians/computer scientists whose core belief is that most any problem can eventually be solved by one of Google's cutting-edge computer algorithms. 

• Google algorithmic prowess and focus has built the world's best search engine algorithm, with 400 plus variables, and it has also built the world's best online-advertising algorithm business, producing revenue growth twice that of its industry.
• Moreover, Google co-founder Sergy Brin has said the "perfect search engine would be like the mind of God."

A big theme I have written about with Google is that it has a culture of "innovation without permission" which I have translated to mean there are few internal controls or little adult or human supervision at Google.

The Wall Street Journal article provides an outstanding case study of this point -- that Google cares little about the non-algorithmic aspects of technology and/or business.

Listening to Google's General Counsel testify at the Senate Judiciary Subcommittee hearing on the Google-DoubleClick merger  which I also testified at, one would think everyone loves Google and all was just "teddie bears and rainbows" for consumers in Googleland.

Kudos to Professor Joseph Turow on his spot on editorial "Don't give Google double the power" about the very troubling implications of the Google-DoubleClick merger.

• Don't miss reading it.   

I continue to be surprised and saddened that the mainline consumer groups, Consumers Union and Consumer Federation of America remain completely AWOL on arguably one of the most important privacy issues threatening consumers --the pending Google-DoubleClick merger.

I can't seem to square the following facts.