Googleopoly VIII: How Google's Deceptive & Predatory Search Practices Harm Consumers

How Google's deceptive and predatory search practices harm consumers is the focus of Part VIII of my four-year antitrust research series on Google. (See www.Googleopoly.net for the whole series.)

I. Summary:

My Googleopoly VIII white paper here presents evidence of four things of import to the FTC's current antitrust investigation of Google:

1. New evidence from Google's 2004-2011 financial results that expose an anti-competitive megatrend of increasing Google self-dealing of several billions of dollars at the expense of Google's content competitors or "Google partners" as Google euphemistically calls them. (See below for more details on this megatrend.)
2. Evidence that Google is violating the FTC's Section 5 authority (i.e. "deceptive practices... are... unlawful") by systematically misrepresenting that Google search results are unbiased and never manipulated (when the evidence shows otherwise), and by willfully failing to disclose their serious financial conflicts of interest with consumers' interests.
3. Evidence that Google is engaging in three complementary, anti-competitive forms of predatory search practices that reward Google at the expense of competition: i.e. predatory search tying (self-dealing), predatory search penalties, and predatory search exclusion.
4. A cogent summary of how consumers and innovation are harmed by Google's anti-competitive behavior and practices.

Importantly, this white paper shows that as Google has gained dominance in the search business, Google has been able to leverage that market power to capture an increasingly disproportionate relative share of revenues from Google partner websites, that Google shares revenues with for their generation of search queries and display of ads for Google. Analysts know these revenues as Google's "Traffic Acquisition Costs" and Google "Network" revenues.

• Chart I shows Google is rapidly taking revenue share from Google's partners/competitors who depend on Google's "unbiased" search platform to be found and monetized.
• Chart II shows that as Google's search business market power has increased, Google has increasingly limited competitors' opportunity to monetize their content, because Google owned/favored content is increasingly squeezing out competitive content.
  • For example, content competitors to Google reaped 39% of Google's 2004 revenues but only 25% in 2010 and can expect to reap only an estimated 21% next year.
• Chart III shows how competitive content can't compete with Google's self dealing market power.
  • For example, the ratio of revenue Google takes versus what competitors get from Google's auction platforms is rapidly shrinking the competitive content opportunity:
    • 2004: 3-2
    • 2007: 2-1
    • 2010: 3-1
    • 2012: 4-1 est.

III.  White Paper's Conclusion:

How do Google’s deceptive and predatory search practices harm consumers?

• Google systematically misrepresents itself to the public as working for users, and caring first and foremost for users’ interests, in order to gain consumers’ trust, when in fact users are the product Google sells to advertisers/publishers.
• The fact is Google is an advertiser-aligned, advertiser-funded model as virtually all of Google’s revenues come from their advertiser and publisher customer clients, and is not user-aligned as Google’s search, products and services are free.
• Google’s deceptive trade practice is the equivalent of: a real estate broker, who works for the seller, representing oneself as working in the buyers’ interest; or a doctor that advises a patient to undergo expensive dangerous tests without disclosing their financial interest in the testing facility. (In March, the FTC sanctioned Google for Section 5 deceptive privacy practices.)
• The consumer harm is that Google has deceived consumers to believe Google is user-aligned, and thus consumers: can trust Google to not bias its search results in favor of Google or Google’s advertisers interests, and also can trust Google to safeguard their privacy when in fact it is Google’s business model to maximally leverage consumer privacy for financial gain.

How is the consumer harmed by more Google innovation?

• The problem is not Google’s innovation, but how Google anti-competitively torpedoes competitive innovation.
• By leveraging its search advertising monopoly to subsidize 500+ free Google products/services, Google’s advertiser-aligned monopoly model destroys user-aligned/user-paid, product/services innovations in privacy/security/customer service.
• Most investors ask start-ups seeking funding: “what happens if Google copies it?” Googleopoly kills innovators in the crib.
• Google leverages the market inside information its monopoly generates to spot trends that identify earliest emerging “first movers,” so Google can buy them before they can become a competitive threat. Google has made 99 acquisitions to date.

How is the consumer harmed by free Google products & services?

• The crux here is not whether consumers benefit from the free product or service being offered, but whether or not the system will remain competitive so that other products and services critical to a competitive ecosystem, like accountability measurement, analytics, comparison tools, and many others, remain competitive, independent, and user-aligned.
• Undercutting quality paid-for products or services with free ones (based on advertising or cross-subsidization) can harm consumers by defunding consumer value and protection: i.e. responsive customer service, privacy/security protections.
• Free, one-sided analytics that are not independent of Google foster a rigged game, allowing Google to be the only player that owns the referee and scorekeeper, so that future products and services need not operate in the interests of users.
• A Googleopoly that only promotes free ad-funded content undermines higher-quality, specialized, user-paid-for content.
• Competitive products/services can never fairly compete, if Googleopoly routinely claims the #1 spot worth 34% of all clicks.

In sum, Google's systematic deception and misrepresentation have denied consumers their first and most important line of defense to protect themselves against harm and fraud -- honest information and disclosure.

The White Paper link here.