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Look What’s Happened Since the FTC Stopped Google Antitrust Enforcement
Submitted by Scott Cleland on Mon, 2017-03-13 13:01
Has a new day dawned for U.S. antitrust scrutiny of Alphabet-Google?
The evidence is overwhelming that Alphabet-Google has broadly extended its search and search monopolies into several more markets, and that it has done so anti-competitively in the four years since the FTC chaotically shut down its search, search advertising, and Android investigations in January 2013.
The question here is will Google’s many monopolies enjoy no FTC antitrust enforcement over the next four years of the Trump Administration, like Google apparently enjoyed in the last four years of the Obama Administration?
To set a baseline of what has happened since the FTC apparently stopped enforcing antitrust law against Google, its instructive to remember where Google stood at that time with the FTC, via brief conclusions from the FTC staff investigators and then from the FTC commissioners.
In October 2012, the FTC Staff Report said:
“Staff concludes that Google’s conduct has resulted – and will result – in real harm to consumers and to innovation in the online search and advertising markets. Google has strengthened its monopolies over search and search advertising through anticompetitive means, and has forestalled competitors ability to challenge those monopolies, and this will have lasting negative effects on consumer welfare,” per a partial copy posted by the Wall Street Journal (p. 116).
On January 3, 2013, the FTC official press statement said:
“The FTC… conducted an extensive investigation into allegations that Google biased its search results to disadvantage certain vertical websites; and that Google entered into anticompetitive exclusive agreements for the distribution of Google Search on both desktop and in the mobile arena. The agency decided not to take action in connection with these allegations.”
So what has happened to competition in Google’s marketplace in the last four years since the FTC decided to not take any action against Google, and hasn’t taken any action since?
Sherman Antitrust Act Google Developments
The Sherman Antitrust Act prohibits attempts to monopolize markets by one company, or a cartel conspiracy of more than one company.
Since January 2013, Google has broadly extended the scale, scope and reach of its original search and search advertising monopolies.
Google has extended its then ~70% desktop search and search advertising market shares to >90% mobile search and search advertising market shares now per Statista.
When Facebook decided in late 2014 to no longer offer Microsoft’s Bing search, that loss of scale apparently led Microsoft to largely exit much, but not all, of its online advertising business in 2015 to cut its multi-billion dollar losses. This leaves Google with no substantial, fully funded search and search advertising competitor in the U.S.
In 2015, EU antitrust authorities formally charged Google with abuses of dominance in both search and search advertising.
By tying Google Search to its Android operating system, Android has grown from ~250 million users at the end of 2012 to >1.5 billion users now and also has grown to an 87% mobile operating system market share per IDC.
In 2016, EU antitrust authorities formally charged that Google’s contractual tying -- of its dominant search app to the nascent Android operating system for manufacturers and carriers -- was anticompetitive.
By tying other Google apps, like Chrome (browser), Play (Android’s app store), YouTube, Maps, Gmail, News, and Drive (storage), to the Android operating system and Google Search, these apps also all grew from a few hundred million users in early 2013 to well over a billion users each today per Wikipedia.
Consequently, those apps all now command dominant market shares in their respective markets.
In 2016, EU antitrust authorities also formally charged that Google’s contractual tying of search, Android and Play was anticompetitive.
Big picture, Google’s search, search advertising, and Android monopolies have cross-subsidized the creation, growth, and maintenance of over 200 free Google software products, which Google sees as “search referral engines.”
Together these 200 free Google products create a practically insurmountable, anti-competitive barrier to entry for any potential “one click away” search competitor to overcome.
Most troublesome over the last for years of FTC-Google antitrust non-enforcement, has been the apparent collusion between a Google-Facebook advertising cartel, because U.S. Supreme Court precedent calls cartels "the supreme evil of antitrust.”
Consider this Google Facebook timeline.
In 2011 after Google CEO Larry Page launched Google+, its comprehensive social sharing alternative to Facebook, Facebook CEO Mark Zuckerberg communicated to all Facebook employees that Google+ was “an existential threat” to Facebook, per a former Facebook employee recounting in a Vanity Fair article.
By the end of 2012, Google blogged that: “Google+ is the fastest growing network thingy ever. More than 500 million people have upgraded, 235 million are active across Google.”
In early 2013, Facebook launched its alternative to Google search, called “Facebook Graph Search” in partnership with Microsoft’s Bing search engine.
Then in 2014, Google and Facebook relatively quietly chose to no longer directly compete with one another.
In the first half of 2014, Google reversed course in social, defunding Google+ and ending its forced integration per TechCrunch; and it announced the shutdown of Orkut, Google’s 300 million-user social network.
In the second half of 2014, Facebook quietly dropped its Facebook Graph Search alternative to Google search and its strategic search partnership with Microsoft’s Bing per Reuters.
Why the abrupt reversal in 2014 from the top priority, “existential” direct competition between Google and Facebook, to not directly competing with each other?
Did Google and Facebook independently and coincidentally conclude that they could improve their respective profitability by not competing with the other?
Or did they collusively conclude that they could optimize monopoly profits by de facto dividing up the online ad market into each other’s respective search and social advertising monopolies?
And did any potential collusion between Google and Facebook effectively eliminate Google’s only significant search and search advertising competitor, Microsoft Bing, as a competitor potentially capable of taking significant market share from Google?
Since Google and Facebook stopped competing directly, the facts are that they jointly command 85% of online ad growth per multiple industry estimates, and Microsoft Bing has steadily diminished as a real and potential search and search advertising competitor to Google.
Under U.S. antitrust law, cartel collusion is assumed to be illegal commercial behavior, if it occurred.
Clayton Antitrust Act Google Developments
One of the purposes of the Clayton Antitrust Act is to prohibit a merger or acquisition that would “substantially lessen competition.” If a merger or acquisition approved by the DOJ or FTC is later found to have substantially lessened competition in violation of the Clayton Act, the DOJ or FTC have the duty and authority to sue in court to undo the transaction.
In 2007, the FTC approved Google’s acquisition of DoubleClick, which at that time was the world’s #1 ad serving company and the only other company than Google that served ads for a dominant global share of advertisers, publishers and users.
When the FTC approved the Google-DoubleClick acquisition on a 4-1 vote in 2007, it promised: “We want to be clear, however, that we will closely watch these markets and, should Google engage in unlawful tying or other anticompetitive conduct, the Commission intends to act quickly.”
Both the 2012 FTC Staff Report and the 2015 EU Statement of Objections concluded Google was a global search advertising monopoly, which means the Google-DoubleClick transaction ultimately substantially lessened competition.
In 2016, the EU’s Android Statement of Objections officially concluded that Google-Android engaged in unlawful tying conduct.
In 2010, the FTC approved Google’s acquisition of AdMob, which at the time was the #1 mobile advertising company in the world with substantially more market share than #2 Google, in an emerging market where AdMob and Google were by far the initial market leaders.
In closing its Google-Admob investigation the FTC’s press release said the following.
“In a statement issued today, the Commission said that although the combination of the two leading mobile advertising networks raised serious antitrust issues, the agency’s concerns ultimately were overshadowed by recent developments in the market, most notably a move by Apple Computer Inc. – the maker of the iPhone – to launch its own, competing mobile ad network.” … “Though we have determined not to take action today, the Commission will continue to monitor the mobile marketplace to ensure a competitive environment and to protect the interests of consumers.”
Since 2010, Apple’s iAd mobile advertising business has not become the material competitive counterforce the FTC assumed it would become in approving Google-AdMob.
Apparently, the FTC has not wanted to consider that its approvals of Google’s acquisitions of both DoubleClick and AdMob may have substantially lessened competition in violations of the Clayton Act.
Big picture, from the beginning of 2013 to today, Google has acquired 85 of the 205 companies that it has acquired in its 19-year history per Wikipedia.
A close examination of these transactions indicate that Google acquired many companies that were market leaders in their segment, which enabled Google to substantially lessen competition and even extend its search and search advertising market power into multiple connected markets, effectively broadly in violation of the Clayton Act’s core purpose of preventing acquisition of market power.
In sum, common sense says where there is this much smoke, there’s fire, and a vigilant fire department on site doing its job fighting the fires and investigating their cause to prevent them from happening again.
What many in the antitrust community suspect is that Google’s apparent political influence successfully shut down any serious antitrust scrutiny of Google for the last four years of the Obama Administration.
Time will tell if Google’s apparent political influence continues to be successful in shutting down any serious U.S. antitrust scrutiny of Google over the next four years of the Trump Administration.
Forewarned is forearmed.
Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an internetization consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google.