Antitrust

Knowing I appreciate good satire, and especially good satire on Google, someone sent me the link to a 2005 spoof on Google that rings surprisingly true today...

Don't miss The Onion's: "Google plans to destroy all information it can't index."  

The Wall Street Journal article yesterday: "Google plans service to store users' data" is another stark reminder of the very dark cloud on the Internet's horizon -- Google's dominant "cloud computing" capability (i.e. Google's world-leading parallel processing computing grid and storage centers, which Google uses to cache a more-than-daily copy of every page of every website on the Internet and also every Google users' clickstream history.)

• According to the WSJ, Google is planning to offer a free way to store all the information on people's computer hard drives in Google's "cloud" -- ostensibly to give consumers the 'freedom" to access their computer's files from any where, whether or not they are at their computer.

Now why would Google want to give you that type of service for "free"? Because they want even more personal and total information about you than they have in your search history, in order to sell to advertisers even more info about your most private "hot buttons."

• If you are a free Google gmail user, Google already reads your email to send you targeted advertising. 
• If you use Google's free documents or spreadsheets, you may remember from a previous post of mine that:

In "Google's tar pit," an article in the Atlantic about how Google's market dominance is attracting antitrust scrutiny in Washington -- much like Microsoft did before it -- provides us a new "image" or "word picture" of Google.

The article starts with this wonderfully telling scene-setter: "

• "The lawn outside Google’s headquarters in Mountain View, California, is dominated by the imposing visage of “Stan”—tail thrashing, jaws agape, a full replica of the largest Tyrannosaurus rex fossil ever discovered. Stan mysteriously appeared on the lawn one morning several years ago, and is presumed by Google employees to have been a gift from the company’s quirky founders, Larry Page and Sergey Brin."

So what does Google's choice of a T-rex as its corporate mascot tell us about Google?

First, non-Google paleontologists have gotten it all wrong about the T-rex.

For those following Google's relentlessly increasing market share, Barrons Online has a succinct summary of ComScore's and Hitwise's latest numbers.

The numbers show why the Senate Antitrust Subcommittee believes Google has market power and why it believe the FTC should determine if Google can leverage its market power in search into other markets before approving the Google-DoubleClick merger. 

For those following Google's relentlessly increasing market share, Barrons Online has a succinct summary of ComScore's and Hitwise's latest numbers.

The numbers show why the Senate Antitrust Subcommittee believes Google has market power and why it believe the FTC should determine if Google can leverage its market power in search into other markets before approving the Google-DoubleClick merger. 

According to PaidContent.org, Sanford Bernstein's Google analyst, Jeff Lindsay:

• "looks at some of the options available to Google, should the EU (or the FTC for that matter) ultimately come down against the acquisition. He lays out four scenarios: a) Forgo competing in the ad-exchange business. b) Purchase another player, possibly ValueClick. C) Build an in-house ad exchange. D) Form a JV, possibly with DoubleClick". (emphasis added)

The most important takeaway from this analysis is that Google and DoubleClick are obviously competitors in the natural and ongoing evolution of online advertising towards ad exchanges.

• Lindsey believes it would make most sense for Google to build its own ad exchange in house and that with Google's advantages, Google could get it up and runnning faster than it took Right Media or DoubleClick.

Given the Senate Antitrust subcommittee's concerns in their recent letter to the FTC on the merger:

• "Antitrust regulators need to be wary to guard against the creation of a powerful Internet conglomerate able to extend its market power in one market into adjacent markets, to the detriment of competition and consumers."

The challenge for the FTC in analyzing this dynamic market is to understand how it is changing and why.

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. 

Have Penn State researchers stumbled upon a Google-DoubleClick anti-competitive smoking gun?  

PCWorld flagged some very troubling new research findings pertinent to the FTC/EU reviews of the Google-DoubleClick merger by Penn State researchers in its article "Google Favored By Web Admins."  

• Penn State researchers: "Web-site policy makers are playing favorites, and Google is the big beneficiary, say Penn State researchers."

• ""We expected that robots.txt files would treat all search engines equally, or maybe disfavor certain obnoxious bots, so we were surprised to discover a strong correlation between the robots favored and the search engines' market share," said C. Lee Giles, the David Reese Professor of Information Sciences and Technology at Penn State who led the research team that developed BotSeer, in a statement."

 Why is this significant?

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