DoubleClick

The big question for investors is why?

• Why has Google felt the need to rapidly build up a new lobbying operation in D.C. (rivaling Microsoft's in size) and why did Google just unveil, with great fanfare, its new cutting-edge office space in DC with a party that attracted 650 people and many VIPs?
  • What does Google know that investors may not?

Google's Regulatory Outlook:

Federal Trade Commission: 

Antitrust:

Ken Auletta of the New Yorker discovered one of those rare window-into-the-soul insights about Google in his excellent in-depth expose on Google: "The Search Party -- Google squares off with its Capitol Hill Critics." I strongly recommend reading the full article but it's critical not to miss this insightful gem in Auletta's article quoted below:

Wikipedia's late entry into the search business is reportedly motivated by concern that Google's search is not "open" and that too few players will control access to the world's information as "gatekeepers." 

As the New York Times reports in "Wiki citizens taking on a new area: search," Jimmy Wales, founder of the collaborative Wikipedia, is concerned about how closed and concentrated the search business has become.

• Wales: “I think it is unhealthy for the citizens of the world that so much of our information is controlled by such a small number of players, behind closed doors,” he said. “We really have no ability to understand and influence that process.”

• "As more people rely on search engines, companies like Google, Yahoo and Microsoft have become the gatekeepers of the world’s information, Mr. Wales said. Yet little is known about how they select certain sites over others, he added." 

It is ironic that Google, which purports to be the high priest of openness, is considered closed by the leading open and collaborative brand and phenomenon in the world -- wikipedia.

With the official conclusion of the FTC antitrust investigation of Google-DoubleClick, what's changed or what's different for Google going forward?

Impact on EU review? The real tactical reason the FTC majority was pushing hard to decide this merger before the end of the year was to try and take the wind out of the sails of the EU's review.

• It will be interesting to see what the impact of the FTC's very Google-friendly approach to market definition will have on the EU review.
• Moreover, it will also be interesting to see if the EU finds an analytical soulmate in Commissioner Harbour's dissent -- which took a more European, common-sense and forward-looking perspective on the merger -- rather than the majority's tortured market definition analysis that is driven by the unique US prosecutorial model -- where the real world standard is not whether the merger is anti-competitive or not, but whether the FTC is confident that it can convince a random Federal judge that it is in fact, legally anti-competitive.
• Thus, the EU process is neither a carbon copy nor a rubber stamp of the American FTC process.
  • We could learn sometime in January whether the EU has its own independent concerns about the merger in a possible "statement of objections" procedure, or if the EU is looking to basically follow the FTC's lead.    

Enhanced FTC Scrutiny: Before the merger, the FTC, which is the default lead overseer of Internet competition and consumer protection, was not very informed about Google, Internet competition and/or online advertising. However, they are now.

To provide some timely analysis after quickly reading the FTC's 4-1 approval of the Google-DoubleClick merger let me provide some quick and important take aways:

The most important line in the FTC's statement was: "the companies are not direct competitors in any relevant antitrust market, eliminating the need for further analysis."

First, the FTC majority clearly did not want to risk losing in court again so the FTC effectively gerrymandered a tortured market definition that essentially granted Google a "get out of antitrust jail free card" for the purposes of this merger review.  

Just when I have thought I have heard it all about Google thinking that the normal rules of ethical behavior simply don't apply to Google -- they come up with another of their heralded "innovations without permission" that just leaves me shaking my head in disbelief.

ParisLemon.com has a great post: "Goog-411 is the Ultimate in Ulterior Motives: its really about getting voice samples from you."

• "They've hyped up a service, GOOG-411, making people think it for the betterment of man to have a free 411 service - when in actuality it was always all about getting vocal samples from people to perfect speech-to-text technology!"
  

Aren't we all familiar with the phone disclosure recording when we call a company that informs us that "this phone call is being recorded for training or quality assurance purposes"?

• Otherwise, isn't it illegal to record people's conversations (voices) without their knowledge -- unless its disclosed or you have their permission?    

It only confirms a Google trait that I have driven home before that Google has no adult supervision or internal controls to speak of.

For those who missed it, there was some surprisingly candid and chilling assertions made by Tim O'Reilly, the co-producer of the Web 2.0 conference in a recent New York Times op ed entitled: "Static on the Dream Phone."

While the article is ostensibly about cell phones, it is most relevant to the pending Google-DoubleClick merger and whether or not it will substantially lessen competition. Listen to someone who knows about the natural anti-competitive advantage of network effects.

• "Like the open architecture of the personal computer, the open architecture of the Internet didn’t mean the end of competitive advantage. What we learn from the history of both is that open platforms engender “winner takes all” network effects. [bold added] Once a company gets a first-mover advantage, the mass of users adopting the company’s application or platform makes that product more attractive to the next user."...
• "For the current generation of Internet applications, sometimes referred to as “Web 2.0,” the data collected from users is the true source of competitive advantage. [bold added] And the first movers, the companies that understand and apply this insight, have services that get better fast enough that their competition never catches up." [bold added]

The question is there anyone at the FTC that appreciates this point.

The legal standard that exists in reviewing mergers is does the merger "substantially lessen competition?"  

Google's latest business move to create "knols" should be sending shivers down the spine of any cognizant content publisher that cares about the future economics or growth of their online content. 

• As Google explained in their blog announcement:
  • "At the heart, a knol is just a web page; we use the word "knol" as the name of the project and as an instance of an article interchangeably. It is well-organized, nicely presented, and has a distinct look and feel, but it is still just a web page. Google will provide easy-to-use tools for writing, editing, and so on, and it will provide free hosting of the content. Writers only need to write; we'll do the rest."

ITNews has an interesting take in its piece "Google keeps what Ask.com erases."

• "AskEraser may remove user search query data from Ask.com's servers, but deleted data may live on, in part at least, on Google's servers. That's because Google delivers the bulk of the ads on Ask.com, based on information provided by Ask.."

 I flag this in the context of the Google-DoubleClick merger because not only does Google:

• Have dominant search market share (65% per Hitwise);
• Enjoy exceptional network effects;
• It's hidden market power tentacles reach farther than most appreciate...
  • What the ITNews article tells us is that there is a whole hidden layer of market power/influence by the #1 search engine over its #4 Ask.com "competitor." 

The market is even less competitive than I outlined in my Googleopoly white paper.

It reminds the astute watcher of how Microsoft used non-disclosed contractual arrangements to acquire more market power in the 1990's...

While I am a frequent and usually appreciative reader of CNet's Declan McCullagh Iconoclast column, I have to challenge Declan's recent piece "House Republican targets Google on Privacy Grounds"  when he questions the motives of the Senior Republican of the House Commerce Committee for caring about privacy in the Google-DoubleClick merger, when Declan and CNET did not disclose that Declan's wife now works for Google.

I was also surprised and dismayed that Declan's post included a CNet chart from August to try and put Google in the best light on privacy but did not mention the other side of the coin -- that Privacy International study recently ranked Google as worst in the world on privacy issues.