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FCC's concluding market power in the wrong place; See great ACI analysis: Broadband vs Internet profits

Given that the apparent justification for new formal net neutrality rules is that fifteen-year policy has failed and that the market is unable to ensure consumer choice, the FCC will need to justify with facts that broadband providers indeed have market power to exercise anti-competitively.

Kudos to Larry Darby of the American Consumer Institute for his excellent and illuminating comparative financial analysis of the market power and profits of broadband companies vs. Internet companies. From his post

Google: Antitrust's Pinocchio?

First, antitrust's modern day Pinocchio claimed that competition is just "one click away," now Google is claiming that the notion that scale is important to search competition is "bogus."

  • Google's Chief Economist, Hal Varian is pushing a preposterous, self-serving argument in CNET that scale is not important to search competition:
    • "...the scale arguments are pretty bogus in our view because it's not the quantity or quality of the ingredients that make a difference, it's the recipes. We think we're where we are today because we've got better recipes...  I also think we have a better kitchen..."

Why is Google's "bogus" claim bogus?

First, does Google think for a minute that antitrust enforcers' investigations have not assembled substantial evidence/quotes from Google itself about the importance of scale in search?

Where else will a viable competitive alternative to Google come from, if not from a Yahoo-Microsoft deal?

The core question at the heart of the DOJ's review of the proposed Yahoo-Microsoft search partnership is where else will competition to Google's increasing dominance come from, if not from the proposed Yahoo-Microsoft search partnership? 

The DOJ has deep and current expertise in this market given their investigation of the Google-Yahoo ad partnership last fall and DOJ's current investigation of the Google Book Settlement. The DOJ also appreciates the facts that:

Google's gobbling Yahoo's search revenue share -- per Google/Yahoo earnings reports

Yahoo lost 11% of its search revenue share to Google during the first six months of 2009 versus the last six months of 2008, per Yahoo's and Google's 2Q09 earnings reports. 

  • This time period comparison was selected because it represents most of the time period since DOJ blocked the Google-Yahoo ad partnership 11-05-08, where the DOJ concluded that Google and Yahoo had combined market shares of 90% and 95% in the relevant antitrust markets of search advertising and search advertising syndication. 

It is relevant, interesting, and instructive to analyze what has happened since the DOJ's 11-05-09 action, and since the economic downturn, given that the DOJ concluded Google and Yahoo commanded 90% and 95% market shares at that time.  

This relative revenue share transfer analysis is straight-forward.

DOJ is formally investigating another Google deal

An unusual and notable pattern appears to be developing with Google and DOJ antitrust enforcers. 

  • Twice in less than a year, the DOJ has formally investigated Google for trying to anti-competitively extend its monopoly market power via a market agreement.
    • It is unusual for the DOJ to seriously investigate a single formal market agreement/settlement for anti-competitive behavior because normally antitrust lawyers can convince a company's leadership to stay away from the anti-competitive line that possibly could prompt a DOJ investigation and/or suit.
    • What is exceptionally unusual is for a company to propose two non-merger-related market agreements in less than a years time that prompt serious antitrust investigations from the DOJ.
  • Today, the DOJ Antitrust Division wrote a letter to the Federal Judge overseeing the Google Book Settlement deal "to inform the court that it has opened an antitrust investigation into the proposed agreement between Google and representatives of publishers and authors... we have determined that issues raised by the proposed settlement warrant further inquiry."

This is the second formal agreement in less than a year that Google has negotiated and drafted that has "crossed the line" prompting DOJ antitrust officials to have to formally and publicly investigate. 

Behavioral Advertising's New Swiss Cheese Privacy Proposal

The new industry-proposed "Self-Regulatory Principles for Behavioral Advertising" which Google publicly patted themselves on the back for today, conveniently do not apply to most all of Google's current advertising business. 

  • When one examines the fine print of the detailed document, it becomes clear that the new proposed self-regulatory privacy guidelines (which in fact are a significant improvement over the status quo) conveniently do not apply to contextual search advertising, the leading form of Internet advertising that Google dominates (per the DOJ), nor to contextual display advertising, the second-leading form of Internet advertising which Yahoo leads.  

As a big proponent of responsible self-regulation, I am disappointed when self-regulation is given a bad name when industry leaders badly game the system by conveniently self-defining themselves, for the most part, from being subject to much of the new self-regulatory guidelines.  

Why am I pointing out this arbitrage of privacy laws?

Yahoo earnings confirm Google taking substantial market share

Yahoo's announced earnings confirm that Google continues to take substantial search advertising revenue and profit share in the first full quarter of financial results since the DOJ blocked the Google-Yahoo Ad Partnership as anti-competitive.

  • Yahoo's owned and operated search advertising revenues fell 3% compared to Google-site search advertising revenues which grew 9% -- a 12% differential -- signalling significant market share gain by Google at Yahoo's expense.
  • Yahoo's affilitate (syndicated) advertising search revenues fell 16% compared to Google-site syndicated advertising search revenues which fell 3% -- a 13% differential -- again signalling significant and comparable market share gain by Google at Yahoo's expense.

Google's dominance of search advertising profit share is even greater than that of revenues because historically the only other publicly-traded search advertising players with significant search advertising revenues: Microsoft, AOL, and IAC/ all consistently lose money in this search advertising segment.

An Internet Economy or "Ecommony?" Growing pushback against "Information wants to be free"

The recession has created new urgency for multiple content industries to find a better way to protect and monetize their property/content in the digital world.  The dotcom bubble ethos that “information wants to be free” is like a gross mold destroying the incentives to create and distribute valuable content digitally. (Be sure not to miss the shocking analysis at the end of this post comparing revenue generation per user in the digital "ecommony" versus the real economy.)  


The first point of this post is to connect-the-dots why several content industries are currently in the news actively pushing back against the "ecommony" anti-business model, where content owners are expected to effectively give away their valuable content to the open Internet/digital commons without the requirement of permission or payment.


The first broad and serious counter-movement by business may be in the offing to ensure that valuable content is indeed paid for when distributed digitally. Serious financial and business risk is driving creative thinking about how to better protect and monetize valuable content digitally.


Why FTC’s Behavioral-Ad Principles Are a Big Deal – Privacy-Publicacy Fault-line Part IV

The FTC staff's revised behavioral advertising principles make it clear that the FTC understands the Internet’s growing privacy-publicacy fault-line. The FTC’s new guidelines are all about tackling the growing problem of unauthorized publicacy – meaning the tracking, collecting and “mashing-up” of information consumers reasonably expected to be kept private.  (“Publicacy” is the opposite of privacy.)

  • Privacy-Publicacy Fault-line Part I, II, III.


Why are the FTC’s new guidelines a much bigger deal than most appreciate?


First, the new guidelines put a new and brighter privacy regulatory spotlight on Google, the world’s dominant behavioral-advertiser, and to a lesser extent, Yahoo, Google’s distant #2 competitor.

Implications of a Search Monopoly for Content/Applications

The content and applications industries have yet to connect-the-dots of the U.S. Department of Justice concluding search advertising is a monopoly and that Google has pro-actively sought to further its monopoly in search advertising and search advertising syndication.  

  • The long term implications of this DOJ conclusion are sweeping and profound for content and apps providers.  

Simply, if the DOJ believes Google is a monopoly, then it follows that DOJ would believe it is illegal under antitrust law for Google to proactively disadvantage its competitors’ content/applications by favoring Google-owned content/applications over competitors’ content/applications on Google’s search advertising monopoly platform.


Q&A One Pager Debunking Net Neutrality Myths