Conflict of Interest

The abrupt change, that Google's CEO Eric Schmidt will no longer be accountable to shareholders on Google's earnings calls, should prompt investors to ask why? 

• Google claimed that they wanted to put more focus on Google's strong financials, but they did not disclose any more than Google's usual barest of minimum of information to investors.  
• The most obvious reason for this abrupt change is the literal explosion of real franchise liabilities and risk overhangs to Google that reared their ugly heads this past quarter. 
  • Had CEO Schmidt been available to answer investor questions, Google's exploding liabilities could have dominated the Q&A and the investment narrative coming out of the earnings call.

What has changed, and what Google has been not been open about, is the very serious ripening of three different types of going-forward franchise risks (antitrust, privacy/security, and intellectual property) that cumulatively herald a de facto change in Google eras: from the roaring "Growth Decade" of 2000-2009, to the more unpredictable "Liability Decade" of 2010- 2019.

Google announced 4-9-10 that "we've decided to take speed into account in our search rankings" in a Google blog post by Amit Singhal and Matt Cutts entitled: "Using site speed in web search ranking." (Thanks to the Register's Cade Metz for flagging this issue.)

Did Google's CEO Eric Schmidt just say in public to the American Society of News Editors: 

• "he wants to be challenged through technology that directs readers to a story with an opposing view" per Politico? 

It sounds a lot like Mr. Schmidt envisions a Google with some automated technology that "challenges" readers with an automated process that "directs readers to a story with an opposing view?" 

I have publicly debated Susan Crawford and found her to be intelligent, likable and zealously committed to the FCC broadband "public option," i.e. mandating that broadband become public-utility regulated as a common carrier. 

• I was disappointed and stunned to read Ms. Crawford's latest assertions in her op-ed in the New York Times today, that totally and unabashedly misrepresented core facts; Ms. Crawford and the New York Times Editorial Board should know better. 

First, Ms. Crawford's characterization of a potential unilateral FCC decision to regulate broadband for the first time -- as simply a "relabeling" of Internet access services -- is blatant mis-representation. 

For skeptics of Google's need for more transparency and accountability, consider the latest disturbing example of Google Chrome not asking tens of millions of Internet users for their permission to gain wide open access to their computers and content -- when it clearly should ask for permission -- like every other Internet browser provider does.    

Per ComputerWorld's article: "Google's Chrome now silently auto-updates Flash Player." 

• "Unlike other browsers, Chrome updates itself automatically in the background without asking for permission or prompting users that security fixes or new features are available." 
• "Google uses a unique approach, they don't ask users [for permission to update], they just do it" said Peter Betlem, Senior Director of Flash Player Engineering.  

What this means is that unlike all other browsers or Google competitors, Google does not believe it needs permission from users to gain wide open access to users' entire computer software and all its private contents.

FTC antitrust concerns over "inter-locking-directorates" reportedly have forced Kleiner-Perkins' John Doerr, to step down from Amazon's board, because he is also on the board of Amazon, a major book and cloud-computing competitor of Google -- per Miguel Helft's and Brad Stone's scoop at the New York Times Bits post.

This is the third (Amazon, Apple, Yahoo) too-cozy-for-antitrust-authorities, Keiretsu-like, Google business relationship that either the DOJ or FTC apparently have broken up. 

• (I will elaborate on each of these problematic Keiretsu-like relationships (Amazon, Apple and Yahoo) later in the post.)

Three different interventions by antitrust authorities involving Google's ties with three different Fortune 500 companies in eighteen months constitutes a pattern and underscores the depth and breadth of antitrust concerns that U.S. antitrust authorities have about Google.

The New America Foundation and Slate Magazine is presenting a forum on Friday April 2nd in D.C. entitled: "Why your cell phone is so terrible" featuring:

Wow. The evidence Viacom unearthed in discovery in their $1b copyright infringement suit against Google is surprisingly damning. The evidence shows willful, premeditated, deceptive, and organized efforts by YouTube, Google and Google-YouTube to infringe copyrights for anti-competitive and financial gain.

• Read the quote summary first here, then review the copious evidence/history in the 86 page Viacom Statement of Facts here, and then review Viacom's Summary Judgement memo of law here. 

So what are the broader antitrust implications of all this new and serious evidence of illegal activity and misconduct by Google-YouTube?

First, DOJ really blew it for not even asking for a second request of information on Google's acquisition of YouTube.

Google's unprecedented mass-accumulation of material non-public information may force a re-thinking and broader definition of the concept of insider information/trading and related securities laws/regulations, in order to continue to ensure the integrity of public markets.

• Public statements by Google's CEO Eric Schmidt last week unwittingly unveiled a new and potentially very serious material weakness in the oversight and integrity of public markets, that should trouble those responsible for policing insider trading and other public securities laws at the SEC, CFTC, FERC, Treasury and the DOJ.
• From Jon Fortt's outstanding not-to-be-missed post in Fortune: "Top 5 moments from Eric Schmidt's talk in Abu Dhabi:"
  • Google CEO Eric Schmidt: "One day we had a conversation where we figured we could just try and predict the stock market..." "and then we decided it was illegal. So we stopped doing that."

Public market regulators responsible for protecting the integrity of public markets are likely to be concerned by this public admission by a publicly-traded Fortune 200 CEO, especially when the statements are put in a broader perspective by connecting the relevant dots.

A very important investigative scoop by Appitalism's Simon Buckingham (that has been submitted to the FTC's Google-AdMob antitrust investigators) uncovers how Google unilaterally, not-openly, and without advertisers' permission, changed the default settings in all of Google advertisers' accounts, which effectively "duped advertisers out of hundreds of millions of dollars."  

In a nutshell, Mr. Buckingham's investigation found that  two years ago, Google quietly changed the defaults of all its advertiser clients' accounts so that their ads were served not only to all desktop pcs/laptops, but also to all IP enabled mobile devices too.

• This significantly expanded the number of ads Google served and advertising revenue generated by Google via clicks, but without a consequent increase in the value delivered to the advertiser customer by Google  in return. 
• As Mr. Buckingham explains it, mobile devices simply can't functionally handle most of the ads Google sends to mobile devices because they require Adobe Flash (which mobile devices generally do not have) and mobile devices have much smaller screens so large-screen-oriented ads are basically dysfunctional in the mobile device market.
• Mr. Buckingham estimates that this deceptive practice likely has costed Google advertisers over several hundred millions of dollars over the last two plus years.

This investigation prompts several disturbing takeaways. 

First, this underscores how truly opaque the Google "Black Box" advertising business model is.