[governance] European Commission vs. Google: That's It? That's All You Got?

[Riaz K Tayob]

Eric K. Clemons

Professor of Operations and Information Management at The Wharton School
European Commission vs. Google: That's It? That's All You Got?
Posted: 07/18/2012 7:11 pm
While Google's executives initially offered a frosty response in public 
to the European Commission's position on its anticompetitive behavior, 
in private they must be celebrating up and down Google headquarters. 
They may even be willing to settle some or all of the claims against 
them. But if this is the best shot that the European Commission has, 
then settling, and then celebrating, remains their best option.

Let's take a look at Commission Vice President Almunia's four "concerns 
where Google business practices may be considered as abuse of dominance:"

1. Preferencing and Preferential Treatment of Its Own Offerings

First, in its general search results on the web, Google displays links 
to its own vertical search services. Vertical search services are 
specialised search engines which focus on specific topics, such as for 
example restaurants, news or products. Alongside its general search 
service, Google also operates several vertical search services of this 
kind in competition with other players.

In its general search results, Google displays links to its own vertical 
search services differently than it does for links to competitors. We 
are concerned that this may result in preferential treatment compared to 
those of competing services, which may be hurt as a consequence.

In other words, if Google's says its search is unbiased, it should be 
unbiased even when biasing is good for Google's other businesses. Thou 
shalt not lie, or bear false witness against they neighbor. This is the 
area in which Google appears most willing to back down. The Guardian 
notes, "If Google changes that, it will be a significant step, and show 
that it has been forced to bow to regulators." Nonsense! Compared to the 
rest of Google's behavior, this abuse is not central to Google's power 
or profits, and it should never have been permitted. Stopping it will 
end one abuse of Google's competitors, but it will not matter much to 
Google.

2. Stealing Content from Competitors' Offerings

Our second concern relates to the way Google copies content from 
competing vertical search services and uses it in its own offerings. 
Google may be copying original material from the websites of its 
competitors such as user reviews and using that material on its own 
sites without their prior authorisation. In this way they are 
appropriating the benefits of the investments of competitors. We are 
worried that this could reduce competitors' incentives to invest in the 
creation of original content for the benefit of internet users. This 
practice may impact for instance travel sites or sites providing 
restaurant guides.

In other words, even if Google finds a competitor's online user ratings, 
or lead paragraphs, or headlines valuable, it cannot directly copy them 
and then use them without permission. Thou shalt not steal.

3. Restricting Use of Competitors' Search Engines (Part 1)

Our third concern relates to agreements between Google and partners on 
the websites of which Google delivers search advertisements. Search 
advertisements are advertisements that are displayed alongside search 
results when a user types a query in a website's search box. The 
agreements result in de facto exclusivity requiring them to obtain all 
or most of their requirements of search advertisements from Google, thus 
shutting out competing providers of search advertising intermediation 
services. This potentially impacts advertising services purchased for 
example by online stores, online magazines or broadcasters.

In other words, although Google is powerful enough to impose arbitrary 
restrictions on its users that limit their use of other search engines, 
it cannot abuse its monopoly power in ways that violate competition law. 
OK, this is a bit more complex. We can all understand the 10 
Commandments, and we can all agree that violating sections 8 and 9 of 
the 10 Commandments is morally wrong. We don't all understand Section 2 
of the Sherman Act nearly as well, and it's a little more complicated to 
understand a "violation per se" of the Sherman Act, but limiting a 
client's ability to use a competing search engine would appear to be an 
illegal defense of monopoly power. This is illegal in the US under 
Sherman. It's illegal in the EU as well. Thou shalt not act illegally to 
defend a monopoly.

4. Restricting Use of Competitors' Search Engines (Part 2)

Our fourth concern relates to restrictions that Google puts to the 
portability of online search advertising campaigns from its platform 
AdWords to the platforms of competitors. AdWords is Google's 
auction-based advertising platform on which advertisers can bid for the 
placement of search ads on search result pages provided by Google. We 
are concerned that Google imposes contractual restrictions on software 
developers which prevent them from offering tools that allow the 
seamless transfer of search advertising campaigns across AdWords and 
other platforms for search advertising.

So, once again, although Google can design its technology to limit its 
users' ability to move their ability to move part or all of their 
campaigns and keyword programs to competing search engines, it still 
cannot abuse its monopoly power in ways that violate competition law. 
Once again, limiting a client's ability to move to a competing search 
engine would appear to be an illegal defense of monopoly power. And once 
again, thou shalt not act illegally to defend a monopoly.

But Look at What's Not Here!

OK, Vice President Almunia's statement of concerns is a start. And these 
abuses that have concerned the Commission have all been clearly 
documented elsewhere.

But look at what was not covered among the Commission's concerns:
• There is no mention of Google's possession of monopoly power over 
search, or its abuse of bidders in keyword auctions through manipulation 
of the number of spots available for purchase, through manipulation of 
quality scores, or through manual manipulation of algorithm results.
• There is no mention of Google's actions to extend its monopoly into 
mobile search, or its subsidy of Android phones in order to strengthen 
its monopoly over traditional search
• There is no mention of Google's actions to extend its monopoly over 
search by bundling services like YouTube into the Android phone in ways 
that increase Google's attractiveness by leveraging or bundling 
additional assets in ways that other search vendors cannot match.
• There is no mention of Google's demonstrably criminal behavior in 
facilitating the circumvention of laws intended to protect consumers 
from defective products.
• There is no mention of Google's demonstrably criminal behavior in 
violating the privacy of citizens around the world, either when they 
were visitors to websites that use Google analytics, or when they 
happened to be online while a Google recording device drove by.

So that's it? That's all you've got?

Let's hope this is only the start of investigations in Europe.

Why Does This Matter?

I wrote a column almost a year ago, "Say it Ain't So, Joe": Of Google 
and Some Serious Misbehaving, describing Google's illegal actions in 
facilitating the illegal importation of counterfeit drugs into the 
United States and in facilitating the illegal importation of narcotics 
without prescriptions. I wrote a second column almost two months ago, 
"Say it Ain't So, Joe, Again, and Again, and Again ...": A Legacy of 
Continued Bad Behavior at Google; this described a continued history of 
misbehavior at Google. When I wrote the first column I never expected 
this to turn into an ongoing series, but I wrote a third column earlier 
this week, "Say It Ain't So, Joe, Again, and Again, and Again, And 
Again, And Again, And Again ...": An Economic Analysis of the Legacy of 
Continued Bad Behavior at Google. It now seems that Google's senior 
management team has decided that consent decrees, settlement agreements, 
legal commitments, and promises to regulators are no more binding on the 
firm's future behavior than social norms, legal codes, and promises to 
their users. If an action is profitable, Google will engage in it. If an 
action is profitable, after consideration of payments for fines, 
penalties, and legal fees, Google will engage in it. This may even 
appear to be good business.

When an American automobile manufacturer decided that payments for a few 
deaths from fiery explosions would be less expensive than recalling and 
repairing a defect in the cars' fuel tanks, massive punitive damages 
were assessed. The punitive damages were not imposed solely as 
punishment for a wrongful, painful death; the punishment was imposed to 
ensure that future business decisions placed higher value on victims who 
had been incinerated; it was expected that this would save lives in the 
future. Perhaps it would be best if the European Commission imposed 
penalties sufficient to alter Google's behavior and to protect European 
consumers and European businesses.

I really hope not to write additional columns in the "Say it Ain't So" 
series. If sufficient penalties are imposed on both sides of the 
Atlantic, Google executives will make business decisions that reflect 
the true cost of misbehaving,

http://www.huffingtonpost.com/eric-k-clemons/european-commission-google_b_1684500.html?utm_hp_ref=business&ir=Business


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