A whole new game

Last Updated: Sat, Feb 02, 2013 20:50 hrs

What, precisely, are “monopolistic practices” in a world that is moving online? Can the same institutions drive our thinking about monopoly, online and off? Perhaps not. Google was the first business to leverage internet search to drive advertising. Its insight has translated into continuing dominance, through relentless innovation and a willingness to explore and embrace the new. However, monopolistic dominance can also be used to elbow out competition and the internet search giant is the subject of accusations and antitrust investigations. In 2012, Google registered over $50 billion in revenues with net profits of over $10 billion. Over 65 per cent of American searches and over 90 per cent of European searches used Google’s engine. Barring China and Russia, where local engines Baidu and Yandex dominate, Google drives well over half of all net searches in every key region. Yet the US Federal Antitrust Commission says it believes Google does not indulge in abusive practices, while recommending that Google change some of the ways in which it does business. The European Commission (EC) is in the middle of a similar antitrust investigation.

Internet search is tied to advertising and other monetisable services. Google has its fingers in many pies via Gmail, YouTube, Blogger, Google +, Google maps and sundry niches like credit-card evaluation, flight-hotel searches, local shopping listings, etc. Android, which holds over 70 per cent of smartphone market share, is integrated to Google services and Google also offers cloud-hosting and other services for websites. Each area has multiple competitors and it has been alleged that Google showcases its own services more prominently in its search and thus, drives traffic to its own offerings. For example, a search on a geographical name will throw up only Google maps; a search for free email lists Gmail (the third-largest provider) first; social media mentions favour Google+ (market leader Facebook has an exclusive search arrangement with Bing, and Twitter ceased to be a Google partner in June 2012). Searches for credit card providers and flight listings again display Google’s niche products first. According to the Federal Trade Commission (FTC), some of Google agreements with advertisers also restrict the advertisers’ right to pair with other search engines.

Google claims that this cherry-picking occurs organically due to search algorithms geared to offer better customer experiences. Its competitors are unlikely to buy that seemingly circular logic: Google thinks its services offer the best customer experience, and hence develops algorithms to drive traffic to its services. But a shopping mall is entitled to display affiliated brands more prominently and Google is arguably applying the same principle. There are similarities between the Android-Google integration and Microsoft’s integration of the Internet Explorer browser with the Windows operating system in the 1990s. But there are also differences. Android is free, Windows paid. The user needs a primary Gmail account to fully exploit Android; Windows' performance is unaffected by the use of a different default browser.

Monopolistic abuse is unhealthy and it is incumbent upon regulators to prevent it occurring in cyber-domains as much as offline. But in new virtual markets, it is difficult to draw analogies from prior case-law and regulators can be left groping to decode the business dynamics. One can hardly compare AT&T’s telecom network, or Standard Oil’s operations to Google’s page-rank algorithms. Nor can Google be “broken up” in the same way that a physical business such as AT&T was. Regulators must start from first principles to define fair business practices and it will be fascinating watching the evolution of norms for regulating the search market. The EC and FTC decisions will affect everybody’s surfing experience and have far-reaching repercussions downstream.

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