Google: is so big so bad?

In the 1990s, Gary Reback, a
Silicon Valley lawyer, almost single-handedly brought the antitrust weight of
the U.S. government down on that era’s high-tech heavyweight, Microsoft. Now
Mr. Reback contends there is a dangerous new monopolist in the catbird seat:
the search giant Google. 

This month, Mr. Reback shepherded
Adam and Shivaun Raff, the husband-and-wife entrepreneurs behind the London comparison
shopping site Foundem, around Washington. The three held meetings with Congressional
staff members and antitrust enforcers at the Department of Justice and the
Federal Trade Commission. 

Their goal was to air the Foundem
couple’s complaint that in 2006, Google’s supposedly objective algorithms
suddenly dropped Foundem into the netherworld of Google search results. They
say Google also raised the rates Foundem had to pay to advertise alongside
search results. These moves, the couple say, pushed their comparison shopping
site out of view, and Google later put the spotlight on its own shopping

Google is the “arbiter of every
single thing on the Web, and it favours its properties over everyone else’s,”
said Mr. Reback, sitting in a Washington cafe with the couple. “What it wants
to do is control Internet traffic. Anything that undermines its ability to do
that is threatening.” 

Google says its mission is to give
users the information they’re looking for even if that means giving its own
content priority and de-emphasizing sites it believes offer poor experiences.
“Telling a search engine that it cannot innovate and show results in a way that
benefits users would undermine the very goals of our competition laws,” says
Matthew Bye, a Google lawyer. 

But the search giant’s decisions on
such matters may soon be judged by higher authorities. Over the last several
years, it has become the canonical way to search the Web, an information
doorway that dictates what kind of knowledge is visible to the browsing public.
That growing market power has generated both sky-high profits and unwanted regulatory

Almost a decade after Google
promised that the creed “Don’t be evil” would guide its activities, the federal
government is examining Google’s acquisitions and actions as never before,
looking for indications that the company’s market power may be anticompetitive
in the worlds of Web search and online advertising. 

“They are not just on the radar
screen. They are at the center of it,” said Tim Wu, a professor at Columbia
University and the author of a forthcoming book on technology monopolies, “The
Master Switch: The Rise and Fall of Information Empires.” “If you are in the
federal government and are interested in antitrust, you are looking at Google.” 

Google has managed to squeak by
most regulatory reviews. On Friday, the Federal Trade Commission approved
Google’s $750-million (U.S.) acquisition of AdMob, a mobile advertising
startup. Staff members had initially planned to oppose the purchase, even
saying in a statement that the deal “raised serious antitrust issues.” But the
agency ultimately endorsed the deal, assuming that Apple’s entry in the market
would facilitate competition. 

Nevertheless, the search giant may
get an indication this summer of just how uncomfortable Washington can get for
such dominant firms. Federal Judge Denny Chin is expected to rule in the next
few months on Google’s amended settlement with authors and book publishers and
whether the agreement gives the search giant too much control over the millions
of library books that it scanned. The Department of Justice has opposed the
settlement on two occasions. 

At the same time, Google’s own
missteps have prompted a new round of scrutiny. This month, it admitted that
its camera-equipped cars, which drive around photographing the world’s
neighbourhoods for Street View images within Google Maps, had inadvertently
collected fragments of communications from people using unsecured WiFi
networks. Privacy advocates howled, while the FTC and regulators in Europe said
they were looking into the matter. 

Taken together, these inquiries are
a litmus test for the U.S. government’s willingness to challenge a widely liked
and admired company and to take on some profoundly difficult questions. 

Can monopolies exist online, when
competition is only a click away? What constitutes anti-competitive behaviour
in the complex networked economy, where the very size of big companies allows
them to operate more efficiently, and thus grow even bigger? Are consumers
harmed if various services are bundled together, but everything is free? 

Google executives acknowledge the
scrutiny. “We’re getting larger, and we have been very disruptive within some
industries,” says Alan Davidson, head of U.S. public policy at Google. “We know
we have a giant bull’s-eye on our backs.” 

In Washington, there is significant
disagreement over the proper scope of competition regulation and what the
future should hold for Google – and both sides have big financial stakes. 

On one side are companies like
AT&T and Microsoft, which vociferously lobby against Google in the policy

AT&T is Google’s staunchest foe
in the battle over “net neutrality,” a term used by Google and others who fear
that telecommunications providers might throttle bandwidth for certain Internet
services, discouraging innovation. Microsoft provides e-mail and other services
in competition with Google and has a rival search engine, Bing, which controls
11.8 per cent of the market in the United States. (Google has 64.4 per cent,
and Yahoo 17.7 per cent, according to comScore.) Microsoft is also a paying
member, along with and Yahoo, of the Open Book Alliance, a group
founded by Mr. Reback to oppose the Google Books settlement. 

Google oozes a confident, seemingly
cavalier attitude. Its Washington office, a few blocks from the White House,
has all the casual accouterments of other Google spaces, like massage chairs
and foosball tables. Furthering the idea of an open, freewheeling atmosphere,
the company uses a public meeting space at the office to present regular events
that are available to the public, like conversations with authors and a recent
panel about home energy use with Carol Browner, a senior energy official at the
White House. 

When it comes to government
scrutiny, the company’s executives challenge the premise that Google is a
monopoly, even as the company’s share of the search market inexorably rises,
arguing that Google is still a minor player in the overall advertising market,
which totals $800-billion a year. 

Google also says that linking
prominently to its own services over those of rivals is good for consumers and
not malicious. Its famous search algorithm, conceived by one of the founders,
Larry Page, at Stanford in the 1990s, uses a series of complex and opaque
formulas to rank the sites within a set of search results. The algorithm is
responsible for what Google calls the “organic” listings that appear on a
search results page. 

But increasingly, above and mixed
throughout those search listings, Google presents links to its own services,
like maps, YouTube videos, local business results and product search listings.
Executives argue that providing these easily accessible results clearly
benefits users. Rivals claim that this is self-serving, and that Google
promotes its content even though there may be better material elsewhere. 

Behind the scenes, Google is taking
its challenges in Washington seriously, adding to its staff, increasing
expenditures and meeting criticism head-on. 

“As we have a bigger impact, we
have to expect to have more kinds of scrutiny, and we have to adjust,” said Vic
Gundotra, Google’s vice president of engineering, when asked whether Google
could ever again make large acquisitions, like YouTube, without stiff
government resistance. “It also means we have a lot of resources today that we
didn’t have when we were tiny. So we have a lot of choices.” 

To fight these and other battles,
Google employs a dozen or so policy experts, including nine registered
lobbyists, and a public relations staff of four. It also retains at least four
Washington public affairs and communications firms. 

According to public records, Google
spent more than $4-million lobbying in 2009, a 160 per cent increase since
2007. Much of that money was spent through entrenched Washington lobbying firms
like the Podesta Group and the Franklin Square Group. 

The search giant is still outgunned
by its primary adversaries: AT&T spent $14.7-million on lobbying in 2009.
Microsoft spent $6.7-million. 

In many ways, Google’s Washington
push appears to be largely successful. In the last few years, the company has
won battles over net neutrality, advocated making new parts of the wireless
spectrum open to a multitude of devices, gotten all of its acquisitions
approved by regulators and kept new privacy laws at bay. 

Even last month, privacy activists,
who have long focused on Google, were frustrated when Congress released a draft
of a privacy bill meant to regulate data collection practices on the Web —
which would be a first for the United States. 

Provisions in the bill called for websites
to discard customer data after 18 months or make it anonymous, and to offer
users access to a “profile manager,” which would allow them to see why they
were being shown certain ads. Both are already policies at Google. The company
lobbied while the bill was being written and it was seen as largely favourable
to the company. 

The bill “demonstrated Google’s
ability to frame the issue to their own benefit,” said Jeffrey Chester,
director of the Center for Digital Democracy. “Google likely dodged a bullet.” 

Google representatives declined to
characterize the bill as any kind of legislative victory, saying they still had
concerns about it. The response, Google allies say, is consistent with the
company’s overall attitude in Washington. 

“They don’t want to be a Washington
player. They want to be seen as a technology company that explains to
Washington what they’re doing,” said Markham Erickson, executive director of
the Open Internet Coalition, an industry trade group of which Google is a

Mr. Erickson said that Google
executives thought they were doing the right thing for consumers and the
Internet, and that simply by educating lawmakers on Google’s good intensions,
they would ultimately win the day. 

But even Mr. Erickson acknowledges,
“Once you’re big, you’re not cute anymore.” 

There is ample evidence that
Washington regulators think Google has already outgrown its cute stage. 

Jon Leibowitz, the chairman of the
Federal Trade Commission since last March, has shown his willingness to stand
up to Google, most recently with the FTC’s inquiry last year into the
board-level relationships among Google and two of its rivals, Amazon and Apple.
That investigation caused several prominent Silicon Valley business leaders,
including Eric Schmidt, Google’s chief executive, to give up board seats at
other companies. 

In January, Howard Shelanski, an
FTC economist, underscored the agency’s attention to Google. In a speech at the
University of Colorado, Mr. Shelanski said that the concern over network neutrality
should also apply to a dominant online search engine that might unfairly
discriminate against individual companies. 

Though he did not name the search
engine, the implication was clear: The FTC was worried that Google could show
prejudice against competitors – exactly the complaint that has been levied by
some comparison shopping sites, including Foundem. 

Leading the Department of Justice’s
antitrust division is Christine Varney, an assistant attorney general, who represented
Netscape during the antitrust case against Microsoft over its practices
promoting Internet Explorer. Ms. Varney has publicly said she thinks Google may
merit antitrust scrutiny. “Microsoft is so last century,” she said in a 2008
speech. She said Google could be a problem because it had “acquired a monopoly
in Internet online advertising.” 

One person at the Department of
Justice, who spoke on the condition of anonymity because he was not authorized
to talk about the situation publicly, said that the antitrust division was
constantly examining Google’s behaviour, trying to gauge whether the company
was living up to its claims of neutrality. 

“Google won a lot of good will by
presenting itself as neutral to a lot of different content,” this person said.
“The question is, are there real examples of chinks in their armour in their
claims of neutrality?” 

But Google itself may be giving
regulators and legislators more reasons to take a closer look. Its collection
of private data over WiFi networks followed a similar misstep in February over
the Buzz social network, which publicly exposed the contacts of Gmail users
with little warning. 

Google’s high-profile mistakes hurt
because they convey the impression that Google’s behaviour is increasingly
inconsistent with its “Don’t be evil” mantra. 

One of Google’s founders, Sergey
Brin, acknowledged the mistake last week at the company’s annual conference for
developers in San Francisco. “We screwed up, and I’m not making excuses about
it,” Mr. Brin said. “Trust is very important to us, and we’re going to do everything
we can to preserve it.”