Google’s license to print money is under siege
For the first time, the Federal Trade Commission in the United States will conduct an inquiry into Google which will not be limited to mergers and acquisitions, or violations of privacy, but fundamental issues relating to Google’s core search advertising business model.
This follows the European Commission probe which commenced late last year. The European Commission stated that it “will investigate whether Google has abused a dominant market position in online search by allegedly lowering the ranking of unpaid search results of competing services which are specialised in providing users with specific online content such as price comparisons (so‐called vertical search services) and by according preferential placement to the results of its own vertical search services in order to shut out competing services.”
Google has argued over the years that it does not manipulate search results and that its algorithms are designed solely to deliver the most relevant results to search queries; however it has fiercely protected its algorithm or secret black box.
This position masks reality. It’s search results do prioritise its own sites over competing sites. Just complete a search for “maps” or “video”, and the top ranking results will be Google maps or Google videos. People may say “so what?” However that is not a fair premise when you already have more than 90 percent of the search market in Australia, which marginalises other online businesses in that space.
The online search market in Australia surpassed $1.1 billion in 2010 and could increase to $1.4 billion this year. Google’s dominance in search in Australia also means it dominates the online advertising market.
After all, what is the motivation behind offering up to 50,000 small businesses free websites for the first year? Could it be to get more businesses online so more can buy online advertisements?
The Initiative for a Competitive Online Marketplace (ICOMP) has argued that this as a concerning trend in its submission to the Productivity Commission inquiry into the retail sector, as small businesses which are online are relying on a single dominant search provider in Australia.
Google has extended beyond search, entering areas such as social networking (Google Buzz), mobile payments (Google checkout), online shopping (Google shopping), books (Google books), travel (Google travel), and made an unsuccessful bid in purchasing Groupon, one of the largest deals-of-the-day online sites in the United States. It’s entered the mobile phone network with the Android phone, and offers online versions of email, spreadsheet and word processing programs.
The purpose behind this is control of the search market, and thereby dominating online advertising – which is achievable precisely for that reason.
From a consumer’s perspective this can lead to less choice, higher prices and ultimately a loss of innovation. If a company is not on the first page seen on the screen then they don’t exist in the consumer’s mind.
Given the probes which are being undertaken overseas, the obvious question is what is the position of the Australian Competition and Consumer Commission (ACCC)? Ironically, the ACCC has an ongoing legal case against Google alleging misleading and deceptive conduct in relation to sponsored links that appeared on the Google website.
Perhaps it’s time the ACCC considered following the lead of its international colleagues and begin its own probe.
Louise O’Donnell is an advisor for the Initiative for a Competitive Online MarketpIace (ICOMP). ICOMP advocates on behalf of advertisers and publishers, promoting a competitive online marketplace. It is funded by member contributions as well as sponsorship from Microsoft.
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