Do Not Pass Go, Do Not Collect $200

by by by Erica Schwiegershausen

illustration by by Annika Finne

Although it’s hard to remember the days before Google was a commonplace verb, Google, Inc. was first incorporated in 1998 with a mission statement “to organize the world’s information and make it universally accessible and useful.” At a time when conventional search engines ranked results based only on the number of times the search terms appeared on a web page, Google revolutionized the discovery of online content by introducing PageRank technology, which took additional factors into account to determine a website’s relevance. The PageRank system evaluated a website’s backlinks—the links on other web pages that lead to that site—which was the inspiration for Google’s original name, “BackRub.”

In the early 2000s, Google began pioneering innovative ways to incorporate advertising into their services, beginning with the creation of content-targeting advertising and introduction of pay-per-click ads, which made it possible for Google to display specific ads in a more relevant online context. The company’s immense profitability of advertising enabled the company to expand their market well beyond online searching to a prodigious number of online products and services, so that today Google commands meaning as a prefix to nouns such as news, earth, images, maps, places, and scholar. Gmail was first introduced in 2004, and the web browser Google Chrome debuted in 2008. Google +, a social networking service intended to rival Facebook, began its trial phase this June, reaching 10 million users within its first two weeks.

Google’s massive expansion and dominance of much of the Internet has not gone unnoticed by competitors or regulators. However, in June, Google confirmed reports that the Federal Trade Commission had opened an investigation on the company in light of allegations that the tech giant has been abusing its control of the online search market to stifle competition. With Google dominating an increasingly larger share of the online service industry, some are concerned that the search engine gives its own products, such as comparison shopping and travel and online commerce offerings, preferred placement in search results, accordingly thwarting competition and potentially harming consumers.

On September 21, Google’s chairman Eric Schmidt appeared before the Senate Judiciary Antitrust Subcommittee on Capitol Hill to defend the company against accusations of violating antitrust laws. During the hearing, Republican Senator Mike Lee from Utah presented a chart of rankings for Google Product Search in hundreds of shopping searches, compared with the rankings of NexTag, Pricegrabber, and Shopper, three competing shopping sites. Pointing out that although their rivals’ rankings varied widely, Google’s service was consistently ranked third, Lee remarked, “You cooked it so you are always No. 3.” Schmidt assured the committee that Google hasn’t “cooked anything.”
Following Schmidt’s testimony, a panel of Google’s competitors came forward, including Jeffery Katz, the chief executive of NexTag, and Jermey Stoppelman, the chief of Yelp. “Today, Google doesn’t play fair,” said Katz during his testimony. “Google rigs its results, biasing in favor of Google Shopping and against competitors like us … When you search for ‘running shoes’ or ‘digital camera,’ Google transforms itself from an independent search engine to a commerce site.”

Google has been denying accusations of monopolistic practices since the Federal Trade Commission began its investigation. Throughout the hearing, Schmidt repeatedly mentioned that users can always opt to use other search engines, although at one point he did seemingly concede that Google was “in the area” of a monopoly. However, according to legal experts, Google presents a challenging case for the traditional doctrine of antitrust. Historically, high prices for consumers have always been the hallmark of competitive harm and the motivating factor behind antitrust legislation. Yet Google’s search service is free, and open use by anyone.
As L. Gordon Corvitz points out in the Wall Street Journal, “regulators seem to have forgotten that the antitrust laws were written to protect their consumers, not their competitors.” Corvitz claims that the argument against Google is essentially that it serves its consumers too well, in turn making it too hard for their competitors. Yet, other accusations against Google fall more conventionally into the antitrust category, according to Herbert Hovenkamp, an antitrust expert at the University of Iowa College of Law. He told the New York Times: “If it is proven that Google discriminates in favor of its own online properties, you certainly have an antitrust issue.”

The investigation of Google’s potential antitrust violations has prompted many comparisons to the Microsoft case of the late 1990s, when the tech powerhouse of the period was tried by the same Senate body. In U.S. v. Microsoft, plaintiffs alleged that Microsoft Corporation abused monopoly power by bundling its Internet Explorer web browser software together with its Microsoft Windows operating system. Competitors complained that the fact that every Windows user had a copy of Internet Explorer on their computer by default restricted the market for third-party web browsers such as Netscape, which either required downloading or had to be purchased in a store.

Microsoft argued that the merging of Windows and Internet Explorer was the result of innovation and competition, claiming that their attempts at innovation were being thwarted by rival companies jealous of their success. In the final settlement, Microsoft was required to share its application programming interface, making it easier for other browsers to compete on Microsoft platforms. However, many were less than satisfied with the final settlement, and saw it as a slap on the wrist.

Although Schmidt did not explicitly mention Microsoft during the Google hearing, he did attempt to distance his company from the trial a decade earlier, assuring the Senate, “We get the lessons of our predecessors…one company’s past needn’t be another’s future.” Mitch Kapor, a longtime Silicon Valley technologist and investigator, told the New York Times: “The similarity between Google and Microsoft years ago is the potential for harm, the risk that a dominant company uses its power to disadvantage others...But Google was born on the open Internet, and things are just generally far more open to innovators and start-ups now than in the Microsoft era.”

“Unlike regulators, few in Silicon Valley these days view Google as an unstoppable force,” Crotvitz wrote in the Wall Street Journal this summer, implying that despite monopolistic accusations, Google is not truly shielded from market competition. Indeed, Mark Zuckerberg, the CEO of Facebook, seems all too eager to step on Google’s toes.
According to new research from Nielsen’s “Social Media Report,” American users now devote more time to Facebook than any other website – a total of 53.5 billion minutes a month on the site. However, according to the research firm eMarketer, Google will pocket approximately 43 percent of all U.S. online advertising revenues in 2011, compared to a projected 7.7 percent for Facebook, and 11.9 percent for Yahoo!. However, Zuckerberg seems more determined to catch up than ever, and is in the process of unleashing a whole slew of new features which will prompt users to spend even more time on the site.

Many of the so-called “new” features introduced by Facebook in the past month aren’t truly innovative, however. In fact, they’re basically exact copies of services already offered by their competitors. For example, Facebook recently gained a new “subscribe” feature by which users can allow non-friends to view information and posts on their profile, which offers Facebook users a nearly identical service to what is already available on Twitter. Similarly, the Google+ knockoff feature, “Smart Lists,” was unveiled last month, a new tool that allows you to divide your friends up into “lists” according to how you relate, which was the whole idea behind the “Circles” which originally made Google + unique.

Yet Facebook has loftier goals than simply invading the markets of its direct competitors like Twitter and Google +. Zuckerberg recently announced that Facebook will be teaming up with numerous companies that distribute music, movies, information, and games. Its new partners include Netflix and Hulu for video and movies, Spotify for music, The Washington Post and Yahoo for news, Ticketmaster for concert tickets, as well as a number of other travel, food, and consumer brands. Although the specifics of what such arrangements would entail remain hazy, many have projected that these partnerships would allow for tighter integration, perhaps enabling Facebook users to access third-party content without leaving the social networking site. As a result, users will be able to more precisely cue what they are doing online, and will in turn direct Facebook friends to new content.

Integrating popular online services to this degree will position Facebook to become a goliath conduit where online media is found, shared, and consumed. “We think it’s an important next step to help tell the story of your life,” said Zuckerberg while introducing the features at the company’s annual F8 conference for developers on September 22. During the conference, Zuckerberg described the changes as an effort to “rethink some industries.” Yet the implications of such developments are larger than is immediately apparent; Facebook is essentially trying to alter the way people find content online, which is the market currently dominated by Google.

Facebook has already shown that it can maintain profitable alliances, such as its partnership with Zynga, maker of the popular online game Farmville, which has been immensely lucrative for both parties. Music analysts claim that the new Facebook developments could improve prospects for new media companies like Spotify, a Swedish-founded music service that offers music streaming from a wide range of major and independent record labels. Netflix also seems to think that a partnership with Facebook could provide a much needed financial pick-me-up after a wave of subscription cancellations following this summer’s price hikes on their most popular plans, and wants to allow subscribers to stream its video on Facebook.

However, the Video Privacy Protection Act, which prohibits the release of information about what movies a person is renting, would need to be amended before such integration could take place.“Facebook wants to be omnipresent in the Web experience by adding commerce, video and mail to their early successes with news feeds and picture tagging,” Jodee Rich, the founder of People Browser, a San Francisco based high-tech social analytics company told the New York Times. “Trying to be all things to all people was the undoing of Microsoft and AOL. If Facebook continues to overreach, they will stumble.”

However, the downfall of Facebook doesn’t seem particularly imminent, especially considering eMarketer’s prediction that the company will double its worldwide ad revenues by the end of 2011, taking in approximately $3.8 billion. With a projected $1 billion increase from last year in additional online display revenues in the U.S. alone, Facebook is expected to see a larger growth in domestic ad revenues this year than is predicted for Yahoo!, AOL, Microsoft, and Google combined. Although it is doubtful that Facebook will catch up to Google’s advertising profits anytime soon, David Hallerman, a principal analyst at eMarketer says “It’s not hard to see the online ad market turning into a duopoly, with Google and Facebook becoming the two prime choices for ad spending – separate but near equals.”

Erica Schwiegershausen B’13 misses Jeeves.