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Saturday, June 25, 2011

Investigating Google 



The New York Times reports that the FTC is investigating Google's business practices:
Google confirmed on Friday that the Federal Trade Commission had opened an antitrust investigation into its core search and advertising business.

The inquiry has the potential to turn into the biggest showdown between the United States government and a major technology company since the Microsoft antitrust trial that began in the late 1990s.

In a regulatory filing, Google said that a day earlier it had “received a subpoena and a notice of civil investigative demand” from the commission. Google said that the agency’s investigation concerned its “business practices, including search and advertising.” In the brief filing, the company added, “Google is cooperating with the F.T.C. on this investigation.”
I think it is fair to say that Google knows how to play hardball in business as well as any technology enterprise (look at a few of the comments at the NYT link from past customers), and that the company's "Don't be evil" mantra was a pleasant enough saying in its early days, but whether it has reached the point of being anti-competitive in the search engine market will be challenging for the FTC to prove. How difficult is it for a user to switch search engines to Bing or a metasearch engine such as DogPile? If switching costs involve less than a minute of the user's time, it might be difficult for the government to demonstrate that harm has come to users or to advertisers/customers -- disgruntled advertisers have other options to hawk their online presence if Google hikes its rates.

There is a history of government investigations of technology companies -- AT&T (leading to its breakup into the "Baby Bells"), IBM, Microsoft, and now Google. Whatever your point of view or regulatory philosophy, a scan of the stock charts of AT&T, IBM and Microsoft around the times of the investigations (and in the years following) suggest that now might not be the time to invest fresh money into Google common stock. Naturally, there are many confounding factors influencing the performance of the companies and their stock prices, including the natural maturation of a high-growth business into a more steady-state model. A technology company has relatively more pressure on it to constantly innovate, and an FTC investigation and the resulting marginal increase in the cost of capital will not help the innovation process.

Of course, a more cynical view of the FTC investigation might be that it is a coordinated warning shot to the many highly liquid employees of Google as to where they might want to make their political contributions during the 2012 election cycle. Nice search engine and map thingy you have there, it'd be a shame if something happened to 'em...

4 Comments:

By Anonymous Anonymous, at Sat Jun 25, 03:21:00 PM:

Is this a dispute that major cash contributions to the Kenyan's reelection campaign might resolve?  

By Blogger Georgfelis, at Sun Jun 26, 01:17:00 PM:

In Democrat administrations, Business Success must be punished. In particular success where the Government has not had its benevolent hand involved.

If the Google execs had one bit of common sense, they would *not* feed the tiger, hoping to be eaten last. Instead they would starve the tiger by chopping off all campaign donations to anybody with a (D) on their name, and any (R) that has even a flicker of the Class Warfare virus that seems to have infected the Democratic party beyond recovery.  

By Anonymous jhc, at Sun Jun 26, 09:44:00 PM:

I'm sure T.H. knows more about antitrust law than I. But aren't these cases always sort of ad hoc and after the fact? I mean: Is there a bright line or a published standard that a company can use to determine beforehand whether certain actions (or results) will cause an antitrust suit against it?

My impression is that if
(a) you're doing your best to grow your business (which is required for managers of publicly owned companies) and
(b) your company's so successful that it ends up with the large majority of the customers in its market,
then your company *may* be subject to violating antitrust regulations, as determined by bureaucrats.

If anyone can tell me whether I'm all wet or not, I'd be glad to know. At the moment, my take is that these suits are basically politically - not legally - motivated, even though the legal system is the vehicle involved.  

By Blogger Stack Trace, at Mon Jun 27, 02:24:00 PM:

You have misunderstood one key fact. People who use Google are not Google's customers. Google's customers are the people who pay Google to run ads.

Just like people who read newspapers are not the customers. The cost you pay to pick up a newspaper is there to make you feel like you are somehow in control of this transaction. The real cost was paid by advertisers. You, the reader, are the product, not a principle in the transaction.  

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