Time to put Google under the microscope

“Mad Men” and politicians know that the well-turned phrase can be a game changer. During the debate on health care reform, for example, “death panel” stuck in the minds of millions and nearly won the day. Over the years, another phrase — “the government is picking winners” — is trotted out whenever a regulator takes a serious look at the alleged abuses of a technology company. 

There were no death panels, of course, and neither the Federal Trade Commission nor the U.S. Department of Justice in investigations of Microsoft, Intel, and now Google was attempting to pick winners. By repeating that phrase, the target companies and their paid (and unpaid) propagandists are trying, with some success, to define the terms of the debate in their favor.

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The FTC’s investigation into Google isn’t about how big it is, whether its technology is better than someone else’s, or whether it does evil. Being big, indeed being a monopoly or near-monopoly, is not a crime. What is a crime is the abuse of monopoly power to the extent that the free market is no longer free.

In the antitrust consent decree related to Internet Explorer, Microsoft wasn’t punished because it had a huge share of the operating system market, and Intel wasn’t singled out in an FTC antitrust investigation because it dominated the market for microprocessors. They were punished because they abused that power. (Intel agreed to a draconian settlement without admitting guilt.)

Similarly, Google isn’t being investigated because it dominates the market for search-related ads. Its rivals have made a case that it is abusing that power by cooking search results in favor of companies it does business with. That would be an abuse of its market power, if it turns out to be true, and is worth investigating.

Is Google guilty? I really don’t know. And who wouldn’t be suspicious when Microsoft (the linchpin of an anti-Google coalition called Fairsearch.org) points a finger at a rival and cries foul? But I do know that Google is as central to the technology industry today as Microsoft and Intel were in the 1990s. Sure, an investigation is costly and a nasty distraction for management. But both Intel and Microsoft are now doing just fine, thank you, and the technology market is arguably freer and better because of that scrutiny.

Are Google search results fair? In case you missed it, Google last week confirmed press reports that the FTC had opened an antitrust investigation into its core search and advertising business. In a blog post, Google said it wasn’t sure about the rationale for the commission’s concerns, but according to reports in the Wall Street Journal, it appears that the probe will ask if Google searches steer consumers to the company’s partners at the expense of competing businesses.

To get a sense of how that works, do a search for, say, “pizza in San Francisco” (substitute the name of your city for mine). You’ll notice that the top results include a map with red icons pointing to businesses that are part of the Google Places network. Other websites argue that by placing Google’s partners at the top of the page, their own listings, such as the ones for Yelp.com, are unfairly pushed down in search results. In that sense, they are claiming that Google is picking winners and losers in the broader, Web-driven economy.

This wouldn’t be an issue if there were lots of search engines around with competitive market shares. But in reality, there aren’t. Google’s share of search traffic has hovered around 60 percent for years, while its share of search advertising — an even more important metric — is about 73 percent.

The search giant says it does use its power fairly: “At Google, we’ve always focused on putting the user first,” wrote Amit Singhal, a Google fellow in a blog post. “No matter what you’re looking for — buying a movie ticket, finding the best burger nearby, or watching a royal wedding — we want to get you the information you want as quickly as possible. Sometimes the best result is a link to another website. Other times it’s a news article, sports score, stock quote, a video, or a map.”

If it turns out that Google is using its power fairly, it’s end of story and tough luck for the companies that can’t compete.

But there’s more to the investigations than the issue of Places, and this is hardly the only time Google has been investigated for alleged bad behavior. The United States has looked at its acquisitions, while the European Union is examining its search practices. But the current investigation is likely to be the most far-reaching and potentially significant.

What’s at stake for IT If you’re in IT, you may not care very much about search results for pizza restaurants. But advertising is what powers the Google innovation engine. Without those billions of dollars, there wouldn’t be an Android mobile platform, and Google Apps wouldn’t exist. Conversely, what about companies that don’t have that advertising clout? By unfairly (if that’s proven) losing out, that money is sucked away and their power to innovate is diminished.

The technology industry depends on interrelated ecosystems. A strong Google supports Android, which supports developers, device makers, carriers, chipmakers, and so on. Think back to the 1990s and remember what happened to the software ecosystem as Microsoft bullied and threatened and tied (products to Windows, that is) its way to dominance.

Now think about the Intel settlement. The FTC had charged that Intel used a series of threats and rewards to convince PC makers such as Dell, Hewlett-Packard, and IBM to avoid buying chips from the competition. I’ve covered the technology industry since the 1990s and over the years have heard that charge repeated (but never proven) by my sources many times.

According to the FTC, the tactics were designed to “put the brakes on superior competitive products” that threatened Intel’s monopoly. The complaint mentioned AMD’s Opteron server processors, released in 2003, as an example. Intel’s conduct, carried out over the past decade, resulted in higher prices and less choice for consumers, the FTC said.

As I noted, Intel never admitted it had done anything wrong. It did, however, agree not to offer discounts for manufacturers that use its chips exclusively or punish those who don’t. Among other provisions, it revised its intellectual property agreements with AMD, Nvidia, and Via Technologies so that those companies can feel free to evaluate mergers or joint ventures with other businesses without fear of being sued by Intel for patent infringement.

Is the industry poorer because of those provisions? I don’t think so. Intel isn’t poor either. It maintains a huge market share and is well rewarded for its innovations.

Then there’s Microsoft. The company was certainly subjected to a long and expensive ordeal, but in the end it has continued to thrive (at least financially), and the industry is much better off because of the pressure it was subjected to. Imagine a world in which the only browser that would run well on Windows was IE. That’s where we’d be today if the government hadn’t intervened.

Still hate the notion of antitrust? Imagine a world in which AT&T was never broken up; we’d still be using rotary-dial phones that we were forced to rent from Ma Bell.

If Microsoft, as many believe, is no longer an innovator, that’s not because the government picked a winner, but because it was out-innovated by competitors in the fair and competitive technology market.

We’ll see what happens with the probe of Google. But scrutiny is never a bad thing. And don’t believe the bozos whining about picking winners. That’s not what this is about.

I welcome your comments, tips, and suggestions. Post them here (post them here) so that all our readers can share them, or reach me at bill.snyder@sbcglobal.net. Follow me on Twitter at BSnyderSF.

This article, “Time to put Google under the microscope,” was originally published by InfoWorld.com. Read more of Bill Snyder’s Tech’s Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.