Google (GOOG) is facing a rising tide of discontent about its market dominance. Take the ongoing lawsuit over its effort to digitize millions of books. Google reached a tentative settlement with angry book authors and publishers earlier this year, but antitrust enforcers now are considering whether the agreement gives the search giant monopoly rights to commercialize a big chunk of that content.
Separately, advertisers are also up in arms. They say they have no bargaining power because Google controls so much Internet search ad real estate—more than 70%, according to the U.S. Justice Dept. And a lawsuit filed recently in New York complains that Google has used its market power to squash competition from rival search providers.
While companies can become monopolies in the U.S. without breaking any laws, titans like Google often find rivals and regulators banding together to rein them in. Google got a taste of that last November, when the Justice Dept. pressured it to abandon an ad tieup with Yahoo! (YHOO)
To head off further trouble, Google has launched a full-throttle public relations campaign that goes beyond just invoking its "don't be evil" mantra. Company officials are talking to advertisers, reporters, academics, and lawmakers to explain why, despite its commanding position, Google should be loved, not feared.
Part of what's prompting this charm offensive is the view within Google that Microsoft (MSFT) mishandled similar complaints a decade ago. The Justice Dept. sued Microsoft in 1998, claiming it abused its monopoly power to curb competition in operating systems and Internet browsers, and there was talk about busting up the company. Microsoft "didn't take its critics seriously enough," says Dana R. Wagner, Google's top in-house antitrust lawyer. "If you ignore people who are making policy decisions … you can pay a big price."
Nobody expects the Obama Administration to try to break up Google, but antitrust scrutiny will create challenges. "Here's a company that has been very successful, but how do they move forward?" asks Greg Sterling, an Internet analyst in San Francisco. "You're not going to fund your competitors; you're not going to stop pursuing your own interests. What do you do?"
Wagner, a former antitrust enforcer at the Justice Dept., says Google must explain itself better. And the heat is on. In a Feb. 17 complaint, TradeComet.com, operator of a business-to-business Web search site called SourceTool, alleges that Google attempted to "starve nascent competition" from other search sites. A central charge involves the very core of Google's and SourceTool's business model: the sale of keywords that trigger the display of ads, called sponsored links, when a consumer enters those terms. Initially, according to the complaint, TradeComet itself purchased hundreds of thousands of keywords from Google in order to drive traffic to the SourceTool site. But once Google determined TradeComet was a competitive threat, the complaint states, Google raised the price SourceTool had to pay for many keywords 100-fold (from 10¢ a word, for example, to $10). In a short time, TradeComet alleges, SourceTool lost 90% of its monthly traffic from Google and millions of dollars in revenue. Wagner said he can't comment on pending litigation other than to say, "We don't think there's merit to the TradeComet complaint."
Similarly, Google's effort to digitize books has triggered litigation. The proposed settlement would give Google control of a huge volume of so-called orphan books, for which the copyright holder isn't known. The Justice Dept. is concerned because Google alone gets immunity from copyright claims involving those works. Without such protection, no other company will compete with Google to commercially exploit this content, says Peter Brantley, a director at the Internet Archive, a San Francisco nonprofit that has its own book copying program.
In addition to commercializing the books themselves, Brantley notes, Google will be able to extract vast quantities of information through data mining and use it to develop other products. One possibility is an online encyclopedia that could compete with Wikipedia. Brantley's concern reflects a common fear that Google can leverage its monopoly position in one area to create new businesses. He and others say they have spoken to Justice Dept. antitrust attorneys about the proposed settlement and would like the government to oppose it. Wagner responds that Google's book-copying enterprise will produce big benefits for consumers, and he argues that anyone else who wants to do the same is free to strike their own legal deal on copyright. The proposed settlement has yet to be approved by the court, and the Justice Dept. declined to comment.
Wagner is right. Amazon.com (AMZN), Yahoo, or any other large rival is perfectly free to initiate its own book negotiations—although the hurdles are so high that hardly anyone expects them to do so. And for most other criticisms, Google has well-honed replies at the ready. Is the company too powerful on the Web? Well, as Google points out, that's one place where competition is always "just a click away." What about the monopoly in search? Google's dominance is overstated, Wagner claims. Many outfits that look at search traffic tend to focus on dedicated search engines. Wagner says they ignore the countless searches carried out every day on commercial sites such as Amazon, eBay (EBAY), Wikipedia, or iTunes (AAPL).
Still, Google is finding that nearly everything it does is now being scrutinized through the lens of competition. For example, a number of companies in the U.S. and Europe have objected to Google's policy of allowing advertisers to buy a competitor's brand name as a keyword. They claim this is a trademark violation, which Google denies. David Wood, a Brussels-based antitrust attorney, says Google can do this only because of its commanding market share. In effect, according to Wood, Google is telling brand owners how someone else can use their trademark. "It's just extraordinary," he says. Google's ability to do this could be regarded as abuse of its dominant market position, says Wood, who serves as counsel to European media trade group ICOMP (Initiative for a Competitive Online Marketplace), which objects to the practice. ICOMP was founded by, and is funded by, Microsoft, a chief Google rival.
More Scrutiny Is Inevitable
Even the trove of data Google collects on those who use its search, e-mail, and other products can become an antitrust issue. As Google's market share grows, privacy advocates say, would-be rivals who might compete by keeping users' personal data more secure are pushed out of the picture. It was on this basis two years ago, when the Federal Trade Commission reviewed Google's acquisition of Internet ad agency DoubleClick, that FTC Commissioner Pamela Jones Harbor said privacy concerns should be part of an antitrust analysis.
While the FTC approved the DoubleClick deal, it drew far more regulatory attention than Google had expected—leading to the new outreach campaign. "We know that as we grow to a certain size, it's just inevitable that we're going to get more questions from regulators, we're going to have more scrutiny," says spokesman Adam Kovacevich. "Some of that, of course, is fed by competitors, but we know we have to have good answers to these questions."