Putting In­ter­net gi­ant un­der the lens

The Washington Times Weekly - - Commentary -

The Se­nate sub­com­mit­tee on an­titrust, com­pe­ti­tion pol­icy and consumer rights held a hear­ing Sept. 21 fo­cused on the mar­ket power — and po­ten­tial mar­ket abuse — of the In­ter­net search gi­ant Google. While an­titrust en­force­ment rightly fo­cuses on consumer harm, sub­com­mit­tee mem­bers also should care­fully ex­am­ine the im­pact of Google’s op­er­a­tions on Amer­ica’s small busi­nesses.

For small busi­nesses across the in­dus­try spec­trum, the In­ter­net has been trans­for­ma­tive, en­abling them to com­pete against larger play­ers by eas­ily reach­ing and serv­ing cus­tomers. This reach, in turn, pro­vides more consumer choice in the mar­ket­place. For many small busi­nesses, a com­pany web­site and online pro­mo­tion are the most im­por­tant tools for ac­quir­ing new cus­tomers.

But how are small busi­nesses found on the In­ter­net? What are their choices for ad­ver­tis­ing online? The an­swers to these ques­tions all lead to Google, which es­sen­tially has be­come the fun­da­men­tal gate­keeper of the In­ter­net.

In the United States, Google holds ap­prox­i­mately a 70 per­cent mar­ket share for searches. Google is even more dom­i­nant on mo­bile de­vices, with about a 98 per­cent mar­ket share. When you want, for in­stance, to find a nearby dry cleaner, plan a trip or re­search the best auto-re­pair shop, chances are that Google will de­liver this in­for­ma­tion for you. If you hap­pen to own a dry clean­ing store, a bed-and­break­fast or auto re­pair shop — or oper­ate any type of firm — you are likely ex­posed to Google’s busi­ness prac­tices, search rank­ings and ad­ver­tis­ing prices.

Should the vul­ner­a­bil­ity of busi­nesses to Google’s dom­i­nance au­to­mat­i­cally in­vite govern­ment ac­tion in the online mar­ket­place? Ab­so­lutely not. No one — in­clud­ing small busi­nesses — wants to see a suc­cess­ful com­pany reg­u­lated ar­bi­trar­ily for its suc­cess. If Google has fairly ac­quired its mo­nop­oly in search and search ad­ver­tis­ing, and if Google uses its mar­ket power fairly and eq­ui­tably, govern­ment ac­tion against the search gi­ant is not needed.

But at the very least, le­gal scrutiny of Google is war­ranted be­cause there are in­di­ca­tions that the com­pany has en­gaged in un­fair busi­ness prac­tices that thwart com­pe­ti­tion. By its own ad­mis­sion — re­flected in set­tle­ments with govern­ment agen­cies and in pub­lic state­ments — Google al­ready has en­gaged in nu­mer­ous counts of wrong­do­ing. For ex­am­ple:

Last month, Google agreed to for­feit $500 mil­lion in ill-got­ten rev­enue as part of a set­tle­ment with the Depart­ment of Jus­tice aris­ing from a crim­i­nal in­ves­ti­ga­tion of Google’s pro­mo­tion of il­le­gal phar­ma­ceu­ti­cal sales that, ac­cord­ing to Deputy At­tor­ney Gen­eral James M. Cole, “put at risk the health and safety of Amer­i­can con­sumers.” It is worth not­ing that Google’s prac­tice of sup­port­ing the op­er­a­tions of il­le­gal Cana­dian phar­ma­cies un­der­cut the le­git­i­mate busi­ness of U.S. phar­ma­cies.

In March, U.S. Judge Denny Chin re­jected the Google Books set­tle­ment, which “would give Google a de facto mo­nop­oly over un­claimed [copy­righted] works.”

He de­ter­mined that the pro­posed set­tle­ment was “not fair, ad­e­quate, and rea­son­able” and that “[only] Google has en­gaged in the copy­ing of books en masse with­out copy­right per­mis­sion.” Again, Google was found to have vi­o­lated U.S. law to ex­tend its mar­ket power — to the dis­ad­van­tage of other busi­nesses in that mar­ket­place.

Sev­eral niche com­peti­tors to Google have claimed that Google has un­fairly low­ered search rank­ings, driven up ad­ver­tis­ing costs or used pres­sure tac­tics to thwart com­pe­ti­tion. For in­stance, a small busi­ness called Sky­hook, which de­vel­ops a geo­graph­i­cal po­si­tion­ing sys­tem based on WiFi hot spots, al­leges that Google pres­sured Mo­torola to keep Sky­hook’s tech­nol­ogy off mo­bile phones run­ning Google’s Android op­er­at­ing sys­tem. (Since Sky­hook filed its law­suit, Google has pro­posed to ac­quire Mo­torola Mo­bil­ity for $12.5 bil­lion.)

Com­pa­nies must ac­count for Google — and of­ten do busi­ness with Google — be­cause there are not mean­ing­ful al­ter­na­tives in the mar­ket­place. Sim­i­larly, online con­sumers can­not es­cape Google’s reach — and Google has vi­o­lated consumer trust on nu­mer­ous oc­ca­sions. For ex­am­ple, ear­lier this year, the Fed­eral Trade Com­mis­sion (FTC) de­ter­mined that Google had “used de­cep­tive tac­tics and vi­o­lated its own pri­vacy prom­ises to con­sumers when it launched its so­cial net­work, Google Buzz.”

Google’s past prac­tices in­di­cate an on­go­ing pat­tern of ques­tion­able op­er­a­tions.

These prac­tices may ex­tend to an­titrust vi­o­la­tions that un­der­mine com­pet­i­tive busi­nesses, ar­ti­fi­cially in­flate costs and, ul­ti­mately, limit consumer choice. The Se­nate an­titrust sub­com­mit­tee hear­ing should have sought to shed light on whether Google plays fair in the mar­ket­places where it is per­va­sive.

As Sen. Mike Lee, Utah Repub­li­can and strong free-mar­ket cham­pion, wrote in call­ing for an over­sight hear­ing to ex­am­ine Google, “An­titrust en­force­ment is far prefer­able to the cre­ation of in­ef­fi­cient govern­ment reg­u­la­tion and bureau­cracy that could ham­per in­no­va­tion. . . .” Tar­geted govern­ment le­gal ac­tion against an ad­mired Amer­i­can com­pany should not be a com­mon or wel­come prac­tice but in this in­stance, it is nec­es­sary.

Karen Ker­ri­gan is pres­i­dent of the Small Busi­ness & En­trepreneur­ship Coun­cil.

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