Putting Internet giant under the lens
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.