Press ReleaseBlog Post

Google Polishes Competition Charm Offensive

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Wed, Jun 10, 2009 at 4:35 pm

    SAN FRANCISCO, CA — Google continued to lay the groundwork Wednesday for
    an antitrust defense in the event that the federal government decides
    to take a formal look at its core business.

    U.S. regulators have been scrutinized parts of the company in recent months, probing topics such as Google CEO Eric Schmidt’s role on Apple’s board of directors and Google’s proposed settlement with book publishers on Google Books. In that vein, the company one month ago kicked off an effort to burnish its image,
    calling on the press, members of Congress, ad agencies, and publishers
    to convince them that when it comes to its overall business, Google is
    a not a threat.

    Inside a conference room in Google’s San Francisco office,
    executives ran through essentially the same presentation leaked last
    month by the consumer activist group Consumer Watchdog,
    focusing most of their efforts on trying to paint a picture of Google
    as just one part of a large Internet ecosystem, as opposed to a
    dominant search giant.

    "We do have to win users back on a regular basis," said Dana Wagner,
    senior competition counsel at Google. "We want to be the next Google;
    we’re not done with search."

    Even though its name is widely used as a verb to describe "Internet
    search," Google argued that it faces competition from places like
    Amazon and eBay, where potential customers also search for information
    about a product. It likewise compared its earnings data–revenues,
    profits, and lobbying budget–to some of America’s largest technology
    companies, such as Microsoft, AT&T, Verizon, and IBM, with far more
    resources than Google.

    Executives also noted that Google competes for advertising dollars
    against essentially the entire world. Television, newspapers,
    magazines, billboards, and other Internet companies all want
    advertising dollars too, and Google’s share of the total ad revenue
    market is just 3 percent, said Peter Greenberger, industry relations
    manager. Its share of the total Internet ad revenue is 30 percent, the
    largest single piece of that pie.

    These are all clear signs that Google would attempt to paint the
    relevant market in any antitrust case it may face in the future as
    extremely broad. That’s one of the first battlegrounds in which lawyers
    for Google and the Justice Department would face off, and really a key
    part of any antitrust case.

    Several years ago, enterprise software-maker Oracle successfully made a similar argument
    in an antitrust fight over the eventual acquisition of rival
    PeopleSoft. While Justice lawyers attempted to narrowly define the
    market for software suites intended for multinational corporations,
    Oracle argued that the Web and upstart competitors made such a narrow
    definition impossible.

    There’s little question of Google’s dominance in search. Its share of the search market is around 64 percent,
    and its revenue share of search advertising is higher, in the high 60s
    or low 70s, a Google representative estimated. Microsoft is making a
    renewed commitment to competing against Google in search that might
    have already paid off in the form of a point or two of market share gain, but that only gives it 11.1 percent.

    So there’s a question how tough the competition really is. Some wonder if Yahoo, the distant second in search, is willing to take on Google in its back yard under new CEO Carol Bartz.

    Another point made by Google is that competitive search providers on
    the Internet "are just a click away," a phrase that has been repeated
    ad nauseum by Google executives since its goodwill tour began in May.
    It resonates because it’s true: anyone dissatisfied with their search
    results can easily type or into their browsers,
    something Microsoft is counting on with its huge ad campaign around
    Bing. Unlike desktop software or corporate applications, there’s little
    "lock-in" on a search engine.

    However, any scrutiny on this score is likely to center around
    competition in search advertising, not search queries, as was the case
    last year when Yahoo and Google got within hours of finalizing a deal
    to let Google’s AdSense technology place ads on Yahoo’s sites before
    Google backed out over concern the Justice Department would scuttle the

    Wagner insisted that the potential Yahoo deal "had nothing
    to do with search. It was an advertising partnership." Google backed
    out of the deal because it realized it would have to take on a very
    public fight with a government agency to make the deal happen, and it
    was worried about the effect on its brand should it go down that road,
    he said.

    That comes to one of the core parts of Google’s argument: the company
    is trying to make the case that because of its principles and
    philosophies, it can be trusted to do the right thing despite its
    position in the market.

    "If there was ever a situation in which Google had a legal fight with
    an agency, it’s because we were doing something that was good for our
    users and good for the economy," Wagner said. "There’s a lot of
    companies for which I wouldn’t do this job. I would not be doing this
    at Halliburton."

    The Justice Department may not buy that line of thinking. The new assistant attorney general for antitrust, Christine Varney, was quoted last year as saying,
    "I think we’re going to continually to see a problem, potentially, with
    Google, who I think so far has acquired a monopoly in Internet online
    advertising lawfully."

    Now, in the very next sentence, Varney
    was careful to note: "I do not think they have done anything other than
    be a spectacular, innovative company." Nonetheless, there’s a reason
    why Google is on a charm offensive.

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