Inside Google

Since April when Bloomberg News reported that the Federal Trade Commission was contemplating a full-blown antitrust investigation of Google, people who follow the Internet giant have been waiting for the other shoe to drop.

It did on Thursday with the report in the Wall Street Journal that the five-member Commission is about to serve Google with civil subpoenas — known as Civil Investigative Demands — about its business practices.

The European Union and the State of Texas are already investigating, but word of the FTC probe raises the issue to a new level of intensity.  It also makes it clear that millions of dollars spent on lobbying and the hobnobbing by Google executives at White House State Dinners will not prevent a long needed investigation.

And, it’s about time. No, actually, it’s past time for an investigation. Consumer Watchdog has been raising antitrust concerns about Google since  2009 when we called for the Justice Department to intervene and block  the proposed Google Books deal because it was anti-competitive.  DOJ did object and the settlement has stalled.

We raised objections to Google’s  acquisition of AdMob, the mobile advertising company, but by spring of 2010 we said that ad hoc investigations of acquisitions and deals were inadequate.  We asked the Justice Department to launch a broad antitrust action against Google seeking remedial action that could include breaking the Internet giant into separate companies. I wrote:

“Such action could include breaking Google Inc. into multiple separate companies or regulating it as a public utility. Google exerts monopoly power over Internet searches, controlling 70 percent of the U.S. market.  For most Americans – indeed, for most people in the world – Google is the gateway to the Internet. How it tweaks its proprietary search algorithms can ensure a business’s success or doom it to failure.”

In June last year we issued a report documenting how Google  has been using its dominant position in online search to muscle its way into other Internet businesses, ultimately limiting consumer choice.

Justice and the FTC share jurisdiction over antitrust enforcement. The two agencies usually alternate on signing off on proposed acquisitions.  The FTC approved the AdMob deal while Justice vetted and imposed condition’s on Google’s purchase of ITA Software.

Google would have us believe that “competition is one click away.” But Google has emerged as the dominant search engine with 70 percent of the market in the United States.  In some countries Google’s share tops 90 percent. Such monopoly power may be a natural result of “network effects.”  That is people discover a good search engine and so more people use it. As more people use it, the search it offers gets better drawing in even more people.  Soon it has monopoly power.

Simply being a monopoly is not illegal.  What is illegal is using the monopoly power to win an unfair competitive advantage in the marketplace.  I’m confident the FTC will find that is exactly what Google has been doing and will seek the necessary remedies to ensure competition and protect consumers. On the table as possible solutions — as I said a year ago — should be everything from breaking the company up to regulating it like a public utility.