Googleopoly darkens future of innovation

Fresh from a Justice Department rebuke to his attempted ad partnership with Yahoo, Google CEO Eric Schmidt tells us not to worry about his search behemoth: Competition, he assures us, “is just a click away.” Unfortunately, such competition is getting harder and harder to find.

Not content with supplying more than 70 percent of the text ads that appear on Web pages and search engines, Google attempted to gain effective control of almost all the rest through a proposed ad partnership with Yahoo. If the Justice Department had not recently blocked that proposed collusion, eight of the top 10 Web sites and more than 90 percent of the market would have depended on just one company — Google — for the advertising dollars that pay most of the bills on the Internet.

The idea that one company had designs on so much market control and another was happy to collude in the plan proves that Google is the latest and most dangerous high-tech monopolist. Antitrust enforcers are now watching closely, but so should the rest of us.

Let’s review: Competition is what makes markets work. It gives us better quality, more choice, lower prices and more innovation. Monopolies, by contrast, make all but a few economically worse off. But Google is not just about money. What’s at stake is whether the Internet will be a competitive marketplace or a Google monopoly. The Googleopoly now has the market power to pick Internet winners and losers and determine which Web sites get paid how much, no matter how large or small. Google is the Internet’s monolithic tollbooth, able to squeeze both buyers and sellers of advertising while punishing media already struggling to survive a shrinking Internet advertising market.

No one can deny the revolutionary contributions Google has made to the Internet since its origins in a Stanford dorm room 10 years ago. Yet, like any business that grows too big and powerful, Google has become full of itself, arguing that what’s good for Google is good for America. However, consumer groups and advertiser customers overwhelmingly disagree.

Opposition to the Google-Yahoo deal was strong: The Center for Digital Democracy and US Public Interest Research Group opposed the Google-Yahoo ad partnership. Industry groups including the Association of National Advertisers, The World Association of Newspapers, the World Federation of Advertisers and the International Advertising Association also told law enforcers to block the collusion. They, like the Justice Department, all agreed: Google simply has too much power to let it collude with even a marginalized competitor that has less than one third its market share.

Googlers assure us that anyone can start a search engine, but don’t fall for that one. What company wants to enter a market where the ante is prohibitive and the chance of success so remote? Each year, Google spends more than $2 billion on research and development and another $3 billion in capital. Google has hundreds of thousands more servers than any competitor, servers that churn endlessly to power Google’s search, advertising and software businesses. Google has three times the user audience and advertiser network of Yahoo, its biggest competitor, and more than six times its sole significant competitor, Microsoft. If Google’s leading competitors can’t supply enough advertising to satisfy most consumer searches, how could any search startup or smaller provider hope to compete with Google’s dominant scale and inventory?

Let’s get specific. Suppose that a consumer searched for “Pizza Fairfax Virginia,” or “Ford Taurus snow tires” on a smaller, competing service — there are no large ones, after all. That service would not likely have ads to closely match those searches. Nor would it have the vast database of previous matches to help consumers find exactly what they wanted on the rest of the result screen. Google, on the other hand, could almost surely provide specific ads targeted to that consumer’s search. In this case, the would-be buyer would abandon the “competition” to go back to Google. Such market dominance is a real barrier to entry that ensures that almost every advertising dollar lands in Google’s pocket.

The tech and Internet sector may be the U.S. economy’s greatest strength. To retain our competitive advantage in technology, compete globally, educate the next generation, and maintain an independent media necessary for our democracy, we need to maintain a competitive Internet. Googleopoly is already threatening American jobs, growth, productivity, democracy and the economic viability of the Fourth Estate. We must protect American competitiveness by ensuring increased competition in Internet search and advertising. Failing that, a lasting Internet monopoly may be just “just a click away.”

• Scott Cleland is president of Precursor LLC and chairman of Net Competition. org, a pro-competition forum funded by broadband companies.