Google Monopoly
I have come to the conclusion that Google has evolved into what economists call a "natural monopoly".
When this situation occurs it is always cheaper for one large firm to supply the market than multiple smaller firms, In fact, absent government intervention such markets will naturally evolve into a monopoly. An early market entrant who takes advantage of the cost structure and can expand rapidly can exclude smaller firms from entering and can drive or buy out other firms. A natural monopoly suffers from the same inefficiencies as any other monopoly. Left to its own devices a profit seeking natural monopoly will produce where marginal revenue equals marginal costs. Regulation of natural monopolies is problematic.
This morning a Google competitor lays out some of the hard ball tactics of the "do no evil" company with 72% search market share.
One way that Google exploits this control is by imposing covert "penalties" that can strike legitimate and useful Web sites, removing them entirely from its search results or placing them so far down the rankings that they will in all likelihood never be found. For three years, my company's vertical search and price-comparison site, Foundem, was effectively "disappeared" from the Internet in this way.Another way that Google exploits its control is through preferential placement. With the introduction in 2007 of what it calls "universal search," Google began promoting its own services at or near the top of its search results, bypassing the algorithms it uses to rank the services of others. Google now favors its own price-comparison results for product queries, its own map results for geographic queries, its own news results for topical queries, and its own YouTube results for video queries. And Google's stated plans for universal search make it clear that this is only the beginning.
But the problem of the "natural monopoly" doesn't just affect start ups trying to enter Google's space. It affects every writer, singer, filmmaker and newspaper owner in the country. As Robert Thompson of the Wall Street Journal said, "Google devalues everything it touches. Google is great for Google but it's terrible for content providers." Rupert Murdoch has suggested that he could change this by selling his content only to Microsoft's Bing search engine and banning it from Google. This is a stupid idea and would only lead to the destruction of web utility.
So perhaps we have to look to the early 20th Century, when AT&T slowly consolidated control of the nation's telephone network. In a spooky parallel to Google's "universal search" initiative, AT&T announced in 1907 "One Policy, One System, Universal Service." This eventually led to the U.S. government regulation of the Bell System in 1919 as a natural monopoly. AT&T was allowed a set rate of return and had to invest much of its monopoly profits in Research and Development. Out of this flowed an epic torrent of creativity from Bell Labs leading to the invention of the transistor, solar cell, wireless telephony, the computer and hundreds of other inventions.
The FTC and the FCC have to begin examining Google's monopoly position on the web. "Do no evil" is just a marketing slogan, but the reality and market power of monopoly is always evil when left unregulated.
Disclosure: I own shares in a company that has a patent suit against Google.
Regulation of natural monopolies on the Internet gets pretty dicey. Kind of like with Microsoft -- while I understood the complaints of other browser manufacturers I have to say that I confused about how I as a user should feel about things -- so they didn't want to let Microsoft sell me an operating system with its browser installed? It's not like the OS price would drop without the browser so even if I didn't like it why would I not want it, essentially, for free?
Same with Google... I see what you're saying but at the same time Google is giving me all these greater services -- docs, wave, video, gmail, the search engine and yeah, every time I adopt one I guess I give into the Borg a bit but do I really want separate companies providing me each of those services when I get something seamless from Goog?
December 28, 2009 11:49 AM | Reply | Permalink
The problem with Google, as stated by the NYT article linked above and below, was not its free Gmail or other services but that in looking for information or purchasing an item its search engine may push to the top sites that kick back money to Google.
For instance, the site http://www.highbeam.com/ comes up on the first page of many of my Google searches for older news articles, offering me a free trial subscription to get a piece of news, while the same news is often available with no 'free trail' or paid subscription if I look hard enough down through the results.
At the same time Google book preview can often give you all you need in its limited preview of an expensive book, or it helps you find a library or a retailer if you need to buy the book.
I don't mind what the guy at www.foundem.com in his NYT editorial complained about, Google getting a tiny bit of revenue for steering searches for retail item searches to a given seller for 'the best price', that would seem a legitimate way to earn income for Google (if the Google linked price is too high I will find 'foundem.com' or another site without Google's help).
December 28, 2009 12:41 PM | Reply | Permalink
Thanks for the clarification. But I still wonder about this because, in the end, it's Google's credibility that's at stake. I've encountered Highbeam before as well and in many cases it seems to be a service that sells information that's freely available elsewhere. So you're right, there's something amiss with Highbeam showing up so high in Google searches. But if a newspaper did this -- basically only wrote stories about its advertisers we'd catch on cry foul and punish the paper, right? Seems like that's how we should respond -- a consumer revolt. So anyone know of a better less conflicted search engine? Would be happy to try it out.
December 28, 2009 12:53 PM | Reply | Permalink
Do you know for a fact that Google receives revenue from High Beam for any business sent its way via web searches, or are you just speculating? High Beam might just have better SEO than the other sites returned in those searches.
December 28, 2009 1:36 PM | Reply | Permalink
I said 'may' pay money to Google as I don't know.
The point being from the NYT piece that with a 'search monopoly' a 'pay to play', or get listed on the first page would seem a big temptation.
Right now the alternative is the case where I think Murdoch wants Google to pay him just to scan and list Murdoch Corp. news pages.
December 28, 2009 2:04 PM | Reply | Permalink
You can purchase search-result placement from Google. That is a fact.
I don't know if Highbeam is doing it, but if they are consistently at the top of all relevant key terms in a competitive industry ... it gets pretty difficult to swallow that they simply have the best tag-jockey in the business.
December 28, 2009 2:23 PM | Reply | Permalink
besides, I appreciate the High Beam results when searching, because I can get the necessary publishing information for a news article, and then go to my county library's website, and probably view the article for free without expending much effort searching their available databases (a very messy search).
December 28, 2009 1:40 PM | Reply | Permalink
In my experience, High Beam has functioned almost like an addition to Google. I.E., it has given me stuff that's not otherwise on google but which one might eventually be able to track down and get for free by going to the archives of a small newspaper, archives that google hasn't indexed. Other times I have been frustrated that I can't get it on the free anymore, that it has been excised from the original publication, but at least I know about it and can go to the library or other routes if I don't want to pay. Make of that what you will regarding any nefarious connection or not, just sayin'....
December 28, 2009 2:14 PM | Reply | Permalink
If they don't appear in any search results ... how exactly will you track 'foundem.com' down? Have you divined some way to know of the existence of web sites outside search engines?
That's the point. Google can effectively use their domination of search to make competitors in other areas of computing simply disappear (or any other industry for that matter, but for online services such a blackout is fatal). Consider that Google is pushing into PC OS space (Chrome), the mobile space (both with Android OS and now physical devices), navigational application space (competing with GPS manufacturers), Productivity application space, and many many other niche technology industries.
How big of a market advantage is it to have the ability to ensure 70% of internet users never see a competitor's product? They are poised to crush viable competition in several segments of technology. Google isn't a "natural" monopoly any more than MS was. In fact, Google is pretty much modeling the MS formula for creating a monopoly. It is very technical, very precise, and VERY intentional.
When a corporation successfully creates a platform, it creates a financial market. When said corporation then competes directly with users of that platform in the market they have created, there is a huge advantage for the platform owner to selectively identify the most lucrative uses their platform is being employed to service, and take over those streams of revenue by putting their competitors out of business. There is no way an entity who is subordinate to the decisions of the platform owner can ever compete on the same level when the platform owner holds the power to make a pubished code library "private" and knock all applications out of the market but their own ... or to make an online business that competes with GMail disappear behind 250,000 other random search hits. The fact that Google is consolidating these powers (and clearly has no qualms about employing them brutally) is truly chilling.
It's not just Google, this is SOP in the industry today. There is a fundamental lack of "layman" understanding of just how significant these issues are or the real negative impacts they have on competition and stagnation of innovation.
(Full disclosure, I currently develop applications on Google's Android platform).
December 28, 2009 2:12 PM | Reply | Permalink
We all found foundem without Google.
Some still read print magazines with their ads, and also there are web based reviews and web comments by users with links to new sites, and there are other search engines.
December 28, 2009 2:17 PM | Reply | Permalink
70% market control dude ... you and I are talking apples and oranges here.
Print ads and blog comments?!?!? Seriously? You expect someone to build a successful online business this way? Don't hold your breath hoping for investors, that's all I've got to say.
December 28, 2009 2:34 PM | Reply | Permalink
OK, I didn't suggest you would be the next Amazon.com with my plan.
There is always AMWAY for the true entrepreneur.
December 28, 2009 7:36 PM | Reply | Permalink
Oooh, now you are giving be bad childhood flashbacks to filling little sample baggies with laundry detergent. :-(
Next you'll bring back the Tupperware nightmares!
December 28, 2009 8:00 PM | Reply | Permalink
Also, you think "we all" discovered "foundem.com"? *IF* you knew of them before this, I would be willing to bet you are among a very small handful.
The vast majority of people use what pops up on their browser. Period.
December 28, 2009 2:38 PM | Reply | Permalink
I still do not see any evidence that Google acted willfully and maliciously towards Foundem. Look at foundem.co.uk at The Internet Archives. Just one entry for all of 2005 and 2006. That is a strong indicator that nothing was being done in the way of updates on the site.
Look at foundem's Clickstream data at Alexa. They get most of their inbound hits from Google.co.uk. Ooh, that evil doer Google...lol...
It looks to me that Foundem was getting its butt kicked in web search results deservedly. Besides, why would Google give a rat's ass about a small backwater vertical search site out of the UK anyway?
December 28, 2009 3:11 PM | Reply | Permalink
Amusing update: At Foundem, there is a link to the site, searchneutrality.org. The listed Registrant for both of these sites is Adam Raff.
At searchneutrality.org there is a webpage where they admit that Foundem violated Google's website policies and got penalised for it. Foundem got sandboxed by Google for bad acts, and now they whine about it? lol...
December 28, 2009 3:28 PM | Reply | Permalink
From your link ....
In this instance the policy that was violated is simply "Don't be a competitor to Google.". This policy is programmed in to their engine - ANY company who tries to do vertical search is automatically "penalized". Doesn't this just make the point in a brutally in-your-face way?
December 28, 2009 3:48 PM | Reply | Permalink
You are simply accepting what this person alleges as fact, even though he is not honest enough to divulge that he is the registrant of both sites?
December 28, 2009 6:00 PM | Reply | Permalink
Ummm, this is the link YOU provided with a conclusion that Foundem admitted violating google's policies - therefore were reaping the reward of their own misdeeds. I simply highlighted the "violation" that they "admitted" to.
Now, go look at the top of the searchneutrality.com site. You will see a little logo ... over there on the right hand side ... that says "a Foundem initiative". I'm no English major, but to me that means the searchneutrality site is plainly and clearly advertising that it was created as an initiative of "Foundem". Surely you aren't saying they should put the personal name of the guy who handles their domain registrations on the web sites? I don't get your beef here.
According to the account given, a senior Google AdWords representative has not only acknowledged the existence of the algorithm, but also advocated to get the foundit "whitelisted". This ultimately occurred and their AdWords are now fully functional (But only adWords - which makes sense, as Google also makes money). This is a precisely specific narrative that alleges detailed actions by a Google employee. To the point where if it were not accurate, Google would indeed have a legal justification to demand it be taken down (an action they have not been shy to take in the past). This has not occurred.
It is a far sight easier to believe a company with a seemingly solid reputation is providing an accurate narrative under their own trademark than to believe that they are lying without a single piece of evidence to support the idea other than that a blog commenter doesn't want to believe what they say.
December 28, 2009 7:37 PM | Reply | Permalink
None of the other search engines come close to Goggles effectiveness and seem unable to provide tweaks that might make them more user friendly. What bugs me about Goggle is their CEO having no problem with data mining and zealous cooperation with NSA and FBI in seeking out evil doers, as defined by Google, NSA and FBI.
The legal evisceration that dismantled AT&T fell apart in subsequent Corporate friendly Administrations and Congress until Bell South reconstituted itself as AT&T. While not being a monopoly in the standard sense, still has astrong competitive advantage.
December 28, 2009 12:58 PM | Reply | Permalink
Kind of makes you wonder about all those people signing up to put full transcriptions of every voice conversation they have on Google's servers, eh?
AT&T is certainly in a market dominant position - they are able to leverage control of the backbone fiber circuits. What AT&T hasn't done is reestablish dominance of the LEC. Before the breakup, Bell owned the backbone and used that to make it impossible for any other company to provide to-the-house telephone service (if there's no transport, your phone call won't go anywhere). So in that regard, the major issue MaBell was dismantled to address (with a nod to telephony hardware here) has not manifested in the new AT&T.
December 28, 2009 3:11 PM | Reply | Permalink
December 28, 2009 1:30 PM | Reply | Permalink
...agree, I don't think foundem disappearing proves anything, if Google gets too commercial people will go elsewhere.
December 28, 2009 2:14 PM | Reply | Permalink
You guys are too funny. Google has 85% world market share - just go somewhere else? (China's Baidu has 3%, Yahoo has 6% and falling, Bing has 3%. Sure, just go somewhere else. Like Mars.)
A guy complains about Google targeting his search and you just assume he hasn't figured out SEO? Right, Google would never engage in unfair practices even though you have no idea how they weight search returns.
December 28, 2009 3:04 PM | Reply | Permalink
Show me the evidence, ok? Google definitely has the power to do this, but every time I have ever investigated claims of this nature, I have found that the site was to blame, not Google. I believe this is the case for Foundem also. Look at what I've posted in this thread. Foundem played games that were in violation of Google's website policies, and got sandboxed for it. They have no right to whine about it.
Sergey Brin is everywhere...
December 28, 2009 3:32 PM | Reply | Permalink
Can you give an example of a site you investigated and the methodology you used to make this determination?
December 28, 2009 3:35 PM | Reply | Permalink
First rule: Trust the Monopoly
December 29, 2009 2:39 AM | Reply | Permalink
There's always magazine ads! You should see the Apple fanboys sputter when someone dares question an action of "The Jobs" ... this is nothing.
Is Google really up to 85% now?
December 28, 2009 3:34 PM | Reply | Permalink
http://gs.statcounter.com/#search_engine-ww-monthly-200812-200912
http://marketshare.hitslink.com/search-engine-market-share.aspx?qprid=5
Looks that way.
December 29, 2009 2:38 AM | Reply | Permalink
if only google web search results included more results from vertical search engines and indexes...
whatthefuckever.
google does plenty of evil but sandboxing foundem isn't particularly high on the list (if it belongs there at all).
seems to me that sandboxing sites like foundem has less to do with their being potential competitors for ad revenue than it has to do with returning better results for google users.
December 28, 2009 5:02 PM | Reply | Permalink
And Microsoft bundling Internet Explorer is just trying to enhance the user's experience.
Have another sip.
December 29, 2009 2:44 AM | Reply | Permalink
There are a number of reasons to check out what Google is doing with our personal data, but calling it a monopoly or even a natural monopoly? Hang on.
In Economics, Natural monopolies are usually referring to things like a sewer system, a utility or the US military. They are things that would be difficult to allow multiple players in to offer the good or service. How many sewer lines can you have going down the road under main street?
Google is a take it or leave it service. We can walk away from it.
It is ironic that one of the so called victims of this so called monopoly would be microsoft who 10 years ago was the monopoly. They might still hold a huge chunk of the brwoser market, but not as big as one would imagine when you consider the number of interfaces and screens that deliver data when not on a PC, i.e. cell phones.
I attended a seminar in the 90s that asked questions about Net neutrality and the amount of government control over the internet. A strange phenomenon arose where a two dimensional political perspective emerged as opposed to a typical right-left spectrum. If you imagine a quadrant, the Libertarian, small government conservatives sided with left wing, open source, free speech hippies that wanted government to stay out of the internet,...but on the other side were center right business interests that sided with center left technocrats that saw it as the wild west that needed some "fixing up" and some regulation to make it "fair and organized and civilized", so to speak. It made for some odd conversations amongst strange bedfellows.
Google does not fit a number of qualifications for monopoly, but regarding oversight, there may be a need for them to divulge more fully what they are doing behind closed doors with the personal data of our lives.
Before we go tearing down Google HQ, remember it is generally accepted that the anti-trust case against Microsoft was one of the triggers that set off the dot com bubble burst that led to the recession of 2000. Let's be careful here before we go in with guns blazing.
December 29, 2009 3:11 AM | Reply | Permalink
You're joking, right? Microsoft 1998 had a monopoly on the OS and office software. Sure, you could walk away from it and use Linux or Apple and crash and burn. You could also have walked away from oil from Standard 100 years ago. No one makes you use oil. No one really needs to search. Can't be a monopoly.
December 29, 2009 11:48 AM | Reply | Permalink
The Clinton war on MS did more damage to the nation than it did any good. One lesson learned by the software industry was the amount of budget they invest in lawyers and lobbyists. Prior to the case MS had two lobbyists, afterward they had 50. The costs of lawyers and lobbyists adds to the cost of all software to the consumer.
Also, as I noted, the case is generally considered the trigger that set off the dot com bubble burst and the subsequent Recession that came at the end of Clinton's second term. For what its worth Eric Holder was one of the pointmen on the case.
Critics of the case argued that the case was unnecessary and the market would play out and remedy the situation itself and any heavy handed government intervention would do nothing but damage. I think history has proven them correct.
I don't necessarily like MS, and as far as your comparison, I "walk away" from them all the time. I rarely use MS products, but I was not one of the people screaming with pitchforks to see them burned at the stake.
If you need to do a search, go to Yahoo, Bing, Altavista or some other search engine. There are no APIs in the OS that make you go to Google. The barriers to entry and restrictions to the consumer are about as minimal as one could dream of. You don't like Google? Walk away.
Another interesting note, Bill Gates was so demonized at the time as the Bernie Madoff of his day, but as it turns out his charitable trust, which is his full time job now, is one of the most generous givers in world history.
December 29, 2009 3:17 PM | Reply | Permalink
Slashdot covering the same NYT article
December 29, 2009 3:58 AM | Reply | Permalink
When you ask a question and the answer is not impartial then whatever decision is made has been influenced and may not be in the best interest of who is asking the question.
Conceptually, this is precisely the same thing that goes on in all businesses and in our government. Where this really goes wrong is when there is a collective effort to channel queries to a single supposedly authoritative source which is naturally and quite obviously predisposed to a bias for some specific reason.
The nuances of language lend themselves to this and are very difficult to quantify. These nuances are an ever present part of the business and political landscape.
What happens over time as power is abused, as it always is, the idea of the nuanced answer morphs into outright lies. We have this all too often anymore and thus suffer a daily barrage of lies from all sides. In the end, objectivity simply disappears and the true answers which may once have been apparent dissolve in the confusion of lies. This all happens in the seeming blink of an eye with a few well chosen words to the unwary and uninformed.
December 29, 2009 6:21 AM | Reply | Permalink
December 29, 2009 10:23 PM | Reply | Permalink
Whoops, here:
http://www.youtube.com/watch?v=hrontojPWEE
December 29, 2009 10:24 PM | Reply | Permalink
I absolutely agree with TJKING that all this talk of natural monopoly is way overblown and at the very least woefully undersupported. It's fairly unhelpful to simply "come to the conclusion that Google has evolved into...a 'natural monopoly'"
First, it's worth clarifying that Google is not itself the monopoly in question; one has monopoly control over a market, and Google competes in many markets where it simply isn't dominant at all.
Second, assuming we're talking about the U.S. market for general web search results, Google may currently have a dominant market share, but to have the kind of monopoly that economists and antitrust law care about, you need strong barriers to entry, otherwise competitors will come in to take some of that evil surplus the monopolist is getting. Those barriers may or may not exist in web search; I think that's a hard question, and it certainly isn't answered here.
Third, to be a natural monopoly, those barriers to entry have to be an inherent, i.e. "natural," feature of the product. For instance, AT&T and other telecoms have historically been natural monopolies because the product is delivered through a pipe to your home, and there's really no economic sense in a competitor running another set of pipes to each and every house to provide the same product. This logic applies even better to power and water, which is why those are still true monopolies and telecoms may be losing some of their barriers as their products evolve towards wireless. To claim the web search market is really a natural monopoly, you have to tell me a story, not just about how the product is just too big and hard for another company to provide, but also why we wouldn't even want another company to do it, because it would be a huge waste of resources. I think it may eventually be possible to tell that story about Google's indexing infrastructure, but I don't think we're there yet at all.
At the end of the day, monopolies aren't illegal in the U.S.; monopolization is. So let's worry about it when Google starts tying their monopoly OS to a web browser like MS did, i.e. maybe when ChromeOS gets 90% of the market...
December 30, 2009 3:44 PM | Reply | Permalink
If you can't corner the market, you don't have a business plan. You have a job.
December 31, 2009 7:53 AM | Reply | Permalink
Though it may not have a lot to do with the bulk of your post, the explanation of "natural monopoly" actually made me think of two things, which have popped-up over the past month.
1) The City of New York is in discussions with Google to digitize their collection of historic tax photos and make them available online.
2) And, there's a somewhat "grassroots" movement to purchase federally-produced, public-domain videos from a public/private publishing partnership and upload them to YouTube.
Signed,
Vulnerable Dude, who gets a lot of stuff from Google
January 1, 2010 4:36 AM | Reply | Permalink
Google knows what they are doing, user trackers, link tracking, ip address watching... it is all about what the user wants. it is all about us! that is good business if you ask me.
July 13, 2010 2:40 AM | Reply | Permalink
Google knows what they are doing, user trackers, link tracking, ip address watching... it is all about what the user wants. it is all about us! that is good business if you ask me.
July 13, 2010 2:41 AM | Reply | Permalink
Google knows what they are doing, user trackers, link tracking, ip address watching... it is all about what the user wants. it is all about us! that is good business if you ask me.
July 13, 2010 2:42 AM | Reply | Permalink
Google knows what they are doing, user trackers, link tracking, ip address watching... it is all about what the user wants. it is all about us! that is good business if you ask me.
Link Tracking
July 13, 2010 2:45 AM | Reply | Permalink
smaller firms, In fact, absent government intervention such markets will naturally evolve into a monopoly. An early market entrant who takes advantage of the cost structure and can expand rapidly c
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