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Need to Know: Technology

The Juggernaut

Competitors say that Google is a monopoly. In fact, it may be more like a conglomerate.

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Omnipresent: Read all about it.(JUSTIN SULLIVAN/GETTY IMAGES)

As the Federal Trade Commission begins investigating Google’s business practices, people have been comparing the Internet giant to Microsoft, the industry’s last great antitrust offender. After all, they both were scrappy start-ups that grew into global behemoths with regulatory problems. It’s “eerily similar,” Gary Reback, a lawyer who helped build the body of complaints against Microsoft and who has consulted for companies bringing complaints against Google, told the San Francisco Chronicle this year. “Conduct is the same. [Government] response is the same.”

But even this grandiose analogy gets Google wrong. Microsoft was little more than the most powerful software company. During its heyday, its programs were on some 200 million machines, giving it the ability to muscle out competitors and ensure that Windows and Internet Explorer dominated the computing experience. For a time, rivals found it nearly impossible to break into Microsoft’s domain. But, in the end, the Justice Department filed a pedestrian—even textbook—suit against Microsoft for anticompetitive behavior.

 

Google, by contrast, bestrides many sectors, from advertising to software to telephony. Its critics have leveled much broader accusations at it than they ever lobbed at Microsoft, thanks to Google’s role as a gatekeeper for 2.1 billion netizens. It fields more than a billion searches a day and aims “to organize the world’s information.” Critics charge that the company uses its search dominance to make competitors invisible on the Web, effectively shaping what users can access online. “Microsoft’s power was intra-industry; Google’s power is shaping what’s happening to other industries,” former Intel CEO Andy Grove has said. Google isn’t just the most powerful Internet company today—it is one of the most powerful companies ever. And that means a headache for regulators trying to figure out what to do about it.

In the United States, Google controls more than 65 percent of the search market, making a favorable ranking crucial to a company’s online presence. But in recent years, federal regulators have heard a raft of complaints that Google manipulates results to its advantage. Search engine Foundem says that the company “excluded all of its content from Google’s search results” in an attempt to sink a challenger. Others say that without better disclosure about Google’s secret search algorithm, it could be giving its business partners the most favorable rankings. And by expanding into so many different fields—photo archiving, social networking, data storage, word processing, streaming video—it has positioned itself to batter a huge range of tech companies.

Google denies tinkering with its search results, and it blames opponents like Microsoft for funding complaints. But the charges have focused the minds of government officials around the world. Besides the FTC, the Senate Judiciary’s Antitrust Subcommittee has summoned Google Chairman Eric Schmidt to a hearing this year, and the European Commission opened an inquiry last year to determine whether Google has “abused a dominant position in online search.” Their findings could open the door to the first-ever regulations in the search market.

 

That industry-altering possibility could be much more radical than the traditional antitrust penalties levied on Microsoft in 2001. Tim Wu, the author of The Master Switch, a history of communications, argues that the best comparison for Google is not Microsoft but AT&T. In much the same way that callers used to ask the operator “for your party by name (‘Connect me to Ford Motors, please’),” Google does the same online, Wu writes in his book. “However many good things the Internet has to offer, it hardly matters if you can’t get to them.”

AT&T, of course, was broken up in 1984, but the Baby Bells it spawned still follow a byzantine set of regulations born of their past as a legal monopoly. Today, federal and local governments require phone companies to jump through hundreds of hoops just to get their technology on the telephone pole; to file lengthy disclosures to consumers and regulatory bodies; and to pay into a government fund reserved solely for telecom service. The regime has made telecom companies among the biggest spenders on regulatory relief in Washington.

Groups like Fairsearch.org, a fleet of Google competitors, now want Google to submit to similar oversight. Fairsearch wants “transparency and innovation in search verticals” and “enforcement of existing laws to prevent dominant companies” from tampering with the search results. Other rivals have gone a step further by calling for new regulations aimed directly at Google.

It’s a nightmare vision for Internet companies. “Our users tell us that Google makes their lives easier, saves them time, and gives them the answers they need,” a Google spokesman said. “So naturally we worry that governments dictating search results could make it harder for us to give people the answers they’re looking for.” Google launched an antiregulatory blitz this year aimed at proving search regulations unnecessary. It included meetings on Capitol Hill and at the regulatory agencies. The company says that users can always try another search engine if they want a different choice.

 

The FTC may ultimately see no unfair practices by Google. “Being big alone doesn’t violate a law,” says former FTC Policy Director David Balto, who notes that about only one in 10 commission probes finds anything amiss. At any rate, authorities can spend years investigating before they act. If they do, they may find that Google’s new brand of dominance confounds their traditional role as mere monopoly cops.

This article appears in the July 16, 2011 edition of National Journal Magazine.

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