The Problem with Google

By Daniel Spulber

Posted on March 16, 2010


Why is Google facing regulatory problems on three continents? Are they simply the victim of their success? Is Google just the target of competitors? Or is there some other explanation based on Google’s conduct? It depends critically on how you frame the issue. Frame it one way, and it is a series of unconnected issues. Framed somewhat differently based on antitrust and copyright, there is a common problem.

Consider the three issues. In the European Union, a preliminary antitrust investigation by the European Commission is looking into complaints about Google’s pricing in its online advertising auctions and about bias in the rankings of its search results. Google defends its pricing of advertising as based on advertiser bids. Google defends its search results as a simple “computer science” issue of designing an Internet search algorithm.

In the US, Google’s book settlement with publishers is coming under scrutiny. Among the issues raised by the book settlement are scanning of “orphan” books whose authors are difficult to locate and Google’s exclusive access rights to scanned content. Millions of authors are concerned about their intellectual property rights and compensation. Google defends the settlement as just making digital content more widely available.

In China, Google is threatening to exit the Chinese market based on government censorship of search results and concerns over hacking of the systems of Google and many other companies. A Google blog post avoids responsibility: “We launched in January 2006 in the belief that the benefits of increased access to information for people in China and a more open Internet outweighed our discomfort in agreeing to censor some results” (1/12/2010).

The point in common: Google is a content provider.

While this is fine in itself, the company wants to have it both ways. It benefits economically from the sale of access to content. However, the company portrays itself as a mirror – it just reflects what is there, whether it is Internet search, scanned books, or websites. But Google’s business model is much more than a simple reflection of third-party content.

As an Internet search provider, Google is an intermediary between its customers and its advertisers. The company is a broker in these economic transactions as it profits from sales. As I have written elsewhere, this means that the company is involved in a large share of economic transactions for goods and services (The Map of Commerce, Journal of Competition Law and Economics). Framed as a simple search engine, the order of the results does not matter that much. However, because Google is an intermediary in product markets it faces the same antitrust scrutiny about order bias that airline computer reservation systems (CRS) companies faced.

In books, Google is a dealer and publisher, rather than just a conduit for books in digital form. This also moves Google into the realm of goods and services where different considerations apply. If the settlement gives Google excessive market power as a book publisher, or looks like collusion among publishers, one can understand authors’ concerns for royalties and for their IP.

In China, Google is again a content provider, including news. If it operates in China, the company must abide by government censorship rules that apply to other media including radio, TV, and print, however distasteful are these restrictions on speech and the press. It cannot avoid bad publicity simply by pretending to be a neutral conduit for the content of others. Even in the US, it is unclear whether Google’s selection of news and content is unbiased.

In each case, Google seeks to avoid scrutiny by claiming to be in a different business.

The critical issue in any regulatory or antitrust debate always comes back to market definition. Google can avoid setting off alarms by accurately defining its markets and acting accordingly. The company is not just a conduit, it is a content provider.