Randy Picker Discusses "The Power of Google: Serving Consumers or Threatening Competition?"

By Randal Picker

Posted on September 19, 2011


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On Wednesday, the Senate Judiciary committee is conducting a hearing on what it calls "The Power of Google: Serving Consumers or Threatening Competition?" Eric Schmidt, Google's executive chairman, gets his own panel--presumably he will take the serving consumers view--while the second panel consists of Jeff Katz, the CEO of Nextag; Jeremy Stoppelman, Yelp!'s CEO and two former government antitrust hands now on opposite sides of the issue, Thomas Barnett (anti-Google) and Susan Creighton (pro-Google). NexTag is a comparison shopping site, while Yelp! offers user-generated reviews of local services.
 
NexTag's ranking in Google's organic search results has moved around over time as Google has retuned its algorithm. Google runs a product search line that competes with NexTag and the Senate hearing will undoubtedly seek to pin down to what extent changes to the algorithm driven by Google efforts to promote its own businesses. That is a factual question initially and then a broader inquiry into the appropriate limits of vertical integration.
 
Google has had a much more complicated and public relationship with Yelp!. Yelp! offers a version of local search. Who is a good dentist? Where should we eat tonight? Those are local search questions. If you live in Chicago, it doesn't help you very much to learn of a great dentist in Palo Alto. Yelp! had launched in 2004 to solve that problem. By late 2009, it appeared that Google might buy Yelp! for roughly a half a billion dollars. It was an understandable match: Yelp! had an engaged user community and deep set of user reviews, while Google was then the market leader in general Internet search. Google had launched its own Google Local offering in March, 2004 but that was just another cut, one tied to geography, on Google's index and not the sort of new user reviews that Yelp! encouraged.
 
With the Yelp! deal dead, Google needed a different approach on user reviews of local businesses. In September, 2009, Google had launched its place pages for Google Maps. This was a way to try to leverage its position in mapping into local reviews. By April, 2010, the product had morphed into Google Places, a much more Yelp!-like offering. And barely three months later, TechCrunch was reporting that Google was scraping content from Yelp! to populate Places. Yelp! had the reviews already, they were available to the public, and Google copied them into Places.
 
The Senate hearing will undoubtedly look into this episode. Yelp! will claim a violation of its terms of service (TOS) and a broader version of unfair competition. It will be interesting to see how Google defends. Will Google acknowledge error or will they offer a more sophisticated defense? Yelp! doesn't want competition from Google and so will craft a TOS to try to limit that competition. That isn't necessarily in the interest of consumers who want robust competition and Google's scraping helped to foster that competition by lowering the switching costs of moving from one site to another. And the reviews, after all, were created by the users, not by Yelp!.
 
If you are an antitrust maven, Wednesday's hearing should make for great theater.   
 

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