The market realities that undermine the antitrust case against Google
As the Google antitrust discussion heats up on its way toward some culmination at the FTC, I thought it would be helpful to address some of the major issues raised in the case by taking a look at what’s going on in the market(s) in which Google operates. To this end, I have penned a lengthy document — The Market Realities that Undermine the Antitrust Case Against Google — highlighting some of the most salient aspects of current market conditions and explaining how they fit into the putative antitrust case against Google.
While not dispositive, these “realities on the ground” do strongly challenge the logic and thus the relevance of many of the claims put forth by Google’s critics. The case against Google rests on certain assumptions about how the markets in which it operates function. But these are tech markets, constantly evolving and complex; most assumptions (and even “conclusions” based on data) are imperfect at best. In this case, the conventional wisdom with respect to Google’s alleged exclusionary conduct, the market in which it operates (and allegedly monopolizes), and the claimed market characteristics that operate to protect its position (among other things) should be questioned.
The reality is far more complex, and, properly understood, paints a picture that undermines the basic, essential elements of an antitrust case against the company.
The document first assesses the implications for Market Definition and Monopoly Power of these competitive realities. Of note:
- Users use Google because they are looking for information — but there are lots of ways to do that, and “search” is not so distinct that a “search market” instead of, say, an “online information market” (or something similar) makes sense.
- Google competes in the market for targeted eyeballs: a market aimed to offer up targeted ads to interested users. Search is important in this, but it is by no means alone, and there are myriad (and growing) other mechanisms to access consumers online.
- To define the relevant market in terms of the particular mechanism that prevails to accomplish the matching of consumers and advertisers does not reflect the substitutability of other mechanisms that do the same thing but simply aren’t called “search.”
- In a world where what prevails today won’t — not “might not,” but won’t — prevail tomorrow, it is the height of folly (and a serious threat to innovation and consumer welfare) to constrain the activities of firms competing in such an environment by pigeonholing the market.
- In other words, in a proper market, Google looks significantly less dominant. More important, perhaps, as search itself evolves, and as Facebook, Amazon and others get into the search advertising game, Google’s strong position even in the overly narrow “search” market looks far from unassailable.
Next I address Anticompetitive Harm — how the legal standard for antitrust harm is undermined by a proper understanding of market conditions:
- Antitrust law doesn’t require that Google or any other large firm make life easier for competitors or others seeking to access resources owned by these firms.
- Advertisers are increasingly targeting not paid search but rather social media to reach their target audiences.
- But even for those firms that get much or most of their traffic from “organic” search, this fact isn’t an inevitable relic of a natural condition over which only the alleged monopolist has control; it’s a business decision, and neither sensible policy nor antitrust law is set up to protect the failed or faulty competitor from himself.
- Although it often goes unremarked, paid search’s biggest competitor is almost certainly organic search (and vice versa). Nextag may complain about spending money on paid ads when it prefers organic, but the real lesson here is that the two are substitutes — along with social sites and good old-fashioned email, too.
- It is incumbent upon critics to accurately assess the “but for” world without the access point in question. Here, Nextag can and does use paid ads to reach its audience (and, it is important to note, did so even before it claims it was foreclosed from Google’s users). But there are innumerable other avenues of access, as well. Some may be “better” than others; some that may be “better” now won’t be next year (think how links by friends on Facebook to price comparisons on Nextag pages could come to dominate its readership).
- This is progress — creative destruction — not regress, and such changes should not be penalized.
Next I take on the perennial issue of Error Costs and the Risks of Erroneous Enforcementarising from an incomplete and inaccurate understanding of Google’s market:
- Microsoft’s market position was unassailable . . . until it wasn’t — and even at the time, many could have told you that its perceived dominance was fleeting (and many did).
- Apple’s success (and the consumer value it has created), while built in no small part on its direct competition with Microsoft and the desktop PCs which run it, was primarily built on a business model that deviated from its once-dominant rival’s — and not on a business model that the DOJ’s antitrust case against the company either facilitated or anticipated.
- Microsoft and Google’s other critic-competitors have more avenues to access users than ever before. Who cares if users get to these Google-alternatives through their devices instead of a URL? Access is access.
- It isn’t just monopolists who prefer not to innovate: their competitors do, too. To the extent that Nextag’s difficulties arise from Google innovating, it is Nextag, not Google, that’s working to thwart innovation and fighting against dynamism.
- Recall the furor around Google’s purchase of ITA, a powerful cautionary tale. As of September 2012, Google ranks 7th in visits among metasearch travel sites, with a paltry 1.4% of such visits. Residing at number one? FairSearch founding member, Kayak, with a whopping 61%. And how about FairSearch member Expedia? Currently, it’s the largest travel company in the world, and it has only grown in recent years.
The next section addresses the essential issue of Barriers to Entry and their absence:
- One common refrain from Google’s critics is that Google’s access to immense amounts of data used to increase the quality of its targeting presents a barrier to competition that no one else can match, thus protecting Google’s unassailable monopoly. But scale comes in lots of ways.
- It’s never been the case that a firm has to generate its own inputs into every product it produces — and there is no reason to suggest search/advertising is any different.
- Meanwhile, Google’s chief competitor, Microsoft, is hardly hurting for data (even, quite creatively, culling data directly from Google itself), despite its claims to the contrary. And while regulators and critics may be looking narrowly and statically at search data, Microsoft is meanwhile sitting on top of copious data from unorthodox — and possibly even more valuable — sources.
- To defend a claim of monopolization, it is generally required to show that the alleged monopolist enjoys protection from competition through barriers to entry. In Google’s case, the barriers alleged are illusory.
The next section takes on recent claims revolving around The Mobile Market and Google’s position (and conduct) there:
- If obtaining or preserving dominance is simply a function of cash, Microsoft is sitting on some $58 billion of it that it can devote to that end. And JP Morgan Chase would be happy to help out if it could be guaranteed monopoly returns just by throwing its money at Bing. Like data, capital is widely available, and, also like data, it doesn’t matter if a company gets it from selling search advertising or from selling cars.
- Advertisers don’t care whether the right (targeted) user sees their ads while playing Angry Birds or while surfing the web on their phone, and users can (and do) seek information online (and thus reveal their preferences) just as well (or perhaps better) through Wikipedia’s app as via a Google search in a mobile browser.
- Moreover, mobile is already (and increasingly) a substitute for the desktop. Distinguishing mobile search from desktop search is meaningless when users use their tablets at home, perform activities that they would have performed at home away from home on mobile devices simply because they can, and where users sometimes search for places to go (for example) on mobile devices while out and sometimes on their computers before they leave.
- Whatever gains Google may have made in search from its spread into the mobile world is likely to be undermined by the massive growth in social connectivity it has also wrought.
- Mobile is part of the competitive landscape. All of the innovations in mobile present opportunities for Google and its competitors to best each other, and all present avenues of access for Google and its competitors to reach consumers.
The final section Concludes.
The lessons from all of this? There are two. First, these are dynamic markets, and it is a fool’s errand to identify the power or significance of any player in these markets based on data available today — data that is already out of date between the time it is collected and the time it is analyzed.
Second, each of these developments has presented different, novel and shifting opportunities and challenges for firms interested in attracting eyeballs, selling ad space and data, earning revenue and obtaining market share. To say that Google dominates “search” or “online advertising” misses the mark precisely because there is simply nothing especially antitrust-relevant about either search or online advertising. Because of their own unique products, innovations, data sources, business models, entrepreneurship and organizations, all of these companies have challenged and will continue to challenge the dominant company — and the dominant paradigm — in a shifting and evolving range of markets.
Perhaps most important is this:
Competition with Google may not and need not look exactly like Google itself, and some of this competition will usher in innovations that Google itself won’t be able to replicate. But this doesn’t make it any less competitive.
Competition need not look identical to be competitive — that’s what innovation is all about. Just ask those famous buggy whip manufacturers.