In an article now online at Foreign Affairs, TechFreedom President Berin Szoka and International Center for Law and Economics Executive Director Geoffrey Manne explore the European Union's antitrust case against Google and place it in the global conflict of visions of Internet governance. Below is a crosspost of the original:
Regulators around the world have grown increasingly uncomfortable with the way business is being done on the Internet. From Brussels to Buenos Aires, they are most frustrated with Google, far and away the most popular search engine and advertising platform. As the company has evolved, expanding outward from its core search engine product, it has come to challenge a range of other firms and threaten their business models. This creative destruction has, in turn, caused antitrust regulators—usually prodded by Google’s threatened competitors—to investigate its conduct, essentially questioning whether Google’s very success obligates it to treat competitors neutrally.
This controversy runs deeper than a short-term economic conflict between companies or even countries. At base lies a conflict of visions of Internet governance. The European approach was summed up by the former French President Nicolas Sarkozy’s declaration at last year's eG8 summit that “the Internet is the new frontier, a territory to conquer. But it cannot be a Wild West. It cannot be a lawless place.”
Such concerns are not unique to Europe. In April, the U.S. Federal Trade Commission hired Beth Wilkinson, a prominent trial lawyer, to help it build an antitrust case against Google. The FTC seems most troubled by allegations that the company prioritizes its own content and specialized results, such as reviews and maps, over those of competitors. This move suggested that the agency may soon sue. Then, in May, antitrust authorities in India and Argentina opened investigations based on similar claims. Each new inquiry adds to the clamor from competitors to do something about Google.
On May 21, the European Commission announced the “preliminary conclusions” of its own investigation. The EC offered little explanation of its complaints but gave Google until early July to propose remedies to four concerns: that the company gives preference to its own specialized search results over those of other companies; that it displays other companies’ information, such as their restaurant reviews, in its search results without their permission; that it exercises “de facto” exclusive control over search advertising on the Web sites for which it provides search technology; and that it makes it difficult for competitors to build alternative platforms for advertisers to manage their ad campaigns on Google.
Despite these concerns, the commission will likely find it difficult to prove that Google has done anything wrong, even under Europe’s heavy-handed antitrust laws. Moreover, it remains unclear what Google could actually do to allay the EC’s concerns or whether time itself would simply outpace even the best-intentioned regulatory remedy aimed at supplanting Google’s market position.
Consider the EC’s antitrust case against Microsoft. In 2003, the EC ordered the company to offer a version of its Windows XP operating system (labeled XP-N) without its own media player installed. Further, the commission forced Microsoft to implement a “browser choice screen” to enable users to select their preferred Internet browser when setting up a new computer. These measures were intended to counteract Microsoft’s alleged unfair advantage in these subsidiary markets conferred by the enormous success of its operating system. By this measure, the remedies failed: Practically nobody bought the degraded XP-N version of Windows, and it is not clear that the so-called browser ballot has meaningfully impacted users' choices of Web browser. This experience suggests that a concern without a workable fix may not be a valid concern in the first place.
But there are even more fundamental problems with the EC’s case against Google. Take Europe’s concern over how the firm displays content in its “Universal Search” results, including the sort of content—product reviews and prices—in which other so-called vertical search engines, such as Foundem.com and Nextag.com, specialize. Increasingly, Google provides relevant answers to search queries directly with its own content, such as Google Maps, Google Places, and Google News.
The commission claims Google is giving “preferential treatment” to its own vertical search results, and that “competing services . . . may be hurt as a consequence.” In other words, the EC has accused Google of elbowing out competitors by biasing its content. But treating one’s own product “differently” is not traditionally a competition policy problem, and “hurting” a competitor’s business is not the same thing as precluding it from competing in the first place. Indeed, it is a basic component of vigorous competition.
At the same time, ironically, the EC complains that Google includes too much competitor content, drawing users and advertisers from competing sites by incorporating their content directly into its search results—such as by displaying snippets of reviews from Yelp.com when a user searches for a specific restaurant. But Google has already complied with Yelp's request to remove such content. The damage here, if any, would be to competitors whose business models are threatened by Google’s evolving approach to search, which now offers this dynamic content. Again, however this may hurt competitors, it confers obvious value on consumers in the form of more useful results.
In fact, for all its concern for competition, the EC seems to neglect the ways in which consumers benefit from ever-richer search results. Most Web sites want at least some of their content to appear on Google, and making this information more accessible to users is why Google exists. Of course, some Web sites will take issue with how much of their content Google features (or “scrapes,” in industry parlance) and where it places that content. But third-party sites can easily opt out of having their content displayed on Google. Although Yelp argues that Google did not remove its content until faced with the threat of antitrust action, so long as Google continues to agree to take down competitors’ content in similar instances, the case for antitrust intervention will remain weak.
Europe’s third concern is about the arrangements Google makes with Web sites, such as AOL.com and Ask.com, for which it provides search technology. The EC alleges that Google, through “de facto” exclusive deals, prevents other ad services, such as Microsoft’s Bing, from accessing users on these sites, thus thwarting competition. To see how this works, consider a user on AOL.com who searches for “flowers.” The results the user sees would be served up by Google’s search engine, along with related advertisements for companies that promote themselves through Google’s ad platform. If the user clicks on one of these ads, Google takes a cut. It is this ad revenue that makes providing search technology to other sites profitable. Not surprisingly, then, Google limits the extent to which other advertising services can show their own ads alongside Google’s search results.
But contrary to what the EC alleges, these arrangements are not actually exclusive—de facto or otherwise. Although a small handful of these deals do make Google the exclusive provider of search technology, they still permit other ad platforms to show the ads that accompany Google’s search results, so long as Google’s own ads are given more prominent placement. And even if they were completely exclusive, it is hard to see any threat to competition that would result.
The competition over advertisements within Web sites’ search results is only a small part of the broader competition for access to Internet users by firms that offer search advertising — essentially, Google and Microsoft. The EC will struggle to demonstrate that Google’s few exclusive deals for these site-specific searches materially affect Microsoft’s ability to reach consumers and sell advertising. Microsoft already has its own exclusive deals to provide search services for Facebook and Yahoo!. And for the vast majority of Web sites, Microsoft remains free to negotiate deals to display its search results and ads regardless of whether those sites have deals with Google. Moreover, Microsoft privileges its own search technology in other ways by making Bing the default search service through its Internet Explorer browser, in Windows 8 apps, through distribution deals with PC manufacturers, and on Blackberry, Windows Phone, and even some Android devices. It seems unlikely, then, that Google is preventing Microsoft from reaching search engine users in any meaningful way.
The Commission might be on stronger ground when it complains that Google bars companies from creating alternative interfaces to allow them to manage their advertising campaigns on Google alongside campaigns on other platforms. Allowing this could facilitate competition for advertisers. It is not obvious, however, that this heightened degree of interoperability between advertising platforms is something antitrust law should require. Regulators will need to show that making it easier for advertisers to manage campaigns simultaneously on multiple ad networks is necessary to facilitate competition. They will also have to account for the fact that, the more advertisers use alternative interfaces, the harder it will be for Google to update its own tools for advertisers without breaking these third-party interfaces—to everyone’s detriment.
Such trade-offs are unavoidable. But by engaging with Google directly, antitrust authorities might be able to find reasonable remedies to their most concrete concerns: content scraping, site search ads, and ad platform interoperability. Unfortunately, it would be far more difficult to address what seems to be the EC's primary issue: the allegedly biased integration of traditional search results with rich content, such as maps and product reviews. Enforcing this so-called search neutrality presents a near-insurmountable technological problem. It would greatly hamper Google’s ongoing evolution and degrade the relevance of Google’s content—perhaps so much so that it would prove unworkable or overwhelmingly costly to consumers.
The ultimate point here is not that all competition concerns about Google are necessarily groundless but that restrained enforcement of antitrust law, and Google’s concern about its reputation, are already driving the company to address legitimate concerns with practicable solutions. This is essentially the traditional vision of Internet governance espoused by the poet and political activist John Perry Barlow in his 1996 “Declaration of the Independence of Cyberspace”:
Governments of the Industrial World, you weary giants of flesh and steel . . . You claim there are problems among us that you need to solve . . . Many of these problems don't exist. Where there are real conflicts, where there are wrongs, we will identify them and address them by our means . . . This governance will arise according to the conditions of our world, not yours. Our world is different.
The digital world may not be perfectly self-correcting; antitrust law may on occasion play a useful, if invisible, role in disciplining corporate behavior. But ultimately, the Internet is driven by disruption from technological change and shifting consumer demand. The wise regulator would exercise restraint.