Quinnipiac Assignment #10 ICM524 – Google’s Monopoly

This week in class, we prepared HTML code with semantic categories and we also wrote about Google’s monopoly.

My essay is reproduced below, in its entirety.

Google’s Monopoly

Introduction – Ma Bell and Her Demise

We in the United States have been down the monopoly road before.

I well recall the telephone company being a monopoly. We were told, back when I was studying economics in High School, that it was a “good” monopoly. The teacher said that it was just the way that communications ran, and that it all made sense. The technology all went together. Installation, repairs, number assignment and indexing, and recordkeeping all went together perfectly.

Then came the 1980s and a court order to break up the Bell System. Apparently this “good” monopoly wasn’t so good after all. I had moderately high telephone bills then. Also, I was living in a dorm but we were still responsible for our local and long distance bills. I even recall standing on a line to get a landline telephone and sign a contract.

In 1984, Bell was broken up into a few regional holding companies and I had moved to an apartment in Delaware. My telephone bills, particularly for long distance, had climbed. Then later in the 1980s and into the 1990s, there would be all of these commercials for long distance carriers. But the prices remained high.

Fast forward to today. My bill is pretty close to what it was when I attended school in Delaware. But I don’t just get local and long distance service; I also get Internet and cable. For nearly what I was paying when the phone system was in the regional holding company stage thirty years ago, I get considerably more for my dollar. Breaking up Ma Bell ended up, after some initial chaos, saving me money and getting me, the typical consumer, much better services.

Google and Analytics

Let’s look at Google.

As Steve Ballmer of Microsoft puts it, “This [search] is a scale game because the market for advertising is auction-based economics. If we have exactly the same quality of algorithms but less scale in search advertising we get less revenue per search than Google which means they have more money to pay for distribution on Samsung or Apple.Rumor is they pay each $1 to $3 billion a year for distributing their search products. We have to generate volume to step up.”

It’s pretty bad when even Microsoft says you might be a monopoly.

Is Google’s attitude toward analytics driving some of this? After all, they offer it for free, and they strongly encourage website owners (commercial and noncommercial) to make use of it. But much like a man in an unmarked van offering candy, it seems to come at a price. A great analytics system definitely makes more online businesses successful. And what do successful and/or ambitious online businesses do? They buy search. And they buy apps. They click on ads and convert more, and then those ads can be sold for more. And that’s where Google makes its billions – Google websites and Google member websites. The analytics program seems to be yet another great advertisement for Google.

Furthermore, a great, free analytics package definitely inclines one to think more favorably about Google. Microsoft, on the other hand, feels like it is bribing Bing users by offering rewards. Yet when Google offers better search placement in exchange for using Google+, it doesn’t seem so disingenuous. After all, what’s Google’s slogan? Don’t be evil. What’s Microsoft’s? Where do you want to go today? It is still positive, yes. But it’s not specifically assuring a customer that no harm is intended. Is that a requirement? It might very well be, given today’s skeptical consumer culture.

Google lulls the website owner into a comfortable sense of security, that a small business can be better analyzed and make more money, if only you could rank higher in searches! Except they’re selling the same bill of goods to that website owner’s competition. What happens when everyone is perfect at search? Then it’s more money for Google, as website owners buy more paid search to try to get back on top of the heap. The analytics package rather neatly tells website owners where they’re failing. The subtle hint is – buy search and you could improve again.

It’s Not a Monopoly If you’re Really That Good

There is one corollary in all of this. A superior product or service should always rise to the top, given the free market. Consumers naturally are going to seek out better products and, when price is no longer a factor, then quality is going to be the main driving force behind usage, with convenience being important as well. Is Google a better service than Bing or Yahoo? Maybe. It’s bigger, yes. But is its size defining its superiority? As Ballmer stated above, it’s a scale game. Search Engine Watch says that Google has just over 2/3 of all searches. Bing held the second spot with 18.7%. Yahoo had 10%. The remaining 3.7% was divided between Ask.com and AOL.

A site that enormous is going to, by definition, have considerably more money to throw around. This will result in the hiring of better engineers, more development, more frequent updates, and more innovations. Right now, it just seems like Google has the best product. It does not seem to be actively trying to require usage of its services (unlike Microsoft, which bundled Internet Explorer with its PCs and was court ordered to stop doing that). An active attempt to require usage of goods or services would be a violation of the Clayton Antitrust Act. Google has been careful to not stray into Clayton Act territory. Yet if it continues to crush its competition, it may end up there anyway.

Conclusion

Google is offering the best search experience. It’s also offering the best free analytics package, which strongly encourages businesses to put their advertising eggs into the Google basket. Being better is not a Clayton Act violation. But I think Ballmer’s got a point (although of course he’s also got an agenda). The scale is so wildly out of proportion that almost anything Google does essentially promotes it as a monopoly. Much like Facebook, Google is the category killer.

Monopoly
Theodore Roosevelt

Perhaps the United States government needs to step into both areas, and put on the brakes a little on this kind of wild growth. It’s not your father’s monopoly anymore, but it sure seems to be a monopoly all the same. And the last time one that was this big was broken up, it resulted in an eventual win for consumers. Maybe it’s time the heirs of Teddy Roosevelt took an axe to Google.

References