Google disclosed on Friday that the Federal Trade Commission has begun a formal investigation of its business practices, setting up what could turn into the biggest antitrust battle in the tech world since the landmark Microsoft case in the late 1990s.
At the very least, the government probe could prove a big distraction for the Mountain View search giant, which is already facing slowing growth in its core business and increasing competition in other areas. It could also represent a major test of the leadership of Larry Page, the company co-founder who assumed the chief executive role in April.
In a filing with the Securities and Exchange Commission, Google said it received a subpoena and notice of civil investigative demand, relating to a review of the company's search and advertising businesses. Such an investigation doesn't necessarily mean the FTC will bring a case, much less a successful one.
"It's still unclear exactly what the FTC's concerns are, but we're clear about where we stand," Amit Singhal, a Google search scientist, said in a corporate blog post. "Since the beginning, we have been guided by the idea that if we focus on the user, all else will follow."
Google said it is cooperating with the FTC.
Search dominance
One question in the investigation is likely to be whether Google is abusing its dominance in the online search market in ways that give it unfair advantages in adjacent fields like online comparison shopping, local business reviews, maps and video. Some rivals and critics claim the company manipulates the rankings of search results and arrangement of its products on the search page in ways that drive traffic toward its own products and away from competitive offerings.
Still others have raised concerns about Google's sway over the smart phone software space and the online advertising market.
These issues have already sparked other antitrust challenges for Google, including separate investigations by the European Commission and the Texas attorney general's office.
"No matter what you're looking for - buying a movie ticket, finding the best burger nearby, or watching a royal wedding - we want to get you the information you want as quickly as possible," Singhal said, in a clear defense of some of the practices in question. "Sometimes the best result is a link to another website. Other times it's a news article, sports score, stock quote, a video or a map."
Choking traffic
But as the dominant gateway on the Web, the concern is that providing these answers directly on Google chokes off traffic to sites that might actually be creating that content, or providing the services in better ways. That's stifling innovation and competition on the Web, critics maintain.
"You are no longer getting an unbiased and comprehensive search service," said Shivaun Raff, co-founder of Foundem, a British shopping comparison site, which filed a complaint against Google with the European Commission and has reportedly talked to U.S. antitrust enforcers, including at the FTC. "You are not seeing results from services that Google has decided to exclude. You have to go much deeper to find the services that are being pushed down the page, by Google 'preferencing' its own services."
Google owns about 65.5 percent of the U.S. search market, according to comScore Inc. It is expected to control 75.9 percent of U.S. search advertising revenue this year, according to research firm eMarketer. The rough rule of thumb for monopoly status, a necessary finding to move forward with an antitrust case, is control of 70 percent of the relevant market.
The FTC would also have to prove Google is abusing its dominance in a way that harms competitors and consumers, which won't be an easy task, legal experts say. In fact, some don't see a case at all.
"The focus of any antitrust inquiry must always be on consumer harm - not harm to certain competitors," said Geoffrey Manne, a lecturer in law at Lewis & Clark university, and Joshua Wright, professor of law at George Mason University, in a joint statement. "We are skeptical that any such harm can be proven here. Google today is not the Microsoft of 1998, and even if it were, subsequent history has demonstrated that consumers are better served by letting rapid technological change play out in digital markets than by heavy-handed antitrust remedies."
Search rankings
Aaron Edlin, a professor of economics and law at Boalt Hall, the UC Berkeley School of Law, said it's difficult to know whether any abuse has occurred, in part because it isn't clear to the outside world what factors determine Google's search rankings. The FTC subpoenas could shine more light on the company's actual practices and the driving motivations for its decisions, he said.
If Google ultimately is found guilty of anything, a decision that could take years, there's still the thorny question of the appropriate remedy. It could include some kind of ongoing government monitoring, establishing a body to hear appeals of search rankings, breaking off divisions of the company or establishing regulations for how Google orders or displays results.
For instance, Google could be required to move references to its own services to the second page of results or remove them entirely.
Those sorts of possibilities - which might be remote - make many in the technology world nervous, given how quickly the landscape shifts and the inflexibility that government mandates can impose.
"You want people to be able to try out things and test things," said Greg Sterling, founding principal of Sterling Market Intelligence. "Saying there can be no Google content is a restriction on Google's ability to try to creatively innovate."
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