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EU's Google Probe Spells Danger for Internet Companies

Google (GOOG) has received significant attention from regulators on the privacy front. Now European Union officials are investigating whether Google engages in anti-competitive practices. The European Commission said that it has received complaints from ISPs and search providers over the company's market dominance.

With market share of searches in the 70 percent range, tens of billions rolling in annually from advertising, a significant share of email users, and YouTube, the largest video site on the Internet, market dominance is in little question. Aside from the issue of whether Google was unfair in its operations comes a tough question from high tech firms. Are highly successful Internet-based companies at greater risk for antitrust prosecution because of the nature of the industry?

Angry Competitors

Both Foundem and ejustice.fr, a UK shopping site and French legal search engine, respectively, complained 9 months ago that Google demoted their search ranks in its engine because they were competitors. There are also allegations that Google forces advertisers to forgo some competing ads on other search engines.

For the moment, ignore the advertising arm-twisting charge, as artificially pushing competitors down in rankings could be considered actionable on its own. It's easy to see that Google's algorithms could conceivably rate a site lower than the owner might like and still not be deliberating trying to penalize a competitor. For example, I searched on Google for "search engine". Here are the first ten results:

  1. Dogpile, a so-called metasearch engine that offers results from multiple search engines
  2. Microsoft's (MSFT) Bing
  3. AltaVista
  4. Google, itself
  5. a Wikipedia entry on search engines
  6. Ask.com
  7. Yahoo (YHOO)
  8. MetaCrawlerWeb, another metasearch engine
  9. DuckDuckGo (a search engine that claims not to track user activity)
  10. SearchEngineWatch.com, a site about search engines
If anything, I'd say that Google altered the results so that it didn't appear at the top of the list, where you might logically expect it to be. The company simply doesn't have to push itself up in the rankings, given its demonstrable market dominance. Executives become certain that something other than the shortcomings of their own efforts cause disappointing results.

Then again, who knows? Maybe Google does systematically push down much smaller competitors, leaving the bigger and better-known ones higher in rankings. It just doesn't seem likely. Ironically, Microsoft-owned and Bing-branded Ciao, a UK price comparison site, also complained. How many sub-sections of Bing have to rank toward the top before Microsoft has no cause for complaint? And then, would smaller competitors get to complain about that?

Social Network Ventures Face Trouble

So, maybe all the attention is reasonable, or maybe it's not. But any company successful in some aspect of social media -- whether search, blogging, social networks, photo sharing, or what have you -- now faces the possibility of legal action.

That's because social computing endeavors are, by their nature, creatures of positive feedback loops. The more success the company has in connecting users in whatever way, the more users come to it and the bigger it gets. That larger number now attracts even more consumers, which means more advertising revenue and information for the company to adjust and create services that draw even more people and advertising.

It's positively Biblical, by way of Billie Holiday: Them that's got shall get, them that's not shall lose. There is a natural progression toward monopoly in social undertakings that outstrips the usual economies of scale argument you hear in other industries. Almost inevitably, more actually is better, from the point of a service becoming more useful, and market dominance, if not outright monopoly, naturally follows.

Managing for Monopoly

That puts many high tech companies into an odd position. At one time, the ability to be truly anticompetitive would come either after a long period of effort or from a government grant, as has happened in the past with certain types of utilities. But on the Internet, achieving market dominance can happen faster than those involved in a company can react.

Facebook is less than a decade old. Twitter is even more recent, and dominating its particular niche. As I've mentioned, Tumblr is growing rapidly and could start to push out other blogging services. The latter two don't have the burgeoning cash flow of a Google ... yet. I think it's unlikely that they will, but impossible? Remove the word from your business vocabulary.

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Image: Flickr user .guilty, CC 2.0.