Google Extends Its Online Grip on Brand Names -- and Its Monopoly Ambitions

Last Updated Mar 24, 2010 2:07 PM EDT

A European court ruling gives Google (GOOG) the right to sell brand names as search keywords -- that is, as terms that can trigger sponsored links for rival companies. And that represents yet another step in Google's consolidation of its monopoly power over advertisers.

It dovetails with a similar ruling in the U.S. and contributes to a long-term trend that suggests the cost of advertising on Google will only grow over time. That trend will be compounded by Google's new sponsored search format, Sitelinks, another ad format that is driving up prices for advertisers. Advertisers, beware!

In the European case, LVMH Moët Hennessy Louis Vuitton (MC) had complained that Google was selling its various brand names -- Fendi, for example -- as keywords to counterfeiters whose ads would be triggered by anyone searching for "Fendi." (Try it yourself -- it's impossible to tell the legit sponsored Fendi results from the black market ones.) The resulting confusion was an infringement of its intellectual property rights, LVMH argued:

The European Court of Justice rejected LMVH's claim, saying Google had "not infringed trademark law by allowing advertisers to purchase key words corresponding to competitors' trademarks". However, the judges cautioned that advertisers could not use key words to mislead customers into believing they were buying genuine goods, and said both the advertisers and Google were liable.
The problem is that while LVMH can still go after counterfeiters individually, its bigger problem will be rival labels buying "Fendi" to trigger ads for Hermes, for instance. That pits LVMH in a bidding war for its own names, which can drive up costs by as much as 14 times.

On top of that, Google has just developed a new search ad format that vastly increases the effectiveness of those ads, according to Ad Age. Sitelinks displays a more elaborate sponsored search result that dominates the top of the page with several links beyond a company's front page:

These deeper links bypass the advertiser's home page but are giving them a huge increase in click-throughs; Google estimates a 30% to 40% increase over standard search ads. That click-through success has caused trouble for some marketers: Consumers searching for a brand using Google will click on the sponsored ad and not on the organic result. And all those clicks on the Sitelinks ad are also driving marketers' search ad bills up 30% to 40%.
"It's a bit like payola," said Kevin Lee, CEO of search-marketing firm Didit. "Many advertisers just think of it as another toll they have to pay Google."
So, to recap: Google gets about 97 percent of its revenue from advertisers; it maintains a 71 percent share of the search market; legal rulings have only strengthened Google's ability to create bidding wars between advertisers; and Google is creating new formats that increase expenses for advertisers.

The word for this is "monopoly."