Background to EU Formal Investigation

November 30, 2010

We are pleased by today’s announcement that the European Commission has launched a formal antitrust investigation into Google. This investigation has, of course, been proceeding on an informal basis for some time.

As will become increasingly clear over the coming weeks and months, the issues raised in Foundem’s European Complaint are serious and far reaching. The outcome of the EU investigation will likely affect any business or person who uses the Internet.

The following is a brief overview of Foundem’s case:

Foundem’s Case

Search engines have become the gateway to the internet, and Google, with a 90% share of the UK search market and 85% globally, wields unprecedented market power. Google’s revenues exceeded $29 billion last year, but this pales next to the hundreds of billions of dollars of other companies’ revenues that Google controls indirectly through its search results and sponsored links.

In its European Complaint, originally filed in November 2009 (and updated in February 2010), Foundem argues that Google is exploiting its dominance of search in ways that stifle innovation, suppress competition, and erode consumer choice. “There is a growing chasm between the enduring public perception of Google’s search results as comprehensive and impartial, and the reality that they are increasingly neither” said Foundem’s CEO and co-founder Shivaun Raff.

Foundem’s Complaint is essentially in two halves. The first concerns Google’s increasing use of exclusionary automated penalties, which can remove legitimate sites from Google’s natural search results, irrespective of relevance. The second concerns Google’s Universal Search, which is transforming Google’s ostensibly neutral search results into an immensely powerful marketing channel for its own services.

Google’s Universal Search

“At the core of the Google value system, said engineer Matt Cutts, is the belief that the user experience matters most, and if the user experience is simple, and fast, and uncluttered with ads, and if Google makes no attempt to steer users to its own sites, a bond of trust will form” (From Googled – The End of the World as We Know it by Ken Auletta)

In May 2007, Google introduced what it calls “Universal Search”—a system for automatically inserting its own services in prominent positions within its search results. Google calls this merging of its own services with actual search results “blending” (others have called it “bundling”). Crucially, the placement of Google’s own services is subject to different algorithms and relevance criteria than those used to place everyone else’s services. This special treatment gives Google absolute discretion over how aggressively it favours its own services.

Through this mechanism, Google can leverage its overwhelming dominance of search into virtually any market of its choosing, such as mapping, video, price comparison, travel search, financial search, property search, music downloads, and books.

Foundem examined the extent to which Google preferences its own price comparison service, for example, and found that Google brazenly places its own service in the top slots for most product- and price-comparison-related searches. The following figure shows Google Product Search’s rankings (in red) relative to its competitors (in green):

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This preferential placement has had a dramatic effect on Google Product Search’s traffic, catapulting it from ailing bit player to US market leader virtually overnight:

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This dramatic increase in traffic to Google’s own price comparison service appears to have come at the expense of its competitors. In the two years following its promotion through Universal Search, UK visitors to Google Product Search grew by 125%, while visitors to the UK’s leading price comparison services fell by an average of 41%:

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Google’s Exclusionary Penalties

From June 2006 to December 2009, Foundem laboured under an algorithmic Google penalty that effectively “disappeared” Foundem from the internet. The penalty systematically excluded Foundem’s pages from all Google search results no matter how specific or relevant the query.

For three and a half years, Google ignored all of Foundem’s appeals to lift the penalty, despite Foundem’s mounting credentials, which included Foundem being named the UK’s best price comparison site by The Gadget Show (the UK’s leading technology television programme) and being selected to power content-integrated vertical search services for many of the UK’s leading media companies. Eventually, interest from the national media persuaded Google to open a detailed dialogue with Foundem, which culminated in Google manually removing the penalty (by “whitelisting” Foundem’s site) in December 2009.

Foundem’s complaint is therefore as much about the systemic failures of Google’s manual review process as it is about the legitimacy of the search penalties themselves.

Google’s Monopoly in Search and Search Advertising

Google’s standard reply to the observation that it is dominant in search is to point out that its competition is “just a click away”. While it is true that users have a choice of alternative search engines, the crucial point is that web sites do not. Because nearly all users currently choose Google, there is no alternative search engine by which web sites can reach them. The unique role that search plays in steering traffic and revenues through the global digital economy means that Google is not just a monopoly; it is probably the most powerful monopoly in history.

Unfortunately for Google, its “just-a-click-away” mantra does nothing to diminish its responsibilities as a monopoly. It merely underlines the unusual extent to which Google is dependent on preserving its benevolent public image. Having a dominant market position that is so closely bound to the whims of its users (as opposed to, for example, ownership and control of some physical infrastructure such as a railway or telephone network) makes Google unusually vulnerable to changes in public opinion.

It is also important to understand that the competitors Google is referring to when it says competition is “just a click away” are rival search engines like Yahoo and Bing. But the businesses being harmed by Google’s inappropriately applied penalties and its Universal Search mechanism are not these rival search engines; they are the thousands of other businesses that compete with Google’s other services, including price comparison, online video, digital mapping, news aggregation, travel search, job search, property search, financial search, book sellers and publishers, and so on.

Foundem’s Proposed Remedies

Foundem’s European Complaint proposes that a search engine should not be allowed to discriminate in favour of its own services; where it does insert its own services, these should be clearly labelled, just as sponsored links are. Foundem’s Complaint also proposes that search engines should be transparent about the rationale behind their various exclusionary penalties, and that affected sites should have access to a timely and transparent appeals process so that penalties applied in error can be quickly rectified.

Note that none of these proposals require Google to publish details of its algorithms, let alone seek permission for any changes from a government commission. Indeed, Foundem’s EU Complaint went out of its way to make clear that it is “not seeking to require Google to publish details of its ranking algorithms”.

Search Neutrality

During its prolonged campaign to have its exclusionary Google search penalty lifted, Foundem noted that concerns over the market power of network providers were high on the political agenda, whereas concerns over the market power of search engines were not. In an attempt to address this important oversight, Foundem launched SearchNeutrality.org in October 2009. This and Foundem’s New York Times Op-Ed on the topic have helped to put search neutrality on the agenda on both sides of the Atlantic: “This year, ‘search neutrality’ has become the rallying cry of activists who believe that Google has too much power” (Financial Times, 13 July ‘10).

Google has long been an enthusiastic advocate of network neutrality, but it is now fighting the growing calls for search neutrality. Search neutrality poses an interesting dilemma for Google: how to argue that discriminatory market power is somehow dangerous in the hands of an Internet provider but harmless in the hands of an overwhelmingly dominant search engine? Because Google cannot argue against the actual principles of search neutrality (as these are the same principles it has long advocated for networks), it seems to have contrived an imaginary and fundamentally distorted ‘straw man’ version of search neutrality to argue against instead.

Search neutrality is not a call for either Government-mandated “standardised algorithms” or “unsorted and totally useless links”. Foundem defined search neutrality as the principle that search engine results should be comprehensive, impartial, and based solely on relevance. Clearly, no two search engines will produce the same search results; nor should they. But any genuine pursuit of the most relevant results must, by definition, preclude any form of arbitrary discrimination. Google’s Universal Search and its increasingly heavy-handed penalty algorithms are both clear examples of arbitrary discrimination.

Further Reading

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