Google: we can't live with it or without it
Posted June 28
The Internet promised us a perfect market--that is, one where there are many buyers and sellers with full information who freely and effortlessly strike deals unfettered by rules and regulations. But did it also give us a perfect monopoly?
Remember the heady days of the late 1990s? The unstoppable growth of the Internet seemed to promise the dawn of a perfect market. We were told that a small start-up on one side of the world could compete with huge corporations on the other side of the world -- and win.
Fast forward 20 years and the world looks quite different. Internet traffic is corralled through a small handful of websites like Facebook, Twitter and Amazon. Each of these sites are not just the biggest, but often the only serious players in their own market.
When they search the Internet, about 64% of Americans use Google. We also rely on other services offered by Google like Gmail, Google Maps and Google Docs. Scientists use Google Scholar to discover the latest scientific research. Historians use Google Books to trawl through the archives of the world.
Celebrities use YouTube (owned by Google) to share their latest cosmetics tips.
We all use Google, all the time.
It seems that instead of creating a perfect market, the Internet has generated perfect monopolies. But unlike the monopolies of old -- like Standard Oil -- firms like Google are global in scope. They don't just dominate a market for a single type of good (like oil), they dominate many different markets.
Concerns about a handful of companies' dominance over the online world have been rumbling away for years.
Indeed, the US Federal Trade Commission conducted an investigation into anti-competitive practices, dropping it in 2013 after Google made some minor design changes to its search screens.
But now, after a seven-year investigation, The European Commission has fined Google $2.7 billion for anti-competitive behavior. The European Union's specific concern is that Google used its dominance of the Internet search market to dominate another market: Internet advertising.
Regulators were worried that Google used its might to take away the market share of various price-comparison websites. Why? Two reasons. First, Google's dominance of Internet shopping drove out competitors. This made it tough for existing companies and new companies to get a foothold in the market. The second, more important, reason was that customers would only see companies who paid Google to display their wares at the top of the page when they did a search.
The upshot was that customers would have less choice when they went online to shop. They could easily end up paying more for a smaller range of products.
Arguably the EU investigation focused on the less controversial anti-competitive practices of Google, staying away from the much more profound issues of privacy and data ownership. These are more troubling because Google can make small changes to its search function--as in the earlier FTC case-- to create a semblance of fair competition, but changing the way it deals with data goes to the heart of its business model, which is to collect and sell data about its users
Google has reacted politely in public to the EU judgment by saying it will contest it; the fine represents a tiny part of the company's vast global profits. But behind the scenes, Google may be worried this judgment represents the first attempt to limit the spread of the firm into nearly all aspects of our life. It could be that this company, which has done its best to nurture an image of itself as a hub for innovation, is beginning to be seen for what it really is: an advertising company.
Some economists have argued that we should take it easy. Even if companies like Google have managed to corner the market for search and are using that to shore up their advantage in other markets, we shouldn't be concerned. The only real test, they argue, is this: Are consumers getting a good deal out of it? And the answer to that, they think, is yes.
Others economists are not so sure. They point out that companies like Google are indeed monopolies and this may not necessarily be the best thing, not just because it limits competition and choice, but also because it can limit innovation. This is because when a large company takes over a market, it can use its heft to block or buy up innovations.
What's more, such a company can have undue knowledge and influence over consumers' lives. After all, some of the largest technology companies know more about the average American citizen than the secret police knew about East German citizens during the Communist era.
No matter what the theory says, consumers are left in a tricky position.
Many of us are completely reliant on the services that Google provides. We would get lost without Google maps or miss appointments without our Google calendar. Indeed, just imagine what would happen to society if Google's services suddenly stopped working. We would find it difficult to communicate, do business and learn.
Some of these services are so essential, in fact, that we might classify them as an essential public utility. And if some of Google's services are indeed like the 21st century versions of roads, schools and sewerage systems, we might begin to ask whether they need to be regulated and controlled in the way other public utilities are.