Silicon Valley/San Jose Business Journal, October 19, 2007

The Senate Judiciary Committee recently considered arguments for blocking Google's proposed $3.1 billion purchase of online advertising firm DoubleClick. Critics contend that Google will suppress competition and violate privacy, a view that proceeds from ignorance about the nature of Internet businesses.

While traditional "brick and mortar" start-ups require substantial initial investment and infrastructure, any entrepreneur with a Web site and an idea can launch a business online. The history of Silicon Valley is rife with "garage-to-riches" tales. A low barrier to entry keeps the market flooded with new ideas; the rapid flow of information allows new products to take off. The result is that monopolies rarely endure.

For example, Netscape controlled nearly 90 percent of the Internet browser market share in 1995, but only 30 percent less than five years later. It took less than four years for Google to displace Yahoo as the dominant Internet search engine. More recently, Friendster monopolized the social networking market in 2002, but today captures less than half of one percent of the total market share.

Given the fluid nature of these markets, it makes little sense to rely on obsolete antitrust regulations not substantively revised since 1992. The idea that a Google-DoubleClick merger will suppress competition is built on the outdated and faulty premise that new competitors can only displace Google by replicating the Google model. The next revolution in Internet advertising will succeed by creating a new model, and a better product.

Critics argue that even the most revolutionary new product could never catch up with a combined Google-Doubleclick. These critics do not comprehend how rapidly information spreads in the digital marketplace. Consider the meteoric rise of Facebook, a social networking newcomer which currently adds more than 200,000 users a day.

At this rate, it would take only four years for every man, woman, and child in America to have a Facebook account. The revelation in late September that Microsoft is seeking a stake in Facebook to create a new Internet advertising platform only further demonstrates that Google’s "monopoly" in this market is tenuous.

Even though the potential clearly exists for competitors to thrive in Internet advertising, opponents of the merger argue that Google will engage in anticompetitive business practices such as price gouging or price fixing. Google’s business model, however, precludes this behavior.

Advertisement space is sold at auction, ensuring that the highest bidder always pays a fair market price. While DoubleClick could raise prices, the consequences would be significant. If DoubleClick raised its fees by just 10 percent, a majority of online advertisers would shift some or all of their business to Google-DoubleClick’s rivals, according to a survey released last week.

These rivals are poised to welcome any disgruntled Google-DoubleClick customers. In a demonstration of market versatility, Microsoft and Yahoo each purchased a leading DoubleClick competitor within five weeks of Google’s announcement. These competitors are not fighting only to steal Google’s existing customers, as would be expected in a true monopoly, but also seek to attract a vast untapped pool of new customers. Internet advertising accounts for only six percent of total advertising, yet revenues have tripled in the past five years. Clearly, there is ample room for growth in this rapidly expanding market.

The phenomenal growth of the Internet economy is a product of its unique qualities: low initial investment, quick spread of information, and rapidly changing and evolving markets. These factors make leading companies inherently vulnerable to competition, and discourage the establishment of true monopolies.

The FTC will only impede the growth of e-commerce by subjecting it to obsolete guidelines and assumptions. In the time it takes regulators to complete an expanded pre-merger investigation, YouTube grew from 58,000 monthly visitors to more than 20 million.

The rush to label Google a monopoly threatens to force a rapidly evolving and innovative marketplace to move at the speed of government. By any standard, that is too slow. The next real challenge to Google’s dominance should come from a garage in Silicon Valley, not a bureaucrat’s office in Washington.