Google/Yahoo deal debris – Pacific Research Institute

Google/Yahoo deal debris

Is what’s good for the goose also good for the Google? The Senate Antitrust Subcommittee just investigated a proposed partnership between Google and Yahoo, the two most visited properties on the Internet.

Though the deal could consolidate more than 90 percent of an $11-billion search and advertising industry, Google insisted on June 12 that “this is good for competition.”

Three weeks earlier, when rival Microsoft considered its own deal with Yahoo, Google co-founder Larry Page warned regulators that it’s “a big risk” to “put 90 percent of communications all in one company.” Is this a contradiction? Not in the game of antitrust.

In its 10-year rise from a two-man college project to $16-billion global Internet empire, Google has thrived on a combination of innovation and shrewd lobbying tactics. Antitrust laws allow the government to punish dominant firms based on the complaints of competitors, which encourages rivals to lobby for special favors. By replacing engineers with lawyers and lobbyists, many high-tech companies are aggressively exploiting antitrust to take down competitors and gain an unfair advantage in the marketplace.

To step up its antitrust game, Google has increased its Washington presence more than twentyfold in the last two years, adding a new 27,000-square-foot office in January. With a mantra of “Choice. Openness. Freedom,” the company deploys government to knock down those who stand in its way.

In the interest of “consumer choice,” for instance, regulators forced Microsoft to handicap its own products and more easily incorporate Google’s. To protect a “free and open” Internet, broadband companies may soon be required to provide unfettered, flat-rate and unlimited room for all of Google’s products, no matter how much space they take up on the network. Most recently, company lobbyists invoked the “spirit of openness” in seeking the right to bombard every mobile customer with advertisements. Antitrust can be used to attack any successful business, and Google has masterfully applied this system to hobble rivals and win profitable concessions.

A proposed Yahoo partnership now places Google in the antitrust spotlight. With a monopoly in its market, Google could soon become the gatekeeper for online communications. Should the company face the same treatment it once sought for its rivals? Perhaps consumers should have the choice to run competitors’ products on Google’s site. Perhaps Google’s search and advertising networks should be divided up and sold to competitors on a wholesale basis. Antitrust makes these remedies possible and opportunistic rivals will not hesitate to seek them.

On June 9, for example, a lobbying organization tied to Google’s competitors in the telecommunications industry, camouflaged as the “American Corn Growers Association,” petitioned Congress to prevent a “monopolistic concentration of power” in the online search and advertising market. These antics are the hallmarks of antitrust enforcement and will persist as long as bureaucrats, not consumers, have authority to pick winners in the marketplace.

Because antitrust punishes the successful to benefit the mediocre, it eliminates incentives for aspiring entrepreneurs to design and market popular products. It also inhibits discovery by forcing companies to redirect funds from innovation to litigation. In a sector where Google is only 10 years old, and Yahoo 14, abundant creativity and low overhead costs ensure that monopolies are but fleeting illusions. Every dominant company faces constant competition from innovative startups and revolutionary new technologies.

Before regulators rush to manipulate Internet businesses, they should consider that two college kids in a Silicon Valley garage might tomorrow create the next Google. Would the government have launched its nearly two-year, $13-million antitrust prosecution of Microsoft in May 1998, if it knew Google would open its doors only four months later?

As lawmakers investigate the Google/Yahoo partnership, they should ignore the company’s past rhetoric. Google’s hypocrisy is a symptom of a broken system, and a signal the antitrust game must end.

Daniel R. Ballon is a policy fellow in technology studies at California’s Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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