Why Google Won’t Spare Any Change

East Valley Tribune (AZ), April 12, 2008, p. 71
Google’s innovation gives way to lobbying

What can you buy for $45 billion? Just about anything you want — except, of course, the world’s second-most popular search engine. Yahoo recently rejected Microsoft’s enormous offer. And now the jilted tech giant has responded by saying it won’t pay a penny more.

Unfortunately, it doesn’t cost nearly as much to buy the U.S. government — proverbially speaking. As Microsoft and Yahoo play cat-and-mouse, Google is lobbying with all its might to prevent the merger of its two closest competitors.

Since growing from a college project into a corporate behemoth, Google has discovered the power of influence-peddling in Washington. Even as voters go to the polls demanding “change” in Washington, Google is seeking to manipulate government bureaucracy to resist change, freeze competition, and cement its unquestioned dominance over the Internet.

Google handles more than 60 percent of all Internet searches in the United States, nearly three times the volume of its nearest rival. Google has leveraged this commanding lead to capture 75 percent of online advertising, the fastest-growing sector in the Internet economy.

Ad revenues are projected to double in the next two years, exceeding $80 billion. Meanwhile, Google is expanding aggressively into new markets, such as video, social networking, and telecommunications.

This meteoric growth resulted from the creation of an innovative product and the vision to adapt rapidly with changing technologies. Upon entering the Internet search market in 1998, it took Google only four years to displace its dominant competitor, demonstrating that leading players are constantly vulnerable to competition in the online marketplace. Even though a combined Yahoo-Microsoft will capture only a 30 percent market share, Google understands from its own success that no dominant online business can afford to grow complacent.

Rather than rely on innovation to remain competitive and drive technology forward, however, Google’s new strategy enlists the government to protect its monopoly and prevent rival technologies from gaining traction.

The company has increased its Washington presence more than 20-fold in the past two years, even opening a new 27,000-square-foot office in January. Google’s motto is “Don’t be evil,” but these lobbyists espouse a different mantra: A threat to Google is a threat to the Internet.

When Internet service providers suggested new business models to accommodate the growth of online video applications, Google lamented a threat “to the freedom and innovation that have defined the Internet.”

When wireless providers entered the mobile advertising market, Google complained about “obstacles that prevent the Internet from being available to everyone.”

Just two days after Microsoft announced its bid for Yahoo, Google publicly warned about a grave threat to “the underlying principles of the Internet: openness and innovation.”

Monopolies often resist change to protect the status quo. By colluding with regulators to eliminate potential competitors, Google aims to establish a single, government-sanctioned supplier of Internet services.

Preventing companies like Microsoft and Yahoo from adapting to changing market conditions will truly endanger the Internet’s future. Contrary to Google’s assertion that the Internet has attained perfection and should be shielded from change, more competition will enable innovative new applications, faster services, and lower prices.

Even though a combined Yahoo-Microsoft would create a viable competitor in the market for Internet services, Google hopes to deploy its Washington influence to sink the deal and quash competition. These initial efforts have proven remarkably successful.

On the same day that Microsoft announced its proposal, the House Judiciary Committee scheduled a meeting on “the competitive landscape of the Internet,” and antitrust regulators at the Department of Justice expressed interest in opening an official investigation. With uncharacteristic speed, the government took these actions before Yahoo even began considering Microsoft’s offer.

To mobilize regulators against the merger, Google diverts attention from its own Internet monopoly by resurrecting decade-old charges of Microsoft’s “inappropriate and illegal” behavior in the PC software market.

This bait-and-switch ignores dramatic changes in the technology landscape over the past 10 years. Microsoft has struggled to gain a foothold on the Internet as users migrate away from desktop applications and embrace online media. In this new arena, only one player wields the dominance to engage in unfair market manipulation: Google.

The combination of Microsoft and Yahoo will introduce a real challenge to Google’s growing monopoly. Competition provides a key incentive for innovation, ensuring that the Internet remains an open and constantly evolving platform.

When government intervenes to protect monopolies and obstruct competition, consumers suffer as technology stagnates and choices dwindle.

Just as “change” will bring new ideas to Washington, politicians must not block the constant change that drives new Internet technologies.

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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