We hate success

The Justice Department has hired a litigator to look at going after Google and its growing dominance in advertising.

This isn’t surprising, of course. It’s the yin-yang of American business: we love success stories but we hate too much success.

The problem with going after Google is that unlike Microsoft or earlier monopolies, the industries Google affects handed it its dominance on a silver platter. Google didn’t steal it away. Yahoo went to Google to be rescued from erstwhile monopolist Microsoft and to improve its bottom line by hundreds of millions of dollars. Newspapers–non-French-speaking ones at least–hire specialists to make their content more attractive to Google and happily take its ads–including this week’s announcement about Google digitizing and monetizing newspaper archives. See also this week’s announcement by NBC that it is handing over some ad inventory to Google. That’s not just about the money. It’s about bringing in a new population of advertisers that big media couldn’t serve (being too big–irony noted).

The agency side of the business, too, is eager to do business with Google. When I interviewed Rishad Tobaccowalla of Publcis’ Denou for my book, he explained that the giant agency consolidated all its digital divisions so it would have better negotiating leverage with Google, Yahoo, Microsoft, et al — and also so it would gather more data (as Google does) to learn more about users and target ads better.

But Google gobbles up advertising companies, you say. Well, its acquisition of Doubleclick was approved by the government only recently. Has Google gotten too big since then?

I’ve long argued that we do, indeed, need competition in the ad market but it’s not going to come from regulation. It’s going to come from getting off our asses and creating those competitors. I said that we need an open-source ad marketplace. Nobody’s heeded that advice. Meanwhile, Glam has built a non-Google network that has grown to gigantic proportion–CEO Samir Arora told me at a Burda party the other night that it now serves more than 80 million uniques worldwide, more than 40 million in the U.S. with brand advertisers. That is a competitor to Google.

(Full disclosure: I’m writing a book about Google, What Would Google Do? And I own Google stock.)

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  • Andre

    google and yahoo should NOT be allowed to partner serving ads. google HAS become the door to the net and this is not good.

    are we all happy that the european union stood on microsofts tows? I am microsoft killed a lot of companies and google is doing the same by launching services with a worse technology to kill competitors like for example zoho….

  • Andre

    ups sorry.. forgot to meantion: by launching FREE services with a worse technology but with the Marketing machine of Google

  • http://sophistpundit.blogspot.com Adam

    When will people learn?

    Market share is entirely irrelevant to whether or not something is a monopoly. The important thing is whether or not the costs of entry into the market are high or low, and whether or not the company is raising its prices and decreasing its output. I realize “output” is a difficult concept to apply to internet economics, but if Google provided less space on Gmail, for instance, and began charging people for new accounts; that would be an example.

    Neither Google nor Microsoft are or ever were monopolies. They just have been a lot better than their competition at getting customers. Those customers are not held hostage, as you say, especially in the case of Google.

    Someone needs to take away the Government’s right to employ the terminology of economics when they clearly have never understood it.

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  • Jared

    Adam, you said “The important thing is whether or not the costs of entry into the market are high or low, and whether or not the company is raising its prices and decreasing its output.”

    I’m not stating that either company is a monopoly and I applaud their success. However, your very definition matches these two companies.

    The costs to entry are significantly high – you need a 100 million dollar infrastructure to compete in search. You also need a HUGE distribution of your ads to find any benefit of scale (though this is a LOT easier than getting the infrastructure and development complete).

    With that said, you need to find a competitive advantage over what is currently available on the market and exceed the customer’s switching costs.

    Furthermore, your definition of raising prices/decreasing output does not hold up in this case. The ad market is built upon the free service (search/other sites) and is paid by 3rd parties who see a black box. Nobody knows for certain what the percentage paid to publishers is and this can be adjusted.

    I’m not saying the two companies are monopolies but your definition is not applicable in this unique case.

    What do you think?

  • http://sophistpundit.blogspot.com Adam

    “The costs to entry are significantly high – you need a 100 million dollar infrastructure to compete in search.”

    I’m sorry, but that’s peanuts. If you’ve got a product you can make a case for, you can raise the capital.

    Perhaps “high” is too subjective a term. I should have said “unsurmountable”. Something that tends only to happen when there are legal barriers to trade or the government restricts who is allowed to be in the industry.

    “The ad market is built upon the free service (search/other sites) and is paid by 3rd parties who see a black box. Nobody knows for certain what the percentage paid to publishers is and this can be adjusted.”

    Ultimately the competition is over that free service, however. If Google cannot provide the eyeballs, then advertisers won’t accept their rates. If they can, then they have obviously done something right when it comes to providing services to the consumers.

    The bottom line is it shouldn’t be the Justice Department’s business what Google charges for its advertisements, or what percentage it gives to publishers. The publishers don’t have to get their stuff from Google; in fact, they don’t have to get anything at all.

    Antitrust laws are ultimately founded on an arrogant sense of entitlement. What companies like Google have gained was freely given to them by consumers; arguing that legal action could make the situation better by drawing on one particular notion of what a market OUGHT to look like is counterproductive and completely violates the property rights of the parties involved.

  • Andy Freeman

    > The costs to entry are significantly high – you need a 100 million dollar infrastructure to compete in search.

    No, you don’t. You need a lot of money to serve a lot of queries, but the crawl and index infrastructure is fairly small, especially if you only crawl the top 2-50M sites instead of the top 500M. And, you don’t have to buy, you can rent.

    The technical/biz hard part is being better or offering something new.

    The social hard part is convincing people.

  • ClaireH

    “The costs to entry are significantly high – you need a 100 million dollar infrastructure to compete in search.”

    Forgive me if I’m wrong, but didn’t Google get their start precisely by figuring out how to build a really good search engine without having to spend $100m on infrastructure?

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  • http://mutantofevolution.blogspot.com v

    @ Everybody leaving comments, Please do your research before you punch in a few words on the keyboard.

    the question today is not of Google is a Monopoly, but as mentioned on http://evolvingtrends.wordpress.com
    Google has and is mis using its large user base to kill competition,
    and it cleverly mocks up innovations, even before they turn into popular products or services, and if an idea or two survive, they buy them flexing their money muscle, (youtube, blogger, & now Digg) and if they fail even with this, i.e; on identifying a profitable idea before it becomes popular, or buying a popular idea, they do what they are doing today to Wikipedia,

    In fact if you look at the companies History, ever since its successful advertising models have been launched, it has only tried to grab more, and more, its business practice is questionable, and I am glad the government is finally intervening, every one needs to be monitored, even if they claim to live by the principle, “do no evil”

    And kindly educate your self enough to have an open mind, we all appreciate the efforts and innovation google has put into search, and we respect it for the transformation brought into web world, but when they do something insane, and un-ethical, we have to view it from a marginal stand point, and stop bragging about how good teh company is.
    Bottom line, do no evil is a marketing strategy, and like all advertising its a blasphemy.

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