Google: Monopoly or marketplace?

Joe Nocera tells a cautionary tale in today’s NY Times about Google’s power in advertising. The man who runs Sourcetool.com complained to the Justice Department after Google found that his site didn’t live up to its standards and raised the rates on him (Google’s way of shooing away sites it doesn’t approve of). The implication is that Google can wield too much power as a monopoly.

But in the Google age, nothing is as it seemed.

I don’t want to be accused of being an apologist for Google (which will happen anyway because my book is admiring) but I can see their stance on Sourcetools. It’s not a splog — the owner puts effort into building a useful directory, Nocera says — but it does look and act like one. Google is trying to protect us from sites — even paying advertisers — that detour and delay us from getting the answer to our question. If I ask for earthmoving machinery, I’d like to get the link straight from my first search (on Google) rather than being directed to Sourcetool, where I’ll take five more links to get a not-very-satisfying list of companies. Google says it always focuses on the end-user.

Nocera and Sourcetool point out, though, that Google holds the power to raise prices and disadvantage sites without explanation or appeal. That raises fears that it can and will act as a monopoly.

Except the issue isn’t that Google is a monopoly. It’s that Google has become the marketplace. It where we all go for information. It’s where advertisers go for us.

It’s no different from a newspaper. Even when there were two papers in towns, one of them was the marketplace for homes, cars and jobs. That allowed the paper to set rates as high as the market could bear, which was very high. Google would say the difference is that it doesn’t set rates, the market does in auctions for keywords. Except in this case, by punishing Sourcetool, Google did set the rate. And it has the power to do that.

craigslist is also no different, except that Craig Newmark set most rates at zero. He’s the marketplace now and now that he has us by the neck, he could raise rates — as eBay did once it dominated the marketplace it created (though that invited competition from Amazon, Etsy, et al).

What it comes down to is trust. Once a service becomes the marketplace, do we trust them not to use that position to gouge us? There really is no alternative. The closest was Yahoo and now even it is coming to Google to sell ads because that will be far more profitable — that is what the Justice Department antitrust division is investigating now.

But if the Feds rule against the Yahoo deal, it is in essence stealing hundreds of millions of dollars not from Google but from Yahoo. It is restricting Yahoo’s access to the marketplace. That would be as unfair as Google unfairly punishing a site that doesn’t meet its standards.

The first obvious solution is transparency. If we all knew Google’s standards and trusted that they were, indeed, looking out for the end-user and if Sourcetool knew Google’s standards and abided by them, that would blunt Sourcetool’s complaint. Indeed, part of its complaint is that it can’t find out the standards. But then here comes the Google age wrinkle: If Google revealed its standards, it would only be feeding the needs of evil spammers, giving them to manual to game the system.

Still, the bigger Google gets, the more trust will be an issue. I think they need to look at alternatives. Why not, for example, establish an appeals panel made up of advertisers and users to adjudicate issues such as Sourcetool? This would require Google to hand down its laws — or more to the point to draft its constitution: the definitions for good sites rather than spam, not in algorithm-busting detail but as high-level goals. But another Google era wrinkle appears: scale. When the web is developing by the minute, it’s impossible — and potentially limiting and dangerous — to write even the broadest definition of what’s good. And your good is not mine.

It’s all about trust. The question will be whether I trust Google or the government or the market more. I’ll take the market first, Google second, government third. If Google uses its power monopolistically and maliciously, I believe it would hurt Google’s business as some painful proportion — not all — of its audience and advertisers look for alternatives and then as entrepreneurs and competitors see the opportunity to meet that need.

The government didn’t need to go after Microsoft. Google has. That it is say, the market created an opening Google is now trying to fill with Docs and now Chrome. The irony here is that Microsoft, so long burned by antitrust harassment, is not empathetic with Google’s possible plight at the hands of the same tormenters but it wants to join in the tormenting. But that’s a different drama.

I’m not sure whether Google was unfair to Sourcetool or not. I don’t think it’s a very good service; I see it as a delay and detour, though not a malicious one. Nocera is sympathetic to Google’s view: “Listening to Google executives explain how the company’s algorithm works, I came away largely convinced that Google was operating in good faith.” But then, we need to ask whether Google used its power well in this matter.

Larry Lessig famous wrote that code is law. Today, Google is law. It is up to Google to convince us — the market — that its law and enforcement of it is just. To do that, it must be as consistent — which gets harder the bigger you are — and open as it can be.

(My Guardian column, up Monday, also touches on another solution: Competition.)

  • http://robertdfeinman.com/society robertdfeinman

    Google is not a “marketplace”. It is a private, for profit company, which now controls too much of the access-to-web-sites service.

    A marketplace is where you have multiple buyers and sellers and the marketplace is where they meet to conduct their transactions. Google interferes with buyers meeting sellers by acting as a gateway to the information.

    In addition their policies not only affect access to commerce, but to ideas as well. We can already see the results in China where Google facilitates the suppression of information that the regime feels threatens its political power.

    For all we know they may be doing something similar in this country, or elsewhere, just not so heavy handed. It’s not necessary to block a site, just fail to index it, or rank it very low, or misindex it and it will effectively be invisible.

    There is never a justification for a private firm to control substantially all of a service or commodity. I don’t care how benign they claim to be.

    Google is “evil”, because all capitalist firms are “evil”. They have to be, within our system. Their mission is to grow and enhance the value of the firm to the stockholders. If they do anything less then the management runs the risk of being ousted and replaced by those who understand the game better. After 30 years of corporate raiders and private equity firms taking over public corporations there can’t be anyone left in business who doesn’t understand the rules of the game.

    • george

      When ‘freedom of choice’ is gone, freedom is gone. My new HP computer is infected with google. And it cannot be removed. Life would be sad if everyone owned a chevy, and all bmw’s, fords, kia’s, etc. were taken off the road. Think about this while you are being led to the slaughter. I am not a sheep, and refuse to be marked by the beast. My soul cannot be bought at any price!

  • Wolke Snow

    1.
    Let me ask a simple question first: Do US papers ask different rates from their advertisers depending on whether they “like” the product? (I’m not talking about entirely rejecting an ad. I’m talking about asking a higher rate for an ad for toothpaste wrapped in a less environment-friendly way than another.)

    Can a shop ask me to pay a higher price for my pants, because I’m older than the clientele it wants?

    Could Amazon – at its current size — be owned by a church and censor the books it offers?

    How free is a business in charging its customers based on non-obvious factors (other than circulation, size, etc.) in setting cost?

    My view: the larger the company, the more it has an obligation to stay in the mainstream. Google just should not judge (algorithmically or not) the contents of ads *at all* (beyond legal or ethical concerns).

    2.
    You ignore the arbitrage aspect that Nocera brings up in the original piece. The business model for the Sourcetools site is based on arbitrage between the cost for its own ads and the revenue from the ads on its site. While this is risky, so is living on arbitrage at the stock markets — where it is seen as a necessary tool to keep the markets working.

    Is Google, by preventing arbitrage, further skewing the ad market (on top of its monopoly)?

    3.
    > Google is trying to protect us from sites that detour and delay us from getting the answer to our question.
    That, however, means not cooperating with its environment. It’s like the end goal of semantic search: you ask a question, the search engine answers, and the content providers never get to see the user any more. Yes, increasingly, the goal of Google (and to some degree at Yahoo) is to keep us on their site until we’re ready to spend. Knol, for example, is one of the many products aimed at squeezing out others.

    4.
    > The first obvious solution is transparency.
    No, in this case determining ad cost based on a perceived quality of the product is already the problem.

    Transparency is Google’s standard first *excuse*. Matt Cutts (and many Google fanboys) argued that Chrome was open source and skeptics could invalidate any privacy issues with the source code. Turns out that neither the “unique user ID” that is much stronger than the IP address (since it distinguishes between different users of the same computer) nor the storage of the Omnibox communication with Google is included in that code.

    Same for “the algorithm decides”. Heck, who programmed that algorithm? Even Nocera seems to believe that gospel.

    5.
    > I’ll take the market first, Google second, government third.
    Frankly, that’s why the rest of world will not respect the US again, regardless of Obama/McCain. Do you consider the US a democracy? Do you vote? You why do you trust your government less with market regulation than a commercial entity that is a player in that market? Is there anything you trust your government with?

  • http://www.ukfree.tv Briantist

    I might be a bit of an old Internet idealist, but the way it was all supposed to work was a little different.

    The net saves us all a fortune in that it cuts out the middle man. The old phrase was that the cost “tends towards zero”, implying that the transactions costs would reduce to trivial amounts.

    And so they have, we can transfer gigabytes of data around for pounds, euros or dollars a month.

    But what has happened is that some companies are now “vertically integrated”. That is to say that they dominate in two “marketplaces”.

    If a company becomes “the marketplace” in the real-world, it is contained by law not to dominate any other. It is one of the reasons that monopolies are broken up.

    So, for example, if Google accidentally starts dominating another marketplaces other than search, say it should be dealt with in “the usual way”. So Google would be split into GoogleSearchCo and several online advertising companies.

    It doesn’t happen much, but everyone is usually better off in the end when market domination is dealt with swiftly.

  • http://www.25hoursaday.com/weblog Dare Obasanjo

    It is interesting that you claim that Google isn’t a monopoly then spend the rest of your post describing it as a monopoly just not using that word.

    Food for thought.

  • http://www.ukfree.tv Briantist

    The “evil” that Google isn’t supposed to be doing is taking the consumer’s actual cash.

    eBay does this quite well by charging only the seller. Most users, who only buy, think that it’s free.

    iTunes is a great example of one company using a “DRM” to extract the maximum price out of the consumer and taking an awful lot of money for itself for these “towards zero” transations before giving the artists or composer anything.

    Anyway, I love Google.

    My website is totally hand-coded by me, and I’ve posted hundreds of stories and thousands of blog posts on it.

    And Google indexes it – which means loads of people find it. And when they do, Google gives me great adverts, which it pays me for. Which means I can keep the site going and help people out, which is as far from “evil” as I can manage.

    Oh and Google provide me with Googlemail, Google Analytics, Google Reader (how I got here), Google Maps, and now Chrome.

    But there’s Microsoft Outlook, and endless analysis tools, RSS readers, Microsoft Live maps and browsers galore.

    When people complain about “corporations taking over”, they are not advocating communism or Nationalization, they just want there to be at least four or five options when having to “choose” in a “market”.

    • george

      Naturally. You own a business, so you are motivated by greed. Do you know the difference between a dealer and a pusher? As a home computer user, and not a business, I find that Google does not give me the best answers. And no matter how far down the list I go, the answer I want is not listed. This is called censorship. Briantist has sold his soul to Google!

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  • http://andybeard.eu Andy Beard

    There is an easy fix…

    1. Add a bit more content
    2. Update the xml sitemap
    3. Register a new domain and use that domain exclusively for Adwords
    4. Fix the sitemap
    5. Ensure legal and about pages are being indexed (don’t over SEO)
    6. Local targetting of content and adverts
    7. Just buy more content from someone like iBegin Source
    8. Add some Google stuff like maps

    You might look at the navigation currently as bad, but 5 clicks is nothing, as once you get to the bottom of the topic tree, you might need to click through a few hundred pages to find something.

    The worst part of the site is it isn’t really working hard to gain repeat visitors, add community etc.

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  • CD

    People who say Google shouldn’t judge ads obviously don’t understand how Google’s ad system works. It’s an auction, based on a combination of price and quality. This means people can have their ad appear higher while paying lower if their ad quality is good. And quality isn’t some subjective thing. It’s based on the click-through rate of the ad, which means that low performing ads will have to pay if they want to be included with ads people actually like and click on. As a result, Google’s users see better quality and more relevant ads, which is good for everyone (the advertiser, the end user, and of course Google). It makes perfect sense and it’s hard to say that this system is unfair.

    • george

      a cadillac may be the best car on the road but as an american I should be free to choose a kia if thats what i want

  • http://www.pjbrunet.com/ PJ Brunet

    He should have known it wouldn’t last, but due to his ignorance (more likely arrogance) he thinks he deserves all that money for maintaining a list of links, which anyone can reproduce in a few hours or minutes w/ the right script. Even with a 10% CTR, which I understand is very rare, you’re spending 10x more on incoming (than outgoing to your ads) just to break even, considering the traffic is priced the same on both ends, and it should be.

    But then, factor in Google keeps (rumors I’ve heard) about 40% of what your Adsense earns, then the IRS takes a big chunk of what is left. You’re not going to break even doing that, not even close, it doesn’t make sense anyway.

  • Wolke Snow

    @CD: You seem to not have read the NYT story by Nocera: the price hike for the ads for Sourcetool was related to an algorithmic assessment of the Sourcetool’s site, not an after-the-fact evaluation of click-through rates. Besides, how would anything but the quality of the ad itself factor into click-through rates? How can the quality of the target site of an ad affect the click-though rate of an obscure search ad?

    @Andy Beard: Your arguments all stay within a system of “rules” that Google set up, not the market. With Google being a monopoly these rules need to be revised.

    @PJ Brunet: Half of Wall Street lives from arbitrage and they do pay taxes. Did you read Nocera’s article on Sourcetools initial profits? You will find more academic papers justifying arbitrage as a tool for a market economy than for regulators skewing prices based on a *perceived* quality of the product.

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  • http://sensationalism.info nmw

    This is not very enlightening — I suggest you look up Immanuel Kant’s definition of “enlightenment” (and perhaps also Benjamin Franklin’s views concerning liberty and safety).

    I have nothing against Catholics who believe everything the Pope says.

    However, saying that people are wrong to distrust Google sounds like a paid advertisement for Google services.

  • http://andybeard.eu Andy Beard

    @Wolke Snow I am not known to be a Google fanboy but when I visit a site that clearly has a number of very obvious determining factors missing or poorly implemented, that are quickly and cheaply fixed, whilst the complaints might still be valid, it is worth pointing out the fixes in order to help save a business.

  • http://thenoisychannel.blogspot.com/ Daniel Tunkelang

    Google is a marketplace: it creates an attention market in which advertisers compete for the attention of users. And I agree with Jeff than the lack of transparency of Google’s processes is a key issue. For all of Google’s claims of being “algorithmic” in how it manages everything from search rankings to ad quality, the secrecy of those “algorithms” (which should more properly be called heuristics) makes it impossible for anyone to assess them objectively.

    But I cringe when Google’s success incited cries of “monopoly” and “anti-trust”, since I don’t like the idea that success is a crime. While I disagree with much of Google’s approach, I don’t think that their secrecy is necessarily anti-competitive. Like all business, they don’t make all of their customers happy. Another business should see this as an opportunity.

  • http://www.pjbrunet.com/ PJ

    Wolke, this isn’t arbitrage and I explained why, only a very small percentage of the traffic he buys might click an ad. There’s no “asset”. I read somewhere if your CTR is over 7% you’re flagged by Google for cheating. To make the math easier for you, let’s say you buy some very cheap traffic, 100 clicks for 5 cents each. Let’s say you get a 2% CTR which is above average, this page for example would be lucky to get 1% CTR. Now to make back your money, you need those two surfers to click ads worth 5$, but wait, Google takes a % of Adsense and you must pay taxes. Assume only 35% goes to Google and only 15% goes to the IRS, now those two clicks can make your $5 back only if both of those surfers click ads someone paid $5 for.

    Now you’re saying, but, but, but, he made so much money! Due to an absurd imbalance that couldn’t last long. In my near-fantasy-perfect scenario above, you paid 5 CENTS for a click from Google expecting to sell it back to Google for $5, just to break even! From what I’ve heard from PPC buyers, now you can block on a site-by-site basis, so if those clicks aren’t converting to sales, why wouldn’t you block the guy selling you junk traffic? People are getting smarter about this stuff.

  • Wolke Snow

    @PJ Quoting Nocera in NYT: “By May 2006 — with the company barely six months old — it was making around $115,000 a month on $653,000 in revenue. According to Mr. Savage, his biggest expense was paying Google to advertise against search terms, which was costing around $500,000 a month.”

    If that’s true, even after taxes it’s still a decent monthly salary for 1 person. Heck, even a tenth of that would be OK.

    NYT: “Suddenly and without warning, Google raised Sourcetool’s minimum bid requirement from 5 or 6 cents to $1, and in some cases to as much as $5 or $10.” … “When Mr. Savage asked Google executives what the problem was, he was told that Sourcetool’s “landing page quality” was low.”

    If that’s true, it had nothing do with his clicks not converting for his advertisers.

    —–

    Now you are saying that either Nocera’s reporting is incorrect or he’s reporting an extreme edge case. I can’t judge that. My concern is with Google judging the quality of the Sourcetools site or its business model. As Andrew Goodman said “Google could ban you from advertising basically if it just doesn’t like your business model”, see http://searchengineland.com/070925-140955.php . While that can be acceptable behavior for a minority bookstore, it is not for a monopoly.

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  • bob

    google are fast becoming an evil monopoly.
    Its interesting that people can so easily call MS an evil empire monopolising certain software areas, but google are fast becoming dangerously too powerful.

    Sites like lifehacker so blanently favour google and dis Microsoft. Look at their rss titles for the past 2-3 months and you can see that around 10% have the word google in the title – thats not even including gmail, etc

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  • http://www.Leebow.com Ken Leebow

    Google is quickly becoming a monopoly. Yes, its services are incredible and because of that, like lemmings we are reading and willing to fly into its trap.

    And, on another note: Wikipedia ain’t far behind. Do a search on almost any subject and there will Wikipedia. Like Lemmings, we link to Wikipedia articles without thinking about it.

    There’s so much information on the Net, that we rely exclusively on Google and Wikipedia.

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  • Vincent Clement

    “Nocera and Sourcetool point out, though, that Google holds the power to raise prices and disadvantage sites without explanation or appeal.”

    Any company can raise prices without explanation or appeal. That in and off itself does make a company a monopoly. Besides being a monopoly is not illegal.

    “That raises fears that it can and will act as a monopoly.”

    And here is the crux the issue. That being a monopoly will make Google anti-competitive. Complaining that you don’t like how Google acts does not mean that it is abusing its dominant position in the online search market.

    Ken Leebow: It is irrelevant if Google is becoming a monopoly. It’s how it uses it’s dominant position that is relevant. A few complaints about how Google charges prices hardly means it is abusing its dominant position.

    bob: Exactly how is Google “fast becoming an evil monopoly”? How are they abusing their dominant position in the online search market?

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  • http://www.boke.com BOKE

    re: The government didn’t need to go after Microsoft.

    Yes it did. (Noting the Good DOJ of the Clinton administration , not the the Evil DOJ of GW Bush which loves torture, pardoned Microsoft, but goes after Google.)

    Microsoft has 90% of the operating system market (77% profit margin) … because it behaved illegally … which was determined to be the case in a court of law … and the judge, having heard the FULL STORY … ordered Microsoft be broken up … (before being PARDONED by the GW Bush DOJ shortly before 9/11).

    MEANWHILE in the European Union, Microsoft got a very big fine earlier this year … for acting criminally. I.E., Microsoft is a criminal organization. Evil. (Duh:)

    BOTTOM LINE: If the DOJ (under Clinton) HAD NOT been breathing down Microsoft’s neck DURING the rise of the web (1993-2000) … Microsoft would have “bought the internet” and shut it down. There would have been no Google. :) (only slight hyperbole)

    COMMENT: You want to keep paying TAXES to Microsoft? Good for you. Bad for the world. Evil prevails. (“Don’t be evil.”:) (P.S. Hurry up and install Vista or buy a new computer with it installed, and save us from more terrible Seinfeld/Gates ads. Resistance is Futile.).

    P.S. I like the idea of Google as marketplace. I’ll keep thinking about that for awhile. Thanks.

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  • http://ofinterest2.blogspot.com/2008/09/monopsonist-and-monopoly.html Aaron Durst

    My economics is a little out of date, and a little remedial, but I believe that the economics involved should result in Google acting as if it is a competitive entity even though it is not one.

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  • LC

    I honestly can’t speak to that part of the Google equation, but from the perspective of an end-user (who may click on an ad but does not place an ad), there is an enormous difference between Microsoft & Google.

    Through expert marketing, Microsoft has foisted on about 90% of the computer users in the world a series of increasingly bloated, error-ridden pieces of software. (If only Gates had had the good sense to steal from Unix rather than from CP/M…) Most of us can’t change because, well, because almost everybody else uses the same junk and the cost of conversion is simply too high. MSFT has never invented anything and usually takes at least 3 tries just to come up with a match to the then-former leader in the field.

    But Google is both useful and inventive. At least a couple times a year, something new & useful & interesting comes out of Google. Further, there are other search engines on the web and the cost to me of using them is negligible. There are, in fact, several add-ons to Firefox that let me use multiple engines at a time or let me easily switch from one to another.

    When a new search engine, like CUIL, gets announced, I don’t have to buy new hardware or new software or worry that I’m going to trash my computer if I try it. I can try it and switch or stay with Google.

    Chrome is a case in point. I tried it. It lacks just about everything I depend on from Firefox. I did, however, find one use for it: a web site that has defeated (crashed or failed to work properly with) 4 different browsers on two operating systems on two different computer works in Chrome. So I fire up Chrome when I need to go to that web site. Firefox remains my main browser. Similarly, I am not a fan of GMail but use it for one particular purpose because of its storage capacity.

    In brief, the cost of conversion for me, the end user, is very low where Google & its various products are concerned. I assume, from Google’s perspective, that it is to the company’s advantage to make attractive products so that people like me will use them and help them generate ad revenue. But the products have to be attractive because, again, the cost of switching from or to them is low.

    As long as that remains true, I think any comparison between Google & Microsoft is bogus.

  • http://the-anti-google-baloney.blogspot.com/ alexis

    Look,

    Lots of people here have tried, through various analysis, to argue that this guy did not try to ‘cheat’..

    This is simply not true…
    He provides a bad service for advertisers
    He provides a less-than-the-best experience for users
    He is clearly performing ad-arbitrage

    Sure, you can run the numbers and try to turn his case around, but the truth is we dont need these “services”…. ONLY THEIR OWNERS NEED THEM!!

    I call a con-man…

    http://the-anti-google-baloney.blogspot.com/2008/09/try-googling-con-man.html

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  • http://econsultancy.com Ashley Friedlein

    I think Google is quite clearly a monopoly and becoming more so every day. It must the biggest media company in the UK (outside of BBC) and yet is bound by almost no legislation…?

    I don’t resent their success, but with power comes responsibility. And my biggest gripe against them is the lack of any real appeals process. There is no-one to turn to at Google, and no higher authority to appeal to, like there is in other media and sectors.

    Have a look at this graph showing Econsultancy’s referrals from natural search from Google over the last months: http://farm4.static.flickr.com/3397/3418180052_734500d008_o.png

    You can see that at the beginning we were getting around 5,000 referrals a day. This nosedived towards the end of December 2008 before picking up again 10 weeks later in late Feb 2009. Last week you can see the referrals falling off a cliff again…

    This massively affects our business, of course. To a scary degree, Google dictates our business success or not. And this is increasingly true of all businesses. And yet, when *bad things happen* like our recent nosedive, we have absolutely no recourse to anyone, no insight, no right to appeal, nothing.

    I can’t see that it can go on like this if Google is to continue to control much of the economy and people’s livelihoods.

    Ashley Friedlein
    CEO
    Econsultancy.com

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  • http://www.moubitech.com Ben

    I don’t think Google is monopolizing the industry. Google is just being wise and doing right things. It is doing what MS did back in 70s and 80s.