Keeping the Internet marketplace competitive

29 Jul Keeping the Internet marketplace competitive

Sometimes an event can be revealing; a rude awakening to a reality that replaces a more innocent, but imaginary, world.
Google’s recent attempt to acquire Yahoo’s search engine and search advertising business is such an event. Google has long styled itself a new kind of company with altruism and the public good at its center. But this proposed business transaction, the latest in a series of deals that Google executives have pursued to increase their already dominant economic position in cyberspace, exposes its altruistic image as so much market hype.
Now, as a small business owner, I have no problem with fierce competition. Competition in a free market drives product improvements, price reductions, better service and reduces waste.
No, my problem is that if the transaction is approved, Google will control nearly 90% of the search advertising market – its primary source of profits. It’s seldom a good idea for any one corporation to control 90% of a market — especially in the Internet economy, where wide open competition has driven innovation for the past decade.
Even worse, since Google’s $3.1 billion acquisition of DoubleClick last year it also controls over 60% of the ad server market – which is the backbone of online advertising and the key to Google’s future plans to dominate display ads as well as search ads.
Luckily, Wisconsinites – and consumers across the country – have a voice in this debate. Our senior Senator Herb Kohl, Chairman of the Judiciary Anti-Trust Subcommittee, is holding a hearing on the Google-Yahoo transaction this week. Sen. Kohl has outlined his concerns about the “competitive and privacy implications” of this “collaboration between two technology giants and direct competitors for Internet advertising and search services” because “consequences for advertisers and consumers could be far-reaching and warrant further review.”
Due to these same issues, the Department of Justice has launched an aggressive investigation into the deal and other Congressional committees will question the transaction as well.
This scrutiny is warranted. Google has already taken over advertising services for the #4 and #5 Internet search engines and already controls 70% of the market. Yahoo now ranks a distant second to Google on search advertising. If Google is allowed to acquire Yahoo the consolidating pricing power would result in higher ad rates. Of course, e-commerce operators will pass those price hikes onto the consumer.
Consumers should also fear the online privacy implications of this deal. The ability to “data mine” online behavior in order to find specific consumers interested in specific products is a big part of Google’s revenue. By controlling over 90% of Internet searches, those data mining capabilities will be unmatched and will soon make it impossible for any competitor to crack their stranglehold on web advertising.
Google has a bad track record of informing consumers about what personal information they keep, how they protect it, and what they use it for. Nor do they give consumers a choice to “opt-out” and ensure that none of their search data is tracked. Plus, the online privacy of Wisconsin consumers will lie in one set of hands in Mountain View, California. Not a pleasant thought.
That’s why I think the concerns Sen. Kohl has expressed are right on target. Sen. Kohl’s hearings will help us find out if Google’s desire to gobble Yahoo is motivated by altruism, or by a monopolistic desire to control the market.