Why Calling Google a Monopoly is Silly

by on September 24, 2008 · 36 comments

Britannica Concise Encyclopedia: def. monopoly

Exclusive possession of a market by a supplier of a product or service for which there is no substitute. In the absence of competition, the supplier usually restricts output and increases price in order to maximize profits.

How does this possibly apply to Google?  Google hasn’t decreased output, prices have not skyrocketed, and clearly there are plenty of substitutes.  Yet groups like the Association of National Advertisers are attacking Google, claiming Google has a monopoly because it “controls” 90% of search.

Okay. Google gets the lion’s share of search engine traffic. But controlling search doesn’t amount to controlling online advertising, not by a long shot.

We haven’t seen prices go up because the time people spend on search engines every day is minimal, amounting to only a handful of minutes. Google has successfully turned these few minutes a day into a machine that generates billions of dollars a year.  Yet despite its powerful position in the search market, competition from outside of search is forcing Google to keep its rates low.

Think of where the majority of our time online is spent.  Viewing content, not getting to it.  Facebook and MySpace hold their users attention for hours in some cases, offering advertisers great venues to reach key consumer demographics.  Popular news and entertainment sites bypass Google’s advertising auction system altogether by selling ads directly to advertisers.

But the biggest competitive threat to Google comes from the growing online video industry.

Americans spend several hours a day watching television, compare this to mere minutes of online searches. During an hour of watching television consumer typically view 18 minutes of advertising. That’s one of the reasons why half of all advertising dollars are spent on TV ads. It’s simply the biggest thing going.

As more video moves online, we’ll see the bulk of online advertising dollars move toward that content. Google has brought us the online equivalent of a newspaper ad, soon others will bring the 30-second spot to our computer screens.

Google is very vulnerable in this space. YouTube generates little for the company and its advertising model is unproven. Video veterans like the television networks have shown themselves to be much more adept in this space. Look no farther than Hulu. With the backing of giant companies like NBC/GE/Universal, this video viewing site has the potential to scoop up future billions in ad revenue.

We should think of Google as the leader in the first wave of bringing old media online—the text-based round. Other waves will follow and at the same time things that never existed offline, like social networking sites or oddities like Twitter, will also develop. More and more areas over which Google has little influence and in which they make no money.

But the ANA is the best opponent of its own cause. The ANA’s own efforts to trash Google is an admission that Google competes outside of online search as the ANA is made up of many old media media regimes that are seeing business taken away from them by Google. So, if Google competes in much larger market in search, then that 90% number is meaningless.

But can you blame the ANA? They’re just taking a page out of a very old Washington playbook. When you can’t beat them, sue them under antitrust law. When you do so, define a market by ridiculously narrow parameters.

Suggestion: NBC should sue CBS for its TOTAL MONOPOLY of “Two and a Half Men” and for controlling nearly 95% of Charlie Sheen’s career. See, anyone can define a market so narrowly it’s just plain silly.

  • http://bennett.com/blog Richard Bennett

    Nice rant, but you're missing the key point. Most of the advertising we get on the Web comes to us when we're not receptive. If I click on a link and instead of going directly to the article I want to read I get an ad, not only does the ad not sell me anything, it pisses me off. I get so many unwanted Netflix pop-ups I'm considering terminating my NetFlix account.

    But search ads are magic, because they come to you when you're already looking for what they're selling, as often as not. Most on-line purchases begin with a search, so search ads are the ocean-front property of the Internet advertising landscape. Google has the indispensable search engine, because nobody else's is any good, and Google has the magic, price-fixing marketplace for ads since they can set reserve prices and apply their Quality Score to jack up the price of ads even further.

    Every argument that so-and-so isn't a monopoly proceeds by re-defining the market in question. That's what you've done, but it's not persuasive.

  • Ryan Radia

    There are lots of ways for sellers to communicate with buyers, and search happens to be one of the more popular methods these days. You're certainly correct that users are especially receptive when searching, because they're often in “purchase mode.” but that hardly means that search is the only vehicle through which firms can reach prospective customers.

    Google's search engine is by far the most popular today, but clearly there are some who believe Google can be bested and are willing to spend serious cash to try to do so. The relevant question isn't whether Google has a monopolistic market share, but whether it behaves like a monopolist by refusing to innovate or compete. As long as there's a realistic chance that a newcomer will upend online search by coming up with a better way of indexing the Web, Google will do its best to innovate.

    I think Google is actually a lot more vulnerable now than it's been for awhile. When I want to find a product, Google searches seem a lot less useful lately then I remember they once were, and several of my colleagues feel the same way. Link farms and useless blogspam seems to populate too many Google results, and in many cases it's easier to go directly to a retailer, manufacturer, or pricing website. And as social networking platforms evolve, it's quite conceivable that Facebook could grow into the “preferred” advertising source if it can get users more interested in their friends' purchasing decisions (although such efforts have failed to gain traction thus far).

    And Google can't just raise ad prices as high as it wants, or even as high as a monopolist could, because any firm that feels Google's prices are unjustifiable has so many alternative ways of reaching consumers. The fact that Yahoo could make money by using Google search terms on its inventory is strong evidence that Google has succeeded at amassing a network of advertisers and creating the tools needed to allow advertisers to precisely target their audience.

    Giant, successful, innovative firms are easy targets for competitors that are struggling to steal market share. But there's no clear evidence Google's practices are bad for consumers, and there's no reason another firm couldn't figure out a smarter method of finding receptive buyers.

  • http://bennett.com/blog Richard Bennett

    So we have two major issues: is Google a monopoly? and is Google an abusive monopoly?

    I addressed the first question because Cord argues that “it's silly to call Google a monopoly.” But with 90% of the revenue for search ads (or 70 or 80, however you count it) Google is a clearly a monopoly and it's silly to deny it.

    Now it could be that you're right and it's no big deal that Google is a monopoly because their day in the sun will come to an end in the long run. But in the long run we're all dead, so I don't know that matters.

    The relevant part of the discussion then is whether the pricing scheme Google employs with reserve prices and the Quality Score is an abusive practice, and I would have to say that it is.

    I find that most Google defenders aren't familiar with the Quality Score system of pricing; Randall Stross was just claiming in the New York Times that Google's ad prices are set by auction, which really is silly. It's an auction with a floor but no ceiling.

  • http://www.cordblomquist.com cordblomquist

    Whether it's 70, 80, or 90 percent of search ad revenue doesn't matter, what matters is total online advertising. That's enough for Google not to raise their ad rates to arbitrarily high amounts. According to ZDNET, MySpace took in $800 million in their 2008 fiscal year. Google is on pace to make $20 billion this year, so MySpace's amount is less than 5% of Google's, but MySpace isn't alone as a major content site. Other Alexa Top 100 sites like NewYorkTimes.com, NFL.com, or FoxNews.com command large audiences and large revenues from advertising.

    You're absolutely right in saying that the minutes we spend on Google are prime advertising time, but so are the hours spent on MySpace, a site that whose users are open to lots of suggestion, especially about music, movies, and video games. More and more content sites are realizing how to turn interests in content into interest in advertising for related products.

    My ultimate point is that search is just one thing to place ads against, content sites are another, and most of the content that will be on the web when it matures is not yet there. Google's market position will likley diminish as the Net continues to grow, especially when companies more experienced with video figure out how to do video online.

  • http://bennett.com/blog Richard Bennett

    So you'd argue that Microsoft doesn't have a monopoly on desktop and laptop operating systems because there are smart phones that support some of the same functions as laptops and run other operating systems? Most of these questions of monopoly depend on how you define the market.

    The search ad market is unique and particular, despite the fact that there are less valuable display ads, billboard ads, TV ads, and the like. Part of what makes it unique is the personal information the search provider has, especially on people who use ancillary products such as Gmail, Orkut, and maps.

    It strikes me that it's sensible to investigate whether Google's abusing its monopoly, and dismissing the notion out of hand isn't going anywhere.

  • pamelae13rideout

    The Consultants-E is an educational consultancy company specialising in online education, offering tailored consultancy in technology for education. Their consultants assist companies and educational institutions to integrate innovative technologies into their teaching practices. The http://www.geonlineservice.com company also offers courses in e-learning tools such as Second Life, wikis, podcasts and Moodle. The Consultants-E own and run three private islands in Second Life that foster education and training.

  • pamelae13rideout

    The Consultants-E is an educational consultancy company specialising in online education, offering tailored consultancy in technology for education. Their consultants assist companies and educational institutions to integrate innovative technologies into their teaching practices. The http://www.geonlineservice.com company also offers courses in e-learning tools such as Second Life, wikis, podcasts and Moodle. The Consultants-E own and run three private islands in Second Life that foster education and training.

  • pamelae13rideout

    The Consultants-E is an educational consultancy company specialising in online education, offering tailored consultancy in technology for education. Their consultants assist companies and educational institutions to integrate innovative technologies into their teaching practices. The http://www.geonlineservice.com company also offers courses in e-learning tools such as Second Life, wikis, podcasts and Moodle. The Consultants-E own and run three private islands in Second Life that foster education and training.

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