Information Week has an article in its September 29th issue that illustrates why regulatory interventions to temper Google’s dominance are folly – things like antitrust scrutiny of the Yahoo! deal. But it takes a little understanding of how markets work.
The article lists all kinds of innovative startups that plan to challenge Google and take the field of search in all kinds of new directions. “The burst of activity over the past 12 months is more befitting a land rush than a market dominated by one powerhouse,” it says. Read it. There’s lots of interesting stuff going on.
But it’s not going just because. It’s going on because there’s a dominant player in the market. It’s going on because venture capitalists, innovators, and entrepreneurs can see the large profit that Google is making, and they want a piece of it. Excess profits act as an invitation and a spur to others, bringing new businesses and business ideas to that market.
If profits are “managed” and “brought under control” by curtailing a company’s ability to make deals (like Google would make with Yahoo!), that signal – that there is money to be made here – dissipates. Fewer innovators come to the market.
A second signal also goes out: “If you come up with something truly revolutionary in this field, we’re going to reward you with a haircut.” That dissuades investors – telling them that high profits will not come to them if they produce something great.
It’s a shame that the federal government is working to stanch the flow of innovation coming to search by going after Google.