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.

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