Google’s announcement this week of plans to expand to dozens of more cities got me thinking about the broadband market and some parallels to transportation markets. Taxi cab and broadband companies are seeing business plans undermined with the emergence of nimble Silicon Valley firms–Uber and Google Fiber, respectively.

The incumbent operators in both cases were subject to costly regulatory obligations in the past but in return they were given some protection from competitors. The taxi medallion system and local cable franchise requirements made new entry difficult. Uber and Google have managed to break into the market through popular innovations, the persistence to work with local regulators, and motivated supporters. Now, in both industries, localities are considering forbearing from regulations and welcoming a competitor that poses an economic threat to the existing operators.

Notably, Google Fiber will not be subject to the extensive build-out requirements imposed on cable companies who typically built their networks according to local franchise agreements in the 1970s and 1980s. Google, in contrast, generally does substantial market research to see if there is an adequate uptake rate among households in particular areas. Neighborhoods that have sufficient interest in Google Fiber become Fiberhoods.

Similarly, companies like Uber and Lyft are exempted from many of the regulations governing taxis. Taxi rates are regulated and drivers have little discretion in deciding who to transport, for instance. Uber and Lyft drivers, in contrast, are not price-regulated and can allow rates to rise and fall with demand. Further, Uber and Lyft have a two-way rating system: drivers rate passengers and passengers rate drivers via smartphone apps. This innovation lowers costs and improves safety: the rider who throws up in cars after bar-hopping, who verbally or physically abuses drivers (one Chicago cab driver told me he was held up at gunpoint several times per year), or who is constantly late will eventually have a hard time hailing an Uber or Lyft. The ratings system naturally forces out expensive riders (and ill-tempered drivers).

Interestingly, support and opposition for Uber and Google Fiber cuts across partisan lines (and across households–my wife, after hearing my argument, is not as sanguine about these upstarts). Because these companies upset long-held expectations, express or implied, strong opposition remains. Nevertheless, states and localities should welcome the rapid expansion of both Uber and Google Fiber.

The taxi registration systems and the cable franchise agreements were major regulatory mistakes. Local regulators should reduce regulations for all similarly-situated competitors and resist the temptation to remedy past errors with more distortions. Of course, there is a decades-long debate about when deregulation turns into subsidies, and this conversation applies to Uber and Google Fiber.

That debate is important, but regulators and policymakers should take every chance to roll back the rules of the past–not layer on more mandates in an ill-conceived attempt to “level the playing field.” Transportation and broadband markets are changing for the better with more competition and localities should generally stand aside.

Jack Schinasi discusses his recent working paper, Practicing Privacy Online: Examining Data Protection Regulations Through Google’s Global Expansion published in the Columbia Journal of Transnational Law. Schinasi takes an in-depth look at how online privacy laws differ across the world’s biggest Internet markets — specifically the United States, the European Union and China. Schinasi discusses how we exchange data for services and whether users are aware they’re making this exchange. And, if not, should intermediaries like Google be mandated to make its data tracking more apparent? Or should we better educate Internet users about data sharing and privacy? Schinasi also covers whether privacy laws currently in place in the US and EU are effective, what types of privacy concerns necessitate regulation in these markets, and whether we’ll see China take online privacy more seriously in the future.

Download

Related Links

• Practicing Privacy Online: Examining Data Protection Regulations Through Google’s Global Expansion, SSRN
• Journal of Transnational Law, Columbia University

[Cross-posted at Reason.org]

This week Google announced that it is grouping 60 of its Web services, such as Gmail, the Google+ social network, YouTube and Google Calendar, under a single privacy policy that would allow the company to share user data between any of those services. These changes will be effective March 1.

Although we have yet to see it play out in practice, this likely means that if you use Google services, the videos you play on YouTube may automatically be posted to your Google+ page. If you’ve logged an appointment in your Google calendar, Google may correlate the appointment time with your current location and local traffic conditions and send you an email advising you that you risk being late.

At the same time, if you’ve called in sick with the intention of going fishing, that visit to the nearby state park might show up your Google+ page, too.

The policy, however, will not include Google’s search engine, Google’s Chrome web browser, Google Wallet or Google Books.

The decision quickly touched off discussion as to whether Google was pushing the collection and manipulation too far. The Federal Trade Commission is already on its back over data sharing and web tracking. With this latest decision, although it’s not that far from how Facebook, Hotmail and Foursquare work, just more streamlined, Google, some say, is all but flouting user and regulatory concerns.

But let’s not rush to condemn this move. I, for one, want to see what happens because Google is boldly putting the privacy paradox to the test.

Going by my own Google search, the term “privacy paradox” has been kicked around for almost ten years. Boiled down, it describes the repeated finding that while individuals express a high degree of concern for privacy protection online, few, in practice, take advantage of privacy safeguards when they are offered.

This apparent contradictory behavior has been noted in a number of studies, including a noted 2007 paper in the Journal of Consumer Affairs.  A 2005 Pew Internet Study, cited at the time by Forbes, found that that 54 percent believe that Web sites invade their privacy when they track behavior. But the same study showed that 64 percent were willing to give up personal information to get access to a Web site.

In the marketplace, when search engines like Google began facing vocal pushback from users and regulators on its tracking of user search histories, one of Google’s competitors, Ask.com, tried to differentiate itself by unveiling AskEraser. Just like it sounds, the tool allows users to opt out of search tracking. As Forbes reported, users shrugged and AskEraser did nothing for Ask’s market share, while Google’s continued to grow.

Contrary to the first hysterical media reports, Google is not recording your whole digital life. There indeed is an opt-out: you don’t have to be part of the Google service ecosystem, which is far from the only game in town. Remember, browsing and search are outside this program. Everything else is available from other sources. Moreover, data is only shared if you’re logged in under your Google username. Otherwise you can look at all the YouTube videos and Google maps you want without anyone being the wiser.

I’ll admit the biggest outcry may come over the policy with regard to Android phones. Since you’re technically logged into your phone all the time, it seems tougher to opt out. But there are other devices aside from Android, even from Verizon, so consumer will have alternatives without having to change service providers. Nonetheless, given the popularity of the combination of mobility and social networking, seen not only in Google and Facebook, but in Twitter, Yelp! and Foursquare, it is arguable that a majority of users are not as concerned about their privacy as advocates of more restrictive regulations believe.

And arguable is the operative word. There indeed may be enough significant user backlash that Google backs off. In the last six months we’ve seen at least two instances of rapid market correction–Netflix’s decision not to go through with structurally separating mail and online video rental accounts and Bank of America’s reversal of its plan to charge online banking fees. Both occurred before the government could step in a provide its own (and no doubt clumsy) remedy.

Then again, there’s a significant body of research that suggests that, in spite of their own complaints, users may opt to accept greater benefits and convenience in exchange for more disclosure about their habits. With this mind, it will serve consumers best if companies like Google are allowed to experiment with the privacy paradox to find where actual boundaries are, rather than hamstringing potential innovation by pre-emptively and blindly setting them.

Earlier this year I read Scott Cleland’s new book, Search & Destroy: Why You Can’t Trust Google, Inc., after he was kind enough to send me an advance copy. I didn’t have time to review it at the time and just jotted down a few notes for use later. Because the year is winding down, I figured I should get my thoughts on it out now before I publish my end of year compendium of important tech policy books.

Cleland is President of Precursor LLC and a noted Beltway commentator on information policy issues, especially Net neutrality regulation, which he has vociferously railed against for many years. On a personal note, I’ve known Scott for many years and always enjoyed his analysis and wit, even when I disagree with the thrust of some of it.

And I’m sad to report that I disagree with most of it in Search & Destroy, a book that is nominally about Google but which is really a profoundly skeptical look at the modern information economy as we know it. Indeed, Cleland’s book might have been more appropriately titled, “Second Thoughts about Cyberspace.” In a sense, it represents an outline for an emerging “cyber-conservative” vision that aims to counter both “cyber-progressive” and “cyber-libertarian” schools of thinking.

After years of having Scott’s patented bullet-point mini-manifestos land in my mailbox, I think it’s only appropriate I write this review in the form of a bulleted list! So, here it goes..

The Central Irony of the Book

• The central irony of the book — and one that he never confronts — is that, in the name of dealing with what he regards as “Big Brother, Inc.,” Cleland thinks we must call in Big Government to deal with Google and the digital economy in general.
• Cleland has spent the last decade railing against the “cyber-collectivist” or “digital commons” movement (I’ll just call them “cyber-progressives”) and yet, ironically, in Search & Destroy, he has adopted their tone and tactics in vilifying Google, one of the great capitalist success stories of our time.
• In a sense, Cleland has unwittingly joined his cyber-conservatism with the cyber-progressivism he supposedly detests. His passionate belief in “security” and the Rule of Law quickly devolves into the Rule of Man (or regulators, that is) over a corporate entity that he fundamentally distrusts and loathes. But it also signals his acceptance of a much greater role for government in policing all of cyberspace.

On Privacy as Property & Privacy Regulation in General

• The book is loaded with over-the-top rhetoric and techno-panicky talk — not just about Google but about other issues, like online privacy more generally.
• Cleland has made the grave error of suggesting — again in line with the cyber-progressive movement he typically derides — that privacy should essentially be treated as property right and that extensive regulation is needed in the name of protecting privacy online.
• Importantly, in railing against various types of data collection or advertising practices, Cleland doesn’t seem to appreciate that his book is not just an indictment of Google but of the entire Information Economy as we know it. The data collection and online advertising practices he decries and believes should be regulated are the engines that run not just Google, but a large percentage of the business models for new and old companies alike. (I began wondering at points in the book how Cleland felt about analog era data collection companies like Experian, TransUnion, Equifax, etc.)
• Indeed, there are times while reading the book when I found Cleland’s views on privacy and information policy virtually indistinguishable from those of the radical Left, many of whom he cites favorably in the book! (ex: Frank Pasquale, Mark Rottenberg, GoogleWatch.)
• I know Cleland will cringe at the thought, but there are clear similarities between his book and Tim Wu’s book The Master Switch, with their common fears about “information empires” and “Big Brother, Inc.”  The difference is that Cleland singles out Google as the most problematic.
• Again, this is a dangerous game Cleland is playing since his indictment of Google could be applied to many other Digital Economy operators, just as Wu has done in The Master Switch by suggesting that action needs to be taken against not just Google but also Apple, AT&T, Verizon, Facebook, Amazon, and even Twitter who are all “information monopolists” in Wu’s view.

The False Link to Friedman & Hayek

• Cleland is wildly off-base in enlisting the words and Milton Friedman and F.A. Hayek in support of his indictment of Google.
• Cleland imagines that Google’s “central planning” efforts are roughly equivalent to government central planning. That is horribly misguided and to enlist Friedman and Hayek’s words in defense of this thesis is a travesty.
• Friedman and Hayek’s critique of central planning was squarely focused on the State, not corporations. While it may be the case that elements of their critique could be applied to large private entities that attempt audacious tasks like “organizing the all the world’s information,” it does not follow that the State must take action to counter those business objectives, no matter how quixotic. This is where marketplace trial and error — not anticipatory regulation — is the better way to determine what is efficient and what consumers desire.
• To use a Hayekian term, Cleland is guilty of the “pretense of knowledge” problem by imagining he (or the government) has a more sensible vision for how these digital markets should look or operate. Only ongoing experimentation can tell us that.

On Solutions

• We can all agree that more transparency about privacy/data collection practices (for Google and others) is generally a good idea, but it’s clear that is not enough for Cleland.
• He wants to bring in the wrecking ball of antitrust, thinking that this is the way to better organize the markets that Google serves.
• Again, the irony is that he sees no conflict between this prescription and his general distaste for Big Government in other contexts.  As I noted in my 2009 review of Gary Reback’s tedious screed Free the Market, there are some conservatives who subscribe to the illogical belief that antitrust law is not a form of economic regulation. Sadly, Cleland is one of them. Instead, in his view, antitrust is about “the Rule of Law.” Except that, at root, antitrust is really just as much about the Rule of Men as tradition administrative agency regulation. And those men can make many mistakes, especially when they imagine they can magically concoct a supposedly better plan for fast-moving, high-tech sectors.

Where Cyber-Conservatives & Cyber-Libertarians Part Ways

• Part of what Cleland has done in this book is to further develop a theory of “cyber-conservativism.”
• We are beginning to see a serious schism develop between cyber-conservatives (like Scott) and cyber-libertarians (like myself and many others here at the TLF).
• Over the past decade, cyber-conservatives and cyber-libertarians have been allies on many important economic policy battles (ex: Net neutrality and Net taxes are two good examples).
• But the cyber-conservative desire to make everything subservient to “security and stability,” and their tendency to sometimes extend property right concepts well beyond their natural or practical application, is what leads to a strong break with cyber-libertarians, who value liberty, experimentation, dynamism, and limited government above all else.
• This tension is going to grow more acute in coming years as information control efforts become increasingly onerous and costly (especially on the copyright, privacy, and cyber-security fronts).
• Cyber-conservatives will need to ask themselves just how far they want the State to go to achieve “security and stability,” or to preserve and / or extend property rights into the sphere of intangible information flows.
• Cleland’s book suggests he is willing to make that leap in a fairly aggressive way to take down a company that many cyber-libertarians believe has been a great innovator and prime example of cyber-capitalism at its finest.
• Like some other conservatives, Cleland has also strongly endorsed sweeping copyright regulation that would fundamentally alter the Internet’s architecture in the name of protecting copyright.  Most cyber-libertarians could never accept such “by-any-means-necessary” approaches to copyright protection.
• But the most interesting fight in the short-term will be over privacy controls. Cleland’s book signals the desire of some conservatives to have government take a more active role in the name protecting (or even “property-tizing” personal information). Some conservative policymakers, like Rep. Joe Barton (R-TX), have long been in that same boat. It will be interesting to see how many more conservatives join them and then make alliances with cyber-progressives, who are gung-ho about expanding the power of the State in this regard.
• One thing is certain to me after reading Scott’s book: Any alliances we cyber-libertarians make with cyber-conservatives will be fleeting and fickle affairs, just as they often are when we broker peace treaties with cyber-progressives. I suppose I was naïve to ever have thought we could bring more of either group fully into our liberty-loving camp.  But what concerns me even more is that those other two camps may increasingly (sometimes unwittingly, of course) be joining forces to expand the reach of Big Government’s tentacles until the entire digital economy is smothered in innovation-stifling bureaucracy and red tape.
• “The natural progress of things is for liberty to yield and government to gain ground,” Thomas Jefferson taught us long ago. With conservatives increasingly joining progressives in calling for greater State control of cyberspace, it is now clear to me just how lonely we libertarians will be in calling for government to keep its hands off the Net.

__________

Related Reading:

• Cyber-Libertarianism: The Case for Real Internet Freedom (with Berin Szoka)
• What Cablegate Tells Us about Cyber-Conservatism (by Jerry Brito)
• What Privacy Conservatives & Moral Conservatives Share in Common
• SOPA & Selective Memory about a Technologically Incompetent Congress
• When It Comes to Information Control, Everybody Has a Pet Issue & Everyone Will Be Disappointed
• And so the IP & Porn Wars Give Way to the Privacy & Cybersecurity Wars

Over a week ago the Washington Post published an interview with Google’s Eric Schmidt to which I’ve been meaning to draw your attention. He’s reflecting on the relationship between Silicon Valle and D.C. days after his Senate testimony, and it’s incredibly candid, perhaps because as the Post noted, “He had just come from the dentist. And had a toothache.” Here are some choice quotes:

On getting told to testify:

So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people. Okay? I mean, I don’t know how to say it any clearer. I mean, it’s fine. It’s their job. But it’s not like we raised prices. We could lower prices from free to…lower than free? You see what I’m saying?

On regulation:

And one of the consequences of regulation is regulation prohibits real innovation, because the regulation essentially defines a path to follow—which by definition has a bias to the current outcome, because it’s a path for the current outcome.

On the D.C. shakedown:

And privately the politicians will say, ‘Look, you need to participate in our system. You need to participate at a personal level, you need to participate at a corporate level.’ We, after some debate, set up a PAC, as other companies have.

On political startups:

Now there are startups in Washington. And these startups have the interesting property that they’re founded by people who were policymakers, let’s say in telecommunications. They’re very clever people, and they’ve figured out a way in regulation to discriminate, to find a new satellite spectrum or a new frequency or whatever. They immediately hired a whole bunch of lobbyists. They raised some money to do that. And they’re trying to innovate through the regulation. So that’s what passes for innovation in Washington.

There’s a real sense of exasperation that is almost absurd–that is, an exhausting attempt to find rationality in political decision making. Of course, there is rational decision making, it’s just on a different margin. Here is Schmidt on expanding H-1B visas:

I’m so tired of this argument. I’m tired of making it. I’ve been making it for twenty years. In the current cast of characters, the Republicans are on our side, our local Democrats support us because our arguments are obvious, and the other Democrats don’t—because they don’t get it. The president understands the argument and would like to support us, he says, but there are various political issues. That’s roughly the situation. That’s been true for twenty years, through different presidents and different leaders. It’s stupid.

The whole thing is worth reading.

[By Geoffrey Manne & Joshua Wright.  Cross-posted at Truth on the Market]

No surprise here.  The WSJ announced it was coming yesterday, and today Google publicly acknowledged that it has received subpoenas related to the Commission’s investigation.  Amit Singhal of Google acknowledged the FTC subpoenas at the Google Public Policy Blog:

At Google, we’ve always focused on putting the user first. We aim to provide relevant answers as quickly as possible—and our product innovation and engineering talent have delivered results that users seem to like, in a world where the competition is only one click away. Still, we recognize that our success has led to greater scrutiny. Yesterday, we received formal notification from the U.S. Federal Trade Commission that it has begun a review of our business. We respect the FTC’s process and will be working with them (as we have with other agencies) over the coming months to answer questions about Google and our services. It’s still unclear exactly what the FTC’s concerns are, but we’re clear about where we stand. Since the beginning, we have been guided by the idea that, if we focus on the user, all else will follow. No matter what you’re looking for—buying a movie ticket, finding the best burger nearby, or watching a royal wedding—we want to get you the information you want as quickly as possible. Sometimes the best result is a link to another website. Other times it’s a news article, sports score, stock quote, a video or a map.

It is too early to know the precise details of the FTC’s interest.  However, We’ve been discussing various aspects of the investigation here and at TOTM for the last year.  Indeed, we’ve written two articles focused upon framing and evaluating a potential antitrust case against Google as well as the misguided attempts to use the antitrust laws to impose “search neutrality.”  We’ve also written a number of blog posts on Google and antitrust (see here for an archive).

For now, until more details become available, it strikes us that the following points should be emphasized:

• For several reasons, the Federal Trade Commission’s investigation into Google’s business practices seems misguided from the perspective of competition policy directed toward protecting consumer welfare.  We hope and expect that the agency will conclude its investigation quickly and without any enforcement action against the company.  But it is important to note that this is merely an investigation–and at that, one that is not necessarily new.  More importantly, it is not a full-fledged enforcement action, much less a successful one; and although such investigations are extraordinarily costly for their targets, there is not yet (and there may never be) even any allegation of liability inherent in an investigation.
• In any such case, the focus of concern must always be on consumer harm–not harm to certain competitors.  This is a well known antitrust maxim, but it is certainly appropriately applied here.  We are skeptical that consumer harm is present in this case, and our writings have explored this issue at length.  In brief, Google of today is not the Microsoft of 1998, and the issues and circumstances that gave rise to liability in the Microsoft case are uniformly absent here.
• Related, most of the claims we have seen surrounding Google’s conduct here are of the vertical sort–where Google has incorporated (either by merger, business development or technological development) and developed new products or processes to evolve its basic search engine in novel ways by, for instance, offering results in the form of maps or videos, or integrating travel-related search results into its traditional offerings.  As we’ve written, these sorts of vertical activities are almost always pro-competitive, despite claims to the contrary by aggrieved competitors, and we should confront such claims with extreme skepticism.   Vertical claims instigated by rivals are historically viewed with skepticism in antitrust circles.  Failing to subject these claims to scrutiny focused on consumer welfare risks would be a mistake whose costs would be borne largely by consumers.
• The fact that Google’s rivals–including most importantly Microsoft itself–are complaining about the company is, ironically, some of the very best evidence that Google’s practices are in fact pro-consumer and pro-competitive.  It is always problematic when competitors use the regulatory system to try to hamstring their rivals, and we should be extremely wary of claims arising from such conduct.
• We are also troubled by statements emanating from FTC Commissioners suggesting that the agency intends to pursue this case as a so-called “Section 5” case rather than the more traditional “Section 2” case.  We will have to wait to see whether any complaint is actually brought and, if so, under what statutory authority, but a Section 5 case against Google raises serious concerns about effective and efficient antitrust enforcement.  Commissioner Rosch has claimed that Section 5 could address conduct that has the effect of “reducing consumer choice”—an effect that some commentators support without requiring any evidence that the conduct actually reduces consumer welfare.  Troublingly, “reducing consumer choice” seems to be a euphemism for “harm to competitors, not competition,” where the reduction in choice is the reduction of choice of competitors who may be put out of business by pro-competitive behavior.  This would portend an extremely problematic shift in direction for US antitrust law.

Together Geoffrey Manne and Joshua Wright are the authors of two articles on the antitrust law and economics of Google and search engines more broadly, Google and the Limits of Antitrust: The Case Against the Case Against Google, and If Search Neutrality Is the Answer, What’s the Question?

Manne is also the author of “The Problem of Search Engines as Essential Facilities: An Economic & Legal Assessment,” an essay debunking arguments for regulation of search engines to preserve so-called “search neutrality” in TechFreedom’s 2011 book, The Next Digital Decade: Essays on the Future of the Internet.

Among our recent blog posts on the topic are the following:

What’s Really Motivating the Pursuit of Google

Barnett v. Barnett on Antitrust

Sacrificing Consumer Welfare in the Search Bias Debate

Type I Errors in Action, Google Edition

Google, Antitrust, and First Principles

Microsoft Comes Full Circle

Search Bias and Antitrust

The EU Tightens the Noose Around Google

When Google’s Competitors Attack

Antitrust Karma, The Microsoft-Google Wars, and a Question for Rick Rule

DOJ Gears Up to Challenge the Proposed Google ITA Merger

I have an op-ed up at Main Justice on FTC Chairman Leibowitz’ recent comment in response the a question about the FTC’s investigation of Google that the FTC is looking for a “pure Section Five case.”  With Main Justice’s permission, the op-ed is re-printed here:

There’s been a lot of chatter around Washington about federal antitrust regulators’ interest in investigating Google, including stories about an apparent tug of war between agencies. But this interest may be motivated by expanding the agencies’ authority, rather than by any legitimate concern about Google’s behavior.

Last month in an interview with Global Competition Review, FTC Chairman  Jon Leibowitz was asked whether the agency was “investigating the online search market” and he made this startling revelation:

“What I can say is that one of the commission’s priorities is to find a pure Section Five case under unfair methods of competition. Everyone acknowledges that Congress gave us much more jurisdiction than just antitrust. And I go back to this because at some point if and when, say, a large technology company acknowledges an investigation by the FTC, we can use both our unfair or deceptive acts or practice authority and our unfair methods of competition authority to investigate the same or similar unfair competitive behavior . . . . ”

“Section Five” refers to Section Five of the Federal Trade Commission Act. Exercising its antitrust authority, the FTC can directly enforce the Clayton Act but can enforce the Sherman Act only via the FTC Act, challenging as “unfair methods of competition” conduct that would otherwise violate the Sherman Act. Following Sherman Act jurisprudence, traditionally the FTC has interpreted Section Five to require demonstrable consumer harm to apply.

But more recently the commission—and especially Commissioners Rosch and Leibowitz—has been pursuing an interpretation of Section Five that would give the agency unprecedented and largely-unchecked authority. In particular, the definition of “unfair” competition wouldn’t be confined to the traditional measures–reduction in output or increase in price–but could expand to, well, just about whatever the agency deems improper.

Commissioner Rosch has claimed that Section Five could address conduct that has the effect of “reducing consumer choice”—an effect that a very few commentators support without requiring any evidence that the conduct actually reduces consumer welfare. Troublingly, “reducing consumer choice” seems to be a euphemism for “harm to competitors, not competition,” where the reduction in choice is the reduction of choice of competitors who may be put out of business by competitive behavior.

The U.S. has a long tradition of resisting enforcement based on harm to competitors without requiring a commensurate, strong showing of harm to consumers–an economically-sensible tradition aimed squarely at minimizing the likelihood of erroneous enforcement. The FTC’s invigorated interest in Section Five contemplates just such wrong-headed enforcement, however, to the inevitable detriment of the very consumers the agency is tasked with protecting.

In fact, the theoretical case against Google depends entirely on the ways it may have harmed certain competitors rather than on any evidence of actual harm to consumers (and in the face of ample evidence of significant consumer benefits).

Google has faced these claims at a number of levels. Many of the complaints against Google originate from Microsoft (Bing), Google’s largest competitor. Other sites have argued that that Google impairs the placement in its search results of certain competing websites, thereby reducing these sites’ ability easily to access Google’s users to advertise their competing products. Other sites that offer content like maps and videos complain that Google’s integration of these products into its search results has impaired their attractiveness to users.

In each of these cases, the problem is that the claimed harm to competitors does not demonstrably translate into harm to consumers.

For example, Google’s integration of maps into its search results unquestionably offers users an extremely helpful presentation of these results, particularly for users of mobile phones. That this integration might be harmful to MapQuest’s bottom line is not surprising—but nor is it a cause for concern if the harm flows from a strong consumer preference for Google’s improved, innovative product. The same is true of the other claims; harm to competitors is at least as consistent with pro-competitive as with anti-competitive conduct, and simply counting the number of firms offering competing choices to consumers is no way to infer actual consumer harm.

In the absence of evidence of Google’s harm to consumers, then, Leibowitz appears more interested in using Google as a tool in his and Rosch’s efforts to expand the FTC’s footprint. Advancing the commission’s “priority” to “find a pure Section Five case” seems to be more important than the question of whether Google is actually doing anything harmful.

When economic sense takes a back seat to political aggrandizement, we should worry about the effect on markets, innovation and the overall health of the economy.

[Cross-posted at Truthonthemarket.com]

There is an antitrust debate brewing concerning Google and “search bias,” a term used to describe search engine results that preference the content of the search provider.  For example, Google might list Google Maps prominently if one searches “maps” or Microsoft’s Bing might prominently place Microsoft affiliated content or products.

Apparently both antitrust investigations and Congressional hearings are in the works; regulators and commentators appear poised to attempt to impose “search neutrality” through antitrust or other regulatory means to limit or prohibit the ability of search engines (or perhaps just Google) to favor their own content.  At least one proposal goes so far as to advocate a new government agency to regulate search.  Of course, when I read proposals like this, I wonder where Google’s share of the “search market” will be by the time the new agency is built.

As with the net neutrality debate, I understand some of the push for search neutrality involves an intense push to discard traditional economically-grounded antitrust framework.  The logic for this push is simple.  The economic literature on vertical restraints and vertical integration provides no support for ex ante regulation arising out of the concern that a vertically integrating firm will harm competition through favoring its own content and discriminating against rivals.  Economic theory suggests that such arrangements may be anticompetitive in some instances, but also provides a plethora of pro-competitive explanations.  Lafontaine & Slade explain the state of the evidence in their recent survey paper in the Journal of Economic Literature:

We are therefore somewhat surprised at what the weight of the evidence is telling us. It says that, under most circumstances, profit-maximizing vertical-integration decisions are efficient, not just from the firms’ but also from the consumers’ points of view. Although there are isolated studies that contradict this claim, the vast majority support it. Moreover, even in industries that are highly concentrated so that horizontal considerations assume substantial importance, the net effect of vertical integration appears to be positive in many instances. We therefore conclude that, faced with a vertical arrangement, the burden of evidence should be placed on competition authorities to demonstrate that that arrangement is harmful before the practice is attacked. Furthermore, we have found clear evidence that restrictions on vertical integration that are imposed, often by local authorities, on owners of retail networks are usually detrimental to consumers. Given the weight of the evidence, it behooves government agencies to reconsider the validity of such restrictions.

Of course, this does not bless all instances of vertical contracts or integration as pro-competitive.  The antitrust approach appropriately eschews ex ante regulation in favor of a fact-specific rule of reason analysis that requires plaintiffs to demonstrate competitive harm in a particular instance. Again, given the strength of the empirical evidence, it is no surprise that advocates of search neutrality, as net neutrality before it, either do not rely on consumer welfare arguments or are willing to sacrifice consumer welfare for other objectives.

I wish to focus on the antitrust arguments for a moment.  In an interview with the San Francisco Gate, Harvard’s Ben Edelman sketches out an antitrust claim against Google based upon search bias; and to his credit, Edelman provides some evidence in support of his claim.

I’m not convinced.  Edelman’s interpretation of evidence of search bias is detached from antitrust economics.  The evidence is all about identifying whether or not there is bias.  That, however, is not the relevant antitrust inquiry; instead, the question is whether such vertical arrangements, including preferential treatment of one’s own downstream products, are generally procompetitive or anticompetitive.  Examples from other contexts illustrate this point.

Grocery product manufacturers contract for “bias” with supermarkets through slotting contracts and other shelf space payments.  The bulk of economic theory and evidence on these contracts suggest that they are generally efficient and a normal part of the competitive process.   Vertically integrated firms may “bias” their own content in ways that increase output.  Whether bias occurs within the firm (as is the case with Google favoring its own products) or by contract (the shelf space example) should be of no concern for Edelman and those making search bias antitrust arguments.  Economists have known since Coase — and have been reminded by Klein, Alchian, Williamson and others — that firms may achieve by contract anything they could do within the boundaries of the firm.  The point is that, in the economics literature, it is well known that content self-promoting incentives in a vertical relationship can be either efficient or anticompetitive depending on the circumstances of the situation.  The empirical literature suggests that such relationships are mostly pro-competitive and that restrictions upon the abilities of firms to enter them generally reduce consumer welfare.

Edelman is an economist, and so I find it a bit odd that he has framed the “bias” debate without reference to any of this literature.  Instead, his approach appears to be that bias generates harm to rivals and that this harm is a serious antitrust problem.  (Or in other places, that the problem is that Google exhibits bias but its employees may have claimed otherwise at various points; this is also antitrust-irrelevant.)  For example, Edelman writes:

Search bias is a mechanism whereby Google can leverage its dominance in search, in order to achieve dominance in other sectors.  So for example, if Google wants to be dominant in restaurant reviews, Google can adjust search results, so whenever you search for restaurants, you get a Google reviews page, instead of a Chowhound or Yelp page. That’s good for Google, but it might not be in users’ best interests, particularly if the other services have better information, since they’ve specialized in exactly this area and have been doing it for years.

“Leveraging” one’s dominance in search, of course, takes a bit more than bias.  But I was quite curious about Edelman’s evidence and so I went and looked at Edelman and Lockwood.  Here is how they characterize their research question: “Whether search engines’ algorithmic results favor their own services, and if so, which search engines do so most, to what extent, and in what substantive areas.”  Here is how the authors describe what they did to test the hypothesis that Google engages in more search bias than other search engines:

To formalize our analysis, we formed a list of 32 search terms for services commonly provided by search engines, such as “email”, “calendar”, and “maps”. We searched for each term using the top 5 search engines: Google, Yahoo, Bing, Ask, and AOL. We collected this data in August 2010. We preserved and analyzed the first page of results from each search. Most results came from sources independent of search engines, such as blogs, private web sites, and Wikipedia. However, a significant fraction – 19% – came from pages that were obviously affiliated with one of the five search engines. (For example, we classified results from youtube.com and gmail.com as Google, while Microsoft results included msn.com, hotmail.com, live.com, and Bing.)

Here is the underlying data for all 32 terms; so far, so good.  A small pilot study examining whether and to what extent search engines favor their own content is an interesting project — though, again, I’m not sure it says anything about the antitrust issues.  No surprise: they find some evidence that search engines exhibit some bias in favor of affiliated sites.  You can see all of the evidence at Edelman’s site (again, to his credit).  Interpretations of these results vary dramatically.  Edelman sees a serious problem.  Danny Sullivan begs to differ (“Google only favors itself 19 percent of the time”), and also makes the important point that the study took place before Yahoo searches were powered by Bing.

In their study, Edelman and Lockwood appear at least somewhat aware that bias and vertical integration can be efficient although they do not frame it in those terms.  They concede, for example, that “in principle, a search engine might feature its own services because its users prefer these links.”  To distinguish between these two possibilities, they conceive of the following test:

To test the user preference and bias hypotheses, we use data from two different sources on click-through-rate (CTR) for searches at Google, Yahoo, and Bing. Using CTR data from comScore and another service that (with users’ permission) tracks users’ searches and clicks (a service which prefers not to be listed by name), we analyze the frequency with which users click on search results for selected terms. The data span a four-week period, centered around the time of our automated searches.  In click-through data, the most striking pattern is that the first few search results receive the vast majority of users’ clicks. Across all search engines and search terms, the first result received, on average, 72% of users’ clicks, while the second and third results received 13% and 8% of clicks, respectively.

So far, no surprises.  The first listing generates greater incremental click-through than the second or third listing.  Similarly, the eye-level shelf space generates more sales than less prominent shelf space.  The authors have a difficult time distinguishing user preference from bias:

This concentration of users’ clicks makes it difficult to disprove the user preference hypothesis. For example, as shown in Table 1, Google and Yahoo each list their own maps service as the first result for the query “maps”. Our CTR data indicates that Google Maps receives 86% of user clicks when the search is performed on Google, and Yahoo Maps receives 72% of clicks when the search is performed on Yahoo. One might think that this concentration is evidence of users’ preference for the service affiliated with their search engine. On the other hand, since clicks are usually highly concentrated on the first result, it is possible that users have no such preference, and that they are simply clicking on the first result because it appears first. Moreover, since the advantage conferred by a result’s rank likely differs across different search queries, we do not believe it is appropriate to try to control for ranking in a regression.

The interesting question from a consumer welfare perspective is not what happens to the users without a strong preference for Google Maps or Yahoo Maps.  Users without a strong preference are likely to click-through on whatever service is offered on their search engine of choice.  There is no significant welfare loss from a consumer who is indifferent between Google Maps and Yahoo Maps from choosing one over the other.

The more interesting question is whether users with a strong preference for a non-Google product are foreclosed from access to consumers by search bias.  When Google ranks its Maps above others, but a user with a strong preference for Yahoo Maps finds it listed second, is the user able to find his product of choice?  Probably if it is listed second.  Probably not if it is delisted or something more severe.  Edelman reports some data on this issues:

Nevertheless, there is one CTR pattern that would be highly suggestive of bias. Suppose we see a case in which a search engine ranks its affiliated result highly, yet that result receives fewer clicks than lower results. This would suggest that users strongly prefer the lower result — enough to overcome the effect of the affiliated result’s higher ranking.

Of course this is consistent with bias; however, to repeat the critical point, this bias does not inexorably lead to — or even suggest — an antitrust problem.  Let’s recall the shelf space analogy.  Consider a supermarket where Pepsi is able to gain access to the premium eye-level shelf space but consumers have a strong preference for Coke.  Whether or not the promotional efforts of Pepsi will have an impact on competition depend on whether Coke is able to get access to consumers.  In that case, it may involve reaching down to the second or third shelf.  There might be some incremental search costs involved.  And even if one could show that Coke sales declined dramatically in response to Pepsi’s successful execution of its contractual shelf-space bias strategy, that merely shows harm to rivals rather than harm to competition.  If Coke-loving consumers can access their desired product, Coke isn’t harmed, and there is certainly no competitive risk.

So what do we make of evidence that in the face of search engine bias, click-through data suggest consumers will still pick lower listings?  One inference is that consumers with strong preferences for content other than the biased result nonetheless access their preferred content.  It is difficult to see a competitive problem arising in such an environment.  Edelman anticipates this point somewhat when observes during his interview:

The thing about the effect I’ve just described is you don’t see it very often. Usually the No. 1 link gets twice as many clicks as the second result. So the bias takes some of the clicks that should have gone to the right result. It seems most users are influenced by the positioning.

This fails to justify Edelman’s position.  First off, in a limited sample of terms, its unclear what it means for these reversals not to happen “very often.”  More importantly, so what that the top link gets twice as many clicks as the second link?  The cases where the second link gets the dominant share of clicks-through might well be those where users have a strong preference for the second listed site.  Even if they are not, the antitrust question is whether search bias is efficient or poses a competitive threat.  Most users might be influenced by the positioning because they lack a strong preference or even any preference at all.  That search engines compete for the attention of those consumers, including through search bias, should not be surprising.  But it does not make out a coherent claim of consumer harm.

The ‘compared to what’ question looms large here.  One cannot begin to conceive of answering the search bias problem — if it is a problem at all — from a consumer welfare perspective until they pin down the appropriate counterfactual.  Edelman appears to assume  — when he observes that ” bias takes some of the clicks that should have gone to the right result” — that the benchmark “right result” is that which would prevail if listings were correlated perfectly with aggregate consumer preference.   My point here is simple: that comparison is not the one that is relevant to antitrust.  An antitrust inquiry would distinguish harm to competitors from harm to competition; it would focus its inquiry on whether bias impaired the competitive process by foreclosing rivals from access to consumers and not merely whether various listings would be improved but for Google’s bias.  The answer to that question is clearly yes.  The relevant question, however, is whether that bias is efficient.   Evidence that other search engines with much smaller market shares, and certainly without any market power, exhibit similar bias would suggest to most economists that the practice certainly has some efficiency justifications.  Edelman ignores that possibility and by doing so, ignores decades of economic theory and empirical evidence.  This is a serious error, as the overwhelming lesson of that literature is that restrictions on vertical contracting and integration are a serious threat to consumer welfare.

I do not know what answer the appropriate empirical analysis would reveal.  As Geoff and I argue in this paper, however, I suspect a monopolization case against Google on these grounds would face substantial obstacles.  A deeper understanding of the competitive effects of search engine bias is a worthy project.  Edelman should also be applauded for providing some data that is interesting fodder for discussion.  But my sense of the economic arguments and existing data are that they do not provide the support for an antitrust attack against search bias against Google specifically, nor the basis for a consumer-welfare grounded search neutrality regime.

In one sense, Siva Vaidhyanathan’s new book, The Googlization of Everything (And Why Should Worry), is exactly what you would expect: an anti-Google screed that predicts a veritable techno-apocalypse will befall us unless we do something to deal with this company that supposedly “rules like Caesar.” (p. xi)  Employing the requisite amount of panic-inducing Chicken Little rhetoric apparently required to sell books these days, Vaidhyanathan tells us that “the stakes could not be higher,” (p. 7) because the “corporate lockdown of culture and technology” (p. xii) is imminent.

After lambasting the company in a breathless fury over the opening 15 pages of the book, Vaidhyanathan assures us that “nothing about this means that Google’s rule is as brutal and dictatorial as Caesar’s. Nor does it mean that we should plot an assassination,” he says. Well, that’s a relief!  Yet, he continues on to argue that Google is sufficiently dangerous that “we should influence—even regulate—search systems actively and intentionally, and thus take responsibility for how the Web delivers knowledge.” (p. xii)  Why should we do that? Basically, Google is just too damn good at what it does. The company has the audacity to give consumers exactly what they want! “Faith in Google is dangerous because it increases our appetite for goods, services, information, amusement, distraction, and efficiency.” (p. 55) That is problematic, Vaidhyanathan says, because “providing immediate gratification draped in a cloak of corporate benevolence is bad faith.” (p. 55) But this begs the question:  What limiting principle should be put in place to curb our appetites, and who or what should enforce it?

We’re All Just Sheep Being Fed the Illusion of Choice

This gets to Vaidhyanathan’s broader mission in Googlization. His book goes well beyond simply Google-bashing and serves as a fusillade against what he considers really “harmful or dangerous” which is “blind faith in technology and market fundamentalism” (p. xiii)  Unsurprisingly, a classic Marxist false consciousness narrative is at work throughout the book. Vaidhyanathan speaks repeatedly of consumer “blindness” to “false idols and empty promises.” In his chapter on “the Googlization of Us,” for example, consumers are viewed largely as ignorant sheep being led to the cyber-slaughter, tricked by the “smokescreen” of “free” online services and “freedom of choice.” (p. 83)

Indeed, even though he admits that no one forces us to use Google and that consumers are also able to opt-out of most of its services or data collection practices, Vaidhyanathan argues that “such choices mean very little” because “the design of the system rigs it in favor of the interests of the company and against the interests of users.” (p. 84)  But, again, he says this is not just a Google problem. The whole damn digital bourgeois class of modern tech capitalists is out to sedate us using the false hope of consumer choice.  “Celebrating freedom and user autonomy is one of the great rhetorical ploys of the global information economy,” Vaidhyanathan says. “We are conditioned to believe that having more choices— empty through they may be—is the very essence of human freedom. But meaningful freedom implies real control over the conditions of one’s life.”(p. 89, emphasis added)

Vaidhyanathan doesn’t really connect the dots to tell us how Google or any of the other evil capitalist overlords have supposedly conspired to take away such “real control” over the conditions of our lives. Instead, he just implies that any “choice” they offer us are “false,” “empty,” or “irrelevant” choices and that he and other elites can help us see through the web of lies (excuse the pun) and chart a better course.

By the end of chapter 3, Vaidhyanathan cuts loose and tells us exactly what he thinks of the faculties of his fellow humans.  It’s one of the most shocking and insulting paragraphs I have read in any book in recent memory. I’ve offered a little color commentary in the bracketed italics below imagining a different way of expressing what Vaidhyanathan is really saying here:

“Living so long under the dominance of market fundamentalism and techno-fundamentalism, we have come to accept the concept of choice [Choice is overrated, you see] and the exhortation of both the Isley Brothers and Madonna, “Express Yourself,” as essential to living a good life. [We can’t have people freely expressing themselves, now can we?!] So comforted are we by offers of “options” and “settings” made by commercial systems such as Facebook and Google that we neglect the larger issues.  [Again, you people are all just mindless sheep who are easily confused and seduced by “options” and “settings”] We weave these services so firmly and quickly into the fabrics of our daily social and intellectual lives that we neglect to consider what dependence might cost us. [All these free “options” are killing us] And many of us who are technically sophisticated can tread confidentially through the hazards of these systems [me and my Ivory Tower elite buddies are sagacious and see through the lies…], forgetting that the vast majority of people using them are not aware of their pitfalls or the techniques by which users can master them. [… but the rest of you are just dumb as dirt.] Settings only help you if you know enough to care about them. [I’m serious, you common folk are really ignorant.] Defaults matter all the time. Google’s great trick [again, you’re being brainwashed; allow me to show you the light] is to make everyone feel satisfied with the possibility of choice [Have I told you about Marxist false consciousness theory yet?], without actually exercising it to change the system’s default settings.”  (p. 113-4)

How utterly condescending. Sadly, such elitist “people-are-sheep” thinking is all too common in many recent books about the Internet’s impact on society. See my reviews of recent books by Andrew Keen, Mark Helprin, Lee Siegel and even to some extent Jaron Lanier. For more discussion and a critique of this thinking, see my recent book chapter, “The Case for Internet Optimism, Part 1: Saving the Net from Its Detractors.” Simply stated, these critics simply don’t give humanity enough credit and they utterly fail to recognize how humans excel at adapting to change.

The One True Way & The Royal “We”

Regardless, what does Vaidhyanathan want to do to improve the lives of the cyber-sheep since they obviously don’t know how to look out for themselves? In essence, he wants a precautionary principle for technological progress. He believes progress must be carefully planned to ensure that (a) no harms come from it and, (b) that all benefit equally from its riches when it occurs. More specifically, progress needs to be centrally planned through a political process so that we have more of a say about the future.  (More on that royal “we” in a moment.)

Vaidhyanathan bemoans what he calls “public failure” by which he means the absence of political solutions or an over-arching “authority” that sets us on a more enlightened path. “There was never any election to determine the Web’s rulers,” he says.  “No state appointed Google its proxy, its proconsul, or its viceroy. Google just stepped into the void when no other authority was willing or able to make the Web stable, usable, and trustworthy.” (p. 23)

But should there have been an “election to determine the Web’s rulers”? And who is this “other authority” that should have “stepped into the void” and made the Web more “stable, usable, and trustworthy”?  Like so many other would-be cyber-planners, Vaidhyanathan never details what better plan could have saved us from the supposedly tyranny of the marketplace. We’re simply told that someone or something could have done it better.  Web search could have been better. Digitized book archiving could have been done better. Online news could have been done better.  And so on.

Because Google has touched each of these areas, Vaidhyanathan makes the company his scapegoat for all that is supposedly wrong in the modern digital world. But the “Googlization” of which he speaks transcends one company and refers more generally to any and all private, market-based responses to the challenges of the Information Age. Again, it is the fact that such market processes are so messy and uneven that has Vaidhyanathan so incensed. How could we — and his royal we inevitably refers to the political or academic elites who supposedly should have been looking out for us — have allowed this process to unfold without a more sensible plan?

The Centralization of Everything (And Why We Should Worry)

In terms of longer-term solutions, Vaidhyanathan doesn’t shy away from using a term that most other critics shy away from: centralization. Although he is short on details about whom the technocratic vanguard will be that will lead the effort to take back the reins of power, he’s at least got a name for it and plan of action.  Vaidhyanathan calls for the creation of “The Human Knowledge Project” to “identify a series of policy challenges, infrastructure needs, philosophical insights, and technological challenges with a single realizable goal in mind: to organize the world’s information and make it universally accessible.” (p. 204-5)

Why do we need such a Politburo Project when countless other entities, including Google, are working spontaneously to accomplish the same goal through diffuse efforts? Because, Vaidhyanathan says, “it’s better to have these things argued in a deliberative forum than decided according to the whims of market forces, technological imperatives, and secretive contracts.” (p. 205) But Vaidhyanathan’s call for a centralized vision and plan of action also comes down to his fundamental distrust of market processes in knowledge and his over-arching faith in the wisdom of the technocratic elite to chart a more sensible path forward. “It’s more important to do it right than to do it fast.  It’s more important to have knowledge sources that will work one hundred years from now than to have a collection of poor images that we can see next week.” (p. 204)

From these statements we can obviously deduce that Vaidhyanathan doesn’t much believe in the power of markets, but it’s equally clear he doesn’t really seem to understand them. Markets are simply learning and discovery processes. They are ongoing experiments. And experiments can be messy. They can be turbulent. They can be uneven. But the process of experimentation and discovery has valuable benefits that cannot be centrally planned or divined by a technocratic elite preemptively.

Vaidhyanathan doesn’t like that fact very much. He is a believer in the proverbial “better path” or One True Way.  Yet, when Vaidhyanathan says “it’s more important to do it right,” the operational assumption is that we already know what “it” is and how to do it “right.” And when he suggests “it’s more important to have knowledge sources that will work one hundred years from now,” it suggest that somewhere out there a more enlightened path exists and that he and some other elites in the Human Knowledge Project apparently possess a map to guide us to it.

This is the height of hubris. There is no way in hell any of us could know which “knowledge sources” will work one hundred years from now or even 10 years from now, for that matter. That is precisely where markets come in. Organic, bottom-up, unplanned experimentation is valuable precisely because of the limitations of human knowledge and planning.  Wikipedia, for example, isn’t the product a highly planned, centralized vision set forth by some massive information bureaucracy. I doubt a “Human Knowledge Project” could have designed such a thing from scratch 10 years ago. Instead, they would have likely started with Encyclopedia Britannica and Encarta as models and then spent billions trying to figure out how to make them better.

Worse yet, Vaidhyanathan treats technological progress as a zero-sum game. He says, for example, that “it’s more important to link poor children in underdeveloped regions with knowledge than to quicken the pace of access for those of us who already live among more information than we could possibly use.” (p. 204) Substitute the word “money” for “knowledge/information” in the above passage and you’ll discover the typical zero-sum thinking behind much global development thinking today.  The traditional reasoning: Some of us are lucky enough to have money or resources and that means we must be depriving others of them. That’s faulty logic, of course. Simply because one region or economy prospers it does not mean others must suffer. The same goes for information policy. We can do more to aid the poor and unconnected in underdeveloped regions without depriving information-rich countries and peoples the benefits of more and better services. After all, who is Vaidhyanathan to say that we already have “more information than we could possibly use”? Is there a meter running on how much information is too much for us?

The Unconstrained Vision, Once Again

The scope of centralized planning that Vaidhyanathan envisions the Human Knowledge Project undertaking is ambitious to say the least. In the abstract, he says: “The post-Google agenda of the Human Knowledge Project would be committed to outlining the values and processes necessary to establish and preserve a truly universal, fundamentally democratic global knowledge ecosystem and public sphere.” (p. 206) More concretely:

“The Human Knowledge Project would consider questions of organization and distribution at every level: the network, the hardware, the software, the protocols, the laws, the staff, the administrators, the physical space (libraries), the formats for discrete works, the formats for reference works such as dictionaries and encyclopedias, the formats for emerging collaborative works, and the spaces to facilitate collaboration and creativity.” (p. 206-7)

Needless to say, there isn’t much that this veritable Ministry of Information wouldn’t be considering or planning.  Vaidhyanathan repeats, however, that it would constitute “public failure” if we failed to institute such a plan for the future.

Of course, there’s another definition of “public failure” that Vaidhyanathan never bothers considering. It’s the “public failure” identified by public choice economists and political scientists who have meticulously documented the myriad ways in which politics and political processes fail to achieve the idealistic “public interest” goals of set forth by Ivory Tower elites.  For example, Vaidhyanathan never bothers considering how expanded the horizons of state power in the ways he wishes might become an open invitation for even more of the corporate shenanigans he despises.  After all, history teaches us that regulatory capture is all too real.

But Vaidhyanathan doesn’t have much time for such meddlesome details.  He’s too busy trying to save the world. Vaidhyanathan is a near perfect exponent of what political scientist Thomas Sowell once labeled “the unconstrained vision.”  A long line of thinkers—Plato, Rousseau, Voltaire, Robert Owen, John Kenneth Galbraith, John Dewey, John Rawls—have argued that man is inherently unconstrained and that society is perfectible; it’s just a matter of trying hard enough. In this vision, passion for, and pursuit of, noble ideals trumps all. Human reason has boundless potential.

Unsurprisingly, therefore, this crowd believes that order and justice derives from smart planning, often from the top-down. Elites are expected to make smart social and economic interventions to serve some amorphous “public interest.” Smart solutions and good intentions matter most and there’s little concern about costs or unintended consequences of political action. Finally, desired outcomes are pre-scripted and distributive or “patterned” justice is key. Because markets cannot ensure the precise results they desire, they must be superseded by centralized planning and patterned, equal outcomes.

Of course, back in the real world, the rank hubris of the unconstrained mindset conflicts violently with economic and cultural realities at every juncture. As Friedrich von Hayek taught us long ago, “To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.” It’s a lesson that many countries and cultures have learned at great expense, but one that utopians like Vaidhyanathan still ignore.

More generally, Vaidhyanathan is trapped in what Virginia Postrel labeled the “stasis mentality” in her 1998 book The Future and Its Enemies. The stasis crowd is prone to take short-term snapshots of the world around us at any given time and extrapolate only the worst from it. “It overvalues the tastes of an articulate elite, compares the real world of trade-offs to fantasies of utopia, omits important details and connections, and confuses temporary growing pains with permanent catastrophes,” Postrel noted.  This mindset is precisely what economist Israel Kirzner had in mind when warned in of “the shortsightedness of those who, not recognizing the open-ended character of entrepreneurial discovery, repeatedly fall into the trap of forecasting the future against the background of today’s expectations rather than against the unknowable background of tomorrow’s discoveries.”

This insidious, short-sighted, overly pessimistic worldview is contradicted at almost every juncture today by the fact that—at least technologically speaking—things are getting better all the time. There’s never been a period in human history when we’ve had access to more technology, more information, more services, more of just about everything. While we humans have wallowed in information poverty for the vast majority of our existence, we now live in a world of unprecedented information abundance and cultural richness.

Critics like Siva Vaidhyanathan will, no doubt, persist in their claims that there is “a better path,” but the path we’re on right now isn’t looking so bad and does not require the radical prescriptions he and others call for. Moreover, the alternative vision doesn’t begin with the insulting presumption that humans are basically just mindless sheep who can’t look out for themselves.

________

[To hear Vaidhyanathan in his own words, check out his Surprisingly Free podcast conversation with Jerry Brito this week as well as the webpage for his book.]

For my contribution to Berin Szoka and Adam Marcus’ (of TechFreedom fame) awesome Next Digital Decade book, I wrote about search engine “neutrality” and the implicit and explicit claims that search engines are “essential facilities.” (Check out the other essays on this topic by Frank Pasquale, Eric Goldman and James Grimmelmann, linked to here, under Chapter 7).

The scare quotes around neutrality are there because the term is at best a misnomer as applied to search engines and at worst a baseless excuse for more regulation of the Internet.  (The quotes around essential facilities are there because it is a term of art, but it is also scary).  The essay is an effort to inject some basic economic and legal reasoning into the overly-emotionalized (is that a word?) issue.

So, what is wrong with calls for search neutrality, especially those rooted in the notion of Internet search (or, more accurately, Google, the policy scolds’ bête noir of the day) as an “essential facility,” and necessitating government-mandated access? As others have noted, the basic concept of neutrality in search is, at root, farcical. The idea that a search engine, which offers its users edited access to the most relevant websites based on the search engine’s assessment of the user’s intent, should do so “neutrally” implies that the search engine’s efforts to ensure relevance should be cabined by an almost-limitless range of ancillary concerns. Nevertheless, proponents of this view have begun to adduce increasingly detail-laden and complex arguments in favor of their positions, and the European Commission has even opened a formal investigation into Google’s practices, based largely on various claims that it has systematically denied access to its top search results (in some cases paid results, in others organic results) by competing services, especially vertical search engines. To my knowledge, no one has yet claimed that Google should offer up links to competing general search engines as a remedy for its perceived market foreclosure, but Microsoft’s experience with the “Browser Choice Screen” it has now agreed to offer as a consequence of the European Commission’s successful competition case against the company is not encouraging. These more superficially sophisticated claims are rooted in the notion of Internet search as an “essential facility” – a bottleneck limiting effective competition. These claims, as well as the more fundamental harm-to-competitor claims, are difficult to sustain on any economically-reasonable grounds. To understand this requires some basic understanding of the economics of essential facilities, of Internet search, and of the relevant product markets in which Internet search operates.

The essay goes into much more detail, of course, but the basic point is that Google’s search engine is not, in fact, “essential” in the economically-relevant sense.  Rather, Google’s competitors and other detractors have basically built precisely the most problematic sort of antitrust case, where success itself is penalized (in this case, Google is so good at what it does it just isn’t fair to keep it all to itself!).

Search neutrality and forced access to Google’s results pages is based on the proposition that—Google’s users’ interests be damned—if Google is the easiest way competitors can get to potential users, Google must provide that access.  The essential facilities doctrine, dealt a near-death blow by the Supreme Court in Trinko, has long been on the ropes.   It should remain moribund here.  On the one hand Google does not preclude, nor does it have the power to preclude, users from accessing competitors’ sites; all users need do is type “www.foundem.com” into their web browser—which works even if it’s Google’s own Chrome browser!  To the extent that Google can and does limit competitors’ access to its search results page, it is not controlling access to an “essential facility” in any sense other than Wal-Mart controls access to its own stores.  “Google search results generated by its proprietary algorithm and found on its own web pages” does not constitute a market to which access should be forcibly granted by the courts or legislature.

The set of claims that are adduced under the rubric of “search neutrality” or the  “essential facilities doctrine” against Internet search engines in general and, as a practical matter, Google in particular, are deeply problematic.  They risk encouraging courts and other decision makers to find antitrust violations where none actually exist, threatening to chill innovation and efficiency-enhancing conduct.  In part for this reason, the essential facilities doctrine has been relegated by most antitrust experts to the dustbin of history.

The full text of my essay is below, but you can also find it at SSRN and the book’s website.

The Problem of Search Engines as Essential Facilities (Geoffrey A. Manne) http://d1.scribdassets.com/ScribdViewer.swf

Today comes news that Senator Kohl has sent a letter to the DOJ urging “careful review” of the proposed Google/ITA merger. Underlying his concerns (or rather the “concerns raised by a number of industry participants and consumer advocates that I believe warrant careful review”) is this:

Many of ITA’s customers believe that access to ITA’s technology is critical to competition in online air travel search because it cannot be matched by other players in the travel search industry. They claim that ITA’s superior access to information and superior technology enables it to provide faster and better results to consumers. As a result, some of these industry participants and independent experts fear that the current high level of competition among online travel agents and metasearch providers could be undermined if Google were to acquire ITA and start its own OTA or metasearch service. If this were to happen, they argue, consumers would lose the benefits of a robustly competitive online air travel market.

For several reasons, these complaints are without merit and a challenge to the Google/ITA merger would be premature at best—and a costly mistake at worst. The high-tech market is innovative and dynamic. Goods and services that were once inconceivable are now indispensable, and competition has improved the quality of technology while driving down its costs. But as the market continues to change, antitrust interventions are stuck using a static regulatory framework. As the government develops a strategy for regulating competition in the digital marketplace, it must tread carefully—excessive intervention will stifle innovation, harm consumers, and prevent growth. And given the link between innovation and economic growth, the stakes of “getting it right” are high. The individual nature of every decision, however, makes errors in antitrust enforcement inevitable. Some conduct that is bad for competition will be allowed to go on while some conduct that is good for competition will be blocked by intervention.

But prosecuting pro-competitive conduct is almost certainly more costly than mistakenly allowing anticompetitive conduct because mechanisms are in place to mitigate the latter but not the former. The cost of erroneous intervention is the loss to consumers directly and a deterrent effect on innovation—for fear of intervention, companies may not take large risks. Meanwhile, allowing conduct to persist amidst uncertainty allows the potential benefits of conduct to materialize while maintaining checks against practices that are bad for consumers: both the competitive marketplace and future enforcers have the power to mitigate specific anticompetitive outcomes that may arise. Unfortunately, current antitrust enforcement—abetted by influential congressmen like Senator Kohl—is more, rather than less, aggressive against innovative companies in high-tech industries. This aggression threatens to stifle growth and deter future innovation in a market with incredible potential.

Google has become a primary target of this scrutiny, and the company’s proposed acquisition of ITA, a software company that compiles and processes travel data, is a good example of aggressive scrutiny threatening to stifle growth.

Google’s acquisition of ITA is a straightforward merger where one company has decided to purchase another outright (instead of merely purchasing its services through contract). There are good reasons for integration. Most notably, Google gets to exercise direct control over ITA’s talented engineers if it owns ITA—influence that it would not have if the company simply signed a contract with ITA. If Google is correct that it can manage ITA’s resources better than ITA’s current management, then integration makes sense and is valuable for consumers.

The primary concern raised over Google’s proposed acquisition of ITA is that acquisition would “leverage” Google’s alleged dominance into another market—the online travel search market—and permit Google to prevent its competitors from accessing ITA’s high-quality analysis of flights and fares. There are a few problems with this.

• First, ITA does not provide or own the underlying data (this comes from the airlines themselves); rather it works only to analyze and process it—processing that other companies can and do undertake. It may have developed superior technology to engage in this processing, but that is precisely why it (and consumers) should not be penalized by its competitors’ efforts to hamstring it. Remember—although most of the hand-wringing surrounding this deal concerns Google, it is first and foremost the innovative entrepreneurs at ITA who would be prevented from capitalizing on their success if the deal is stopped.
• Second, it is hard to see why, under the facts as alleged by the deal’s naysayers, consumers would be worse off if Google owns ITA than if ITA stands on its own. The claims seem to turn on ITA’s indispensability to the online travel industry. But if ITA is so indispensable—if it possesses such market power, in other words—it’s hard to see how its incentives to capitalize on that market power would change simply by virtue of a change in its management. Either ITA possesses market power and is already taking advantage of it (or else its managers are leaving money on the table and it most certainly should be taken over by another set of managers) or else it does not actually possess this market power and its combination with Google, even if Google were to keep all of ITA’s technology for itself, will do little to harm the rest of the industry as its competitors step up and step in to take its place.
• Third and related to these is the simple repugnance of hamstringing successful entrepreneurs because of the exhortations of their competitors, and the implication that a successful company’s work product (like ITA’s “superior technology”) must be rendered widely-available, by government force if necessary.
• Meanwhile, Google does not seem to have any interest in selling airline tickets or making airline reservations (just as it doesn’t sell the retail goods one can search for using its site). Instead, its interest is in providing its users easy access to airline flight and pricing data and giving online travel agencies the ability to bid on the sale of tickets to Google users looking to buy. The availability of this information via Google search will lower search costs for consumers and the expected bidding should increase competition and drive down travel costs for consumers. It is easy to see why companies like Kayak and Bing Travel and Expedia and Travelocity might be unhappy about this, but far more difficult to see how their woes should be a problem for the antitrust enforcers (or Congress, for that matter).

The point is not that we know that Google—or any other high-tech company’s—conduct is pro-competitive, but rather that the very uncertainty surrounding it counsels caution, not aggression. As the technology, usage and market structure change, so do the strategies of the various businesses that build up around them. These new strategies present unknown and unprecedented challenges to regulators, and these new challenges call for a deferential approach. New conduct is not necessarily anticompetitive conduct, and if our antitrust regulation does not accept this, we all lose.

[Cross-posted at Truth on the Market]

[Cross-posted at Truth on the Market]

Here we go again.  The European Commission is after Google more formally than a few months ago (but not yet having issued a Statement of Objections).

For background on the single-firm antitrust issues surrounding Google I modestly recommend my paper with Josh Wright, Google and the Limits of Antitrust: The Case Against the Antitrust Case Against Google (forthcoming soon in the Harvard Journal of Law & Public Policy, by the way).

According to one article on the investigation (from Ars Technica):

The allegations of anticompetitive behavior come as Google has acquired a large array of online services in the last couple of years. Since the company holds around three-quarters of the online search and online advertising markets, it is relatively easy to leverage that dominance to promote its other services over the competition.

(As a not-so-irrelevant aside, I would just point out that I found that article by running a search on Google and clicking on the first item to come up.  Somehow I imagine that a real manipulative monopolist Google would do a better job of white-washing the coverage if its ability to tinker with its search results is so complete.)

More to the point, these sorts of leveraging of dominance claims are premature at best and most likely woefully off-base.  As I noted in commenting on the Google/Ad-Mob merger investigation and similar claims from such antitrust luminaries as Herb Kohl:

If mobile application advertising competes with other forms of advertising offered by Google, then it represents a small fraction of a larger market and this transaction is competitively insignificant.  Moreover, acknowledging that mobile advertising competes with online search advertising does more to expand the size of the relevant market beyond the narrow boundaries it is usually claimed to occupy than it does to increase Google’s share of the combined market (although critics would doubtless argue that the relevant market is still “too concentrated”).  If it is a different market, on the other hand, then critics need to make clear how Google’s “dominance” in the “PC-based search advertising market” actually affects the prospects for competition in this one.  Merely using the words “leverage” and “dominance” to describe the transaction is hardly sufficient.  To the extent that this is just a breathless way of saying Google wants to build its business in a growing market that offers economies of scale and/or scope with its existing business, it’s identifying a feature and not a bug.  If instead it’s meant to refer to some sort of anticompetitive tying or “cross-subsidy” (see below), the claim is speculative and unsupported.

The EU press release promotes a version of the “leveraged dominance” story by suggesting that

The Commission will investigate whether Google has abused a dominant market position in online search by allegedly lowering the ranking of unpaid search results of competing services which are specialised in providing users with specific online content such as price comparisons (so-called vertical search services) and by according preferential placement to the results of its own vertical search services in order to shut out competing services.

The biggest problem I see with these claims is that, well, they make no sense.

First, if someone is searching for a specific vertical search engine on Google by typing its name into Google, it will invariably come up as the first result.  If one is searching for price comparison sites more generally by searching in Google for “price comparison sites” lots of other sites top the list before Google’s own price comparison site shows up.  If one is searching for a specific product and hoping to find price comparisons on Google, why on Earth would that person be hoping to find not Google’s own efforts at price comparison, built right into its search engine, but instead a link to another site and another several steps before finding the information?  As a practical matter, Google doesn’t actually do this particularly well (not as well as Bing, in any case, where the link to its own shopping site almost always comes up first; on Google I often get several manufacturer or other retailer sites before Google’s comparison shopping link appears further down the page).

But even if it did, it’s hard to see how this could be a problem.  The primary reason for this?  Google makes no revenue (that I know of) from users clicking through to purchase anything from its shopping page.  The page has paid search results only at the bottom (rather than the top as on a normal search page), the information is all algorithmically generated, and retailers do not pay to have their information on the page.  If this is generating something of value for Google it is doing so only in the most salutary fashion: By offering additional resources for users to improve their “search experience” and thus induce them to use Google’s search engine.  Of course, this should help Google’s bottom line.  Of course this makes it a better search engine than its competitors.  These are good things, and the fact that Google offers effective, well-targeted and informative search results, presented in multiple forms, demonstrates its (and the industry’s as a whole) degree of innovation and effort–the sort of effort that is typically born out of vibrant competition, not the complacency of a fat, happy monopolist.  The claim that Google’s success harms its competitors should fall on deaf ears.

The same goes for claims that Google favors its own maps, by the way–to the detriment of MapQuest (paging Professor Schumpeter . . . ).  Look for the nearest McDonalds in Google and a Google Map is bound to top the list (but not be the exclusive result, of course).  But why should it be any other way?  In effect, what Google does is give you the Web’s content in as accessible and appropriate a form as it can.  By offering not only a link to McDonalds’ web site, as well as various other links, but also a map showing the locations of the nearest restaurants, Google is offering up results in different forms, hoping that one is what the user is looking for.  Why on Earth should Google be required to use someone else’s graphical presentation of the nearby McDonalds restaurants rather than its own simply because the presentation happens to be graphical rather than in a typed list?

So what’s going on?

First off, in essence, the EU is taking up the argument put forth by (the EU’s very own) Foundem in its complaint against Google.  Foundem is a UK price comparison site.  It claims that it was targeted by Google and demoted in Google’s organic search results.  Its argument is laid out here.  But Google responds that it is simply applying its algorithm to the site (along with all other sites) and finds some things lacking.  In fact, all Foundem does, in essence, is pull information from other sites and present it on its own.  While in general this is little different than what Google does (although the quality of the information and its presentation may be different), from the point of view of a user who has already searched once in Google, the prospect of Google serving up sites requiring the user to make duplicate searches in other search engines to find the information she is looking for would seem to be pretty poor.  In part for this reason Google disfavors sites in its searches that simply duplicate other sites’ content.  While Foundem may offer something more than the typical spam site that Google intends to block, this fact is not immediately obvious (and, for what it’s worth, apparently Google was eventually convinced of the difference and has lifted the “penalty” formerly imposed on Foundem).

To make an antitrust claim out of this, one has to adopt a sort of “essential facilities” stance with respect to Google, in essence claiming that (Google’s users’ interests be damned) if Google is the only way users can get to its competitors’ sites, it must provide that access.  The essential facilities doctrine, dealt a near-death blow by the Supreme Court in Trinko, has long been on the ropes.  As Areeda and Hovenkamp said of it, “the essential facility doctrine is both harmful and unnecessary and should be abandoned.”  That is true in this case, as in the others before it.  On the one hand Google does not preclude, nor does it have the power to preclude, users from accessing Foundem’s site:  all they need do is type “www.foundem.com” into a web browser.  To the extent that Google can and does (or did) limit Foundem’s access to its search results page, it is not controlling access to an “essential facility” in any sense other than Wal-Mart controls access to its own stores.  “Google search results generated by its proprietary alogrithm and found on its own web pages” is not a market to which access should be forcibly granted by the courts or legislature.  While Europe takes a less critical view of the doctrine (see Microsoft), it shouldn’t.

And as Josh has pointed out, Microsoft’s fingerprints are all over these cases (see also here and here where Microsoft Deputy General Counsel, Dave Heiner, essentially lays out the unfortunate state of play in this arena–a state of play that has ensnared Microsoft in the past).  The relevance of which is just this: When the EU went after Microsoft itself, many of us decried the case in part as a witch hunt by competitors looking for advantage through regulatory means when they were unable to get it through innovation, marketing and the like.  The case against Google in the EU looks to be following the same unfortunate pattern, and even the same unfortunate case-law.  Even if it is not true that the EU actually behaves in this fashion (indeed, appearances can be deceiving, sometimes a cigar is just a cigar, etc., etc.), it is costly to everyone that it is so widely perceived to do so.  This case doesn’t help matters.  It has always been true that the Holy Grail (to its competitors) of a Section 2 (or Dominance) case against Google was a substantive stretch but a near-inevitability nonetheless.  But as Josh and I conclude our paper:

Indeed, it is our view that in light of the antitrust claims arising out of innovative contractual and pricing conduct, and the apparent lack of any concrete evidence of anticompetitive effects or harm to competition, an enforcement action against Google on these grounds creates substantial risk for a “false positive” which would chill innovation and competition currently providing immense benefits to consumers.

The cost of poorly-considered, seemingly politicized, competitor-induced antitrust cases is substantial.

Congressmen working on national intelligence and homeland security either don’t know how to secure their own home Wi-Fi networks (it’s easy!) or don’t understand why they should bother. If you live outside the Beltway, you might think the response to this problem would be to redouble efforts to educate everyone about the importance of personal responsibility for data security, starting with Congressmen and their staffs. But of course those who live inside the Beltway know that the solution isn’t education or self-help but… you guessed it… to excoriate Google for spying on members of Congress (and bigger government, of course)!

Consumer Watchdog (which doesn’t actually claim any consumers as members) held a press conference this morning about their latest anti-Google stunt, announced last night on their “Inside Google” blog: CWD drove by five Congressmen’s houses in the DC area last week looking for unencrypted Wi-Fi networks. At Jane Harman’s (D-CA) home, they found two unencrypted networks named “Harmanmbr” and “harmantheater” that suggest the networks are Harman’s. So they sent Harman a letter demanding that she hold hearings on Google’s collection of Wi-Fi data, charging Google with “WiSpying.” This is a classic technopanic and the most craven, cynical kind of tech politics—dressed in the “consumer” mantle.

The Wi-Fi/Street View Controversy

Rewind to mid-May, when Google voluntarily disclosed that the cars it used to build a photographic library of what’s visible from public streets for Google Maps Street View had been unintentionally collecting small amounts of information from unencrypted Wi-Fi hotspots like Harman’s. These hotspots can be accessed by anyone who might drive or walk by with a Wi-Fi device—thus potentially exposing data sent over those networks between, say, a laptop in the kitchen, and the wireless router plugged into the cable modem.

Google’s Street View allows you to virtually walk down any public street and check out the neighborhood—making it easier to navigate to your intended destination, explore a neighborhood you might be thinking of moving to from out of town, point out potential maintenance or streetscape problems to your city, and any number of other wonderfully useful, totally benign things that you could do anyway if you just walked down the street with a camera or a notepad! CWD’s letter tries to outrage Harman by telling her: “Your home is on display for the entire Internet with just a few clicks of a computer mouse.” So what? It’s on display to anyone walking or driving down the street, too! If you don’t like that, put up a fence or landscaping to block the view—or move out of the suburbs to a more remote location!

The Street View cars that take these photos from cameras on their roofs were also equipped with Wi-Fi devices that, much like any Wi-Fi device, look for Wi-Fi hotspots within range. (Just look for “available networks” the next time you’re at a laptop and you’ll see what I mean). This isn’t part of some evil Google conspiracy to “track consumers in their homes,” as CWD alleges. Rather, building a map of wireless hotspots allows any consumer using, say, Google Maps to determine their location more accurately and quickly than would otherwise be possible: If my phone sees 6 hotspots nearby and Google can correlate that data with the pre-existing map of Wi-Fi networks generated by Street View cars, this helps Google Maps pinpoint my location—which make directions and other location-based services work better for me in the future.

But the Street View Wi-Fi software was accidentally misconfigured to capture all wireless data packets (chunks of data) they picked up as Street View cars drove by hotspots, regardless of whether those packets are data packets (potentially containing data sent by users over their home networks) or “beacon” packets that simply announce the presence of a network, and regardless of whether the packets were sent from an unsecured or secured network. The software was designed to discard any data packets from encrypted networks, but not from unsecured networks. Google claims this was an accident, and some security experts agree. Google has promised dispose of all of the data accidentally collected (beyond SSID names).

In early June, Google commissioned an independent analysis, which confirmed that the Wi-Fi software “does not analyze or parse the body of Data frames, which contain user content” and that such data frame bodies would be stored only if sent over an unencrypted wireless network but discarded if sent over an encrypted network. Translation: Google didn’t use any of the packet data it collected.

Some have suggested that Google  should have collected only the network naems (“SSIDs”) from the beacon packets, or perhaps no Wi-Fi data at all. But as cyber-security consultant Robert Graham explained in detail shortly after this story first broke, building an accurate network map with fast-moving vehicles requires collecting as many packets as possible. Again, the better the map, the greater the accuracy of Google’s location-based services for consumers.

Bottom line: Google made a mistake in failing to discard user data after collection but otherwise had good pro-consumer reasons for what it was doing. But why let the facts get in the way of a good PR hit-job? CWD just did essentially the same thing Google’s Street View cars did, driving by Harman’s house to look for unencrypted hotspots. But they went a step further, actually publishing the names of two networks at Harman’s home. If any company had published network names tied to street addresses, privacy advocates would have thrown a fit. But when Consumer Watchdog actually publishes such information… hey, it’s an expose!

And if you were wondering where Rep. Harman lives, you could start by looking her up in publicly available databases, like the Huffington Post’s campaign finance donation database (she’s not in the white pages, that other Orwellian data set few seem to care about). It’s all fine and well for the government to put our name, address and employer online every time we make a donation to a political candidate (along with the donation recipient and amount) because that’s “Transparency.” (Never mind the constitutionally protected right of non-profits like CWD to keep their donor lists private, while other groups like my own think tank voluntarily disclose such info.) But if Google puts up photos of what anyone can see from the street or attempts to map wireless networks to help us all get better, faster free location-based services with our mobile devices… well, that‘s an outrage!

Cyber-Security Begins at Home

Even more galling is that the Senate is rushing to pass legislation giving government sweeping new powers to protect our “national assets” in cyberspace. But cyber-security truly begins at home—with taking a few minutes to secure our own Wi-Fi networks, and then dealing with the hassle of having to remember the password every time we want to authorize a new device. If members of Congress can’t be expected to take responsibility for that, why should we trust them with responsibility over cyber-security on a national level?

This controversy should highlight the need for consumers—especially Congressmen and other government employees—to secure their home Wi-Fi hotspots. While most people who log onto unsecure Wi-Fi networks are perfectly harmless, failing to secure your network could lead to real harms like identity theft—or perhaps even the theft of sensitive data. But those problems aren’t caused by, or even made worse by, Google’s efforts to map Wi-Fi networks. So haranguing Google won’t fix the problem.

But was national security compromised, as CWD claims? Ms. Harman and other Congressmen do have to follow established security procedures, like using encrypted data cards, before accessing sensitive—and, certainly, classified—information. So it seems pretty unlikely that Google could actually have gotten access to any sensitive data even if they had wanted to. Again, their cars were driving by houses, picking up only very small amounts of data from unencrypted networks (unlike the dedicated hacker who might park out front and log data for hours). But if truly sensitive information can be picked up that easily, the Federal government really needs to get its own house—and its telecommuting employee’s houses—in order! If that means sending out a nerd who can set up secure Wi-Fi networks in the Congresswoman’s home (or just follow these simple instructions), that’s probably a smart expenditure of tax dollars.

But that’s the kind of serious discussion we should be having—instead continually looking to breathe new life into a contrived controversy with further innuendo and fear-mongering.

I’m a big fan of CNET’s “Buzz Out Loud” podcast and often enjoy co-host Molly Wood’s occasional “Molly Rant” but I’m disappointed to see her jumping on the Google-bashing bandwagon with her latest rant: “Google Buzz: Privacy nightmare.” Instead of appreciating the “privacy by design” features of Buzz, she seems to be rushing to privacy paternalism—just as I feared many would when I blogged about the Buzz launch.

Molly’s primary complaint, repeated several times, is that “you automatically follow everyone in your Gmail contact list, and that information is publicly available in your profile, by default, to everyone who visits your profile.” Actually, while Buzz does automatically follow some users your contact list, it does so only for the ones you chat with most using Gmail (which I believe means only other Gmail users). After that, Buzz simply tells you when other users follow you, and makes it easy to follow them.

So what’s the big deal? Molly’s concern, shared by a number of other bloggers, is that, before a user can start Buzzing, they have to set up Google Profile (another Google product launched last August, which typically appears on the bottom of the first page of Google search results for that name) and the default setting for Google profiles is to “Display the list of people I’m following and people following me.” In this respect, your Google Profile is a lot like your Facebook profile, except that users can decide to hide their followers/followees on their Google profile. (On Facebook, that information is part of the limited bucket of “publicly available information” and can’t be hidden by the user from their profile, but users can opt-out of having their profile accessible at all through search engines or Facebook search.)

There are essentially three ways of dealing with this concern about inadvertent sharing of sensitive contacts:

1. Buzz could autofollow no one—in which case many users would probably log in, see no Buzzes from other users because they’re not yet following anyone, wonder what all the fuss is about, and abandon the service without really getting the sample experience that having a small set of automatically added followers provides.
2. Gogole could change the default setting for Google profiles not to “Display the list of people I’m following and people following me.” This change in default would make a huge difference in just how easy it is to build out one’s social network, since the best way to find friends you may not have in your own contact book is to look at the list of users your friends are following.
3. Google provide clearer notice to users to remind them that their most frequent contacts may be publicly visible on their Gooogle profile—which is exactly what Google implemented earlier today by adding the text shown in this splash screen for initial creation of a Google Profile:

Somehow, I suspect that won’t be good enough for her and many other users complaining about this. I wouldn’t be surprised to see the privacy paternalists at EPIC filing another complaint with the FTC arguing that users are too stupid to figure this out for themselves, so the government has to do it for them—no matter the costs to other users in added hassle and a less useful network.

There just isn’t anything wrong with encouraging consumers to use your product rather than making it hard for them to get involved. The success of any social network in achieving a critical mass of vibrant, broad-based participation depends critically on differences as small as whether a user sees a few users when they first start out—or just an empty Inbox. Ban things like autofollowing, no matter how transparent to the user and easy to over-ride they might be, and you’ll make it a lot harder for the next social networking service to get off the ground—and pose a challenge to Google, Facebook and Twitter.

Molly’s next complaint:

let’s say you’ve customized your Google profile page with the vanity URL Google helpfully offers at the bottom of the page. Well, that’d be your e-mail handle. Anytime anyone does an @ reply to you, they’ve broadcast your e-mail address to the world.

True indeed. But she fails to mention that the vanity URL (in my case, http://www.google.com/profiles/berin.szoka) is purely opt-in.  When a user first sets up a Google Profile, they’re given a non-identifying string for their URL that doesn’t tie to their email address. Just above the option to opt-in to the vanity email is this explanation (emphasis added):

To make it easier for people to find your profile, you can customize your URL with your Google email username. (Note this can make your Google email address publicly discoverable.) This unique name will also be used in other links to your content on Google. To help others discover your profile, in some Google services contacts who know your email address will see a link to your profile

So… what more should Google to do? I guess they could bold and italicize the warning as I’ve done…

She’s even more clearly mistaken about the way Buzz works on mobile phones (as one commenter noted):

there are no preferences in the Android app–no way, near as I can tell–to choose to broadcast only to the list of people you follow or a group you’ve established, as you can in the Web interface. So be equally prepared for everyone around you to know who you are and where you are when you post to Buzz from your phone. Yeah, no, really. I’m totally not making this up.

Actually, Buzz is accessible through the mobile browser (not an app), and it gives users the same choice every time they post a new Buzz as to whether the Buzz should be public or private—just as on the desktop browser version. The default setting is public, yes, but so what? Is it really that hard to click “Private?” When you do, you’ll get a list of whatever contact groups you’ve created so you can share your Buzz just with that list—or you can start a new list.

Moreover, “Show Nearby Users” feature only shows Buzzes from users who have decided to broadcast their location.

A number of these responses were raised by commenters on the piece. Most notable was this comment (originally written in ee cummings style, which I have punctuated for readability), which takes issue with Molly’s central complaint that there should be more “setup required”:

i like your show for the most part, molly. but seriously, privacy on the internet these day is like having sex: it’s on us to protect ourselves. it may say “no set up required.” but if we are concerned about things getting out that we don’t want, always check the setting! it’s your virtual condom. wrap it up…

Crude, but exactly right: It’s one thing for Molly and others to suggest ways for Google to make the privacy controls for Buzz and Google Profile more accessible and easily understandable. Google’s already shown its eagerness incorporate constructive suggestions to that end. But it’s quite another thing for privacy paternalists to insist that we just can’t expect users to take any responsibility for their own privacy.

Instead of preaching “Sharing-abstinence-only” (which is what the paternalists’ cry for “opt-in” boils down to), we should be teaching users how to engage in “safer-sharing”—and encouraging companies like Google to build user interfaces that make safety options as easy to use as possible without breaking the whole site. As with sex, there’s no such thing as 100% safe-sharing, but, hey, that’s life. We accept risks all the time—every time we drive, get on a plane or trust that the restaurant meal we’re about to eat hasn’t been contaminated or poisoned. As Adam has reminded us, we need to keep in mind the “proportionality” of the risks involved compared to the benefits, and, ultimately, trust users to chose for themselves.

Addendum: Given the discussion below, I want to reiterate the point I stressed when I first blogged about this, responding to questions raised by Larry Magid in the initial Buzz launch press conference:

I’m glad that Larry is raising these concern as someone who has done yeoman’s work in educating Internet users, especially kids, about how to “Connect Safely” online (the name of his advocacy group). The fact that companies like Google know they’ll get questions like Larry’s is hugely important in keeping them on their toes to continually plan for “privacy by design.” But I do worry that those with a political axe to grind will take these same questions and twist them into arguments for regulation based on the idea that if some people forget to use a tool or just don’t get care as much about protecting their privacy as some self-appointed “privacy advocates” think they should, the government—led by Platonic philosopher kings who know what’s best for us all—should step in to protect us all from our own forgetfulness, carefulness or plain ol’ apathy. After all, consumers are basically mindless sheep and if the government doesn’t look after them, the digital wolves will devour them whole!

So, by all means, let’s hear some healthy criticism about how Google has implemented Buzz and talk about how the “privacy by design” features can be improved. But let’s make sure to get our facts straight before rushing to assume the worst—or before calling in the Feds to take over.

It’s been a busy week in the Googlesphere. Google made headlines earlier this week when it aired a televised ad for the first time in the company’s history, and again yesterday when it unveiled Buzz, its new social networking platform. Today, Google announced bold plans to build an experimental fiber-to-the-home broadband network that’s slated to eventually deliver a whopping gigabit per second of Internet connectivity to 500,000 U.S. homes.

Google’s ambitious broadband announcement comes as welcome news for anybody who pines for greater broadband competition and, more broadly, infrastructure wealth creation in America. To date, Google has dabbled in broadband in the form of metro Wi-Fi, but hasn’t embarked on anything of this scale. Laying fiber to residences is not cheap or easy, as Verizon has learned the hard way, and Google will undoubtedly have to devote some serious resources to this experiment if it is to realize its lofty goals.

It’s important to remember, however, that Google is first and foremost a content company, not an infrastructure company. Google’s generally awesome products, from search to video to email, attract masses of loyal users. In turn, advertisers flock to Google, spending billions in hopes of reaching its gigantic, precisely-targetable audience. This business model enables Google to invest in developing a steady stream of free services, like Google Voice, Google Apps, and Google Maps Navigation.

So it won’t be too surprising if Google’s broadband experiment doesn’t initially generate enough revenue to cover its costs. In fact, I’m skeptical that Google even anticipates its network will ever become a profit center. Rather, chances are Google won’t be at all concerned if its broadband service doesn’t break even as long as it bolsters the Google brand and spurs larger telecom companies to get more aggressive in upgrading their broadband speeds (which, indirectly, benefits Google).

Google’s broadband agenda is great news for consumers, of course. Who can complain if Google is willing to invest in building a fiber-to-the-home broadband network and is willing to charge below-cost prices? Not me!

If Google can offer 1Gbps broadband for a “competitive” price — say, $50 a month, — then why can’t Verizon and Comcast? Well, unlike Google, neither of these firms — or most telecom companies, for that matter — has a substantial stake in the content business (not yet, at least). Selling data, voice, and video services above cost is how traditional telecom companies make money. But Google’s bread and butter is advertising, not infrastructure. Also, big ISPs serve tens of millions of homes, while Google only aspires to connect a mere half million. Even if Google’s broadband service were to run a $100 million yearly deficit, Google wouldn’t suffer much — the firm earned over $4 billion in net income last year alone.

As Google’s broadband plans illustrate, smart vertical integration in the content and infrastructure businesses has the potential to benefit consumers enormously. Creative arrangements between these two industries will likely be increasingly important in the years ahead as demand for faster broadband grows. But attempts by government to steer these arrangements in unnatural, politically-favored directions — by adopting open access mandates, for instance — threaten to thwart efficient, vertically integrated business models.

By the way, when are we going to hear comment from all the critics of the Comcast-NBC deal who cried foul on the grounds that content-infrastructure integration undermines consumer welfare? A recent Free Press report, for instance, argues that:

Because the merged entity would control both content and distribution, it would have both the incentive and the market power to limit the access of competing content to the distribution platforms it controls.

There’s an equally compelling — or, more precisely put, equally unconvincing — argument to be made that Google would have a similar incentive to favor its own content on its broadband network. If we should be worried about Comcast-NBC favoring NBC-produced content on Comcast’s network, shouldn’t we also be worried about Google favoring its search engine over Bing on its broadband network?

No, in reality, the likelihood that either Comcast-NBC or Google has the market power to sustain a genuinely anti-consumer regime of preferential treatment is quite slim. Adam and others have already documented extensively here on TLF how choice in the media marketplace is abundant and continually expanding. And the broadband market, while certainly not as vibrant, is still fairly competitive and growing more so at a steady clip, as Google’s announcement today illustrates.

Fearing the evolution of the content and infrastructure industries — whether in the form of Googlephobia or Media Merger Hysteria — is fundamentally wrong-headed. To be sure, as integration occurs, mistakes will be made, mergers will fail, and consumers won’t always get exactly what they want. But these phenomena are normal, even necessary, elements of a dynamic, rapidly evolving market. We should celebrate, with due caution, Google’s entry into the broadband game. But we should not assume that the Google model is the end-all, be-all arrangement between content and infrastructure.

There’s been a lot of hand-wringing lately about Google’s recent acquisitions of Teracent (ad-personalization) and AdMob (mobile ads), as well as Apple’s response, buying AdMob’s rival Quattro Wireless. Jeff Chester, true To form, quickly fired off an angry letter to FTC Chairman Jon Leibowitz, ranting about how the Google/AdMob deal would harm consumer privacy with the same vague fulminations as ever:

Google amasses a goldmine of data by tracking consumers’ behavior as they use its search engine and other online services. Combining this information with information collected by AdMob would give Google a massive amount of consumer data to exploit for its benefit.

Yup, that’s right, it’s all part of Google’s grand conspiracy to exploit (and eventually enslave) us all—and Apple is just a latecomer to this dastardly game. It’s not as if that data about users’ likely interests might, oh, I don’t know… actually help make advertising more relevant—and thus increase advertising revenues for the mobile applications/websites that depend on advertising revenues to make their business models work. No, of course not! Greedy capitalist scum like Google and Apple don’t care about anyone but themselves, and just want to extract every last drop of “surplus value” (as Marx taught us) from The Worker. (Never mind that in 4Q2009 Google generated $1.47 billion for website owners who use Google AdSense to sell ads on their sites—up 17% over 4Q2008—or that Apple has a strong incentive to maximize revenues for its iPhone app developers.) Internet users of the world, unite!  You have nothing to lose but all those “free” content and services thrown at your feet!

Anyway, the letter lambastes AdMob’s current privacy policy, claiming that it “provides inadequate notice and little ability to opt out of its data collection and targets children 13 and over” and asserts that things are only going to get worse once Google takes over. By contrast, our far more reasonable friends at PrivacyChoice raise some very fair questions about Teracent’s current privacy policies, decrying “The worst consumer opt-out“—but unlike Chester, an anti-advertising zealot, the PrivacyChoice folks realize that, when big companies like Google and Apple buy small companies like AdMob, Teracent and Quattro Wireless, they face enormous pressure bring their new acquisitions privacy practices up to their own standards.  And where the new acquisitions are operating in a new area, like location-advertising, big players will likely decide on higher, not lower, privacy standards. As PrivacyChoice notes:

No doubt Google is working to assimilate Teracent into its own (much better) consumer privacy practices. But Teracent’s shortcomings provide a good reminder of the chasm in quality between the best and worst consumer privacy practices of ad-targeting companies. Until websites and advertisers start to attend to these matters in their own choices, this disparity in commitment to best practices will remain a central challenge to effective self-regulation.

Much as it annoys the Big-is-Bad crowd, consolidation can often reduce that that “privacy practice chasm” by raising the bar for all players. Google and Apple have spent years (in Apple’s case, decades) building trusted brands, which gives them a much stronger incentives to protect users’ privacy than a scrappy start-up under intense pressure from VCs to make their investment work—and quickly.

As early as 1990, telecom industry observers speculated about the shift away from traditional circuit-switched telephony to “Voice Over IP” (VoIP). By the late 1990s, Internet industry observers began using the term “Everything Over IP” (VoIP) to describe the ongoing and seemingly inevitable shift towards Internet distribution of not just voice, but all forms of, audio, text and multi-media content. Today, term has become a victim of its own success:  “Of course, ‘everything’ is delivered over IP. How else would you do it?”

While this capitalist success story is among the greatest technological triumphs of our time, a similar rhetorical pattern is, unfortunately, playing out in very different arena of Regulatory Creep. The crusade for “net neutrality”  is metastasizing before our very eyes into a broader holy war for regulating “Everything” (EoIP) in the name of “protecting neutrality.” The next target is clear: search engines Google—as an op-ed in today’s New York Times makes crystal clear. Adam Thierer and I warned about this escalation of efforts to get government more involved in regulating Internet back in October in a PFF paper entitled Net Neutrality, Slippery Slopes & High-Tech Mutually Assured Destruction:

If Internet regulation follows the same course as other industries, the FCC and/or lawmakers will eventually indulge calls by all sides to bring more providers and technologies “into the regulatory fold.” Clearly, this process has already begun. Even before rules are on the books, the companies that have made America the leader in the Digital Revolution are turning on each other in a dangerous game of brinksmanship, escalating demands for regulation and playing right into the hands of those who want to bring the entire high-tech sector under the thumb of government—under an Orwellian conception of “Internet Freedom” that makes corporations the real Big Brother, and government, our savior.

Today’s editorial is only small dose of what’s to come. The floodgates will really open and let forth a great gushing rage of demands for sweeping regulation of the entire Internet under the banner of neutrality when the deadlines pass in the FCC’s “net neutrality” NPRM (comments due January 14, 2010; reply comments due March 5). It will be interesting to see how many advocates of net neutrality regulations “go for broke” by calling for broad neutrality mandates.  The more cautious ones will try to maintain the fiction that their “gatekeeper” arguments pertain only to ISPs, and not to players at applications layer of the Internet. But as the works of net neutrality theoreticians, “gatekeepers” lurk behind every digital corner on every layer of the Internet. Common carriage regulation for all!

I don’t think I’m going out on a limb when I predict that technology policy debates in 2010 will be increasingly dominated by this kind of thinking, as the clash of philosophical principles at stake becomes ever more stark—and the companies involved increasingly turn on each other in a pattern of Mutually Assured Destruction—to the great detriment of consumers, innovation and the future of the Internet.

Jim Harper has already noted some of the criticism of the Times editorial, but the snarkiest-and-yet-most-substantive response to the specific allegations raised comes from Paul Kedrosky:

There is a quack, self-serving, and silly search-related OpEd in Monday’s NY Times that would be amusing, if it weren’t so indelibly dumb. In it the founder of a company, Foundem, in the search business alleges that search company Google should be investigated and forced to do a better job of highlighting firms like his…. The NY Times has run a silly editorial by a self-interested search company founder who would like his site to get more traffic, but hasn’t gone to the trouble of building something useful. The only scandal I see here is that apparently NY Times OpEds over the holidays are vetted by malnourished monkeys.

Here are a few other pieces Adam and I have written on this issue:

• First Amendment Protection of Search Algorithms as Editorial Discretion – by Berin Szoka
• Net Neutrality, Slippery Slopes & High-Tech Mutually Assured Destruction – by Berin Szoka & Adam Thierer
• The Day Real Internet Freedom Died – by Adam Thierer & Adam Thierer
• Odlyzko on Net Neutrality, Price Discrimination, PrivacyFail, Search & Cloud Neutrality – by Berin Szoka
• Google Voice & the Slippery Slope of Net Neutrality Regulation – by Adam Thierer
• Is the FCC Becoming the Federal Cloud Commission? – by Adam Thierer
• My Net Neutrality Debate with Public Knowledge – by Berin Szoka

I just finished Ken Auletta’s latest book, Googled: The End of the World As We Know It, and I highly recommend it. Auletta is an amazingly gifted journalist and knows how put together a hell of good story.  It helps in this case that he was granted unprecedented access to the Google team and their day-to-day workings at the Googleplex. I’m really shocked by the level of access he was granted to important meetings and officials–over 150 interviews with Googlers, including 11 with CEO Eric Schmidt and several with founders Sergey Brin and Larry Page.  That’s impressive.

The book shares much in common with Randall Stross’s excellent Planet Google: One Company’s Audacious Plan to Organize Everything We Know, which I reviewed here earlier this year.  Both books recount the history of Google from its early origins to present. And both survey a great deal of ground in terms of the challenges that Google faces as it matures and the policy issues that are relevant to the company (privacy, free speech, copyright law, etc).

What makes Auletta’s book unique is the way we taps his extensive “old media” world contacts and integrates such a diverse cast of characters into the narrative — Mel Karmazin (former Viacom, now Sirius XM), Bob Iger (Disney), Howard Stringer (Sony), Martin Sorrrell (WPP), Irwin Gotlieb (Group M), and even the Internet’s “inventor”–Al Gore!   Auletta interviews them or recounts stories about their interactions with Google to show the growing tensions being created by this disruptive company and its highly disruptive technologies.  There are some terrifically entertaining anecdotes in the book, but the bottom line is clear: Google has made a lot of enemies in a very short time.

Indeed, the book is as much about the decline of old media as it is about Google’s ascendancy.  What Auletta has done so brilliantly here is to tell their stories together and ask how much old media’s recent woes can be blamed on Google and digital disintermediation in general. “If Google is destroying or weakening old business models,” Auletta argues, “it is because the Internet inevitably destroys old ways of doing things, spurs ‘creative destruction.’ This does not mean that Google is not ambitious to grow, and will not grow at the expense of others. But the rewards, and the pain, are unavoidable,” he concludes. Google is essentially just the tip of a giant wave of digital disintermediation that is tearing through the media landscape, Auletta argues. But because it is the biggest and most visible part of this wave, it invites greater scrutiny and scorn.  And then there are more profound questions about Google and the digital disintermediators: “What we don’t know is whether the new digital distribution systems will generate sufficient revenue to adequately pay content providers.”  Auletta isn’t just talking about old media giants, but about content creators in general. It’s the “digital sharecropper” concern that Nick Carr has articulated in his book about cloud computing, The Big Switch. [reviewed here]  In the relentless pursuit of greater efficiencies, do digital disintermediators destroy the cross-subsidization methods that have traditionally funded the creation of news, information, and entertainment? If so, are we better off because older, “less efficient” ways of doing business are replaced with better ones. Or are we instead left with less high-quality journalism and entertainment because of funding streams are drying up or being siphoned off by the new digital disintermediators?

Those are heated question frequently debated by Internet optimists and pessimists. It’s a great debate, and one that will no doubt continue to rage for many years to come. The problem for Google — as the interviews Auletta conducts with others in the book makes clear — is that it will increasingly become the scapegoat for every problem under the digital sun. “To blame Google is to prescribe a cure from the wrong illness,” Auletta notes.  Nonetheless, as the biggest and most visible of the digital disruptors, it’s clear the company will have a target on its back for many years to come.

Worse yet for Google, Aulleta states, is that the company is “waking the government bear,” not just because of its growing size but also because of the sheer amount of information it collects and puts at the world’s disposal.  Privacy, child safety, defamation, and copyright are just a few of the concerns raised by Google’s mission “to organize the world’s information and make it universally accessible and useful.”  Google has gone to great pains to address these concerns, but it’s unlikely to ever be enough to satisfy government officials, who will be fielding increasing complaints from disgruntled competitors and activist groups at the same time.

These concerns could play into the hands of those who think antitrust action against Google is needed. Indeed, I fear that’s on the way given the myopia of Washington. As I pointed out in my lengthy review of Gary Reback’s ode to antitrust regulation, Free the Market: Why Only Government Can Keep the Marketplace Competitive, the static competition, fixed-pie mindset that rules Washington leads many to support antitrust crusades against the tech giants of the day.  In the 70s it was IBM. In the 90s it was Microsoft.  In the next decade it will likely be Google.

“Today, Google appears impregnable,” Auletta notes, “But a decade ago so did AOL, and so did the combination of AOL Time Warner.”  Indeed, I have written extensively about that deal and many others that critics predicted would bring on a techno-apocalypse.  Of course, we know how the story ended in those cases. Markets and technologies evolved while the old giants rested on their laurels. Dynamic competition and innovation are the rule; the static mindset crowd that pretends today’s giants are the end of the story just don’t have history on their side.

But that doesn’t mean Google will be able to avoid a massive regulatory onslaught. In fact, I have pending bets going right now with several friends that, before the Obama Administration leaves office, it will launch the biggest, most costly antitrust jihad in U.S. history against Google.  I can’t tell you how much I am hoping to lose those bets.

P.S. I have enjoyed many of Auletta’s earlier articles and books, especially Backstory: Inside the Business of News (2003),  but I highly recommend that you check out the latest essay he posted on his blog about “Media Maxims.”  Outstanding insights.

My colleague (and boss) Adam Thierer had a great post last week about how “fart apps” are a great example of the generative nature of the mobile phone application marketplace. But Fart apps are just one type of “soundboard” application. A typical soundboard app has a bunch of buttons, and each time you press a button a sound is played. Most soundboards play catchphrases from popular movies and TV shows. According to AndroidZoom.com, there are 319 applications in the Android Market with “soundboard” in the title or description. Most (280) of them are free.

Almost all the free soundboards I tried include advertising from Google. The three main developers of soundboard apps for Android are Androidz , aspidoff, and Raz Corp. Androidz has ads from DoubleClick and aspidoff and Raz Corp (who’s apps seem exactly the same) both have ads from AdMob (which Google recently acquired). I’m all in favor of ad-supported content, but I suspect that the sound clips used in these soundboards are not licensed. It’s not a bad revenue model—if you don’t mind the fact that it’s illegal. You search the Internet for sound clips from a popular show or movie, generate a soundboard using an off-the-shelf or custom-made soundboard generator, post to the Android Market, and wait for the money to come rolling in. I don’t know how much money one can make off of the advertising from a free soundboard, but the most popular ad-supported soundboard, the You Kicked My Dog soundboard (based on a popular prank phone call), was once ranked the 213^th most-popular download in the Android Market (according to AndroidStats.com). The most popular soundboard today seems to be the Mr. T soundboard from gman16k (which is free and doesn’t include any ads). It is currently ranked the 111^th most popular Android Market download and according to the Android Market browser on my phone (the Samsung Moment), has been downloaded at least 50,000 times. And the Jeff Dunham soundboard from SoundBored, which costs $0.99, has been downloaded at least 1,000 times and is the 688^th most popular app in the Entertainment category of the Android Market. The most popular fart app for Android? Noble Fart (which is free and ad-free). There may be some real money to be made there!

The most interesting aspect to all this is whether Google can be found liable for these presumed copyright infringements. Google bought AdMob specifically to incentivize developers to make applications for Android. Google provides the ad network, tools to help developers integrate ads into their apps, the marketplace application that users use to find and install those applications, and Google even wrote the operating system on which these applications run. The Android Market Developer Distribution Agreement of course requires that developers have all intellectual property rights for the products and materials they distribute through the Android Marketplace (clause 5.5), and disclaims any responsibility on the part of Google for the actions of developers (clauses 4.6 and 4.7). As my PFF colleague Tom Sydnor recently explained, to be found liable for inducing copyright infringement under Grokster, the defendant must be found to have intended and encouraged the product to be used to infringe. That maybe hard to prove, but there may be a better case for a “vicarious-liability claim, which focuses, instead, on broadly defined elements of ‘right-or-ability to control,’ and ‘direct financial benefit.” Google has total control on what apps are available through the Android Market and it believes there is a direct financial benefit in growing the number of applications available–that’s why it bought AdMob.

I don’t want Google to have to police its app store. That’s the whole point of Adam (Thierer)’s post: The fact that Google doesn’t control its app store with an iron fist is a good thing for innovation. I just worry that it may not be a good thing for Google if it means it’s found liable for copyright infringement.

My PFF colleagues Berin Szoka and Adam Thierer have written many times about the quid pro quo by which advertising supports free online content and services: somebody must pay for all the supposedly “free” content on the Internet. There is no free lunch !

Here are two two recent examples I came across of the quid pro quo being made very apparent to users.

Hulu. Traditionally, broadcast media has been a “two-sided” market: Broadcasters give away content to attract audiences, and broadcasters “sell” that audience to advertisers. The same is true for Internet video. But watching Hulu over the weekend, I noticed something interesting: Adblock Plus blocked the occasional Hulu ad but every time it did so, I was treated to 30 seconds of a black screen (instead of the normal 15 second ad) showing a message from Hulu reminding me that “Hulu’s advertising partners allow [them] to provide a free viewing experience” and suggesting that I “Confirm all ad-blocking software has been fully disabled.”

Although I use AdBlock on many newspaper websites (because I just can’t focus on the articles with flashing ads next to the text), I would much rather watch a 15-second ad than wait 30 seconds for my show to resume. I think most users would feel the same way. We get annoyed by TV ads because they take up so much of our time. If Wikipedia is to be believed, there’s now an average of 9 minutes of advertisements per half-hour of television. That’s double the amount of advertising that was shown in the 1960s.

But online services such as Hulu show an average of just 37 seconds of advertising per episode. Amazingly, some shows garner ad rates 2-3 times higher than on prime-time television. Why might ad rates for online shows be higher? Because:

1. When a show has only 15 seconds of ads, you’re less likely to turn away from the screen to do something else;
2. Advertisers are more certain that viewers are watching their ads (as opposed to changing the channel or skipping over it with a DVR); and
3. Online viewers are twice as likely to remember a commercial they’ve seen on Hulu as one they’ve seen on television-at least in part because of factors 1 and 2, and perhaps because Internet video ads might be more effective in other ways.

As for me, I’ve reconfigured Adblock Plus to not block ads on Hulu. But even if users like me don’t block video ads on sites like Hulu, they may not be able to generate enough revenue to survive. Traditional media providers might be willing to cross-subsidize experiments in online video distribution for a while from offline revenue streams, but at some point, either online video will have to produce comparable revenue or the quality of content will deteriorate notably in the gradual shift to online distribution.

The problem is that, even if online video services can sell ad time for 3 times as much as broadcasters, because there is almost 15 times as much ad time on broadcast television than online services, the online service will still earn only 1/5 as much revenue as a traditional broadcaster. This is why online video is expected to drive adoption of personalized (or “behaviorally targeted”) advertising: If online video programmers can target advertising to the individual user’s likely interest, rather than to a crude profile of their likely audience, they can generate much higher revenue per ad because advertisers won’t be wasting their ad budgets showing users ads for things they aren’t interested in! The increased revenue for online content providers made possible by targeted advertising is the “mother’s milk” that many websites need to survive.

Google Maps. On 8/25, Google announced that it had updated Google Maps for mobile to periodically report the user’s location (based on the GPS chip in their device) back to Google. But before you reach for your tinfoil hats and start shouting about conspiracy theories, let me explain why this “tracking” is actually fantastic news for users:

1. Google uses the reported location (and speed) information to assess traffic conditions in real-time. This traffic information is then shared with other Google Maps users in near-real-time-everyone benefits! If only a few people participated, the data would not be very helpful. But when lots of people participate, the data is more accurate and available for more roads than would otherwise be possible.
2. It’s completely optional and users are fully informed of what the software is doing.
3. People who do not want their location tracked can opt-out at no cost-and they get to keep using Google Maps for free.

Conclusion

In the Hulu example, the basic quid pro quo for getting all that free video programming is watching a few ads. It’s possible for people to block the ads, but then they’ll waste even more time looking at a black screen. That basic quid pro quo might prove insufficient to support the quality and quantity of video programming users want online, but without at least the basic quid pro quo of not blocking ads, video programming won’t get past stage one.

In the Google Maps example, the quid pro quo for getting traffic data is sharing your location with Google. Users can still get the traffic data without sharing their location, but if everyone did that, there would be no traffic data. This highlights the problem of free-riding created by the no-cost opt-out: It’s still possible to be a freeloader with both services, but if everyone did that, these services simply wouldn’t survive.

Interesting piece from Jeff Jarvis about “Google Bigotry,” or his belief that “media people are going after Google’s success for no good reason other than their own jealousy.”  Jarvis argues that reporters penning hard-nosed stories about Google are, in reality, just a bunch of envious cry-babies:

newspaper people will use their last drops of ink to complain about Google’s success and try to blame it for their own failures rather than changing their own businesses. ..  It’s not just that they dislike the competition – and they do, for it is a new experience for too many of them. If they were smart, they’d use Google to get more audience and make more money but they don’t know how to (or rather, they’d prefer not to change). No, the problem is that Google represents change and a new world they’ve refused to understand.

Well, yes and no.  I don’t believe that every story penned about Google by a mainstream media reporter is rooted in envy, and certainly not the one that Jarvis alludes to as prompting him to pen this piece.  Jarvis apparently received an inquiry from a French journalist at Le Monde asking for comment about “an article about Google facing a rising tide of discontent concerning privacy and monopoly.”  That doesn’t necessarily sound like an unreasonable journalistic inquiry to me. So, I’m not sure it’s fair to accuse every journalist who calls with a hard-nosed question about privacy and antitrust as being guilty of “Google bigotry.”

That being said, some journalists are likely feeling a bit miffed about Google’s recent success, thinking it comes at their expense, and, therefore, their envy might be prompting some of them to pen attack stories on the company.  I think Jarvis in on stronger ground, however, in asserting that most privacy and antitrust complaints about Google are unfounded, and also based on envy. Indeed, Berin Szoka and I have have been cataloging the complaints that we believe are driven by an irrational form of corporate envy we call “Googlephobia.”  And in prior years we saw a similar form of Microsoft-bashing at work that we still have with us today. That’s why I think Jarvis is on to something when he notes that Google-bashing represents a broader sociological phenomenon:

Do some people complain about Google? Yes, it is often the same people who complain about the internet and about change and technology and simply use Google as their target simply because it is so big and so innovative.

In one sense, this gets back to my ongoing discussion of the debate between “Internet optimists &  pessimists” regarding  the impact of the Internet and digital technology on our lives.  I’m what you might call a “pragmatic Internet optimist” because I generally believe the Internet is reshaping our culture, economy, and society in most ways for the better, but not without some heartburn along the way. But there are plenty of Internet pessimists out there who have a deep sense of unease with the Digital Revolution and life in the Information Age and only focus on the disruptions caused by this transition.  Thus, because Google is in so many ways intertwined and identified with this digital revolution, it is more likely they will become the scapegoat for every supposed problem the Internet skeptics identify.

But, let’s not lose sight of the broader psychological or sociological phenomenon at work here when we talk about corporate-bashing more generally.  The root of this problem really is envy.  In his great book, Envy: A Theory of Social Behaviour (1966), the German sociologist Helmut Schoeck noted that, although it is part of life, when taken to extremes, “Envy can also turn man to destruction.” “The envious man thinks that if his neighbor breaks a leg, he will be able to walk better himself,” he noted. Schoeck also discussed the “harm envy, or its institutionalized consideration, can do to the process of economic growth” and pointed out how market success almost always breeds bitter reactions and responses:

It is virtually impossible to undertake innovations in a society, to improve or even to to develop an economy process, without becoming unequal. But when can a leader or innovator ever be sure that he will not incur the ill-will of those who do not immediately benefit from his activity?

That’s essentially the problem Google faces today, just as Microsoft did before them. They’ve built better mousetraps and the world beat a path to their doors to use them — and damn quick. And they got big and rich quick, too.  What isn’t there to envy about their success!  Who wouldn’t want to be in their shoes? And when that envy incentivizes further innovation to knock them off their perches, that’s a great thing.  But far too often envy just breeds contempt for success and leads to calls to — as Schoeck put it — “institutionalize envy”  by having the government confiscate wealth or innovations “for the public good.”  Microsoft has been living with this nightmare for over a decade, and Google is now facing similar regulatory problems as its enemies list growing longer by the day.  Antitrust simply becomes the club to deliver the envious blow.

Finally, speaking of antitrust, Jarvis has some things to say in his essay about the substantive accusations of monopoly and privacy violations by Google that I think are generally correct:

Google is not a monopoly. It is a competitive company and it took advertising dollars for one simple reason: because advertisers found a better deal there – buying performance, not scarcity, with Google sharing their risk – than they ever found in our old media… Privacy? That is an overused word. The issue is not privacy, as I say in my book. It is control. You should also look at the benefits of publicness, which come when we share things about ourselves and find others like us. If you have problems with privacy then you have problems with every member of Facebook and its clones across the world and the entire generation that made social sites huge.

A key point that Berin and I try to get across in our Forbes editorial today about the Yahoo!-Microsoft deal is that the high-tech marketplace evolves too rapidly for creaky Analog Era antitrust laws to keep up. We wanted to say more on that point in our piece, but we had a tight deadline (and a strict word limit!)  Well, turns out that we really don’t need to do so now because Farhad Manjoo of Slate has done a better job than we ever could have making that point in this essay today entitled, “The Case Against the Case Against Google“:

But if the government was right on the facts [in the Microsoft case], it was wrong on the big picture. The theory behind the prosecution was that Microsoft’s mobster tactics would raise the price of software and slow down innovation. But that didn’t happen. In 2002, Microsoft settled the antitrust case with the Bush administration; it faced no substantial penalties for its years of bad behavior. At that point, it still looked unbeatable—it had the same OS monopoly, office-software monopoly, and Web-browser monopoly. And you know what happened? It got beat anyway. Many of Microsoft’s assets turned out not to matter, because upstarts like Google and old foes like Apple found ways to innovate around them.

Indeed, in many ways Microsoft’s size was a liability, not an asset. This is the classic innovator’s dilemma; the company was so intent on protecting its cash cows—it derives most of its revenue from two products, Windows and Office—that it was blind to opportunities in new markets. Microsoft couldn’t make a Web e-mail system like Gmail, because that would have threatened Outlook. And why should Microsoft bother with free online word processing apps when Office was doing so well? When journalist Steven Levy showed Bill Gates the first iPod, Gates’ first reaction was, “It’s only for Macintosh?” Gates saw the iPod through the lens of desktop computers; if the iPod connected only to Macs, it didn’t pose a threat to Microsoft. What he didn’t figure out was that the iPod would herald the iTunes Store, allowing Apple to become not only the most influential entertainment company in the world, but also the dominant software maker for mobile devices. Yes, the first iPod didn’t work on Windows. In time, it would help render Windows irrelevant.

Exactly right. Antitrust advocates have often failed to appreciate that markets are evolutionary and dynamic, and when those markets are built upon code, the pace and nature of change becomes unrelenting and utterly unpredictable.

We’ve just published an op-ed over at Forbes.com about today’s big Yahoo!-Microsoft deal.

Searching For Success: Web 1.0 Titans Struggle to Reinvent Themselves by Berin Szoka & Adam Thierer

Yahoo! and Microsoft on Wednesday announced a partnership in which Microsoft’s Bing search engine technology will power search for both companies, but Yahoo! will manage advertising sales and content creation.

This should be cause for celebration as a good thing for consumers. By providing a strong competitor with a combined 28% market share, the deal should also be a source of relief at Google, which has come under increasing attack for its supposed market dominance. But if recent concerns about online search, advertising, competition and privacy are any guide, many will fail to appreciate why the deal is pro-consumer, or what it says about the rapid evolution of the Internet.

It’s easy to forget that just a decade ago most of us still hadn’t done our first Google search, Microsoft was still focused on the desktop and Yahoo! was still serving up the online equivalent of the Yellow Pages. AltaVista, AOL, CompuServe and Geocities still ruled the roost.

Today, as we enjoy the fruits of a true cyber-renaissance, cyberspace circa 1999 increasingly looks like the Digital Dark Ages: The old online walled gardens have crumbled, desktop applications have migrated to the cloud and search has redefined our experience of the Web.

Oh, and did we mention just about all of it is “free“? Sounds like exactly the sort of vigorous innovation, expanding consumer choice, falling prices and cut-throat competition that policymakers should want, right?

Alas, regulators seem stuck in the past. European officials in particular seem hell-bent on continuing the antitrust crusade of the ’90s against Microsoft, myopically focused on fading paradigms (desktop operating systems and Web browsers). But instead of narrowly defining high-tech markets based on yesterday’s technologies or market structures, policymakers should embrace the one constant of the Internet economy: dynamic, disruptive and irrepressible change.

Innovation isn’t just transforming the way we use the Web, it’s rapidly changing the competitive landscape too. Some of the predictions of the ’90s are finally coming true: Browsers have morphed into platforms for applications including e-mail, word processing and real-time collaboration. A decade ago, few would have predicted Google would build its own browser, turn that browser into an operating system, build an OS for smart phones, or go head-to-head with Microsoft Office. And the idea that Microsoft would ever take Office into the cloud was at one point unthinkable, but that’s happening now too. Meanwhile Google, and more recently Microsoft, have become full-fledged advertising companies–in competition with traditional media giants. Again, no one saw this coming.

The Yahoo!/Microsoft pact is just the latest pairing of Web 1.0 titans struggling to reinvent themselves and compete with Google, a titan that still thinks of itself as a start-up. All three companies will struggle to meet new challenges as search evolves toward the social (reflecting what your friends like), the semantic (reflecting the precise, rather than presumed, meanings of Web content), the personalized (reflecting your own preferences) and the interactive (including user-generated comments or reviews).

Even the business model of search is changing, with Microsoft offering consumers cash back for their searches. Meanwhile, new paradigms of social networking like Facebook and Twitter are emerging with business models whose potential remains both unclear and unlimited.

Despite this whirlwind of change, the Yahoo!/Microsoft deal is bound to lead to some hand-wringing from lawmakers and antitrust officials in Washington and Brussels. Regulators already blocked a somewhat similar advertising partnership between Google and Yahoo last year. What unites these regulatory responses is the belief that rapidly evolving digital technologies can be regulated like the static utilities of the analog era–and the failure to understand that antitrust is just another form of regulation.

Instead, policymakers should recognize that the business, user and technological paradigms of the Web are constantly being re-invented and replaced. They shouldn’t delay approving this deal, especially as any delay would lengthen an awkward period of uncertainty for the corporate couple at the antitrust altar. Moreover, they should avoid micro-managing the transaction through regulatory blackmail: demanding “voluntary concessions” before giving their blessing.

For many of the same reasons, policymakers should exercise great care and humility when listening to the growing cacophony of calls for antitrust intervention against Google. “Googlephobia” has reached a fever pitch in recent months with plenty of critics in both government and industry hinting that they’d like to see the company crippled with new restrictions or obligations–much as Microsoft was in the ’90s. The idea of antitrust regulators becoming a veritable “Federal Search Commission” for such a rapidly evolving sector seems highly problematic. America’s high-tech sector is the envy of the world precisely because, generally speaking, the U.S. has rejected heavy-handed regulation of the Information Economy. Indeed, no one knows better than Microsoft how much “antitrust oversight” can hamstring a company’s ability to stay ahead of transformative change.

Some will protest that this is just a case of the big getting bigger, but there have always been big fish in the high-tech pond. The difference today is that there are new fish jumping in the pond more rapidly than ever before, and today’s pond probably won’t be tomorrow’s evolutionary battleground.

Lacking a technological crystal ball with which to predict the future of this fast-paced sector, there’s no way to know which of those players or technologies will thrive or what the digital paradigms of the next decade will look like. But heavy-handed antitrust regulation based on static thinking will lock us into an “industrial policy” for the Internet. Treating America’s tech titans like smokestack-era utilities won’t benefit consumers or enhance America’s competitive standing in the world.

Great piece in Wired by Fred Vogelstein asking “Why Is Obama’s Top Antitrust Cop Gunning for Google?” It paints a pretty good picture of the coming antitrust ordeal that Google is likely to be subjected to by the Obama Administration. And, as usual, I couldn’t agree more with the skepticism that Eric Goldman of Santa Clara University Law School articulates when he notes: “The problem for antitrust in high tech is that the environment changes so rapidly. Someone who looks strong today won’t necessarily be strong tomorrow.”  More importantly, as Vogelstein’s article notes, we’ve been down this path before with less than stellar results when you look at the IBM investigation in the 70s and the Microsoft case from the 90s (a fiasco that is still going on today):

After the government initiated its case against IBM, the company spent two decades scrupulously avoiding even the appearance of impropriety. By the time the suit was dropped in the early 1980s, company lawyers were weighing in on practically every meeting and scrutinizing every innovation, guarding against anything that could be seen as anticompetitive behavior. A decade later, innovation at Big Blue had all but ceased, and it had no choice but to shrink its mainframe business. (It has since reinvented itself as a services company.) Microsoft took the opposite approach. Gates and company were defiant, to the point of stonewalling regulators and refusing to take the charges seriously. “Once we accept even self-imposed regulation, the culture of the company will change in bad ways,” one former Microsoft executive told Wired at the time. “It would crush our competitive spirit.” Gates put it even more directly: “The minute we start worrying too much about antitrust, we become IBM.” Microsoft’s hostility to the very idea of regulation resulted in several avoidable missteps—including remarkably antagonistic deposition testimony from Gates—that ultimately helped the DOJ rally support for its ongoing antitrust suit against the company. Although Microsoft ultimately settled, the public beating appears to have taken a toll on the company, which has been unable to maintain its reputation for innovation and industry leadership.

Read the whole article for all the gory details.  This is going to be the biggest antitrust case of all-time once it is finally launched and I feel confident predicting that it will make many lawyers and consultants very, very rich while doing absolutely nothing to help consumer welfare.  But perhaps those DOJ lawyers can at least get Google to lower the prices for all those services they offer. Oh, wait, they’re all free.  But don’t worry, I’m sure Beltway bureaucrats will do a great job of running something as complex as search algorithms and online advertising markets.  Right.

Yesterday this list of 11 undocumented features of Google Chrome OS was posted on Woot!. It’s too funny not to share:

1. Your family photos are accompanied by text ads for skin care and diet plans.
2. Removes all Falun Gong references from your files.
3. Every month, the hard drive is automatically defragged and investigated for anti-trust violations.
4. Invests in, develops, acquires, and abandons your best ideas.
5. Integrated tax preparation software includes “I’m Feeling Lucky” deductible button.
6. Changes your icons daily, forcing you to look up which obscure scientific figure is having a birthday.
7. Spends 20% of its time not doing what you tell it to do.
8. Prevents all evil activity unless it is deemed to be for the good of the shareholders.
9. Masseuse comes by every Monday afternoon.
10. Constant crashes won’t bother anybody as long as it’s labeled “Beta”.
11. “Beta” status won’t expire until 2038.

But seriously, we love Google (so please don’t lower our PageRank for my having posted that).

Cory Doctorow has called for a Wikipedia-style effort to build an open source, non-profit search engine. From his column in The Guardian:

What’s more, the way that search engines determine the ranking and relevance of any given website has become more critical than the editorial berth at the New York Times combined with the chief spots at the major TV networks. Good search engine placement is make-or-break advertising. It’s ideological mindshare. It’s relevance… It’s a terrible idea to vest this much power with one company, even one as fun, user-centered and technologically excellent as Google. It’s too much power for a handful of companies to wield. The question of what we can and can’t see when we go hunting for answers demands a transparent, participatory solution. There’s no dictator benevolent enough to entrust with the power to determine our political, commercial, social and ideological agenda. This is one for The People. Put that way, it’s obvious: if search engines set the public agenda, they should be public.

He goes on to claim that “Google’s algorithms are editorial decisions.”   For Doctorow, this is an outrage: “so much editorial power is better vested in big, transparent, public entities than a few giant private concerns.”

I wish Doctorow well in his effort to crowdsource a Google-killer, but I’m more than a little skeptical that anyone would actually want to use his search engine of The People.  My guess is that, like most things produced in the name of “The People” (Soviet toilet paper comes to mind), it will probably won’t be much fun to use, and will likely chafe noticeably. (For the record, I love and regularly use Wikipedia; I just don’t think that model is unlikely to produce a particularly useful search engine.  As Doctorow himself has noted of Google, “they make incredibly awesome search tools.”)

But I’m glad to see that Doctorow has conceded an important point of constitutional law: The First Amendment protects the editorial discretion of search engines, like all private companies, to decide what to content to communicate.  For a newspaper, that means deciding which articles or editorials to run.  For a library or bookstore, it means which books to carry.  For search engines, it means how to write their search algorithims.

Doctorow’s “We’ll build our own darn rocket ship in the backyard!” response  to his deep concerns about Google’s dominance of search does not, of course, impinge on Google’s editorial discretion—and for that, I commend him.  But others, most notably Frank Pasquale, have indeed proposed government action to address such concerns in ways that most surely would impinge on the First Amendment rights of all search engines.

Pasquale’s comlpaint about Google is essentially the same as Doctorow’s, but rather than proposing an innovative (if unrealistic) alternative (like Doctorow), he  has called (PDF) for the “creation of a Federal Search Commission to parallel the Federal Communications Commission” and declared that ” In order to reduce opportunities for clickfraud and unfair treatment of indexed entities, qualified transparency will be needed in order to open up the ‘black box’ of search engine operations to at least some third parties.”   He focuses on search algorithms because:

The heart of a search engine and the key to its success is its search algorithm. Effective algorithms are protected by a veil of secrecy and by various intellectual property rights. As a result, new entrants cannot easily appropriate existing algorithms. Moreover, many algorithms are trade secrets. Unlike patents, which the patent holder must disclose and which eventually expire, these trade secrets may never enter the public domain. Search algorithms may be analogous to the high-cost infrastructure required for entry into the utility or railroad markets.

He diagnoses the problem as follows:

given the emphasis on secrecy in the search engine business model, no one can verify that such rankings have not been manipulated or that subtler biases in favor of search engines’ partners are not being worked into the search algorithm… If search engines are to be accountable at all, if their interest is to be balanced against those of the various other claimants involved in search-related disputes, and if social values are to be given any weight, some governmental agent should be able to peer into the black box of search and determine whether or not illegitimate manipulation has occurred.

But what about editorial discretion?  Why should Google be forced to change its PageRank algorithms any more than The New York Times should be forced to change how it decides which stories to run?  Moreover, why should Google be forced to disclose how this process works?  Assigning a government monitor to sit in on meetings of the Times‘ editorial board “to detect bias” would clearly impinge on their editorial discretion.  Similarly, I don’t see why forcing a Yahoo!, Microsoft or any other search engine to disclose their equivalent processes for ranking search results should pass constitutional muster.

Editorial discretion means getting to make your own decisions, even if they might seem biased to those wise elites who “know better” because, well, it’s your decision and not the government’s!  Saying that speakers can make whatever decisions they want as long as they’re not biased means speakers don’t really have editorial discretion after all.

So, if recognizing that search algorithms are a form of editorial discretion is a problem (as Doctorow implies), it’s only insofar as this might frustrate the desires of those who would regulate search.

It seems Microsoft is facing much the same problem Pepsi faced in the 70s, when it created the Pepsi challenge (a blind taste test between Coke and Pepsi):

A stark sign of the challenge Yusuf Mehdi faces as a point man for Microsoft in the company’s battle with Google comes from the company’s own research into the habits of consumers online. During regular “blind taste tests,” in which Microsoft asks randomly-selected consumers to score the quality of results from various Internet search engines, the quality of Microsoft’s search results have so improved that people can’t tell the difference between Microsoft and Google search results, says Mr. Mehdi, senior vice president of Microsoft’s online audience business group. But when Microsoft slaps the Google brand name on the results from Microsoft’s own search engine during another portion of its tests, users invariably score them highest. “Just by putting the name up, people think it’s more relevant,” he says. … Microsoft still faces the problem of the strong association in consumers’ minds between Google and Internet search. In theory, it’s far easier for a consumer to switch Internet search engines than it is for them to switch other forms of software. But Mr. Mehdi–a veteran of the Web browser wars of the late 90s in which Microsoft managed to overtake the pioneer in the category, Netscape Communications–says in reality it’s very hard to convince consumers to change their search behavior.

So, Microsoft faces an uphill battle.  Happily for the Internet marketplace, it seems they’re embracing the challenge cheerily by attempting to kill two birds with one stone:  launching an innovative new semantic search engine capable of answering users’ questions more directly while also creating a fresh new brand for what Microsoft acknowledges is a “confusing jumble of brand names for its search efforts.”  I, for one am looking forward to Microsoft’s forthcoming search engine, dubbed “Kumo.”

But I think there’s a bigger lesson here:  Google’s most valuable asset is its brand. Sure, much of the strength of its brand may lie in the intangible irrationalities of human psychology:  Microsoft’s search engine will probably have to be significantly better than Google’s before the software giant can begin regrowing its 8% share of the search market.  However unfair this might seem to Microsoft, consider how Google reached this height of brand power:  by offering consumers a number of terrific products (for free!) and by carefully cultivating a reputation not just of coolness (think Google Lunar X-Prize) but of “Don’t be evil“-ness.  Many ridicule that motto and attack Google for trying to take over the world, as we’ve detailed in our ongoing Googlephobia series.  But consider what Google stands to loose by offending consumers:  the brand power that makes consumers keep coming back to its search engine.  Google’s reputation as helpful, cool and “non-evil” is perhaps just as valuable as Coke’s secret formula.  So why would Google risk throwing that away by offending real sensitivities about, say, its privacy practices?

Some might fear that the equation of the term “google” with “Search” could permanently entrench Google in a position of dominance in the search market (think “Kleenex” in the market for facial tissue).  Such worriers might be surprised to learn that Google actively discourages the “genericization” of the term “Google”—the use of “google” as a synonym for all search, just as Kleenex is commonly used for tissue paper, Xerox for copying and Coke for soda.  The reason?  Under trademark law, a company can lose its unique rights to its trademark if that term becomes sufficiently generic—a catastrophe for a corporation commonly referred to as “genericide.”  Thus, Google is actively working to check the very phenomenon that gives its products special appeal.

It’s by no means a perfect solution.  Microsoft, Yahoo! and others will still have to work extra-hard to overcome Google’s brand appeal.  But there is a certain elegance to the fact that existing laws provide some competitive check on the marketplace without the need for government regulation or an antitrust lawsuit.

Leave it to the English—famous for their superior fluency in the language that bears their name—to reach unparalleled heights of hysteria in the war of words being waged against Google. The Guardian’s Henry Porter claims that “Google is just an amoral menace: The ever-growing empire produces nothing but seems determined to control everything.”

Porter declares that Google is the world’s “most prominent WWM,” his acronym for the “worldwide monopolies that sweep all before them with exuberant contempt for people’s rights, their property and the past.”

Google is in the final analysis a parasite that creates nothing, merely offering little aggregation, lists and the ordering of information generated by people who have invested their capital, skill and time. On the back of the labour of others it makes vast advertising revenues – in the final quarter of last year its revenues were $5.7bn, and it currently sits on a cash pile of $8.6bn.

Let’s review Google’s 2008 Annual Report. Of Google’s 2008 Revenue ($21.78 billion), two-thirds ($14.41 billion) came from advertising on Google sites and just under one-third ($6.71 billion) came from advertising on Google Content Network (GCN) web sites (made up of publishers that sell their ad space to advertisers through Google AdSense). On this revenue, Google made a net profit of $4.2 billion after taxes. To put these numbers in context, Microsoft (Google’s closest peer) earned three times ($60.42 billion) Google’s revenue and produced 4.21 times ($17.68 billion) Google’s profit. Google’s revenue was just 0.1528% of 2008 U.S. GDP and its net income, 0.0294%.

So what does Google actually create with all that revenue? The answer is free content and services.

First, Google cross-subsidizes dozens of its own free services—starting with its search engine but also including email, a free browser, YouTube, a word processing suite, IM, maps, news, and much more.

Second, as the world’s leading ad network, Google supports a significant percentage of the free content and services offered by others. In 2008, Google paid out $5.28 billion (24.22% of revenue) to GCN publishers—significantly more than the $4.2 billion Google earned in net income (19.3% of revenue).

At a time when politicians think nothing of spending hundreds of billions of dollars at a time and even the word “trillion” no longer shocks our pre-hyperinflationary ears, $5.28 billion may not seem like much. Indeed, it’s just 30% of NASA’s 2008 budget. But, spread across the “Long Tail,” these dollars go a lot farther than even NASA’s deep space probes: They fund hundreds of thousands of GCN websites, ranging from traditional newspapers like the New York Times to social networks to countless community sites—including the Technology Liberation Front.

Wired Magazine editor-in-chief Chris Anderson has brilliantly described the “Long Tail” and explained how advertising plays a critical role in funding “Free!” But nothing puts the Long Tail of ad-supported Internet content into human terms like the Interactive Advertising Bureau’s video, “I Am the Long Tail:”

Check out IAB’s gallery of small publishers, too. Or, to get a sense of the amazing variety of the “Long Tail” of web services, check out Go2Web20.net’s famously overwhelming display of the logos for roughly 2726 apps “Web 2.0” applications. While it can be harder to support web apps with advertising revenue than content sites, recent estimates indicate that over a third of all web applications rely on advertising.

But Porter says not a word about Google’s role as an economic fountainhead of online innovation and creativity. He simply dismisses Google as “delinquent and sociopathic.” One might dismiss Porter as just another crank in the “Long Tail of Googlephobia,” but his 188-year-old newspaper, The Guardian, is among the world’s most respected. With a circulation 1/3 that of the New York Times and 1/2 that of The Washington Post (in a nation five times smaller than the U.S.), The Guardian is serious when it claims to be “the world’s leading liberal voice.” For those unimpressed by any newspaper, note that Porter’s rant topped Techmeme today.

So rants like Porter’s are being heard—no matter how unfounded they are.

In terms of both credibility and exaggeration, Porter’s piece deserves a place at the very head of the “Long Tail” of hyperbole published by “serious” publications like The Guardian. While Porter doesn’t actually play the Reductio ad Hitlerum card (just about the only card he has left), his attack is, for sheer unfairness, strongly reminiscent of Whittaker Chambers’ infamous 1957 review of Ayn Rand’s novel Atlas Shrugged in the normally-dignified National Review. The conservative Chambers, horrified by Rand’s atheism, equated her radical individualism to Hitler’s Holocaust, declaring: “From almost any page of Atlas Shrugged, a voice can be heard, from painful necessity, commanding: ‘To a gas chamber — go!'”

Will anyone be surprised when papers like The Guardian give space to a modern-day Chambers to rant about how Google is the Third Reich reborn—or how Google is The Matrix made real? Every rant like Porter’s makes it just a little harder to have a serious, rational conversation about Google and its impact on society—both good and ill. If that’s the kind of “journalism” Porter thinks Google is killing, it’s not worth saving. The only thing more ironic than Porter’s attack on Google for undermining serious journalism—something of which he himself seems incapable—is the juxtaposition of Google’s ads with Porter’s official profile on The Guardian:

Earlier this month, Google made news when it announced that its cloud computing productivity suite Google Docs had suffered a technical glitch that temporarily compromised a subset of users’ shared documents. After becoming aware of this glitch, Google notified its users via email and posted an entry to the Official Google Docs Blog that offered a more detailed explanation of what happened.

It turns out that a bug in Google’s permissions code was causing certain documents that had been shared by their author with other users but subsequently unshared to remain visible to those users. By the time Google notified its users, the bug had already been resolved, and Google estimates that only around 0.05% of all documents were vulnerable due to the glitch. As to how many documents were actually viewed by unauthorized parties, it’s unclear at this point.

All in all, the Google Docs glitch, while troubling, seems relatively minor as far as bugs go. Nevertheless, the Electronic Privacy Information Center’s Mark Rotenberg jumped on the chance to attack Google, as he often does when Google makes news for anything privacy-related. Yesterday, EPIC filed a complaint with the Federal Trade Commission that called on the FTC to investigate Google’s privacy safeguards, order Google to shut down all cloud computing services—including Gmail, which has 26 million users—pending a thorough privacy evaluation, and force Google to pay $5 million to a fund that would be setup for “privacy research.”

Watchdog activist groups like EPIC can play a useful role in the public discourse on privacy, helping to publicize unsavory behavior by companies and educating consumers about keeping data secure. Unfortunately, however, these groups’ admirable focus on protecting privacy sometimes edges on the myopic, causing them to overreact to data breaches and sometimes even call for regulatory interventions that are decidedly anti-consumer. EPIC’s latest complaint about Google is a classic example of this.

How would it be in consumers’ interests for the FTC to shut down Google’s cloud computing services until Google can offer its users an ironclad data security guarantee? Gmail has been at the forefront of innovation in webmail, and was among the first providers to offer its users gigabytes of free storage and SSL-encrypted IMAP connectivity. And Google Docs is a wildly popular alternative to Microsoft Office that doesn’t cost a dime to use. Shutting down both of these services would be extremely detrimental to the millions of consumers and small businesses who find the service useful and valuable and are willing to accept the small risk of a bug or data breach. But Mark Rotenberg wants to deny consumers that choice. Concerned users can already close their Google account and switch to another productivity suite; Google even makes it easy for users to export their data in an open source format for painless migration.

It’s unrealistic to expect watertight privacy safeguards in a world in which information sharing is on the rise. As collaborative software and cloud computing grow in popularity, the number of potential avenues for breaches, bugs, and compromises will only increase. But closing every service that suffers a bug until federal regulators can comb through every line code isn’t the solution—the solution already exists. Companies like Google risk losing billions of dollars if consumers lose faith in cloud-based products.

Leaks of sensitive data did not begin with the invention of the Internet, and breaking agreements that promise confidentiality has long been a matter of civil liability. In other words, the proper venue for recourse against Google is not the FTC but the courts. Instead of EPIC complaining to the FTC, victims of the Google Docs bug should be taking Google to court. There’s no reason for the FTC to intervene every time there’s a security flub when existing liability laws combined with market pressures already give the Googles of the world a strong incentive to guard against breaches.

The ever-present threat of FTC action against firms can have extremely destructive consequences for online innovation. What EPIC is advocating — for the FTC force a company to shut down one of its product suites on account of a single, relatively minor bug — would be a case of harmful regulatory action.

Over the past year or so, many market-oriented critics of Google, like Scott Cleland and Richard Bennett, have criticized the company for aligning itself with Left-leaning causes and intellectuals. Lately, however, what I find interesting is how many leading leftist intellectuals and organizations have begun turning on the company and becoming far more critical of the America’s greatest capitalist success story of the past decade. The reason this concerns me is that I see a unholy Right-Left alliance slowly forming that could lead to more calls for regulation not just of Google, but the entire search marketplace.  In other words,  “Googlephobia” could bubble over into something truly ugly.

Consider the comments of Tim Wu and Lawrence Lessig in Jeff Rosen’s huge New York Times Magazine article this weekend, “Google’s Gatekeepers.” Along with Yochai Benkler, Lessig and Wu form the Holy Trinity of the Digital Left; they set the intellectual agenda for the Left on information technology policy issues. Rosen quotes both Wu and Lessig in his piece going negative on Google. Wu tells Rosen that “To love Google, you have to be a little bit of a monarchist, you have to have faith in the way people traditionally felt about the king.” Moreover:

“The idea that the user is sovereign has transformed the meaning of free speech,” Wu said enthusiastically about the Internet age. But Google is not just a neutral platform for sovereign users; it is also a company in the advertising and media business. In the future, Wu said, it might slant its search results to favor its own media applications or to bury its competitors. If Google allowed its search results to be biased for economic reasons, it would transform the way we think about Google as a neutral free-speech tool. The only editor is supposed to be a neutral algorithm. But that would make it all the more insidious if the search algorithm were to become biased. “During the heyday of Microsoft, people feared that the owners of the operating systems could leverage their monopolies to protect their own products against competitors,” says the Internet scholar Lawrence Lessig of Stanford Law School. “That dynamic is tiny compared to what people fear about Google. They have enormous control over a platform of all the world’s data, and everything they do is designed to improve their control of the underlying data. If your whole game is to increase market share, it’s hard to do good, and to gather data in ways that don’t raise privacy concerns or that might help repressive governments to block controversial content.”

So, here we have Wu raising the specter of search engine bias and Lessig raising the specter of Google-as-panopticon. And this comes on top of groups like EPIC and CDT calling for more regulation of the online advertising marketplace in the name of protecting privacy.  Alarm bells must be going off at the Googleplex. But we all have reason to be concerned because greater regulation of Google would mean greater regulation of the entire code / application layer of the Net.  It’s bad enough that we likely have greater regulation of the infrastructure layer on the way thanks to Net neutrality mandates. We need to work hard to contain the damage of increased calls for government to get its hands all over every other layer of the Net.