What Google’s Anti-Trust Woes Mean to Advertisers

ADOTAS – It was recently announced that Google is going to be investigated for anti-trust issues by the Federal Trade Commission. This action joins the already underway investigation of Google in the EU (U.K. excluded). Clearly Google’ success, like that of IBM and Microsoft before them, is attracting all sorts of unwanted attention. What are the issues and what do they mean to advertisers?

The complaint is that Google uses its market position to create an unfair marketplace. Search is such an important source of revenue and traffic for retailers, publishers, travel companies, and nearly all advertisers with a web presence and Google is the provider of nearly 75%-80% of this traffic in the US, and 95% in Europe (according to studies done by Covario), that this concentration of power is considered a major risk to the advertisers. The complaint does not specify the specific competitive issues for paid search versus natural search – however both areas are of concern to the investigation.

For paid search, there is no doubt that Google commands the lion’s share of the market – in Europe particularly. Anti-trust suits are brought when market power leads to monopolistic pricing. The interesting issue with Google is that its ability to enforce monopolistic pricing is very limited given the way its system works – the auction allows the advertisers to set pricing – and Google, for the most part, stays out of it.

They are quite transparent when it comes to how they determine Quality Score –and advertisers who do not benefit from this understanding either have not put in the work, or are simply unhappy with the result (they are bidding on irrelevant keywords, which hurts quality score, which raises price – those are the publicized rules of the auction – play or don’t play).

This issue was under hot debate in 2007 and 2008 by the Justice Department in the U.S., and Covario was asked to comment at the time. Google does have some subtle ways to impact their ability to monetize inventory – but nearly all of these processes include feasible consumer benefits as well.

Take Google Instant. Our belief is that it has two goals. One, it provides useful suggestions to consumers, from which they find value. Two, it also helps create more clicks for paid search which increases revenue for Google.

Is that monopolistic? It is impossible to make that claim, as the auction makes the ramifications of this process completely transparent and the impact one that the advertiser can control.

Our position then, as it is now, is that there is no anti-trust case in paid search due to the way pricing is set in the market for paid search keywords. Google acts as market facilitator, not market enforcer.

On natural search, the argument is slightly different, and this is where we believe the anti-trust case in Europe and the U.S. will focus. Google has one objective for natural search – to return relevant answers to the consumer. It will be this concept of what relevancy means that will determine how this investigation goes.

Relevancy is a debatable standard and the relevancy goals of the consumers (represented by Google) and the advertisers (represented by themselves and the U.S. Congress in this case) are going to always be at odds.

Google makes all sorts of changes to the underlying natural search algorithm. Panda was the most recent significant example – which was designed to address reductions in the quality (read relevancy) of search results due to programmatic processes being run by large advertisers that Google considered against its standard of what constitutes relevancy.

Two things can happen – the process can play out and the governments in the U.S. and Europe can find that Google is or is not creating an unlevel playing field. If found to unlevel, the remedy might be that the government will regulate what relevancy means, and take that out of the hands of Google.

Or the governments might force Google to disclose its algorithms and algorithmic changes more fully so advertisers can see what is going on more effectively than they can today and enforcement of abuses by Google may be reduced.

Again, our point of view on this is that Google is going to be a more effective arbiter of their algorithm and relevancy than the government, and that any action that would allow information to be disclosed that allows advertisers to game the system against those with truly relevant content is bad for advertisers, bad for consumers, and bad for the search industry.

Google is incented to be good at this, and to put the needs of the consumer above the needs of the advertiser. Google provides a service to the market – it organizes information more efficiently than anyone else out there right now, and makes it available to consumers and to advertisers. And they should be allowed to do so unfettered.

Advertisers should expect that the ability of Google to continue to innovate through the acquisition of other technologies and companies will slow. The EU and the U.S. Congress are putting in place the same types of scrutiny that IBM and Microsoft before them have faced. The Yahoo search alliance from two years ago was the first casualty. The furor over their acquisition of ITA is the latest example.

Advertisers should expect more of the same – which will create a more fragmented market over time.

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