Inside Business

Last updated: September 22, 2011 9:55 am

Google must curb arrogance to avoid antitrust pitfalls

Richard Waters on the group’s defence against claims of unfair practices

When successful technology companies fall foul of antitrust laws, it is usually arrogance, not the workings of some abstruse theory of digital competition, that accounts for their defeat.

Just ask Microsoft. Starting 13 years ago, when Bill Gates first testified before a Senate committee, the software company’s arrogance in the face of criticism was palpable. Mr Gates offered a bracing defence of his company, even going so far as to suggest that innovation worked just fine as long as government got out of the way – never a smart message to deliver to a roomful of senators.

The writing was on the wall. As a later Department of Justice investigation found, a corporate arrogance had fed through into Microsoft’s dealings with its business partners, leading it to twist their arms to favour its own products over rivals, and ultimately bringing the weight of the law down on its head.

Google, which grew up in Microsoft’s shadow, has long claimed to have learnt from its predecessor’s slips. But it is a company with a high degree of self-regard – even arrogance – of its own, and whether it can escape a similar fate is now being put to the test.

Bowing to the conventions of political theatre, Eric Schmidt followed in Mr Gates’ footsteps to the US Capitol on Wednesday to offer up his own defence against mounting claims of unfair practices. In the unfolding of any long-running antitrust review, such appearances can be formative in setting the tone for what follows.

Much has been made of Google’s search rankings: do its algorithms treat its rivals fairly, and should it be allowed to insert its own specialist information services above its “organic” search results (as it does, with increasing abandon)?

It is hard to see how regulators could try to intervene directly in the workings of the company’s “black box” search ranking system. The idea of “search neutrality” sounds fine in principle – with so much economic activity and so many corporate fortunes resting on the preferences set by Google’s rankings, who wouldn’t want to feel that it operates an “objective” system free of whim and prejudice? But ranking search results is, by definition, a subjective affair. As Mr Schmidt pointed out in his testimony, none of the private antitrust suits brought against Google on these grounds have got anywhere.

The problem for Google, if there is one, will come instead from over-reach, born of arrogance. Given its huge power over online behaviour and internet advertising, have some inside the company been tempted to overstep the legal limit in trying to expand Google’s reach beyond its original search engine roots?

A number of specific complaints that have surfaced serve to highlight the kinds of issues the company will be pushed to defend itself against in the face of broad investigations by the European Commission and the US Federal Trade Commission. Last year, for instance, it began to “scrape” user-generated reviews from the local information service Yelp and display them in its own rival service – having earlier failed to secure a licence to carry Yelp’s content, or to buy the company outright. In what it characterised as a “take it or leave it” ultimatum, Yelp says it was offered the option of removing itself entirely from Google’s search service – something that would be highly damaging to its business. Similar ultimatums issued in the past, for instance to news organisations unhappy about the workings of Google News, have served to foster the complaints of arrogance.

Google’s behaviour over Yelp might pass muster with copyright lawyers, but could prove damning evidence in the hands of someone charged with enforcing antitrust laws. Perhaps not surprisingly, Google stopped carrying the Yelp reviews in July, shortly after the FTC began its probe.

In another claim that points to possible over-reach, Skyhook, a company whose software is used to calculate the location of smartphones, has complained Google required Motorola to drop the software as a condition of it using Google’s Android operating system. That bears strong echoes of Microsoft, which was found to have used its own operating system dominance to force hardware makers to use its Internet Explorer browser.

The Skyhook case opens a wider question: might Google have been using its highly successful Android software to win unfair dominance in the mobile search business? That is certainly what the company’s rivals claim.

With the Microsoft experience to learn from, this is one area where Google’s lawyers were heavily forewarned, giving them ample opportunity to devise a bulletproof legal strategy. Yet it is sometimes the nature of successful companies not to see the threats their very success has stirred up. If Google eventually falls foul of the regulators, it is likely to come from its own failure to heed the dangers, rather than from any inherent unfairness in its business model.

Richard Waters is the FT’s West Coast managing editor

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