Deconstructing Google: After The Google Antitrust Breakup

Previous chapters have covered how the growth of Google and fears of how it was reshaping the communication landscape led to the application of existing anti-trust laws along with new ones to force a Google breakup in 2010. This chapter looks at the immediate aftermath: the “Baby Googles” or “Googlets” that were formed in the name of greater competition and consumer choice.

Google (Search Products)

The Google brand name remained with the company’s first product, search. Virtually all search-related products were kept part of Google, including enterprise search. Google continued to operate the Google search engine, which itself remains by far the most popular search engine in the United States and in most countries around the world.

What didn’t stay with Google? As covered more in chapter 3, the Search Engine Reform Act of 2009 (SERA) had a fundamental principle that companies with business models around being guides to the web — regardless of the technology or human effort involved to create those guides — were forbidden from also owning content that might be listed in those guides.

“If I buy a restaurant guide, I don’t expect the publisher of the guide to also own or make money off of some of the restaurants in the guide,” said one US senator during debate over the act.

Critics pointed out that it wasn’t illegal under US law for these conflicts to occur in other areas. Movie studios were free to own magazines that might cover their movies, for example. Nor could anyone show solid evidence that Google had allowed the inherent conflicts to become real ones. But the argument of search deserving special regulatory protection won out.

Away went products like Google Knol, as well as Google’s ability to offer an ad brokerage service like AdSense to publishers. Google could still sell ads — indeed, the AdWords program remains the chief source of revenue for Google. However, those ads are restricted to Google’s own search results pages or the search results pages of affiliate partners.

Google was allowed some exceptions to the “no content” rule. Community maps were deemed “search-like,” so Google’s Wikipedia-like social mapping effort could continue. Google News, where pages of “content” are built in an automated fashion, were still deemed to be search-like because of their “discovery” nature and thus were allowed. Local reviews of merchants were also allowed. Hosting of video content through YouTube? That was not deemed a search activity, so YouTube was spun off.

Understanding that gray areas would come up, the reform act also established the Search Commerce Commission. Among its many duties is serving as an arbiter of whether a search engine has slipped too much into the content-hosting space.

As coming chapters will explain, the changes were not limited to Google. Microsoft and Yahoo both found the act required them to divest and divide up various business units. Ironically, one of the chief backers of the reform act – the newspaper publishing industry — got a rude awakening when they found it applied to them. Plans for a pan-newspaper portal to rival Google News came to a halt when it was deemed in a lawsuit that the portal would violate SERA because, as a search engine, it was listing newspapers that it also would have an interest in favoring.

AdSense (Ad Products)

With Google forbidden to broker ads, virtually all non-search ad activity was spun off into a new company that took its name from Google’s former publisher-facing ad program, AdSense. As before, AdSense allowed publishers to carry textual ads on their pages, as well as banner ads, video ads, and more. The company also continued its play into the offline world through radio, television, and print ads.

Ironically, once free of Google, AdSense’s mission to gain both advertisers and publishers was easier. Previously, AdSense was often seen as only offering “those contextual ads,” which in turn suffered from poor performance compared to search ads. As its own company, AdSense was better able to explain that it offered a range of advertising opportunities. Publishers better understood that they could pick and choose or, if trusting in AdSense, simply let the company undertake a one-stop-shopping integrated campaign for them.

Search was the exception, of course. AdSense was unable to offer search ads via Google or anyone, since doing so would inevitably mean that the search engine it was partnered with might be listing a publisher that was also carrying non-search ads.

AdSense suffered a major shock, of course, due to the Internet Advertising Reform Act of 2009 that was passed alongside SERA. In particular, it was the “anti-black box” provision, IARA, that initially made AdSense feel it would be stillborn. The provision required anyone serving as an ad broker to reveal the exact amount it kept off of transactions and what those transactions were selling at. As a result, those placing ads understood the cut AdSense was taking, plus they no longer had to leave it to the AdSense black box to apply “discounts” as it saw fit. Similarly, publishers finally learned exactly how much Google was keeping back for itself.

Google — before the break-up — argued loudly that such transparency would cause it to cut the percentage it was keeping, because advertisers and publishers would focus to much on the size of that percentage rather than the efficiency they gained by using Google rather than their own salesforce. As it turned out, the overall percentage that Google kept did drop on average. However, publishers did not abandon AdSense. It was indeed, for many, an efficient way to earn despite the various cuts AdSense would take.

Cloud (Apps & Content)

Google’s many applications, from Google Docs through to Gmail, were not required to be spun-off into a separate unit. Gmail, in particular, had been ruled acceptable for the search unit to keep. Google Docs could have been part of AdSense, since the law had no provision preventing an ad brokerage from also owning its own content. However, Google itself decided that the “Apps” part of the “Search, Ads, & Apps” company really needed to be on its own.

The new company name came from the idea of people no longer having a physical desktop or computer, with data linked to one physical point, but rather with their applications and information residing in a “cloud” of computers, accessible from anywhere the internet could reach.

At its core was Cloud Office, the Microsoft Office-rival that Google had long denied building but nonetheless developed along the way. Word processing, spreadsheets, presentation software, a database, 3-D modeling, photo management and hosting, and video hosting were just some of the things rolled into it.

There was some rebranding. Picasa become Cloud Media Manager and gained video upload tools. YouTube, part of Cloud Content, was allowed to keep its own strong brand name — but Cloud Media Manager fed into it. Gmail saw a brand change – Cloud Mail, though old @gmail.com addresses continued to work. Blogger kept its name, while Orkut became Cloud Connect. Similarly, Google Talk changed to Cloud Talk.

There was some debate over Google Reader and Google Notebook. Were these “search” products or applications? In the end, they rolled into the Cloud family, deemed more app-like and less likely to cause “content hosting” issues for Google.

Most Cloud products continue to be funded by ads. Again, there was huge debate during the break-up hearings on whether Google was abusing existing laws – or should be subject to new ones — to prevent it from altering the marketplace by offering free products that were funded off the back of its search and ad units. Behind the scenes, Microsoft, worried that it might lose billions in software license fees, pushed for a change. But implementing such a law was seen as unwieldy. Any number of businesses might find they had to make fundamental changes in what they gave away for “free” due to earnings elsewhere.

Google itself helped prevent such a law from being passed though its own actions. As noted, it split AdSense and Cloud apart, so that there would be a more customer relationship between both units. AdSense was awarded an initial three year contract to monetize Cloud apps and content, with a large revenue guarantee that ensured Cloud’s immediate future. But Cloud was allowed to develop its own internal ad and monetization systems. And after the first three years, any company could bid to win Cloud’s business. Indeed, many saw irony that adCenter — the Microsoft ad brokerage spun off as part of SERA — might one day be funding Cloud’s apps. The children of Google and Microsoft, working together.

It wasn’t all ad earnings, of course. Cloud continued to grow a healthy enterprise audience, with universities in particular pleased to pay relatively low fees to offload content development infrastructure onto cloud. But many businesses looking for savings also became adopters.

Gmetrics (Analytics & Shopping Services)

Google Analytics (which had eventually absorbed FeedBurner) and Google Checkout were odd-products-out in the break-up. Part of both SERA and IARA were provisions preventing search companies or internet ad brokers from trying to “close the loop” by harvesting analytics information. Nor did these products seem a fit for the more consumer or enterprise-facing Cloud company. Metrics were deemed to be the uniting factor, so Gmetrics — the G for the former Google – was born.

Gommunication (Communications)

Replacing the C in communication with a G for the former Google created the fifth and most obscure of the Baby Googles, Gommunication. Google’s long-range vision had assembled an impressive list of communication assets, from its own national and international fiber optic network – complete with undersea cables — to the 700MHz bandwidth it won in the US, along with similar former analog TV bandwidth it won in the UK and elsewhere in the world. Gommunication formed to lease communication services to its siblings, but also to any other company that wanted them.

Breaking Up Is Hard To Do

Dividing up products into different companies seemed largely straightforward. Indeed, Google’s old product page already made some of these divisions. Much harder was dividing up the underlying infrastructure and virtual army of engineers that build the cloud layer supporting all Google products, not just a particular division. How the various data centers scattered across the US and the world were divided — as well as the engineering teams — is covered in the next chapters.

As already noted, it’s not to be forgotten the impact the changes had on other businesses. Newspaper groups in the US (as well as in the EU, when it adopted similar laws) found they couldn’t be both search engine/portal and publisher. Yahoo and Microsoft similarly found that plans to be ad players, software makers, and search providers were not compatible with the same company. For them, breaking up was also hard — but federally mandated — to do.

Author’s Note

I trust most readers will have recognized this is a work of fiction. I’m not an expert in anti-trust law, so it may be that Google will continue growing and adding business units for many years without hindrance. But 2007 has been a remarkable year. My Google: Master Of Closing The Loop? article from April 2007 looks at how much information Google is gathering in various ways. The usual freak-out on the information gathering is in terms of personal privacy, but my article looks at things from a business perspective. As I wrote in that:

Is it far-fetched to think Google itself could be setting itself up for an anti-trust action? If the web is now the operating system, and Google is seen by many controlling the web, perhaps it will be forced to divest itself of certain operations because of them effectively giving it a trust or monopoly.

Since then, the review of the Google-DoubleClick merger has continued to raise these types of questions, though as my Open Letter To Senators Hatch & Kohl About Google-DoubleClick article explained, perhaps those asking the questions haven’t been looking broadly enough:

Instead of blowing the wad of investigating Google-DoubleClick, why not investigate whether Google is trampling laws by both being a leading traffic source for some web sites while also being their leading revenue generator? Or whether Google simply has too much insight into the web that gives it an unfair advantage; i.e., if it offers free tracking tools, ads, free wireless, free web acceleration tools, and more, does that mean it effectively knows everything happening on the web operating system, so that it can improve the quality of its search and other products in a way that no one else can match.

What inspired today’s piece in particular were the words of FTC commissioner Pamela Jones, who dissented against the merger, saying:

I am convinced that the combination of Google and DoubleClick has the potential to profoundly alter the 21 century Internet-based economy – in ways we can imagine, and in ways we cannot.

I do not doubt that this merger has the potential to create some efficiencies, especially from the perspective of advertisers and publishers. But it has greater potential to harm competition, and it also threatens privacy. By closing its investigation without imposing any conditions or other safeguards, the Commission is asking consumers to bear too much of the risk of both types of harm. The unique confluence of competition and consumer protection issues should have been a call to action for this agency – “the only federal agency with both consumer protection and competition jurisdiction in broad sectors of the economy.” Section 5 of the FTC Act is the 30 cornerstone of the Commission’s authority to review a wide range of business practices. The agency embraces its dual, but complementary, missions. While the FTC’s competition and consumer protection missions focus on different types of conduct, they share the same overall goal: that consumers obtain truthful information about products and services that they can then use to make purchase decisions in a competitive marketplace in which their personal information is safeguarded. This purpose has assumed even greater importance in this dynamic, digital, and global marketplace.

I’ve written many times in aforementioned pieces that the merger really didn’t seem from my view to harm competition. But Jones — along with senators Hatch & Kohl and others — are simply disturbed in my view by the size and growth of Google. It, in particular, has been the catalyst for some many changes so quickly. My suspicion is that if it is not violating any existing laws, powerful interests will ultimately decide new ones will be needed. Perhaps they are. If so, I think it’s important that they be applied across the board, rather than being some knee-jerk Google-specific actions.

Postscript: This story went popular on Digg, and there are some great comments to be read over there, pretty much showing that the Digg audience would strongly object to any government breakup. A sampling:

  • Government touches google = we revolt… this is sacred ground people!
  • What if GOOGLE broke up the GOVERNMENT, would be a more interesting story
  • Google is the last company that needs breaking up. If we’re talking companies to break up, let’s discuss Disney, National Amusements, Time Warner, Viacom, News Corp, Bertelsmann AG, Sony, General Electric, Vivendi SA and Lagardère Group.
  • Don’t you dare touch Google? It’s personal.
  • I don’t think that GOOGLE should be worried about the GOVERNMENT … now vice versa…
  • If they break up Google after they declined to break up MS I’ll be pretty shocked. In fact, at that point, I’ll just assume that all government is pure evil.
  • They can take my Google when they pry the keyboard from my cold, dead hands.

Related Topics: Channel: Industry | Google: Business Issues | Google: Critics | Google: General

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About The Author: is a Founding Editor of Search Engine Land. He’s a widely cited authority on search engines and search marketing issues who has covered the space since 1996. Danny also serves as Chief Content Officer for Third Door Media, which publishes Search Engine Land and produces the SMX: Search Marketing Expo conference series. He has a personal blog called Daggle (and keeps his disclosures page there). He can be found on Facebook, Google + and microblogs on Twitter as @dannysullivan.

Connect with the author via: Email | Twitter | Google+ | LinkedIn



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