Earlier this morning I predicted that today’s three-hour Senate subcommittee hearing on Google and competition would be more theater than fact-finding. (You can read Danny’s live blog here and here.) And while there were lots of numbers and statistics thrown around by the witnesses (many of them inaccurate) there were few new facts; it was mostly a he said/she said affair.
Google’s Eric Schmidt, the first witness, came off better than most of the senators questioning him. One of his major themes was that Google creates jobs and economic value and regulation might impair job creation in the future.
Ranking Members Believe Google Is a Monopolist
Chairman Herb Kohl, a Democrat, and Utah Republican Mike Lee both seemed to agree that Google was a monopolist that needed to be restrained. Lee aggressively went after Schmidt like a cross-examining lawyer at trial. Lee presented a scatter plot chart showing that Google’s shopping/product search results consistently appeared in the same position on the page, while competitors’ results fluctuated.
Schmidt tried to explain Google’s universal search concept but Lee sought to trap Schmidt into admitting there was a “double standard” where Google uses one algorithm for third party content and a separate standard for its own content (e.g., Shopping, Maps). In other words Lee argued that Google didn’t hold its own content to the same standards or rules, which was inherently unfair in Lee’s line of reasoning.
Throughout the hearing the implication or subtext of many of the questions was that Google should not be allowed to promote its own products or services “above” those of competitors. Repeatedly the notion of Google having a “conflict of interest” was brought up: Google will always favor its own properties because that way it makes more money. Google Lawyer Susan Creighton, testifying on the second panel, disputed this assumption, although the issue wasn’t thoroughly explored.
A number of times public statements attributed to Google’s Marissa Mayer were used to support the claim that Google favors its own content. Schmidt was not as skilled in handling those remarks.
A surprising moment came when Senator Al Franken asked Schmidt about Google Places on mobile devices and Schmidt didn’t seem to know that Google Places was an app for both Android and the iPhone. Otherwise Schmidt was generally well spoken and dealt with most of the panel’s questions quite effectively.
Unintended Comedy from Senators
Both humorous and unseemly, several senators explicitly asked Google to consider their states for projects before launching into questioning. Most obnoxious was New York’s Charles Schumer (Democrat) who first offered a kind of commercial for New York and then asked Schmidt to consider investing in the Hudson River Valley, all but implying it was a condition of his support.
Connecticut Senator Richard Blumenthal (Democrat) kept repeating that he “hasn’t made up his mind yet” almost as often as Mike Lee cited his conservative credentials and professed his love of free markets as a kind of preamble to his questions. It was a Saturday Night Live sketch in the making.
Things Heat Up with the Second Panel
When it came time for the second panel the hearings became more contentious and more interesting. The panel included Thomas Barnett, attorney for parties in the anti-Google FairSearch coalition, Yelp CEO Jeremy Stoppelman, Nextag CEO Jeff Katz and Google attorney Creighton all seated next to one another. None of the witness were neutral or disinterested.
Creighton lent some historical perspective to antitrust investigations involving technology companies and tried to make a case that the market was too dynamic for regulators to get involved. She cited MySpace’s rise and fall as evidence of the market’s capriciousness and as a reason that government shouldn’t intervene; today’s monopoly power is tomorrow’s also-ran. She argued that there would be potential unintended consequences from regulation and argued that it takes 80 percent market share — over time — to be considered a monopoly.
She was also the first one (I believe) to bring up Facebook as a powerful competitor to Google, incorrectly arguing that most SMB advertising online happens on Facebook. Still, the argument that Facebook is a counterweight to Google is an important one for the company.
Her immediate opponent on the panel Thomas Barnett argued that nobody could compete with Google in search and thus should be regulated — period. He also professed his love of free markets and warned that regulation now would stave off more onerous or intrusive future regulation, which he argued was inevitable. Mike Lee embraced this argument.
Google Was Good . . . but Now They’re Not
Nextag CEO Katz credited Google with being a good partner in the past but now it was more self-interested and less fair and reasonable. I wish he had used the word “evil.” Alas he did not.
The most effective testimony against Google came, however, from Yelp CEO Jeremy Stoppelman. He described a timeline of events in which Google and Yelp were partners. But after that ended, Google later began including Yelp reviews in Places (a competitive product) without permission. Yelp said that the company asked that those reviews be removed, which Google declined to do without removing Yelp from the index entirely. It was only after the FTC investigation was announced, said Yelp, that Google complied.
Barnett had a similar story about TripAdvisor.
Yelp’s testimony made Google look like an unfair competitor using its dominant market power to wring concessions from a smaller company dependent on it for 75 percent of its traffic. Stoppelman added that he probably wouldn’t start Yelp today given Google’s push into local and ability to drive traffic to its Places results. The message is that competition and the ability to compete are being diminished by Google’s behavior.
While none of these remarks were new, for those who hadn’t been paying attention (including many in Washington) they may be surprising and harmful to Google’s image. For those inclined to believe that Google is anti-competitive, they will confirm that viewpoint.
Looking Like a Long Road Ahead for Google
Committee Chair Kohl implied there may be more hearings. But the hearings are PR largely. The real action is with the FTC’s antitrust investigation. Given what came out today it seems almost certain to me that there will be some kind of case ultimately brought against Google. The hearings telegraphed some of the arguments that will be developed by the FTC.
Google might be able to preempt such a case by suggesting voluntary remedies. Indeed, the panelists were asked, including Schmidt, what should the remedy be if Google were found liable. There were few good answers and few specifics.
Franken suggested a technical oversight committee could supervise Google’s algorithm changes for fairness. Nextag’s Katz suggested that all of Google’s content should be labeled “promotional” to distinguish it from other organic content on the page. Senator Lee implied that Google’s own properties should be subjected to the Google algorithm, as though they were third party content sites.
However mostly people spoke in slogans (“level the playing field”) and generalities. Nobody suggested that Google should be banned from placing its own content on SERPs or that it should lose control over the layout and content on the page.
There seemed to be a quasi-consensus among committee members that Google enjoyed an excessive concentration of market power. But there was far less clarity about what to do about it. What does seem clear is that today’s hearings were just the opening scene in what may become a very long drama for both Google and government.
- Live Blog: Google’s Eric Schmidt At The US Senate Hearing
- Live Blog: Yelp, NexTag & Others At The US Senate Hearing
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- The Shoe Drops: Google Receives Formal Notification Of Review By FTC
- Googleopoly: The Definitive Guide To Antitrust Investigations Against Google