Rhetoric vs. Reality: Schmidt Plays Up Mobile Competition In Written Senate Testimony

Is Google is a malevolent monopolist or merely the beneficiary of consumer choice in an intensely competitive environment? Has Google created a “network effect” that locks people in or is competition truly just “one click away”? These opposing views are on display in a PR war between Google and its opponents, such as anti-Google coalition FairSearch.org (which includes Microsoft).

Neither position is entirely accurate. Google is far from the monster its critics portray. But it’s also not truly vulnerable the “one click” hypothesis or the “next new thing” either.

On Friday Matt McGee discussed some of Google Executive Chairman Eric Schmidt’s written responses to follow-up questions posed by the US Senate Subcommittee on Antitrust, in the wake of his appearance on Capitol Hill in September. As Matt points out some of what Schmidt is saying is “semantics” or spin.

Expanding the Definition of Competitors

Schmidt (or more accurately Google legal counsel) contradicts earlier public statements of other Google executives and massages definitions in an effort to cast Google as a company operating in a highly competitive environment. This is partly correct.

This effort to play up competition extends to Schmidt’s remarks on Android and mobile search generally. Here are some representative Schmidt statements on mobile:

Google is clearly the dominant provider of web search services worldwide. In the United States, 65% or more of all general Internet searches take place on Google. In Europe, Google has 94% of this market. The explosion of smartphones has provided a new search market – and in that space, Google processes a whopping 97% of all searches. . . 

Q: Mr. Schmidt, your company is overwhelmingly dominant – it really has only one rival, and that rival is losing incredible sums of money each year. Given the tremendous market power of your company, do you believe it’s fair to characterize Google as a monopoly?

Schmidt: First, I would disagree that Google is dominant. By investing smartly, hiring extremely talented engineers, and working very, very hard (and with some good luck), Google has been blessed with a great deal of success. But given the rapid pace of change in the technology industry, we take nothing for granted.

As I acknowledged during the Committee hearing, Google is “in the area” of 65% of queries in the U.S., if you look only at Google’s general search competitors, such as Microsoft’s Bing and Yahoo!. In fact, we find that the monthly general search query figures released by comScore and Hitwise don’t reflect the reality of how many sites Google competes with in search. Google has many competitors that are not general search engines, including specialized search engines, social networks, and mobile apps. So inferring that Google is in any way “dominant” in search would be incorrect.

At the hearing, I noted that the question of whether such a market share, if accurate, would constitute a monopoly, is a legal determination; Ms. Creighton is more qualified to speak to those points. At a minimum, though, I am confident that Google competes vigorously with a broad range of companies that go well beyond just Microsoft’s Bing and Yahoo!, and that Google has none of the characteristics that I associate with market power. The technology industry is one of the most competitive and dynamic spaces in the entire economy, with small companies as well as larger companies competing hard against each other in lots of areas. Google has many strong competitors. We compete against a broad array of companies, including, for example, general search engines (e.g., Microsoft’s Bing, Yahoo!), specialized search engines (e.g., Kayak, Amazon, WebMD, eBay), social networks (e.g., Facebook, Twitter), mobile apps, and voice-activated search tools like Apple’s Siri. The Internet is incredibly competitive, and new forms of accessing information are being utilized every day.

Unlike technologies of the past, on the Internet, competition is one click away. In addition, the history of the technology industry shows that technologies usually get supplanted by completely new models. Therefore, the question is not necessarily, “Who is going to beat Google in search?” but also, “What new model might take the place of search?”

What Schmidt says as a technical matter is correct: Google has a wide range of “competitors,” defined in this case to mean suppliers of information or content. He’s also right that mobile apps and Siri do represent alternatives to using Google search in mobile. Siri, strictly speaking, isn’t “competition” for Google but it does represent a “new model” that could take the place of conventional mobile search over time.

Rhetoric vs. “Facts on the Ground”

Mr. Schmidt’s technically accurate comments about mobile competition are largely contradicted by the “facts on the ground.” Google does control roughly 97 percent of mobile search. It goes without saying that Google dominates paid-search advertising on mobile devices as well. Indeed, Google dominates mobile advertising in the US (and globally) as a whole.

Android is the leading smartphone platform — though iOS has more overall share due to the success of the iPad and iPod Touch — with 43 percent of the US market to the iPhone’s 28 percent. On a global basis Android will be the leading smartphone platform by early 2012. And while hardware makers and carriers have some discretion what goes on the handset, the overwhelming majority of Android devices are Google devices.

Consumers Seem OK with Google-Android Connection

Let’s be clear: most consumers seem fine with all that. To my knowledge there has been no consumer outcry about Google’s primacy on Android or its “default” search presence on those handsets. In fact, when Verizon made Bing the default search engine on some of its BlackBerry devices there was a loud user backlash.

Google repeatedly talks about Android being an “open platform” that Google doesn’t control. But that’s not entirely correct.

Google sees Android as its own platform and sees itself and Android as largely inseparable (that’s partly what the Nexus program reflects). And so when a third party threatens to get in-between Android and a core function on the device Google has a reaction — as in the case of Skyhook Wireless striking deals with Motorola and Samsung to replace Google’s location positioning technology.

Is Google Abusing Android Control?

Google may ultimately be within its contractual rights, as the company has argued in the Skyhook case, to enforce certain rules and effectively compel hardware OEMs to use Google’s technology. However the apparently “strong-arm tactics” on display are, at a minimum, inconsistent with Google’s rhetoric about Android being “open.” Google critics would go farther and call it an “abuse of power.”

I have written extensively that it makes no sense for the US to start regulating the SERP or Google’s algorithm. And I’m not generally a strong critic of Google (I’ve been accused of being a Google “fanboy” in fact). Arguably, however, Android is a much different case than PC search.

Mobile internet access is projected to overtake the fixed internet by 2015. Android will likely become the dominant mobile computing platform next year with all that implies for Google, mobile search and ad revenues. Accordingly, it’s not unreasonable to look very closely at Google’s relationship to Android and potentially consider rules or a process to ensure the reality of the Android ecosystem lives up to Google’s rhetoric about openness.

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