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How to Give Google More Competition

By Randal C. Picker
November 29, 2012 6:16 PM EST
Illustration by Jordy van den Nieuwendijk

Where should you go out for dinner tonight? This is a common Google (GOOG) question, but regulators in the U.S. and the European Union suspect that Google is tilting its answers in favor of its own properties.

Not its own restaurants, of course, because the company isn’t in the restaurant business. Rather, Google Inc. (GOOG) has moved from merely organizing search to owning content and the answers to questions. By competing with Yelp Inc. (YELP) and others in category searches, such as reviews of local businesses, it has drawn scrutiny from regulators.

Since at least May, the EU has been looking at whether Google is biasing its results for these so-called vertical searches. The U.S. Federal Trade Commission isn’t as public about its process, but Google Chief Executive Officer Larry Page spent Nov. 27 with the FTC, an indicator that the commission’s investigation of Google has reached a critical stage.

Antitrust issues often seem arcane to outsiders, but this is where modern societies establish the ground rules for innovation and competition policy. Industrialized economies generate most of their growth from new ideas and ways of doing business, and effective competition is crucial to making that system work.

The FTC should move forward with a case against Google only if the commission can identify serious harm to competition and innovation -- and only if it has a real solution available. Although Google appears to be engaged in extensive hard-wiring in favor of its own websites, there is a remedy available -- call it “competitive personalization” -- that will allow Google and new companies to continue innovating and competing aggressively.

Providing Answers

The young Google -- circa 1998-2002 -- responded to search queries with 10 blue links and quickly moved you to the site you were seeking. This strategy has changed. Google is now in the content business and provides the answers itself. Search and ye shall find here (and you won’t need to click elsewhere). It bought YouTube, ITA Software, Frommer’s and Zagat, and it has tried to build a local Web-pages service with user-generated reviews, now part of its Google+ social offering.

Run a search on Google for a local restaurant and look at the results. Businesses compete vigorously to improve their chances of making the all-important first page of results, but they can’t buy a spot directly.

In the early days of search, the FTC was concerned about pay-to-play, and the regulators issued rules to limit that practice. Instead, businesses buy ads and Google holds a staggering number of auctions each day for advertising slots as it responds to searches.

Even with all of that competition, however, other parts of the search page appear to be hard-wired in favor of Google. Your dining search will come with a Google map of the restaurants, not a map from rival MapQuest Inc. or, heaven help us, from Apple Inc. (AAPL) And the heart of the response will be a table of restaurants, what the industry calls a “onebox.” That will include local contact information with links to the restaurant websites and also to Google review pages. These hard-wired links to its review pages, and perhaps to the maps, have stirred the interest of the FTC and the EU.

Let’s focus on the big picture instead. Companies such as Google drive the creation of new value in the economy when they improve their products. Yet we have innovation on both sides of this discussion. If Google can easily convert its position in traditional search into closely related markets such as those for local business reviews, we will discourage innovation in those areas. Upstarts won’t be able to compete equally if the giant search operation can squelch them by hard-wiring links to new Google properties.

Personalized Searches

This is dicey territory for the FTC and the EU. One idea worth considering is competitive personalization. Google has moved into providing personalized-search responses. You and I search and get different responses based on our prior searches. Personalization is controversial, because it raises privacy questions -- an issue for another day -- but it could give customers a straightforward chance to designate a default provider for reviews or maps.

Google hard-wires its search results in favor of its own maps, so a restaurant search on Google will return results with maps from Google. Perhaps I prefer MapQuest to Google Maps. Regulators would be understandably concerned that the rise of Google Maps has been driven by how tightly linked it is to Google’s underlying search engine and not because it is a superior product on its own.

If consumers could designate a default maps provider, antitrust regulators would have much greater confidence that Google Maps is winning on its own merits.

The company’s hard-wiring in favor of its own Google+ local review pages raises similar issues. Again, making it possible for consumers to designate a default provider for local reviews would help to ensure direct head-to-head competition with Yelp and other review sites.

Competitive personalization would improve consumer choice and increase continuing competition between Google and the next set of college kids tinkering away in the garage. Policy makers need to make sure that is possible.

(Randal C. Picker is a professor at the University of Chicago Law School. The opinions expressed are his own.)

To contact the writer of this article: Randal C. Picker at r-picker@uchicago.edu.

To contact the editor responsible for this article: Katy Roberts at kroberts29@bloomberg.net.

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