Was FTC Probe Warranted in Google’s Business Practices?


Over objections of a consumer advocacy, a federal judge approved that $22.5 million fine of Google. This resulted from Google’s settlement with Federal Trade Commission (FTC) in August 2012.

Google was charged with bypassing privacy settings on Apple software. This allowed Google to show personalized advertisements by tracking surfers’ online movements. It was a violation of Google’s deal with the FTC involving its former Buzz service.

So, instead of solving important budgetary and other policy issues, Congress launched an investigation in Google’s privacy policies.

In other ways, Uncle Sam has set itself up as the digital-age czar. You’ll recall the Microsoft antitrust case in which it averted a breakup. Only this time it’s the FTC instead of the U.S. Department of Justice persecuting Google.

Google was targeted because it has acquired enemies en route to its huge Internet success with free services. Adversaries include cable and telecom companies, competing advertising firms, content and media publishers. Oh, let’s not forget Microsoft.

The software giant is chagrined, in part, because Google has overwhelmed it despite entering search in 1998 – after Microsoft’s MSN. MSN failed as most of us initially used AOL or Yahoo. Now, two thirds of Internet users prefer Google.

Ironically, the purpose of antitrust suits is to protect millions of consumers – not competitors. History shows two large companies faced with antitrust suits – AT&T and Microsoft – became sidetracked, which hurt businesses and consumers. More on that later.

European Union competitors have also targeted Google. The French firm, 1plusV, has complained about Google’s AdSense. That’s because AdSense prevented 1plusV from advertising its legal search engine from 2006 to 2010. Others include an Italian case, and Microsoft going abroad to complain.

AT&T breakup

Antitrust actions have long intrigued me. A Hollywood script-like drama was building for months in 1974. Finally, the intrigue was over. On Nov.21, 1974, the Justice Department filed the biggest antitrust case in history as it sought the breakup of AT&T. The legal war lasted nearly eight years.

The government argued that the vertically integrated company, which provided both long distance and local services, was a monopoly and caused unfair competition. AT&T’s long-distance rates had been subsidizing the local residential service rates. AT&T was forced to break up its Bell system of local-exchange telephone companies so that it could go into the computer business.

This was heady stuff for me as a young journalist, as it followed the end of the Vietnam War and Watergate. The economy was in bad shape, even a few years after President Richard Nixon imposed wage and price controls. Middle East oil shortages exacerbated inflation. The lines at the gas stations were sometimes very long.

All the case did was to accelerate the company’s demise. Such legal action drains company resources. They become distracted, which hurts consumers who no longer benefit. Indeed, AT&T could no longer innovate.

AT&T’s looming divestiture coincided with changes in how the TV and radio networks distributed their news and other programs to affiliate stations. Before the AT&T breakup, TV broadcasters used the company’s microwave relay and coaxial cable systems. Radio networks used the company’s “leased lines.” New satellites, Satcom 1 and Westar 1, provided competition with higher audio and video quality with lower costs.

Many stations, however, still had contracts with AT&T or they didn’t have big enough budgets to buy expensive earth stations in order to get the network feeds. I worked at two such stations, including one owned by the legendary Dick Clark.

Google was targeted because it has acquired enemies en route to its huge Internet success with free services. Adversaries include cable and telecom companies, competing advertising firms, content and media publishers. Oh, let’s not forget Microsoft.

Microsoft’s antitrust precedent – and a disclosure

Many analysts have noted that this FTC-Google issue is, of course, reminiscent of Microsoft’s war with the Justice Department. The federal antitrust lawsuit lasted from the 1990s to the early part of the 21st century. Microsoft finally emerged from government oversight in May of 2011.

Although I empathized with Microsoft, I understood firsthand why the company was sued. Microsoft’s legal department was very busy.

Disclosure:

In 1992, I purchased a firm, MSN – Marketing Services Northwest. The financial and human resources needs of my new clients prompted me to expand my consulting services.  Three years later, to reflect my services, I updated the firm’s name to MSN – Management Services Northwest. I spent a small fortune on branding and collateral materials. Then, considering its software/digital age dominance, Microsoft entered the search-engine competition rather late with its MSN. As my business exploded, I neglected to fully protect my company’s name.

Unexpectedly, I encountered two issues with Microsoft:

    1. The company apparently used the MSN moniker without any regard to precedent (mine).
    2. MSN had accounting problems and its customers mistakenly telephoned my firm nonstop, 24/7 to complain.

When I contacted Microsoft about my two concerns, I was marginalized. A company employee told me: “Join the crowd…this would be lawsuit du jour.” Frustrated, I contacted two noted attorneys who empathized but declined to take my case. They knew we’d be outgunned by Microsoft’s vast resources. In the late 1990s, I was stuck with a big tab for new collateral and marketing.

However, I freely admit Microsoft’s behavior was a factor in my strategic planning. Thankfully, it included becoming a news media columnist – a full-circle return to my career roots. Ten years later this portal was born.

A few years later, when I was the Biz Coach columnist on Belo Web sites, cybercrime regularly raised its ugly head. I wrote in 2003 that Microsoft was not performing adequately in security. Like AT&T, it seemed as though Microsoft failed to innovate – it was not using best practices in security.

However, long after the legal war, it’s worth noting that Microsoft is now serious about security and is better serving business and consumers. The company provides a free service, Microsoft Security Essentials. It does a credible job of providing real-time protection against viruses, spyware, and other malicious invaders.

FTC’s antitrust allegations against Google

The FTC is investigating whether Google is an abusive monopoly – a predator that unfairly exploits competition and is harmful to the public interest in its search-advertising business.

Not only do Internet users count on Google in 66 percent of all search results, the search giant helps in comparison shopping, e-mails, mapping and travel. It’s also in mobile phones, television and videos.

Competitors – such as Expedia, TripAdvisor and Microsoft – allege Google is disingenuous. Microsoft, in particular, has been rather vocal. The competitors claim Google directs Internet users to its own interests and basically hides competitors’ links – at the expense of its rivals.

This is Google’s second hassle with the FTC. You might recall Google agreed to settle FTC complaints of deceptive practices and violations of consumers’ privacy after it launched Google Buzz, a social network, in 2010. Google was also accused of lying about its treatment of European Union (EU) users’ personal information – in violation of the U.S.-EU Safe Harbor privacy framework. For the next two decades, Google will have to submit to privacy audits.

“When companies make privacy pledges, they need to honor them,” said FTC Chairman Jon Leibowitz on the agency’s Web site. “This is a tough settlement that ensures that Google will honor its commitments to consumers and build strong privacy protections into all of its operations.”

Meantime, of course, Google took another shot at success in social networking with Google+, which connects its users – a direct challenge to Facebook.

Google’s initial response to FTC probe

A Google blog post stated “it’s still unclear exactly what the FTC’s concerns are.” Google also said “our success has led to greater scrutiny.”

The search giant asserted that the majority of complaints stem from disgruntled competitors who feel angst over inferior search rankings.

“Since the beginning, we have been guided by the idea that, if we focus on the user, all else will follow,” the company said in its blog post.

“We make hundreds of changes to our algorithms every year to improve your search experience,” it added. “Not every website can come out at the top of the page, or even appear on the first page of our search results.”

Conclusion

Yes, Google is aggressive and innovative. It adapts to consumer preferences. It hasn’t behaved perfectly, but all businesses are aggressive if they want to survive.

During all those months when Microsoft was in its advertising-search merger talks with Yahoo – their quest to overtake Google – no one complained about the two companies’ prospects in ganging up on Google to achieve search dominance. In fact, I recall many times when using Yahoo, I wanted to search on Bing, but Yahoo refused to let me. A popup question appeared – asking me if I really wanted to leave Yahoo for Bing. It was annoying and Yahoo’s defensiveness was a sign that it was desperate. But I wasn’t going to complain to the FTC.

Has Google been a monopolistic predator operating against the public interest? No. I have found Google to be innovative, responsive, and transparent about its goal to be known for relevant content. It provides a bevy of blogs and videos to help publishers.

Furthermore, its success forced Bing to become more innovative. My sense is that Bing now competes well with Google in delivering relevant results. That means Yahoo does, too. The three account for 96 percent of Internet-search market share. As a result, all Internet users have benefited.

The Internet has become so big and so fast, what makes the federal government qualified to be the final arbiter of what services should be made available to consumers? Why not let the markets be the final say?

Google’s success is largely from developing a unique algorithm system that’s enabled it to become the most popular among Internet users. Without giving too much information to spammers and cybercriminals, Google has been transparent by frequently providing tips to publishers on how to succeed for better rankings. (Read further for six links to articles on how to succeed on Google.)

The Internet competition has benefited consumers and businesses, alike. We’re all benefiting from Google’s leadership. The complainers need to stop whining. It would be more productive for them to better satisfy their customers – by analyzing their companies’ strengths, weaknesses, opportunities and threats. Then, innovate for the benefit of Internet users. That’s how I dealt with the adversity from MSN, and it’s why Google triumphs over its competitors.

From the Coach’s Corner, here are resource links for Internet success:

“Your brand is created out of customer contact and the experience your customers have of you.”

-Stelios Haji-Ioannou


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.






Seattle business consultant Terry Corbell provides high-performance management services and strategies.