CQR Google's Dominance970 Ongoing Investigations Several nations and states are investigating...

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Google’s Dominance Is the online-search giant too powerful? T he meteoric rise of Google in just 13 years has revolutionized the Internet. But competitors are growing wary as the Silicon Valley icon, known for its “Don’t Be Evil” motto, strengthens its dominance over online searching and advertising and rapidly expands into new areas. Up to 70 percent of online searches in the United States are conducted on Google, whose vast portfolio includes air- line ticketing, comparison shopping, social networking and mobile- phone software. In addition, Google has proposed a $12.5 billion acquisition of Motorola Mobility, a major manufacturer of wireless phones and other electronic devices. Critics portray Google as a monopoly that leverages its power in order to bully rivals. Google strongly denies the accusations and counters that alternatives are one click away. Now, regulators in the United States and abroad are examining whether Google has run afoul of antitrust laws and should be reined in. I N S I D E THE I SSUES ....................955 BACKGROUND ................962 CHRONOLOGY ................963 CURRENT SITUATION ........968 AT I SSUE ........................969 OUTLOOK ......................971 BIBLIOGRAPHY ................974 THE NEXT STEP ..............975 T HIS R EPORT A Google employee walks across the campus at the company’s Mountain View, Calif., headquarters. Some 70 percent of Internet searches in the United States are conducted on Google, whose vast portfolio also includes airline ticketing, comparison shopping, social networking and mobile-phone software. CQ R esearcher Published by CQ Press, an Imprint of SAGE Publications, Inc. www.cqresearcher.com CQ Researcher • Nov. 11, 2011 • www.cqresearcher.com Volume 21, Number 40 • Pages 953-976 RECIPIENT OF SOCIETY OF PROFESSIONAL JOURNALISTS A WARD FOR EXCELLENCE AMERICAN BAR ASSOCIATION SILVER GAVEL A WARD T

Transcript of CQR Google's Dominance970 Ongoing Investigations Several nations and states are investigating...

Page 1: CQR Google's Dominance970 Ongoing Investigations Several nations and states are investigating Google’s business practices. 970 Voluntary Options Some senators are open to unilateral

Google’s DominanceIs the online-search giant too powerful?

The meteoric rise of Google in just 13 years has

revolutionized the Internet. But competitors are

growing wary as the Silicon Valley icon, known for

its “Don’t Be Evil” motto, strengthens its dominance

over online searching and advertising and rapidly expands into

new areas. Up to 70 percent of online searches in the United

States are conducted on Google, whose vast portfolio includes air-

line ticketing, comparison shopping, social networking and mobile-

phone software. In addition, Google has proposed a $12.5 billion

acquisition of Motorola Mobility, a major manufacturer of wireless

phones and other electronic devices. Critics portray Google as a

monopoly that leverages its power in order to bully rivals. Google

strongly denies the accusations and counters that alternatives are

one click away. Now, regulators in the United States and abroad

are examining whether Google has run afoul of antitrust laws and

should be reined in.

I

N

S

I

D

E

THE ISSUES ....................955

BACKGROUND ................962

CHRONOLOGY ................963

CURRENT SITUATION ........968

AT ISSUE........................969

OUTLOOK ......................971

BIBLIOGRAPHY ................974

THE NEXT STEP ..............975

THISREPORT

A Google employee walks across the campus at thecompany’s Mountain View, Calif., headquarters.Some 70 percent of Internet searches in the UnitedStates are conducted on Google, whose vast portfolioalso includes airline ticketing, comparison shopping,

social networking and mobile-phone software.

CQResearcherPublished by CQ Press, an Imprint of SAGE Publications, Inc.

www.cqresearcher.com

CQ Researcher • Nov. 11, 2011 • www.cqresearcher.comVolume 21, Number 40 • Pages 953-976

RECIPIENT OF SOCIETY OF PROFESSIONAL JOURNALISTS AWARD FOR

EXCELLENCE � AMERICAN BAR ASSOCIATION SILVER GAVEL AWARD

T

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THE ISSUES

955 • Does Google wield toomuch control over the Internet?• Does Google violate antitrust law through anti-competitive behavior?• Should the federal government break Googleinto separate companies?

BACKGROUND

962 Breaking Standard OilIn 1911 the U.S. SupremeCourt split the giant firminto 34 companies.

962 Gobbling Up CompetitionGoogle snaps up promisingInternet ventures.

965 Antitrust ActionWashington has hadmixed success over theyears in efforts to corralmajor communicationscompanies.

967 Testing Antitrust BoundariesGoogle’s critics see parallelswith the most recent probeof Microsoft.

CURRENT SITUATION

968 Growing Concern inWashingtonConcern about Google’ssize is bipartisan.

970 Ongoing InvestigationsSeveral nations and statesare investigating Google’sbusiness practices.

970 Voluntary OptionsSome senators are open tounilateral action by Google toresolve concerns about itsmarket dominance.

OUTLOOK

971 What Next for Google?Ongoing investigations, legalaction and competition couldreduce Google’s size.

SIDEBARS AND GRAPHICS

956 Google Umbrella Continues to ExpandThe company offers a vast array of services andproducts.

960 Google Rides GrowthWaveRevenue nearly tripled be-tween 2006 and 2010.

961 Foreign Markets BoostGoogle’s GrowthHalf of Google’s $29 billionin revenue came fromabroad in 2010.

963 ChronologyKey events since 1890.

964 Great Wall of CensorshipSurrounds Google in China“No one in China ever seesan uncensored version ofGoogle search results.”

966 Google’s Privacy PoliciesSpark Intense Criticism“What you do on the Internetshould be under your control.”

969 At IssueIs Google too dominant?

FOR FURTHER RESEARCH

973 For More InformationOrganizations to contact.

974 BibliographySelected sources used.

975 The Next StepAdditional articles.

975 Citing CQ ResearcherSample bibliography formats.

GOOGLE’S DOMINANCE

Cover: Getty Images/Justin Sullivan

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Google’s Dominance

THE ISSUEST he meeting between

Yelp and Google hadthe makings of a touch-

ing romance — a modern-day Internet version of Holly-wood’s “When Harry Met Sally.”Cute, popular restaurant-reviewsite meets fabulously success-ful, but laid-back, Web goliath.But, alas, not all Internet

relationships work out.After debuting in 2004,

Yelp quickly caught the eyeof Google, the world’s lead-ing search engine. Googlesaw the company as a wayto build revenue from localmerchants, and in 2005 itagreed to have Yelp reviewsappear in Google pages high-lighting local businesses.The trouble started two

years later, when Googlebegan compiling its ownrestaurant reviews, prompt-ing Yelp to sever the arrange-ment. They clashed again in2009, after Yelp rebuffedGoogle’s offer to buy the com-pany. 1 Yelp claimed Googletook its reviews without permissionand then, when Yelp protested, laiddown an ultimatum: Google wouldcease the practice only by removingYelp’s content from its search results.That threat was the kiss of death,

Yelp feared. “As everyone in this roomknows, not being on Google is theequivalent of not being on the Inter-net,” Yelp co-founder and CEO Jere-my Stoppelman told a Sept. 21 Sen-ate hearing on Google’s businesspractices. “When one company con-trols the market, it ultimately controlsconsumer choice.” 2

Google had already relented thissummer, after the Federal Trade Com-mission (FTC) announced a compre-

hensive probe into allegations of anti-competitive conduct by Google andYelp aired its grievances at a legal con-ference. Even so, Yelp’s troubles weren’tover. In September, Google purchasedZagat, the prestigious restaurant guide,arming itself with content that directlycompetes with Yelp.The dustup over Yelp is part of a

much bigger controversy over whetherGoogle, famous for its “Don’t Be Evil”motto, leverages its size and scale tobully rivals, dictate unfair business termsand give preferential treatment to itsown brands. In addition to the FTCprobe, the European Union (EU), SouthKorea and at least five states are con-ducting similar inquiries. In response to

the federal pressure, Googlehas hired a dozen lobbyingfirms to make its case in Wash-ington. (See Current Situation,p. 968.)Critics say Google has em-

ployed uncompetitive behav-ior to achieve its explosivegrowth. (See graph, p. 960.) Arising chorus of companies —from industry stalwarts such asMicrosoft to newer venturessuch as Nextag, a comparison-shopping site — is demand-ing that the federal govern-ment take action. They wantregulators to protect themfrom an Internet juggernautthat they contend has becometoo powerful and has amplemotivation to favor its ownproducts in Google searches.But Eric Schmidt, Google’s

executive chairman, insists thathis company plays fair withcompetitors and risks losingits customer base if it misbe-haves. “We live in great fearevery day that consumers willswitch in extraordinary num-bers to other services,” he toldthe Senate subcommittee wherethe Yelp episode was aired. 3

In Nov. 4 written responses to ques-tions posed by six members of thesubcommittee, Schmidt said Google’ssize does not impede competition.“Google does not believe that scale isa barrier to entry,” he wrote. “The In-ternet provides a level playing fieldfor competition; Google’s size has notchanged that fact. We believe we arebetter not because we are bigger butbecause our technology is better.”Schmidt acknowledged that Google

used “snippets” of reviews from Yelpand other sites, but wrote that waspermissible under the “fair use” doc-trine, which permits the unauthorizedreproduction of copyrighted worksunder limited circumstances. “Although

BY DAVID HATCH

AP Photo/Ben Margot

Since Google’s founding 13 years ago in a Menlo Park,Calif., garage by Stanford University computer sciencegraduate students Sergey Brin, left, and Larry Page,

the company has mushroomed into a global powerhouse available in

181 countries and 146 languages.

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Google tries to act responsibly in re-sponse to website concerns,” he wrote,“ultimately Google builds our searchresults and search-related products forthe benefit of users, not websites.” 4

Looming large in the debate overGoogle’s size and power is Microsoft,Google’s fiercest critic and rival. Thesoftware giant, itself the focus of anearlier federal antitrust probe, filed anantitrust complaint with the EU againstGoogle in March. 5 Microsoft, whichalso is helping two small Internet com-panies with antitrust suits againstGoogle, is a member and funder ofthe FairSearch Coalition, an industrytrade group that argues that Googlesuffers from an inherent conflict of in-terest because it competes with sitesthat rely on it to reach customers. 6

Yet Microsoft is letting smallercompanies take the lead in criticiz-ing Google. The reason, analystssay: Microsoft is sensitive to the factthat it faced questions about its owndominance of the Web-browser mar-ket less than a decade ago. As a re-sult, some Google proponents accuseMicrosoft of orchestrating much of thecriticism in an effort to stymie a for-midable competitor it has been un-able to halt in the marketplace.Since Google’s founding 13 years

ago in a Menlo Park, Calif., garage bytwo Stanford University computer sci-ence graduate students — Larry Pageand Sergey Brin — the company hasmushroomed into a global power-house available in 181 countries and146 languages. 7

From vivid maps that offer street-levelviews to an online tool that translates63 languages, Google offers a panoplyof services that have changed how theworld does business and socializes. Whileit still serves up links to other websiteswhen someone needs “ratatouille recipes”or “Machu Picchu travel tips,” it is in-creasingly a destination for its own con-tent and services. It now offers airlineticketing, comparison shopping, maps,news aggregation, restaurant and hotel

GOOGLE’S DOMINANCE

Google Umbrella Continues to Expand

Google offers a vast array of services and products, including online advertising, social media, email, mapping and video sharing. A pend- ing acquisition of Motorola Mobility, under review by the Justice De- partment, would increase Google’s reach in the wireless-phone industry.

Source: “Exhaustive Google Product List,” Google, 2011, spreadsheets.google.com/pub?key=ty_BGDs9hnuBMRvj3AFeB2g&output=html; Jessica Guynn, “Google, Under Fire, Again Boosts Spending on Lobbying,” Los Angeles Times, Oct. 21, 2011, latimesblogs.latimes.com/technology/2011/10/google-under-fire-again-boosts-spending-on-lobbying.html

Key Google acquisitions YouTube — Free video-sharing site, acquired in 2006 for $1.65 billion. DoubleClick — Internet-ad service, acquired in 2007 for $3.1 billion.AdMob — Mobile-advertising company, acquired in 2010 for $750 million.ITA Software — Travel-industry software company, acquired in April 2011 for $676 million. Zagat — Restaurant-survey company, acquired in 2011 for $151 million. Clearwire — Provider of 4G wireless connectivity; 12 percent share acquired in 2008 for $500 million.

Pending acquisitionsMotorola Mobility — Major manufacturer of wireless phones and other devices, including tablets and cable TV boxes; $12.5 billion purchase under review by Justice Department and European regulators for antitrust compliance.Admeld — Service that helps companies increase revenue from online advertising; $400 million purchase subject to Justice Department approval for antitrust compliance.

Notable products and servicesAdSense — Program that integrates advertising with Google’s search platform; accounts for more than one-fourth of Google revenue. Android — Mobile-phone and tablet operating software; has 40 percent of smartphone market. Nexus One — Smartphone marketed by Google and made by HTC; focus of Apple patent-infringement suit.Google TV — Online platform combining Internet and channel surfing.Google Wallet — Mobile-payment system allowing storage of credit-card data.Google+ — Social-networking platform created in response to Facebook.Google Earth — Online global mapping, satellite-image and geographical-information site. Gmail — Free, advertising-supported email service. Google Books — Service that searches full text of books that Google has scanned and stored in its database.

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reviews, social media and more. Googleeven is contemplating entry into thecable-television business. 8

In 2010, Google generated more than$29 billion in annual revenue, 96 per-cent from online ads, helping to fuelits growth and expansion into otherbusinesses. 9 In the United States, thecompany towers over Microsoft’s newBing search engine, which is a distantsecond and hemorrhaging billions peryear in operating losses. In third placeis Yahoo!, a constant subject of takeoverspeculation. (In late October, reportssuggested that Google might be in-terested in buying Yahoo!) Bing pow-ers Yahoo!’s search capabilities undera 2010 agreement. 10

Supporters cite Google’s rise as aquintessential American success story.“I’m proud of what they’re doing,” saysRep. Anna Eshoo, D-Calif., whose Sil-icon Valley district is home to the com-pany’s, 26-acre campus and 500,000-square-foot headquarters — the famedGoogleplex — where massage chairs,foosball tables and free meals for em-ployees are among the amenities. 11

Google now employs more than31,000 people worldwide. 12 That in-cludes 9,000 in California alone, accord-ing to Eshoo. (Google declines to pro-vide U.S. employment figures.) And thecompany says its site generated $64 bil-lion in “economic activity” for hundredsof thousands of small businesses lastyear. 13 “They’re helping small busi-nesses, not just in the [San Francisco]Bay area but around the country andaround the world,” Eshoo says.Detractors, however, see a monop-

oly with the power and incentive tostifle competition. As evidence, they notethat at least 65 percent of all onlinesearches in the United States are con-ducted on Google (the figure rises toabout 70 percent if smaller search en-gines that Google powers are added in),and 90 percent in some countries. 14

Google similarly dominates the lucrativeonline-advertising business, commanding79 percent of the U.S. share. 15

Keeping an Eye on Google

Jeff Smith of Scoops2us, a group that tries to raise awareness of Goggle’sbusiness practices in partnership with the Consumer Watchdog PrivacyProject, hands out ice cream sandwiches in Washington, D.C., on Sept.21, 2011, ahead of testimony by Google Executive Chairman Eric Schmidtbefore the Senate Judiciary Committee’s Subcommittee on Antitrust,Competition Policy and Consumer Rights (top). Schmidt, preparing totestify (bottom), defended the company’s practices, saying that Google’sphilosophy is to “always put consumers first.” Referring to grievancesaired by rivals, he said, “not every website can come out on top.”

AFP/Getty Images/Saul Loeb (both)

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Critics also view some of the com-pany’s tactics as improper. For exam-ple, they allege that Google rigs itssearch algorithms to favor its own ser-vices and content and mimics successfulInternet ventures to squeeze them outof business. “For a growing percentageof users, Google is the Internet,” writesScott Cleland, a business consultant, au-thor of Search & Destroy: Why YouCan’t Trust Google Inc. and one ofGoogle’s staunchest critics. 16

But in his Nov. 4 written respons-es to lawmakers, Schmidt rejected thenotion that Google is anti-competitive,saying the question of whether Googlefavors its products and services “isbased on an inaccurate premise.” Theonline search results in question arepart of Google’s search service, hewrote, and “not some separate ‘Googleproduct or service’ that can be ‘fa-vored.’ ” And rather than undermin-ing other businesses, he wrote, “Googleactually provides free promotion to mil-lions of innovative websites throughour search results.” 17

Yet Google’s reach worries critics.“When they’re operating in that manyareas, and they have that much mar-ket share, you have some risk — somepotential — for anticompetitive be-havior,” Sen. Mike Lee, R-Utah, a mem-ber of the Senate panel that held theGoogle hearing, told CQ Researcher.“It is beyond serious dispute that

Google is dominant in search and paid-search advertising” and that it is “ex-panding into other areas and comingto dominate many of them,” says TomBarnett, a lawyer who headed the Jus-tice Department’s Antitrust Division dur-ing the Bush administration. He nowrepresents the online travel site Expe-dia, a Google competitor and mem-ber of the FairSearch Coalition.At the hearing, Schmidt emphasized

that Google’s philosophy is to “alwaysput consumers first.” Referring to griev-ances aired by rivals, he said, “notevery website can come out on top”and that some companies demand to

lead Google’s rankings “even whenthey’re not the best match.”Google declined to make any ex-

ecutives available for comment for thisreport.As regulators, lawmakers and tech-

nologists debate Google’s future,here’s a look at some of the key ques-tions they are asking:

Does Google wield too much con-trol over the Internet?Purchase a smartphone,* and chances

are its default search engine is Google.If its operating system is Android, Googleowns that, too. Android software nowcommands 40 percent of the wirelessmarketplace. 18

And that’s not all. More than 95 per-cent of mobile Internet searches in theUnited States are conducted viaGoogle. 19 The company has an ex-clusive deal with Apple to serve asthe default browser on its populariPhone and similar arrangements withother manufacturers. And Google’s pend-ing $12.5 billion acquisition of MotorolaMobility, a manufacturer of mobilephones, tablet computers and other elec-tronic devices — announced in Augustand under review by the Justice De-partment — could make it a major play-er in the wireless-handset business.Taken together, Google’s swift ex-

pansion into mobile phones is onlyone example of how the company has,in the view of its critics, used its scaleand influence to strengthen its grip overthe Internet. But Google’s defendersargue that far from engaging in unfaircompetitive practices, the company ismerely trying hard to succeed in acrowded field of technology stalwartsand upstarts vying for a piece of theburgeoning Internet industry.Since its founding by Page (now

CEO) and Brin (who directs specialprojects), Google has acquired dozens

of promising Internet-related ventures,including the wildly popular video siteYouTube. It also has mimicked the busi-ness models of other successful Inter-net ventures that it didn’t, or couldn’t,buy. For instance, in September, Googlecompleted its acquisition of Daily Deals,a German-based provider of online dis-count coupons that is similar to fast-growing Groupon, which Google un-successfully tried to buy last year. Googlealso is testing a new discount couponservice called “Google Offers.” 20

Some Google-watchers worry thatthese acquisition practices are designedto thwart potential competitors.John M. Simpson, director of the

Privacy Project for Consumer Watch-dog, a Los Angeles-based advocacygroup, notes that the popularity ofAOL’s MapQuest service plummetedafter Google introduced its own on-line maps, which he claims receivepreferential treatment on its site. Googleaccomplished this, he says, by givingits maps top billing in searches, evenwhen MapQuest was more popular.“It’s potentially dangerous and

troubling to have one profit-makingcompany controlling search that is thegateway to the Internet for most peo-ple,” he says.Jeffrey Katz, CEO of the online shop-

ping site Nextag, argues that ifGoogle’s power is left unchallenged,the company will crowd out smallercompetitors — such as his. “We arepleased to have helped [Google] growtheir business, and we are apprecia-tive they helped us grow ours,” he toldthe Senate Judiciary panel in Septem-ber. “Now, however, they are not in-novating, they are copying our busi-ness after we invested hundreds ofmillions of dollars to perfect it, andthey are very politely, and deftly, mov-ing us aside.”Katz also said Google increasingly

answers queries directly, meaning usershave no need to click on links toother sites. Google is so central to e-commerce that failure to appear in its

GOOGLE’S DOMINANCE

* A smartphone is a cellphone with advancedfeatures, such as Internet connectivity, videorecording and digital-music playback.

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top 10 search results, or at least on itsmain page, can mark the death knellfor a company, says Stephen Kaufer,president and CEO of TripAdvisor, asite specializing in hotel reviews. “Theirposition in the marketplace obligatesthem to play fair,” he says.Google frames the issue very differ-

ently, however. It sees competitive threatsfrom a growing assortment of nimbleplayers. In written testimony for the Sen-ate hearing in September, Google’sSchmidt said he views popular sitessuch as Amazon, eBay, Facebook andeven Wal-Mart as forms of search en-gines that compete directly with Google.In the shopping

category, “they havebeen extremely suc-cessful,” he empha-sized. “EBay handledmore than two bil-lion U.S. searches inthe third quarter of2010, and Amazonsaw 847 millionsearches during thesame period, whileGoogle handledonly 226 millionproduct searches dur-ing that quarter,” hewrote. Put anotherway, “Among thesethree companies,eBay had 65 percentof product searchesfor the period whileGoogle had just seven percent.” 21

While Microsoft’s Bing and Yahoo!have struggled in recent years, they’vealso shown signs of renewed vigor. OnOct. 3, Yahoo! entered into an agree-ment with ABC News for an online-news alliance that will deliver contentto more than 100 million people in theUnited States each month. 22 Days later,Yahoo!’s stock price jumped 10 per-cent following reports that Microsoftmight bid for the company. 23

On. Nov. 8, Microsoft, AOL andYahoo! entered into an advertising al-

liance under which each company cansell inventory for its partners. 24

Meanwhile, Bing has moved intothe No. 2 spot among U.S. search en-gines just two years after its launch.Stephen Houck, an antitrust lawyer

in New York who represents Google,says rivals such as Microsoft engagein many of the same competitive prac-tices as Google. Bing has cut exclu-sive deals with Dell, HP and othercomputer manufacturers and Microsoft’sXbox gaming system to serve as thedefault browser.Bing is also the exclusive search

provider for Facebook, which presents

a substantial competitive threat toGoogle, he and other Google sup-porters point out. In March 2010, thepopular social-media site achieved amilestone when its traffic surpassedGoogle’s for the first time. Increasing-ly, many consumers are turning to Face-book, Twitter and other online desti-nations to search for recommendationsfrom friends about restaurants, moviesand nightspots. According to Nielsen’slatest “Social Media” report, “Americansspend more time on Facebook thanthey do on any other U.S. website,”

while social networks and blogs ac-count for nearly a fourth of the timethat Americans spend online. 25

“You can sometimes draw too muchfrom sheer market-share numbers,”says Houck. Complaints about Google’sdominance are “somewhat ironic” be-cause the companies grumbling themost “are getting all this free trafficfrom Google,” he says.

Does Google violate antitrust lawthrough anticompetitive behavior?It’s not illegal to be a monopoly.

But it is illegal for a monopoly to runafoul of antitrust laws intended to pre-

vent powerful compa-nies from leveraging theirsize and dominance togain an unfair advantage.When regulators deter-mine a violation of suchlaws has occurred, theycan force a company tosell off divisions or stopit from entering lines ofbusiness where it alreadyexerts too much control.Google says none of

its actions come close tomeeting that legal thresh-old. At the SeptemberSenate hearing, Google’sSchmidt said he was “notaware of any unneces-sary, or strange, boostsor biases” that favor hiscompany’s content and

products on its search engine. And heinsisted that Google already has madechanges in response to anticompeti-tive concerns. Last year alone, hiscompany made more than 500 revi-sions to its search algorithms in an ef-fort to improve results, he said. The“ultimate correction” for any wrong-doing “is how consumers behave,” hesaid, explaining that Internet userswould go elsewhere if Google losestheir trust.But detractors claim to have solid

evidence of legal violations. Among

Yelp, an online restaurant-review site, tangled with Google aftercomplaining the giant search-engine company was using Yelp’s reviews

without permission. In September, Google purchased Zagat, the prestigious restaurant guide, arming itself with

content that directly competes with Yelp.

Getty Images/Spencer Platt

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their accusations: Google favors its ownofferings on its site, intimidates com-petitors and manipulates search-en-gine algorithms and advertising ratesto undermine rivals.Barnett of the FairSearch Coalition

asserts that Google prominently fea-tures links to proprietary content inits search results that create a “falseexpectation” because the links are notlabeled as sponsored ads. “That en-ables Google to steer users to its otherproducts and services,” such as onlinemaps, Google Finance and Google Places,its pages promoting small businesses,contends Barnett.Barnett and the FairSearch Coali-

tion also claim Google manipulates itsadvertising policies to force compet-ing sites to pay rates higher than thosecharged to comparable sites that don’tpose a threat.Asked to comment, a Google

spokesman pointed to a company web-site about the FTC investigation. “Werank search results to deliver the bestanswers to users, and that is the onlyconsideration — not political view-points, and not advertising dollars,”

the site says. It emphasizes that mostlarge advertisers run spots “in lots ofdifferent places” and that “Google isonly responsible for about 3% of allad revenue.” 26

But Barnett says that at a minimum,he wants regulators to block the com-pany from displaying “deceptive” linksand from repurposing content fromother sites without permission. He alsowants Google barred from what hesays is unfair manipulation of com-petitors’ search results or ad rates.TripAdvisor CEO Kaufer contends

that he has been the target of abusivebehavior by Google. Similar to Yelp’scomplaint, he accuses the company ofusing reviews from his site without au-thorization. When confronted, he says,Google officials said he could removeTripAdvisor from the search engine toend the practice — an option he dis-misses as unfair.“I blew a gasket,” Kaufer recalls. “I don’t

view what they did to TripAdvisor asa minor infraction. I view it as blatantstealing — unauthorized use of some-thing that took me a decade to cre-ate — in order to compete with me.”

Kaufer says Google stopped usingTripAdvisor’s material without permis-sion only after he complained to theJustice Department earlier this year asthe agency reviewed Google’s acqui-sition of ITA Software, a company thatspecializes in airline-ticketing software.Kaufer says he wonders how Google

treats smaller firms, given that, in hisview, it was willing to play hardballwith a relatively sizable operation suchas TripAdvisor that can “make somenoise” in Washington.But others dismiss charges that Google

has engaged in unfair business prac-tices. “You can’t infer that there’s a prob-lem from the fact that Google is large,”says Geoffrey Manne, a professor atLewis and Clark Law School, in Portland,Ore., and co-author of academic papersand a book chapter defending Googleon antitrust issues. “ ‘Big is bad’ is notan acceptable antitrust analysis anymore,”says Manne, who runs a think tank calledthe International Center for Law & Eco-nomics that promotes regulations en-couraging competition and innovation,and that receives funding from Google.Houck, the antitrust lawyer, who

served as the lead trial counsel for 20state plaintiffs in the federal govern-ment’s lawsuit against Microsoft, agrees.“Coming from my background on theMicrosoft case, this is not the kind ofevidence that really leads one to be-lieve that there’s a strong antitrust caseout there,” he says.Houck says antitrust law focuses on

market power — particularly the dura-bility of a dominant company’s influ-ence. Google lacks market power, heargues, because it cannot insulate itselffrom competition and consumers caneasily switch to competitors. While ri-vals may dislike some steps Google hastaken to improve its search engine, “ithasn’t done what it’s done to try to fore-close competition,” he contends.Bert Foer, president of the American

Antitrust Institute, a think tank and ad-vocacy group, says Google should at-tract rigorous oversight from policy-

GOOGLE’S DOMINANCE

Google Rides Growth Wave

Google’s revenue nearly tripled between 2006 and 2010, to more than $29 billion, while net income rose from about $3 billion to more than $8.5 billion. Along with its search engine and advertising business, Google’s Android mobile software and its video-sharing site YouTube have helped spur the company’s growth.

Source: Google Inc. Form 10-K, U.S. Securities and Exchange Commission, December 2010, investor.google.com/documents/20101231_google_10K.html

Revenue and Net Income, 2006-2010

05

10152025

$30

20102009200820072006

(in $ billions)

Revenue

Net Income

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makers. “Google is such a new andunique phenomenon that it definitelyneeds to be looked at and monitored,”he says. But he thinks regulators andindustry rivals face several hurdles inpursuing antitrust enforcement actionagainst the company. For starters, he says,any restriction on Google’s ability to dis-play search results or other contentwould raise First Amendment issues.And it won’t be easy for Google’s

accusers to convince federal officialsthat the company has violated antitrustlaw. “There’s a whole variety of pro-cedural obstacles that have been em-placed by the courts that make suc-cessful antitrust enforcement lessprobable,” he observes.For example, aggrieved parties

must demonstrate that the alleged abuseis covered by antitrust law and thattheir complaints merit attention be-cause their businesses were directlyharmed. “I think they’re probablygoing to tread carefully,” Foer predictsof antitrust enforcers.

Should the federal governmentbreak Google into separate com-panies?As Google continues to expand and

evolve, chatter is increasing about the pos-sibility of federal regulators forcing thecompany to divest some assets — if notimmediately, then perhaps in coming years.One of the strictest views is held by Con-sumer Watchdog’s Simpson, who arguesthat Google should be broken up intoseparate content and distribution com-panies. He contends that is the only wayto ensure that Google doesn’t favor itsown products on its search engine. Butothers warn that splitting up Googleamounts to overreacting to worries aboutanticompetitive behavior and ultimatelycould cause more harm than good.If it were split apart, Google would

possibly revert back to its original mis-sion of serving as a tool for onlinesearches, while its vast portfolio of an-cillary services — Gmail, its new social-media site Google+, airline ticketing, on-

line maps, comparison shopping, restau-rant reviews and so on — might bespun off. Even YouTube, which mostlyfeatures user-generated content, couldbe subject to divestiture if Google suc-ceeds in its effort to purchase Hulu, adestination for premium television showsand films, Simpson adds. 27

“Search, in some sense, is like a pub-lic utility,” Simpson says. “It is the waythat everyone gets onto the Internet. [Thesearch industry] needs to be regulatedand reviewed in the context of the pub-lic utility that it has become.”Simpson claims Google uses its prof-

its from its core search and advertisingbusinesses to “subsidize” its entry intoother enterprises that compete with firmsthat rely on Google to reach customers.

“I think there may be some fundamen-tal conflict of interest when you start toprovide your own content and you runa search engine,” he argues. Google, hesays, is “pretty hard to escape” thesedays when people go online.The solution, Simpson says, would be

to force Google to divest some holdings.“Smart regulations make for level mar-kets, and level playing fields and can ac-tually enhance a fair marketplace,” Simp-son argues. “If you don’t have regulation,things sometimes get completely out ofwhack and you have monopolists emerg-ing that wield monopoly power.”The concept is loosely modeled on

the Justice Department’s historic deci-sion in 1982 to break up AT&T intoseparate Bell telephone companies afterdetermining AT&T was too large andpowerful in the phone business.But Google’s proponents dismiss the

idea outright. “Breaking them up alongthose lines would just be stupid,” ar-gues Manne, the Lewis and Clark pro-fessor. “There are efficiencies to largescale” such as lower operational coststhat would be lost if Google were re-quired to sell some of its assets, hecontends. That could result in “addi-tional costs on Google [and] on con-sumers, because we would be losingthe benefits of that efficiency.”Even if divestitures were required,

Google might still be able to offer vari-ations of the services or businesses itsells off by entering into contracts withthird parties, Manne says. “Anythingyou can do by integration [of com-panies] you can do by contract,” hesays. “Therefore, forcing them to breakup shouldn’t be presumed to causeany improvement.”Houck, the antitrust attorney, draws

a distinction between the sort of “ver-tical integration” that Google has en-gaged in — that is, its expansion intonew lines of business beyond its main-stays of Internet search and advertising— and “horizontal integration,” whichinvolves the combination of similar com-panies (say, if Google were to merge

Foreign Markets Boost Google’s Growth

More than half of Google’s $29 billion in revenue in 2010 came from abroad. Increased acceptance of the company’s advertising programs and development of localized versions of its products have spurred the company’s overseas expansion.

Source: Google Inc. Form 10-K, U.S. Securities and Exchange Commission, December 2010, investor.google.com/documents/20101231_google_10K.html

Google Revenue byCountry, 2010

United States

48%

Rest of world

41%

United Kingdom

11%

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GOOGLE’S DOMINANCE

with Bing). “Most antitrust authorities areworried about horizontal mergers”rather than vertical ones, he says.A breakup of Google would require

substantial regulatory action by the gov-ernment — something that Google’sdefenders warn could have unintendedrepercussions. “Ulti-mately, regulation ofInternet search wouldresult in a significantexpenditure of gov-ernment resourcesand a decline ofquality and innova-t ion in search,”Susan Creighton, aformer senior FTCofficial who testifiedat the Senate hear-ing on behalf ofGoogle, predicted inwritten testimony. 28

She represented Mi-crosoft rival Netscapeduring the historicantitrust case againstthe software giant. 29

Adam Thierer, se-nior research fellowat George Mason University’s Technol-ogy Policy Program, concurred. Dis-cussing the prospect of government reg-ulation of Google+, Facebook, LinkedInand Twitter, he wrote that “treating thesedigital services like the equivalent of alocal sewage company would be a dis-aster for consumers” because “publicutility regulation is the arch-enemy ofinnovation and competition.” 30

Even some of Google’s fiercest crit-ics caution that talk of breaking upthe company may be premature. “Idon’t think anything should be off thetable,” says Barnett of the FairSearchCoalition, “but I think it is too earlyto make a judgment.”Foer of the American Antitrust In-

stitute says an AT&T-style breakup isa long shot — at least now. But hecautions that as Google continues toacquire companies and add more pro-

prietary content, “the more opportu-nities there are for manipulation andfor problems.” As a result, he says,forcing Google to make changes toits business practices “should not beoff the table if you find that there areserious violations.”

BACKGROUNDBreaking Standard Oil

D ebates over corporate domi-nance have deep historical roots.

In the 19th century, concern aroseabout monopolies eager to abuse theirmarketplace power. By the 1870s,Standard Oil was rapidly evolving intoa corporate monolith as its chairman,the legendary tycoon John D. Rocke-feller, leveraged his company’s sizeand influence to his advantage.Rockefeller pressured the railroad in-

dustry into lowering shipping rates andthreatened to send competitors into “fi-nancial ruin” if they refused to sell toStandard Oil, wrote journalist Steve

Weinberg in Taking on the Trust. 31

Struggling rivals became easy prey.Over the next two decades, StandardOil swallowed independent producersand refiners across the country and by1900 controlled more than 90 percentof refined oil in the United States. 32

Passage of the Sher-man Antitrust Act in 1890,the nation’s first antitrustlaw, forced Standard Oilto alter some practices.But the law was too vagueto halt the expansion ofRockefeller’s empire with-out backing from thecourts. Moreover, Con-gress set aside only a smallamount of funding for Jus-tice Department enforce-ment of the act, Wein-berg noted. 33

Standard Oil’s reigneventually ended. On May15, 1911, the U.S. SupremeCourt ruled that the giantfirm had overstepped theantitrust law and broke itinto 34 companies. Thehistoric decision resulted

in the creation of brand names that stillexist, including Amoco, Chevron, Exxonand Mobil. It also ushered in a new eraof antitrust enforcement. 34

Gobbling Up Competition

When founders Page and Brin firstbegan tinkering with their Inter-

net search engine in 1996, they calledit BackRub. A year later, they decidedthe site needed a new name. 35

“After some brainstorming, they gowith Google — a play on the word‘googol,’ a mathematical term for thenumber represented by the numeral 1followed by 100 zeros,” the companysays in its online history. “The use ofthe term reflects their mission to or-ganize a seemingly infinite amount of

Continued on p. 964

Stanford computer science graduate students Larry Page and Sergey Brinrented this garage in Menlo Park, Calif., for $1,700 a month in 1998 toset up Google, which they said would “organize the world’s informationand make it universally accessible and useful.” The company, which

moved out of the garage five months later, purchased the 1,900-square-foot house in 2006 to preserve a symbol of Silicon Valley

entrepreneurship. The house is used to accommodate company guests.Getty Images/Justin Sullivan

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Chronology1890-1970sNew laws usher in era of anti-trust enforcement.

1890Congress enacts the Sherman AntitrustAct, the nation’s first sweeping antitrust law.

1911U.S. Supreme Court forces thebreakup of Standard Oil in firstsignificant victory for trust bustersover powerful monopolies.

1914The Clayton Act clarifies restrictedbehavior under the Sherman Actand bars transactions that couldlessen competition. . . . Congresscreates the Federal Trade Commis-sion, charged with monitoring busi-nesses and protecting consumers.

1945Aluminum Company of Americafound in violation of antitrust lawby U.S. Appeals Court but avoidsdivestiture.

1976Hart-Scott-Rodino Antitrust Improve-ments Act establishes merger-reviewguidelines for the FTC, Justice De-partment.

1980s Communica-tions, computer giants faceantitrust scrutiny.

1982In a historic settlement, the JusticeDepartment forces AT&T to divestits local phone companies.

1982Justice Department drops probespanning more than two decades

into allegations IBM maintains anillegal monopoly over mainframecomputers.

1990s-2002Microsoft faces investigationsas Internet blossoms.

1994Justice Department settles antitrustsuit with Microsoft.

1998Google founded by Stanford Uni-versity computer science graduatestudents Larry Page and SergeyBrin in California garage.

2001Justice Department settles a secondantitrust lawsuit against Microsoft.

2005-2009Google rises from obscure start-up to global Internet superpower.

2005Google purchases tech start-upAndroid, a designer of softwarefor mobile devices.

2006Google purchases video-sharingsite YouTube for $1.65 billion.

2007Google acquires DoubleClick for$3.1 billion; the purchase solidifiesGoogle’s dominance over Internetadvertising.

2008Yahoo! rebuffs Microsoft’s purchasebid. . . . Google backs out of dealthat would have let Yahoo! harnessGoogle’s ad-placement technology

after Justice Department raisesantitrust concerns. . . . Google in-vests $500 million in Clearwire, aprovider of super-fast, 4G wirelessvoice and Internet service.

2009Microsoft introduces the search en-gine Bing as a competitor to Google.

2010-PresentGoogle continues its expansiondespite pressure from Washing-ton, European Union.

2010Google launches Google TV, whichmelds Web and channel surfing. . . .European Union begins formal anti-trust investigation of Google.

2011FTC settlement with Google re-quires company to offer improvedprivacy protections. . . . Federaljudge bars Google from sellingdigital copies of millions of booksit has scanned. . . . Justice Depart-ment approves Google’s $676 mil-lion acquisition of ITA Software,an airline-ticketing company, withconditions. . . . FTC begins com-prehensive antitrust investigation ofGoogle’s business practices. . . .Google introduces Google+, a newsocial-media site. . . . Google an-nounces $12.5 billion acquisitionof Motorola Mobility, a major man-ufacturer of wireless handsets andother electronic devices. . . . Googlepays $500 million Justice Depart-ment fine for permitting Canadian.pharmacies to advertise to U.S. con-sumers via its site. . . . Google addsZagat, the popular restaurant-reviewguide, to its portfolio. . . . SenateJudiciary antitrust subcommitteeholds high-profile hearing onGoogle’s business practices.

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information on the Web.” In 1998, SunMicrosystems co-founder Andy Bech-tolsheim gave the budding Internet en-trepreneurs $100,000 as seed moneyfor their planned start-up venture. 36

Google quickly created buzz in tech-nology circles. Page and Brin set as itscore mission “to organize the world’sinformation and make it universally ac-cessible and useful.” Just months afterits launch, PC Magazine reported thatGoogle “has an uncanny knack for re-turning extremely relevant results.” 37 Itwasn’t long before the new search en-gine with the funny name started tosqueeze out less nimble competitorssuch as AOL and AltaVista.In his book Googled, the End of the

World as We Know It, journalist KenAuletta writes that from the start, Brin

and Page had a very different approachto their Internet business compared withother technology entrepreneurs. “Theyrejected the conventional wisdom em-braced by AOL and Yahoo and Mi-crosoft’s MSN to create portals and tryto keep users in their walled gardenswith an array of content,” he writes.“They believed the right approach wasto get users out of Google and to theirsearch destinations quickly.” Anotherdistinguishing feature was that Googlekept its site uncluttered, especially withthe pop-up and banner ads that wereprevalent on other sites. 38

Also different about Google, authorSteven Levy emphasizes in his book,In the Plex, is that the company seesvalue in pursuing risky ideas. “Googlespun out projects like buckshot, blast-ing a spray and using tools and mea-

surements to see what it hit,” he writes.“And sometimes it did try ideas thatseemed ill-suited or just plain old.” 39

Levy recounts a discussion he hadwith Marissa Mayer, vice president ofLocal, Maps and Location Services atGoogle, about the premium that thecompany’s founders place on noncon-formist thinking. “ ‘It’s really ingrainedin their personalities to ask their ownquestions, do their own things. To dis-respect authority,’ she said. ‘Do some-thing because it makes sense, not be-cause some authority figure told youto do it.’ ” 40

Another key to Google’s success hasbeen its aggressive approach to snap-ping up promising Internet ventures.Last year, the company completed 48acquisitions. 41 So far this year it hascompleted 57. 42 And in its latest an-

GOOGLE’S DOMINANCE

Continued from p. 962

The world’s most populous nation represents a vast, un-tapped marketplace for Google. But China also sym-bolizes an enormous challenge for Google: exporting a

search engine founded on Western principles of openness toa regime that routinely censors free expression and dissent.

Google launched a Chinese-language version of its site in2002 and added Google News in 2004. But as the site’s pop-ularity grew, Chinese officials increasingly demanded that Googlecensor material they said would inflame anti-governmentsentiment. 1

“Senior Google executives believed they had to make a choicebetween denying Chinese citizens some political searches anddenying them all searches,” journalist Ken Auletta recounted inGoogled, the End of the World as We Know It. In response, thecompany in 2006 set up a separate website, www.google.cn, thatoffered “politically sanitized searches in China,” Auletta wrote. 2

Topics such as independence for Taiwan and the 1989Tiananmen Square massacre were off-limits, while a search forthe outlawed spiritual movement Falun Gong led Web usersto content condemning the group. 3

In January 2010, Google revealed that its servers had beenhacked from China in a sophisticated operation and that theGoogle Gmail accounts of Chinese human-rights activists weretargeted — with at least two such accounts accessed. The hack-ers reportedly also breached the servers of at least 20 otherlarge U.S. companies. In the course of investigating the attacks,

Google discovered phishing scams and malware* designed toinfiltrate the accounts of Gmail users in the United States, Eu-rope and China sympathetic to Chinese dissidents.

“These attacks and the surveillance they have uncovered —combined with the attempts over the past year to further limitfree speech on the Web — have led us to conclude that weshould review the feasibility of our business operations in China,”David Drummond, Google senior vice president and chief legalofficer, said in a blog post. “We have decided we are no longerwilling to continue censoring our results on Google.cn.” 4

For Google, the hacking signified that the company’s “Chinaproblem” — as author Steven Levy describes it — could nolonger be contained. “After weeks of struggling with the issue,Google’s Executive Committee” — including Executive ChairmanEric Schmidt and Google co-founders Larry Page and Sergey Brin— “finally agreed on the most significant and embarrassing re-treat in the company’s history,” Levy writes in his book, In thePlex. “On Jan. 12, 2010, they changed course in the country withthe world’s biggest Internet user base, announcing an effectivepullout of their search engine from mainland China.” 5

Google now tries to circumvent communist Chinese censors

Great Wall of Censorship Surrounds Google in China“No one in China ever sees an uncensored version of Google search results.”

* Phishing is a form of email fraud in which a scammer tricks some-one into revealing confidential information. Malware is malicious soft-ware that can infect a computer and steal sensitive data.

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nual filing with the Securities and Ex-change Commission, Google said thebuying spree would continue. 43

“Emerging start-ups may be able toinnovate and provide products and ser-vices faster than we can,” Google said.“If our competitors are more success-ful than we are in developing com-pelling products or in attracting andretaining users, advertisers, and con-tent providers, our revenues and growthrates could decline.” 44

The company’s $1.65 billion pur-chase in 2006 of YouTube has dri-ven considerable traffic to Google,which is partnering with several mediacompanies to offer roughly 100 free,ad-supported “channels” over thevideo-sharing site. 45 Acquisition ofDoubleClick and AdMob in 2007 and2010, respectively, helped solidify

Google’s perch as the leader in on-line advertising. 46

In April, the Justice Department ap-proved another major Google acquisi-tion: its $676 million purchase of ITASoftware, which specializes in onlineairline ticketing, over the opposition ofestablished online travel websites, suchas Expedia and Travelocity. 47 Justiceofficials imposed several conditions inan effort to assuage the concerns ofcompetitors.Google’s August announcement that

it plans to acquire Motorola Mobility, amajor player in the wireless handsetbusiness, drew attention to its growingemphasis on mobile communications. 48

Google already has a major presenceon smartphones through its Androidsoftware and its stake in Clearwire, aprovider of high-speed wireless service.

The proposed Motorola Mobility dealis under review by the Justice Depart-ment’s Antitrust Division.

Antitrust Action

T he Sherman Act, named for its mainauthor, Republican Sen. John Sher-

man of Ohio, could play a central rolein shaping Google’s fate. “As the U.S.and global markets have grown tremen-dously since their inception, the Sher-man Act is ever more relevant and crit-ical in our daily life,” the JusticeDepartment said last year in a blog postcommemorating the 120th anniversaryof the act.“That means when we pay phone

bills, buy flat screen TVs or frozenpackaged goods, the Sherman Act plays

by automatically reroutingusers of Google.cn to Google.com/hk, a site in Hong Kong,a Chinese territory that op-erates with significant au-tonomy. “This redirect, whichoffers unfiltered search insimplified Chinese, has beenworking well for our usersand for Google,” Drum-mond wrote in a June 2010follow-up blog post. But healso cautioned that Chineseofficials “find the redirectunacceptable” and mightrefuse to renew the compa-ny’s license. 6

In a sign that Beijing is accepting Google’s “workaround”solution, mainland officials renewed Google’s Internet licensefor a year days after Drummond’s post, and this Septemberthey did so again. 7

Siva Vaidhyanatahn, a media-studies and law professor at theUniversity of Virginia, contends in his book, The Googlization ofEverything, that Google’s retreat from China gave the governmentthere exactly what it wanted: “to be rid of a troublesome com-pany that was never comfortable operating under Chinese law.”

But he also emphasizes thatthe arrangement has not endedthe censorship. “The Chinesegovernment itself censors andoften blocks access to the HongKong-based Chinese languageversion of Google,” he writes.“So no one in China ever seesan uncensored version of Googlesearch results.” 8

— David Hatch

1 Ken Auletta, Googled, The End ofthe World as We Know It (2010), p.134.2 Ibid.

3 For background, see “Google Censors Itself for China,” BBC News, Jan. 25,2006, http://news.bbc.co.uk/2/hi/technology/4645596.stm.4 David Drummond, “A New Approach to China,” Google blog, Jan. 12, 2010,http://googleblog.blogspot.com/2010/01/new-approach-to-china.html5 Steven Levy, In the Plex (2011), pp. 267-268.6 David Drummond, “An Update on China,” Google blog, June 28, 2010,http://googleblog.blogspot.com/2010/06/update-on-china.html.7 Loretta Chao, “Chinese Regulators Renew Key License For Google,” TheWall Street Journal, Sept. 7, 2011, http://online.wsj.com/article/SB10001424053111904836104576556203077777200.html.8 Siva Vaidhyanatahn, The Googlization of Everything (And Why We ShouldWorry) (2011), pp. 117-121.

A Chinese flag flies outside the Google China headquartersin Beijing on Jan. 14, 2010. Shortly before, Google, which

faced censorship demands from Chinese authorities,announced it would shift its Chinese-language website to

Hong Kong, a Chinese territory that operates with significant autonomy.

AFP/Getty Images/Liu Jin

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a role in preventing companies fromillegally monopolizing and colludingand artificially setting prices,” the de-partment said. 49

Two related laws, both enacted in1914, fortified antitrust protections.The Clayton Act helped clarify the typesof anti-competitive practices prohibit-ed under the Sherman Act and barredmergers and acquisitions that couldlessen competition, while the FederalTrade Commission Act established theconsumer protection agency to guardagainst unfair business practices. 50

Another law, the Hart-Scott-RodinoAntitrust Improvements Act of 1976,empowered both the FTC and the Jus-tice Department, which share jurisdic-tion over antitrust matters, to applyantitrust laws to mergers requiringgovernment approval.Still, Washington, has had mixed

success over the years in efforts tocorral major communications compa-nies. Prompted by concerns that AT&Twas too dominant in the phone ser-vice business, the Justice Departmentin 1982 forced the divestiture of the

company’s local phone subsidiaries,known as the Baby Bells, so AT&Tcould focus on long distance. But asthe competitive landscape changed,AT&T largely reconstituted itself, com-bining with SBC Communications in2005 and BellSouth in 2006. It nowhopes to acquire T-Mobile, the na-tion’s fourth-largest wireless telecomcarrier, in a deal under review by Jus-tice officials.But the antitrust action that casts

the longest shadow over Google is theprotracted probe of Microsoft that

GOOGLE’S DOMINANCE

When Google Chairman Eric Schmidt arrived on CapitolHill in late September to testify before a Senate panelexamining Google’s market dominance, mimes dressed

in track suits were on hand to “track” his movements. Dispatchedby the anti-Google group Consumer Watchdog, the mimes fol-lowed Schmidt around the Capitol to call attention to what theyclaim is Google’s policy of tracking the keystrokes, clicks andother online activities of Google’s billion users worldwide. 1

Google has faced a steady stream of criticism for privacypolicies that some experts call short-sighted and invasive. Helpingto galvanize the critics are Schmidt’s own words, uttered in 2010,when he said Google’s policy is to “get right up to the creepyline, and not cross it.” 2

Google drew flak last year when it introduced the social-media site Buzz as an enhancement to its Gmail service and raninto blistering criticism that it was collecting and disseminatingpersonal information about its users. The Federal Trade Com-mission charged that many Gmail users were unable to declineto join Buzz, or to leave it. What’s more, the FTC said, for thosewho joined, “the controls for limiting the sharing of their per-sonal information were confusing and difficult to find.” In re-sponse, Google signed a consent decree with the FTC in Marchthat bars it from making “future privacy misrepresentations,” re-quires it to maintain a comprehensive privacy program and sub-jects it to independent privacy audits for the next 20 years. 3

The storm over Buzz was one of a number of controver-sies facing Google over its privacy policies. The company ad-mitted last year that its fleet of camera-equipped vehicles gath-ering images for its online maps mistakenly collected unsecuredata from wireless networks, including e-mail addresses and fi-nancial information. 4 Google’s Street View technology, mean-while, sometimes inadvertently captures sensitive images, suchas a Miami woman standing naked outside her front door. 5

Lawmakers from both major parties were particularly incensedin February after news outlets reported that Google collectedthe Social Security numbers of children participating in its an-nual doodling contest, in which youngsters compete to redesignGoogle’s homepage logo. The Internet giant quickly abandonedthe data-collection practice following public outrage. 6

That episode, along with Google’s agreement with the FTCover Buzz, suggest to some that the company is willing to bend,but John M. Simpson, director of Consumer Watchdog’s PrivacyProject, remains skeptical. “ ‘Don’t ask permission, you can al-ways ask forgiveness,’ ” seems to be Google’s guiding principleon privacy, he says. “What you do on the Internet — where yougo, and that sort of thing — that information should be underyour control so that if you don’t want it shared, it shouldn’t be.”

Many other websites also monitor online behavior by usingso-called tracking “cookies” and by targeting ads to Web usersbased on their Internet activity. But Consumer Watchdog fo-cuses on Google in part because of its market dominance. “Ifthey can be persuaded to adopt some better privacy standards,there is a good chance that they will set standards for the restof the Internet companies,” Simpson says.

In The Googlization of Everything, author Siva Vaidhyanathan,a media-studies and law professor at the University of Virginia,wrote that the fine print of the company’s privacy policy makesit clear “that Google retains the right to make significant deci-sions about our data without regard for our interests.” WhileGoogle states that it will not share information with other com-panies without a user’s consent, “it asserts the right to providesuch information to law enforcement or government agenciesas it sees fit,” Vaidhyanathan wrote. 7

But Google has defended its practices while also acknowledg-ing their sensitive nature. “In all cases it’s a trade-off . . . , whereyou will give up some of your privacy in order to gain some

Google’s Privacy Policies Spark Intense Criticism“What you do on the Internet should be under your control.”

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ended with a 2002 settlement with theJustice Department.

Testing Antitrust Boundaries

M icrosoft has been the target oftwo antitrust investigations

over the past two decades. In 1994,the Justice Department reached a con-sent decree with the software com-pany that barred it from engaging inunfair contracts and license agree-

ments designed to undercut compe-tition. 51

In the late 1990s, Justice officials begana second antitrust review that was prompt-ed in part by concerns that Microsoftwas trying to prevent a rival, Netscape,from offering a competing Web brows-er. The Justice Department collectedmore than 3 million documents for itscase against Microsoft, and in 2000 afederal judge ordered the company’sbreakup. 52 Microsoft ultimately wasspared that fate in a 2001 consent de-cree (finalized a year later) with the Jus-

tice Department that imposed extensiverestrictions on its business practices. 53

Critics of Google see striking par-allels with the most recent probe ofMicrosoft. Microsoft used its marketpower with the Windows operatingsystem to block competition to its In-ternet browser and other services, Bar-nett of the FairSearch Coalition says.“Google, in an analogous way, has gota dominant position in search andsearch advertising and is being ac-cused of using that dominance im-properly to expand into other areas,”

functionality, and so we real-ly need to make those trade-offs really clear to people,what information we areusing and what’s the benefitto them, and then ultimatelyleave it to user choice,” GoogleVice President Marissa Mayertold PBS host Charlie Rosein 2009. 8

Responding to pressurefrom U.S. and foreign con-sumer groups and policy-makers, Google has taken steps to strengthen its privacy safe-guards in recent years. In 2009 it instituted a Privacy Dashboardthat allows for personalized settings, such as deletion of users’Web history and management of their “online reputation,” alongwith the ability to opt out of ads targeted to users’ online be-havior. Google also is among Internet companies embracingthe concept of so-called privacy-by-design, in which privacysafeguards are conceived for new products from the start ratherthan added late in the process as an afterthought. That ensuresthat privacy protections are central to the design of a newproduct or application. 9

“While we’ve made some mistakes, if you look at our over-all track record it’s good,” Google spokesman Chris Gaithercontends. He says the company is redoubling its efforts “tobuild privacy and security controls” into products and tries tobe “as transparent as possible” about data collection. Last Oc-tober, longtime Google engineer Alma Whitten was appointeddirector of privacy for product management and engineering.

As a result, some industry watchers are taking notice — andapplauding the changes. “After flunking Privacy 101 with Buzz,

which automatically built a pub-lic social network using Gmailusers’ formerly private contactlists, Google has designed a so-cial network with privacy as itsbuilding block,” Forbes wrote inJuly of the company’s new Face-book competitor, Google+. 10

— David Hatch

1 Amir Efrati, “Google Notches OneBillion Unique Visitors Per Month,” TheWall Street Journal, June 21, 2011

http://blogs.wsj.com/digits/2011/06/21/google-notches-one-billion-unique-visitors-per-month/.2 Derek Thompson, “Google’s CEO: ‘The Laws Are Written by Lobbyists,’ ”The Atlantic, Oct. 1, 2010, www.theatlantic.com/technology/archive/2010/10/googles-ceo-the-laws-are-written-by-lobbyists/63908/#.3 “FTC Charges Deceptive Privacy Practices in Google’s Rollout of Its Buzz So-cial Network,” press release, March 30, 2011, www.ftc.gov/opa/2011/03/google.shtm.4 Steven Levy, In the Plex: How Google Thinks, Works and Shapes Our Lives(2011), pp. 342-343.5 “Google Street View Camera Captures Naked Miami Woman On Her FrontDoorstep,” Sept. 9, 2011, The Smoking Gun, www.thesmokinggun.com/buster/google/google-street-view-naked-woman-094672.6 “Markey, Barton Respond to News about Doodle 4 Google,” press release,Feb. 24, 2011, http://markey.house.gov/index.php?option=com_content&task=view&id=4236&Itemid=141.7 Siva Vaidhyanathan The Googlization of Everything (And Why We ShouldWorry) (2011), p. 85.8 Quoted in ibid., p. 87.9 For background on privacy by design, see FTC Chairman Jon Leibowitz’sspeech, “Online and Overexposed: Consumer Privacy, the FTC, and the Riseof the Cyberazzi,” Oct. 11, 2011, www.ftc.gov/speeches/leibowitz/111011pressclubremarks.pdf.10 Kashmir Hill, “Why ‘Privacy By Design’ Is The New Corporate Hotness,”Forbes, July 28, 2011, www.forbes.com/sites/kashmirhill/2011/07/28/why-privacy-by-design-is-the-new-corporate-hotness/.

Siva Vaidhyanathan, a media-studies and law professor atthe University of Virginia, wrote that the fine print of

Google’s privacy policy makes it clear that the company“retains the right to make significant decisions” about

users’ data without regard for their interests.

Anne Helmond

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GOOGLE’S DOMINANCE

he says. “They are identifying poten-tial threats to that dominance and tak-ing them out one by one,” as Microsoftdid, he says.But supporters of Google insist that

it has not acted improperly and thatits expansion into new business areasis necessary for the company to staycompetitive. And they point to whatthey see as key differences betweenthe Google and Microsoft cases.Houck, the lawyer who represent-

ed state plaintiffs against Microsoft, saysGoogle is less of a threat to its com-petitors than was Microsoft. “Google’smarket share, for the most part, is notnearly as high as Microsoft’s and has-n’t endured like Microsoft’s has fordecades,” he says.The main question for antitrust

lawyers in the Google case is whetherthe company is “insulated from com-petition,” says Houck, who later actedas enforcement counsel ensuring thatMicrosoft satisfied the requirementsunder its consent decree. “Microsoftlargely was,” he says, explaining thatthe company tied its browser to itsWindows operating software so thatconsumers could not switch browsersor access alternatives. Microsoft alsothreatened to retaliate against somelarge companies, including Apple andIBM, if they offered competing browsersto customers, he says. “I just haven’tseen anything tantamount to that[which] Google’s done,” he says. “Mostof what people are complaining aboutare things that Google has done to tryto improve their product.”In his September Senate testimony,

CEO Schmidt said Google has learnedfrom Microsoft’s experience. “We getit,” he said. “We get the lessons of ourcorporate predecessors.”Whether history is poised to repeat

itself with the Obama administration’sprobe of Google remains to be seen.What is certain is that Google has nowjoined an elite class of American cor-porate icons in testing the boundariesof U.S. antitrust law.

CURRENTSITUATIONGrowing Concern in Washington

F irst, some good news for Google:The one-time darling of Silicon

Valley still has plenty of powerful friendsin Washington. The bad news: Its sup-port in political circles is steadily erod-ing, particularly among Democrats, theparty with which Google has madethe most inroads.For Google, the sudden consterna-

tion from Washington threatens to un-ravel the goodwill it has forged withPresident Obama and his administration.During the 2008 presidential race, Obamaincluded the Googleplex among his cam-paign stops. Schmidt stumped for Obamaand served as an informal economic ad-viser to his campaign and is now amember of the president’s Council ofAdvisers on Science and Technology. 54

A handful of Google executives left thecompany for the White House, includ-ing Sonal Shah, a global developmentspecialist who worked on Obama’s tran-sition team and now heads the WhiteHouse Office of Social Innovation andCivic Participation. 55

Google employees and the com-pany’s political action committee gavegenerously to the Obama campaignand have a track record of favoringDemocrats over Republicans in politicaldonations, often by wide margins. 56

The close ties prompted headlines suchas this one in Fortune two years ago:“Obama & Google (a love story).” 57

Now, both the administration and promi-nent Democratic lawmakers are signal-ing that their friendship has limits.The trend was evident during the

September Senate hearing when sev-eral prominent Democrats were bluntin their criticism of the tech icon.

“I love Google,” Sen. Al Franken, D-Minn., the former “Saturday Night Live”comic, declared before launching intoan extended critique of the company.“As you get bigger and bigger and big-ger, I worry about what that means forthe next Larry Page or Sergey Brin whoare struggling to build the next innov-ative product in a garage.” He added,“I am admittedly skeptical of big com-panies that simultaneously control bothinformation and the distribution chan-nels of that information.”Democratic Sen. Richard Blumenthal

of Connecticut also had strong words.“Google is really a behemoth in thesearch market these days,” he observed,noting that competitor Bing is losing$2 billion a year. It’s “the engine thatcan’t be stopped.”Sen. Herb Kohl, D-Wis., chairman

of the Subcommittee on Antitrust, Com-petition Policy and Consumer Rights,which convened the hearing, was equal-ly worried about Google’s size. “Googlehas grown ever more dominant andpowerful, and it appears its missionmay have changed,” he said in open-ing remarks.Several Republicans also weighed

in with concerns, including Utah’s Lee,who cited data suggesting that Googlemay be manipulating its search resultsto favor one of its newer offerings,comparison-shopping selections — anassertion that Google’s Schmidt strong-ly denied. “There’s a difference be-tween sites that do product compari-son and sites that offer productsthemselves,” he said at the hearing.“Google product search is about get-ting you to a product.” He suggestedthere may be a “conflation” of thesedistinct types of sites in the data Leewas referencing.Reflecting the conflicted feelings that

many lawmakers now have aboutGoogle, Sen. Charles Grassley, R-Iowa,said he’d heard both “good and bad”about the company from his con-stituents.

Continued on p. 970

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At Issue:Is Google too dominant?yes

yesJOHN M. SIMPSONDIRECTOR, PRIVACY PROJECT, CONSUMER WATCHDOG

WRITTEN FOR CQ RESEARCHER, NOVEMBER 2011

g oogle is so pervasive that consumers cannot escapeits reach even if they do not use its services. Google’sad network puts down tracking cookies and records consumers’ activities as they surf the Internet. It is

Google’s immense database of consumer information, intentionsand desires that gives the Internet giant its power. Google ex-erts monopoly power over Internet searches, controlling about70 percent of the U.S. market. For most Americans — indeed,for most people in the world — Google is the gateway to theInternet. In the mobile market Google’s monopoly power iseven greater: It controls more than 95 percent of mobile search-es. Android, Google’s smartphone operating system, dominatesthe mobile sector with 38 percent of the market. Apple’s iPhonehas 27 percent.Google’s dominance of search forces advertisers to use

Google’s advertising products — those that do not will notreach their customers. How Google tweaks its proprietarysearch algorithms can ensure a business’s success or doom itto failure. Google’s practices determine much of the Internetexperience for most consumers by determining what theyview. Google demands openness of others, but when it comesto its own activities it is a closed black box.Other companies find it difficult, if not impossible, to compete

with Google in offering the products Google provides for “free”with the subsidies generated from its monopolistic search revenues.You may think of Google as a technology company. In ac-

tuality Google is an advertising business. Consumers make aFaustian bargain, often unknowingly, to provide personal infor-mation about their habits, desires and behaviors in return forGoogle’s services. Google mines these massive digital dossiersand uses the information to sell ads, a lucrative business thataccounts for 96 percent of its $29 billion annual revenue.People who use Google aren’t its customers. We are the

Internet giant’s product. The immense database about us,largely gathered without our informed consent, is used totarget ads and bring Google billions in advertising profits.The Internet is too important to allow an unregulated

monopolist to dominate it. To ensure that no online companycan exercise monopoly power with our data, we must havethe right to control how data about our online activities isused or if it is even gathered.Strict application of antitrust law will thwart Google’s most fla-

grant anticompetitive practices. Do Not Track Me regulations willloosen Google’s powerful grasp on the Internet and give con-sumers the true control over their online activity that they deserve.no

ERIC SCHMIDTEXECUTIVE CHAIRMAN, GOOGLE INC.

FROM TESTIMONY BEFORE THE SENATE COMMITTEEON THE JUDICIARY SUBCOMMITTEE ON ANTITRUST,COMPETITION POLICY, AND CONSUMER RIGHTS,SEPT. 21, 2011

o ne of the main drivers of Google’s constant innovationis the fact that we face an extremely competitive land-scape in which consumers have a multitude of options

to access information. If we want consumers to keep comingback to Google, we have to give them the best possible experi-ence. And that pushes us to keep putting consumers first.Google faces competition from numerous sources including

other general search engines (such as Microsoft’s Bing, Yahoo! andBlekko); specialized search sites, including travel sites (like Expe-dia and Travelocity), restaurant reviews (like Yelp) and shoppingsites (like Amazon and eBay); social media sites (like Facebook);and mobile applications beyond count, just to name a few.For example, let’s say you’re looking for a local restaurant.

You might search on Google for “local restaurant,” but increas-ingly people are going on to Facebook and Twitter to asktheir friends for restaurant recommendations. . . . Consumershave a truly vast array of options — some search and somenot — from which to access information.Well-known shopping sites like Amazon, Wal-Mart and eBay

are essentially search engines that focus on product searchand provide customers with an opportunity to buy a good atthe end of their search. . . . The same holds true for populartravel search sites like Kayak, Priceline and Expedia. Studentslooking for encyclopedia-like entries on different topics oftengo directly to sites like Wikipedia and About.com. News seekerscan visit the websites of major publications. . . .Among major search engines, Microsoft’s Bing has continued

to gain in popularity, perhaps because it comes pre-installedas the search default on over 70 percent of new computerssold. Microsoft’s Bing is the exclusive search provider forYahoo! and Facebook. . . . In addition to Internet Explorer,Microsoft has integrated Bing into its popular gaming console,the Xbox 360. . . . Microsoft’s Bing launched in June 2009 andhas grown so rapidly that some commentators have speculatedthat it could overtake Google as early as 2012.And there’s the most popular website on the Internet, by

an enormous margin: Facebook. Facebook and similar siteshave extensive search and information functions. . . . Andbecause of its exclusive search arrangement with Microsoft’sBing, Facebook and Bing can harness the power of searchalgorithms and a customer’s social graph to answer a query.This is a tremendous competitive advantage.Most importantly, all of these options for obtaining informa-

tion can be accessed without ever using Google.

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Ongoing Investigations

F rom Washington to Brussels toSeoul, Google’s business practices

are under investiga-tion by regulators.At least five states— California, NewYork, Ohio, Texasand Mississippi — areconducting theirown inquiries, and asixth, Oklahoma, isweighing a probe. 58

Meanwhile, the Jus-tice Department isreviewing Google’splanned acquisitionof Admeld, an on-line advertising com-pany. In addition,antitrust scrutiny ofGoogle’s plannedpurchase of Motoro-la Mobility is forth-coming.Foer, the antitrust

expert, says regula-tors in the United States and other coun-tries already are communicating witheach other about their respective inves-tigations and that a “coordinated strate-gy” could emerge from the discussions.The FTC can pursue several paths

for its investigation, from declining totake action against Google if it thinksthe allegations against it are weak toentering into a settlement with thecompany that would impose condi-tions in an effort to address anticom-petitive concerns.If the allegations prove to be true,

conditions could range from requiringGoogle to divest certain assets or bar-ring it from pursuing specific lines ofbusinesses or content to restricting howit uses its search algorithms. But all theseideas are wrought with complexities,Foer says, because even if Google isconfined in this manner, the FTC must

decide whether the company can de-velop and launch new enterprises with-out unduly harming competition.Meanwhile, the agency might have

difficulty defining what constitutes im-proper behavior and enforcing any

restrictions it imposes, he explains.“When Google has all the inside knowl-edge” about how it operates its site,“it’s very hard for a government agencyto second-guess it,” he says. “You al-most need to create a bureaucracy forenforcement.”If the commission thinks it has a

strong case against Google but the com-pany refuses to agree to a settlement,it could sue Google, alleging violationof antitrust laws that prohibit unfairmethods of competition. Since the agencyalso has jurisdiction over consumer pro-tection, the potential exists for a law-suit built on antitrust and consumergrounds, Foer says. The downside tothat approach is that the courts havenot been particularly sympathetic in re-cent years to antitrust claims, he says.The FTC also could issue a report

that would assess the competitive land-

scape on the Internet, document howGoogle’s role has evolved and recom-mend further action by the agency orCongress. “Some of their reports havehad important impacts over the yearson legislation that was later passed,”

Foer says, noting that theFTC might choose thatpath if unsure whetherto bring a case againstGoogle or how the courtsmight respond.Schmidt, in opening

remarks at the Septem-ber hearing, acknowl-edged the government’sinterest in examiningGoogle’s corporate prac-tices. It’s “natural” forregulators “to have ques-tions about our busi-ness — and that’s cer-tainly fine,” he said.“What we ask is that youhelp us ensure that theFederal Trade Commis-sion’s inquiry means afocused and f a i rprocess.”

Voluntary Options

L egislation aimed at curtailingGoogle’s business practices appears

to be off the table for now as lawmak-ers give regulatory agencies a chance toconduct their reviews. But some sena-tors are amenable to another option: avoluntary effort by Google to resolveconcerns about its market dominance.The September hearing raised the pos-sibility of unilateral steps by Google de-signed to assuage critics and potentiallyavoid antitrust action that could be riskyfor the government.Blumenthal argued that enforcement

actions are “costly, time-consuming, cum-bersome, blunt and inexact” methodsof promoting competition. “Far better tohave voluntary actions that can avoideven the appearance, or complaints

GOOGLE’S DOMINANCE

Continued from p. 968

Sens. Amy Klobuchar and Al Franken, both D-Minn., listen to testimonyfrom Google Executive Chairman Eric Schmidt during a hearing of the

Senate Judiciary Committee’s Antitrust, Competition Policy andConsumer Rights Subcommittee on Sept. 21, 2011. Schmidt denied

allegations that his company uses its market dominance to squeeze out competitors. But Franken said he was “skeptical of big

companies that simultaneously control both information and the distribution channels of that information.”

Getty Images/Chip Somodevilla

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about, antitrust violations,” he said. Echo-ing those views, Franken said he sees“merit in Google taking the initiative.”He recommended a “technical com-mittee” that would review whether thecompany is meeting its obligations toadvertisers and consumers.Utah’s Sen. Lee, in his interview with

CQ Researcher, said he agrees with theapproach embraced by his Democraticcounterparts. “My No. 1 concern in allof this remains not having the govern-ment” meddle in “what has to this pointbeen a more or less self-regulated,government-free zone, which is theInternet,” the Republican senator said.“When government gets involved, alot of the time government ends upmaking the problem worse.”While saying he recognizes that some-

times a need arises for antitrust en-forcement, Lee said he firmly believes“that businesses are going to be ableto make their own decisions better thangovernment regulators.” Lee said hewants Google to provide stronger as-surances that its products never receivepreferential treatment in its search re-sults. “A lot of that can be tested em-pirically by a third party,” he said.Google denies that it has operated

in an uncompetitive manner and de-fends its record of openness. “We havetaken a number of steps over the pastfew years to increase transparency forconsumers and websites, and we’re al-ways open to ideas for how we canimprove,” Google spokesman AdamKovacevich said. 59 He pointed to aGoogle website that reveals detailsabout how the company formulatessearch algorithms and features toolsfor optimizing search rankings. 60

The company has fought back againsttighter federal regulation by strengthen-ing its lobbying in Washington. In July,Google announced that it had hired 12lobbying firms to bolster its message. 61

During the first three quarters of 2011,Google spent $5.4 million on lobbying— more than in 2010, and more thanMicrosoft. 62 Google also is running In-

ternet videos promoting its benefits tosmall businesses and television ads pro-moting its search capabilities.But critics who argue that Google is

undermining competition want morethan voluntary action. “Whatever fix isput into place, whether Google initiatesit voluntarily or not, needs to be backedup with a judicially enforceable order,”Barnett of the FairSearch Coalition con-tends. He further warns that if policy-makers are too lenient with Google,they could unwittingly create a “per-verse incentive” for companies to “crossthe line, wait until [their behavior] getsnoticed and back off” after regulatorsbegin an investigation. “Without thepower of an enforceable order, it wouldvery difficult to ensure that Google wouldlive up to a voluntary fix,” he maintains.Simpson of Consumer Watchdog also

is skeptical about a voluntary approach.“I’ve seen nothing watching companybehavior over the years to lead me tobelieve that voluntary things ever real-ly mean very much unless there’s atleast the possible threat of some kindof regulation or legal action.”

OUTLOOKWhat Next for Google?

While Google is now at or nearthe top of its industry, the tech

sector is littered with reminders ofhow quickly new competitors canemerge and promising ventures — fromthe tiniest startup to the mightiest site— can fall. MySpace and Friendster, her-alded just a few years ago as cutting-edge, quickly faded in popularity, whileFacebook and Twitter are now house-hold words after debuting in 2004 and2006, respectively.“Today, Google appears impregnable,”

author Auletta wrote. “But a decade ago,so did AOL, and so did the combina-

tion of AOL and Time Warner.” Aulettarecounts a conversation with ClaytonChristensen, a Harvard business profes-sor and author of The Innovator’s Dilem-ma, who said of Google: “There is noth-ing about their business model thatmakes them invulnerable.” 63 Christensenpointed to other major corporations thatonce appeared invincible, only to stum-ble as a result of swift marketplacechanges that caught them off-guard.Duke University engineering pro-

fessor Vivek Wadhwa also thinksGoogle’s unbridled success should notbe taken for granted. “The technologysector moves so quickly that when acompany becomes obsessed with de-fending and abusing its dominant mar-ket position, countervailing forces causeit to get left behind,” he observed thissummer in The Washington Post.Wadhwa explained that during the

course of years-long federal probes intoallegations of anti-competitive practicesby IBM and Microsoft, “their monopo-lies became irrelevant because bothcompanies could not keep pace withrapid changes in technology” that theircompetitors embraced. 64

But according to an opposing view,Google is on track to grow even moredominant on the Internet if regulatorsdecide either not to step in or imposeremedies too weak to curb its influence.The result could be an “unaccountableInternet in which Google’s power is offthe charts and trust is by necessityblind,” Cleland, the Google critic, wrote.“Google becomes the exclusive and om-niscient editor, observer, distributor, rev-enue collector and decision maker. Thereare no checks and balances.” 65

Google’s fate may very well rest inthe hands of regulators, whose near-term decisions could shape its future.Experts say that if the FTC and otherregulatory bodies are lenient, they riskundermining the already fragile stateof competition on the Internet. And ifthey lean too hard, they could squelchthe company’s appetite for innovation,a key ingredient of its success.

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“You can get into a danger zone[with regulation] where you cripple theinnovation,” warns Eshoo, the Califor-nia House member and top Democraton the subcommittee that oversees thecommunications sector. “I hope Con-gress does not get so much in theway that they’ll kill the goose that con-tinues to lay the golden egg.”

Notes

1 Claire Cain Miller, “Google Said to Be Near aYelp Deal,” The New York Times, Dec. 18, 2009,www.nytimes.com/2009/12/19/technology/companies/19yelp.html?_r=1&hp.2 For background, see written testimony ofJeremy Stoppelman before the Senate Judi-ciary Committee, Subcommittee on Antitrust,Competition Policy and Consumer Rights,Sept. 21, 2011, http://judiciary.senate.gov/pdf/11-9-21StoppelmanTestimony.pdf.3 For background, see written testimony ofEric Schmidt before the Senate JudiciaryCommittee, http://judiciary.senate.gov/hearings/testimony.cfm?id=3d9031b47812de2592c3baeba64d93cb&wit_id=3d9031b47812de2592c3baeba64d93cb-3-1.4 Response of Google Chairman Eric Schmidtto questions for the record from Sen. Al Franken,Senate Judiciary Committee, Subcommittee onAntitrust, Competition Policy and ConsumerRights, pp. 3-4.5 James Kanter, “Google Plays Down Microsoft’sAntitrust Complaint in Europe,” The New YorkTimes, March 31, 2011, www.nytimes.com/2011/04/01/technology/01google.html?_r=1.For background, see Kenneth Jost, “AntitrustPolicy,” CQ Researcher, June 12, 1998, pp. 505-528.

6 Thomas Catan, “Google Scores Victory inOhio Antitrust Case,” The Wall Street Journal,Sept. 1, 2011, http://online.wsj.com/article/SB10001424053111904583204576544683721148122.html.7 Facts About Google and Competition, www.google.com/competition/howgooglesearchworks.html.8 Sam Schechner and Amir Efrati, “Google Pon-ders Pay-TV Business,” The Wall Street Journal,Nov. 4, 2011, http://online.wsj.com/article_email/SB10001424052970204621904577016352676478994-lMyQjAxMTAxMDAwNDEwNDQy-Wj.html?mod=wsj_share_email.9 Securities and Exchange Commission, GoogleForm 10-K for fiscal year ending Dec. 31,2010, pp. 9, 29, http://investor.google.com/documents/20101231_google_10K.html.10 Amir Efrati, “Google, Private-Equity FirmsMull Bid For Yahoo,” The Wall Street Jour-nal, Oct. 23, 2011, http://online.wsj.com/article/SB10001424052970204485304576646232054116582.html?mod=technology_newsreel.11 Lance Ulanoff, “Everything You’ve HeardAbout Google is True,” PC Magazine, March28, 2009, www.pcmag.com/article2/0,2817,2344010,00.asp#fbid=MVwIW3wfWE0. Seealso, “The Google Culture,” www.google.com/about/corporate/company/culture.html.12 Securities and Exchange Commission, GoogleForm 10-Q for quarter ending Sept. 30, 2011,p. 26, www.sec.gov/Archives/edgar/data/1288776/000119312511282235/d228523d10q.htm.13 Schmidt written testimony, op. cit.14 ComScore, “ComScore Releases August 2011U.S. Search Engine Rankings, press release,Sept. 13, 2011, www.comscore.com/Press_Events/Press_Releases/2011/9/comScore_Releases_August_2011_U.S._Search_Engine_Rankings;ComScore, “Google Sites Accounts for 9 of 10Searches Conducted in Latin America,” pressrelease, May 17, 2011, www.comscore.com/

Press_Events/Press_Releases/2011/5/Google_Sites_Accounts_for_9_of_10_Searches_Conducted_in_Latin_America.15 Efficient Frontier, “Q1 2011 Global DigitalMarketing Performance Report,” p. 4, www.efrontier.com/sites/default/files/EF_1Q11GlobalReport.pdf.16 Scott Cleland, Search & Destroy: Why YouCan’t Trust Google Inc. (2011), p. 97.17 Response of Schmidt to questions for therecord from Sen. Herb Kohl, p. 6.18 Don Kellogg, “40 Percent of U.S. MobileUsers Own Smartphones; 40 Percent are An-droid,” NielsenWire, Sept. 1, 2011, http://blog.nielsen.com/nielsenwire/online_mobile/40-percent-of-u-s-mobile-users-own-smartphones-40-percent-are-android/.19 StatCounter, “Global Stats for Top Five Mo-bile Searches in the U.S. for Sept. 2010 toSept. 2011,” http://gs.statcounter.com/#mobile_search_engine-US-monthly-201009-201109.20 Securities and Exchange Commission, GoogleForm 10-Q, op. cit., p. 17; and Miguel Helft,“Google vs. Groupon,” The New York Times,June 1, 2011, http://bits.blogs.nytimes.com/2011/06/01/google-vs-groupon/.21 Written testimony before the Senate Judi-ciary Committee, op. cit., pp. 2-3.22 “ABC News, Yahoo! News Announce On-line Alliance,” Yahoo! News, Oct. 3, 2011, http://news.yahoo.com/abc-news--yahoo--news-announce-online-alliance.html.23 Michael Liedtke, “Yahoo shares soar onnew Microsoft takeover hopes,” The Associ-ated Press, Oct. 5, 2011, http://apnews.myway.com/article/20111005/D9Q6DNF01.html.24 “Microsoft, AOL, Yahoo, strike ad alliance,”Reuters, Nov. 8, 2011, www.reuters.com/article/2011/11/08/microsoft-aol-yahoo-idUSN1E7A724520111108.25 “State of the Media: The Social Media Re-port, Q3, 2011,” Nielsen, http://blog.nielsen.com/nielsenwire/social/.26 “Facts About Google and Competition,” op.cit.27 Peter Kafka, “Google Goes Big With itsHulu Bid,” AllThingsD, Sept. 6, 2011, http://allthingsd.com/20110906/google-goes-big-with-its-hulu-bid/.28 Written testimony of Susan A. Creighton be-fore the Senate Judiciary Committee, Sub-committee on Antitrust, Competition Policy andConsumer Rights, Sept. 21, 2011, http://judiciary.senate.gov/pdf/11-9-21CreightonTestimony.pdf.29 Biography of Susan A. Creighton, WilsonSonsini Goodrich and Rosati, www.wsgr.com/

GOOGLE’S DOMINANCE

About the AuthorDavid Hatch is a veteran technology journalist based inArlington, Va., who previously served as a staff writer withthe National Journal Group and Crain Communications inWashington, DC. His publishing credits include The Daily,Dallas Morning News, Advertising Age, Crain’s New YorkBusiness and the Boston Herald. Hatch’s previous CQ Re-searcher reports are “Drug Company Ethics,” “Media Own-ership” and “Worker Safety.” He holds a B.A. in English fromthe University of Massachusetts at Amherst.

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wsgr/DBIndex.aspx?SectionName=attorneys/BIOS/505.htm.30 Adam Thierer, “Op Ed: The Danger Of Mak-ing Facebook, LinkedIn, Google And TwitterPublic Utilities,” Forbes, July 24, 2011, www.forbes.com/sites/adamthierer/2011/07/24/the-danger-of-making-facebook-linkedin-google-and-twitter-public-utilities/.31 Steve Weinberg, Taking on the Trust: The EpicBattle of Ida Tarbell and John D. Rockefeller(2008), pp. 73, 76.32 “Millennium issue: Antitrust,” The Economist,Dec. 23, 1999, www.economist.com/node/347251.33 Weinberg, op. cit., p. 201.34 The Economist, op. cit.35 For a timeline of Google’s history, see, www.google.com/about/corporate/company/history.html.36 Ibid.37 Ibid.38 Ken Auletta, Googled, the End of the Worldas We Know It (2010), p. 52.39 Steven Levy, In the Plex: How Google Thinks,Works, and Shapes Our Lives (2011), p. 121.40 Ibid., p. 122.41 Google Form 10-K, op. cit., p. 69.42 Evelyn M. Rusli, “For Google, a New Highin Dealmaking,” The New York Times, Oct. 27,2011, http://dealbook.nytimes.com/2011/10/27/google-hits-new-ma-record/.43 Google Form 10-K, op. cit., p. 11.44 Ibid., p. 9.45 Schechner and Efrati, op. cit.46 For background, see “Federal Trade Com-mission Closes Google/DoubleClick Investiga-tion,” press release, Federal Trade Commission,Dec. 20, 2007, www.ftc.gov/opa/2007/12/googledc.shtm; and “FTC Closes its Investigation ofGoogle AdMob Deal,” press release, FederalTrade Commission, May 21, 2010, www.ftc.gov/opa/2010/05/ggladmob.shtm.47 For background, see “Justice Dept. ap-proval of Google-ITA deal with conditions,”press release, U.S. Department of Justice,April 8, 2011, www.justice.gov/opa/pr/2011/April/11-at-445.html.48 See “Google to Acquire Motorola Mobility,”Google Investor Relations, Aug. 15, 2011, http://investor.google.com/releases/2011/0815.html.49 “Cheers to Competition: 120 Years of theSherman Act,” U.S. Department of Justiceblog, http://blogs.usdoj.gov/blog/archives/692.50 “FTC Fact Sheet — Antitrust Laws, a BriefHistory,” Federal Trade Commission, www.ftc.gov/bcp/edu/microsites/youarehere/pages/pdf/FTC-Competition_Antitrust-Laws.pdf.

51 “Microsoft Agrees to End Unfair Monopo-listic Practices,” press release, U.S. Departmentof Justice, July 16, 1994, www.justice.gov/opa/pr/Pre_96/July94/94387.txt.html.52 Ken Auletta, World War 3.0 (2001), p. 389.53 “Justice Dept.’s U.S. v Microsoft, CurrentCase,” U.S. Department of Justice, www.justice.gov/atr/cases/ms_index.htm.54 Jia Lynn Yang and Nina Easton, “Obamaand Google (a love story),” Fortune, Oct. 26,2009, http://money.cnn.com/2009/10/21/technology/obama_google.fortune/.55 Office of Social Innovation and Civic Par-ticipation, biography of Sonal Shah, www.whitehouse.gov/administration/eop/sicp/staff/shah.56 For background on Google’s political dona-tions, see, Communications/Electronics, Top Con-tributors to Federal Candidates, Parties and Out-side Groups, Open Secrets.org, www.opensecrets.org/industries/contrib.php?ind=B&cycle=2012.57 Yang and Easton, Fortune, op. cit.58 Brian Womack, “Google Hires 12 Lobby-ing Firms Amid FTC’s Review of Business,”Bloomberg, July 2, 2011, www.bloomberg.com/news/2011-07-02/google-hires-12-lobbying-firms-amid-ftc-s-review-of-business.html; Sara

Forden, “Oklahoma Attorney General SaysHe’s Weighing Google Probe,” Bloomberg,May 19, 2011, www.businessweek.com/news/2011-05-19/oklahoma-attorney-general-says-he-s-weighing-google-probe.html; and Securitiesand Exchange Commission, Google Form 10-Q,op. cit., p. 19.59 Quoted in David Hatch, “Senators ‘Prod’Google for Voluntary Compliance,” FTC Watch,Sept. 30, 2011, p. 6.60 See “Facts About Google and Competition:Transparency,” www.google.com/competition/transparency.html#section1.61 Womack, op. cit.62 Rob Levine, “Google Exerts InfluenceThrough Others,” Bloomberg Businessweek,Oct. 31, 2011, www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/10/31/BUM01LNAQ4.DTL&type=tech.63 Auletta, Googled, op. cit., p. 370.64 Vivek Wadhwa, “Uncle Sam’s choke-hold oninnovation,” The Washington Post, July 6, 2011,www.washingtonpost.com/national/on-innovations/uncle-sams-choke-hold-on-innovation/2011/07/06/gIQARcgk2H_print.html.65 Cleland, op. cit., p. 227.

FOR MORE INFORMATIONAmerican Antitrust Institute, 2919 Ellicott St., N.W., Washington, DC 20008;202-276-6002; www.antitrustinstitute.org. Think tank that promotes economiccompetition and challenges concentrated economic power.

Consumer Watchdog, 1750 Ocean Park Blvd., Suite 200, Santa Monica, CA 90405;310-392-0522; www.consumerwatchdog.org. Advocacy group focusing on consumerand taxpayer issues.

Department of Justice, Antitrust Division, 950 Pennsylvania Ave., N.W., Washington,DC 20530; 202-514-2000; www.justice.gov/atr/index.html. Promotes economic compe-tition through enforcement and guidance on antitrust laws and principles.

European Commission, Directorate General for Competition, Rue Joseph II, 1000Brussels, Belgium; 800-67-89-10-11; ec.europa.eu/competition. Oversees commercialcompetition and enforcement of antitrust laws within the European Union.

FairSearch.org; www.fairsearch.org. Coalition representing Microsoft and otheronline companies that accuse Google of anti-competitive behavior.

Federal Trade Commission, 600 Pennsylvania Ave., N.W., Washington, DC 20580;202-326-2222; www.ftc.gov. Federal agency that promotes consumer protection andworks to prevent anti-competitive business practices.

Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043; 650-253-0000;www.google.com. Multinational corporation that provides services in Internetsearch, cloud computing, online advertising and mobile communications.

Senate Judiciary Committee, 224 Dirksen Senate Office Building, Washington,DC 20510; 202-224-7703; judiciary.senate.gov. Conducts hearings and oversight onantitrust law and Internet privacy, among other legal matters.

FOR MORE INFORMATION

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974 CQ Researcher

Selected Sources

Bibliography

Books

Auletta, Ken, Googled, The End of the World as We KnowIt, Penguin Books, 2010.A journalist recounts the rise of Google from obscure start-

up to Internet powerhouse and covers the challenges aheadfor the tech icon and others.

Brinkley, Joel, and Steve Lohr, U.S. v. Microsoft, The In-side Story of the Landmark Case, McGraw-Hill, 2000.Two journalists provide a detailed account of the historic

trial that pitted the Justice Department against Microsoft andits founder, Bill Gates, in an antitrust case that casts a longshadow over the present-day federal investigation of Google.

Cleland, Scott, with Ira Brodsky, Search & Destroy: WhyYou Can’t Trust Google, Telescope Books, 2011.Cleland, a business consultant and one of the company’s

staunchest critics, asserts that it has grown too large andpowerful and can’t be trusted to respect the privacy of itsusers and the rights of its competitors.

Levy, Steven, In the Plex: How Google Thinks, Works,and Shapes Our Lives, Simon and Schuster, 2011.This “inside story” on Google’s success is based on un-

precedented access the author was granted to the compa-ny’s founders and a behind-the-scenes view based on threeyears of research.

Vaidhyanathan, Siva, The Googlization of Everything(And Why We Should Worry), University of CaliforniaPress, 2011.A media-studies and law professor at the University of Vir-

ginia explores how people interact with Google, the effectit has on their lives and growing concerns in the UnitedStates and abroad about some of its practices.

Articles

Lohr, Steve, “Antitrust Cry, From Microsoft,” The NewYork Times, March 31, 2011, www.nytimes.com/2011/03/31/technology/companies/31google.html?ref=technology.Microsoft, on the defensive not long ago from antitrust reg-

ulators in the United States and abroad, files an antitrustcomplaint in Europe against Google.

Wadhwa, Vivek, “Uncle Sam’s Chokehold on Innovation,”The Washington Post, July 7, 2011, www.washingtonpost.com/national/on-innovations/uncle-sams-choke-hold-on-innovation/2011/07/06/gIQARcgk2H_print.html.A Duke University professor argues that government inter-

vention involving Google is misguided.

Wasserman, Elizabeth, “Tech War: Google vs. Microsoft,”Politico, Feb. 9, 2011, http://dyn.politico.com/printstory.cfm?uuid=07523B85-9CAE-AB30-BF22BDA23A033652.A journalist provides a behind-the-scenes look at the battle

in Washington between Microsoft and Google.

Womack, Brian, Aaron Ricadela and Karen Gullo, “Oracle,Google in court over Java patents,” San Francisco Chron-icle/Bloomberg News, Sept. 19, 2011, www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/09/18/BUOL1L5Q8I.DTL.Oracle and Google are locked in a patent dispute over

Google’s Android software for mobile phones.

Reports

“Google’s Transformation from Gateway to Gatekeeper:How Google’s Exclusionary and Anticompetitive Con-duct Restricts Innovation and Deceives Consumers,” FairSearch Coalition, 2011, www.fairsearch.org/wp-content/uploads/2011/10/Googles-Transformation-from-Gateway-to-Gatekeeper.pdf.An industry trade group concerned about Google’s domi-

nance details its allegations of anticompetitive conduct againstits members.

“Traffic Report: How Google is Squeezing Out Com-petitors and Muscling into New Markets,” ConsumerWatchdog, 2010, www.consumerwatchdog.org/resources/TrafficStudy-Google.pdf.The Los Angeles-based consumer advocacy group, which

pushed for a federal antitrust probe of Google, argues thatthe Internet company is a monopoly that abuses its power.

Manne, Geoffrey A., and Joshua D. Wright, “Google andthe Limits of Antitrust: The Case Against the Antitrust CaseAgainst Google,”2010, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1577556.Professors at Lewis and Clark Law School and George Mason

University School of Law, respectively, warn of the perils of ap-plying antitrust law to “innovative companies in dynamic markets.”

Online Resources

“Facts about Google and Competition,”Google, 2011, www.google.com/competition/qa.html.Google answers common questions about its policies and

practices.

“Key Resources,” FairSearch Coalition, 2011, www.fairsearch.org/key-resources/.The online industry group posts extensive material about

its concerns with Google.

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Nov. 11, 2011 975www.cqresearcher.com

Antitrust Laws

Miller, Claire Cain, “U.S. Lets Google Buy Travel Firm,”The New York Times, April 9, 2011, p. B1, www.nytimes.com/2011/04/09/technology/09google.html.The Justice Department has approved Google’s acquisition

of a flight-search software maker but imposed conditions onhow Google can use the company’s technology.

Puzzanghera, Jim, “Google’s Control Spurs MicrosoftComplaint,” Orlando Sentinel, April 1, 2011, p. B7.Microsoft has said it will file an antitrust complaint in Eu-

rope against Google, alleging the Internet giant is limitingaccess to some of its data from YouTube and other services.

Van Sack, Jessica, “U.S. Moves vs. Search Giant May AidHub’s Skyhook,”Boston Herald, July 4, 2011, p. 17, www.bostonherald.com/business/technology/general/view.bg?articleid=1349503.Skyhook Wireless, the first company to map the world’s

Wi-Fi signals, is suing Google for alleged patent infringementand antitrust violations.

China

Brustein, Joshua, “Chinese View of Google’s Issues,” TheNew York Times, Nov. 22, 2010, p. B4, query.nytimes.com/gst/fullpage.html?res=980DE7DD153BF931A15752C1A9669D8B63.Google failed in China because it didn’t understand the

country’s Internet market, according to the CEO of China’smost popular search engine.

Lee, Mark, “Microsoft, China Expand Ties,”Houston Chron-icle, July 5, 2011, p. B7, www.chron.com/business/article/Microsoft-beefs-up-ties-with-Baidu-to-tackle-2080045.php.Microsoft and search engine Baidu agreed to bolster their

partnership in China in hopes of luring away Google’s usersin the world’s largest Internet market.

Nakashima, Ellen, “Chinese Leaders Ordered GoogleHack, U.S. Was Told,”The Washington Post, Dec. 5, 2010,p. A16, www.washingtonpost.com/wp-dyn/content/article/2010/12/04/AR2010120403323.html.A Wikileaks cable reveals that the Chinese government or-

dered a series of intrusions into Google’s computer networks.

Privacy

Barr, Bob, “Google’s Privacy Growing Pains,” AtlantaJournal-Constitution, Nov. 15, 2010, p. A14, blogs.ajc.com/bob-barr-blog/2010/11/15/google’s-not-so-private-growing-pains/.Addressing continuous privacy concerns is one of the many

ways Google is paying a steep price for its success, ac-cording to a former member of Congress.

Cleland, Scott, “E-totalitarianism at Google,”The WashingtonTimes, May 10, 2011, p. B1, www.washingtontimes.com/news/2011/may/9/e-totalitarianism-at-google/.Google’s handling of privacy and property rights could

threaten the company’s market domination, a critic says.

Pfanner, Eric, “Google Faces French Fine for Breach of Pri-vacy,” The New York Times, March 22, 2011, www.nytimes.com/2011/03/22/technology/22privacy.html.French regulators who fined Google for violating data-protection

laws accused it of continuing to flout privacy rules.

Products

O’Brien, Chris, “Welcome to the New Browser Wars,”Buffalo (N.Y.) News, Aug. 15, 2011, p. C4.Google’s Chrome browser is set to become the world’s sec-

ond most popular browser behind Internet Explorer.

Sarno, David, and Shan Li, “Google to Kill 2 Birds With1 Deal,” Los Angeles Times, Aug. 16, 2011, p. A1, articles.latimes.com/2011/aug/16/business/la-fi-google-motorola-deal-20110816.Google’s deal to buy Motorola Mobility would position it

to expand beyond its search engine and Web services.

Swift, Mike, “Google’s Android Ambitions Go BeyondMobile,” San Jose (Calif.) Mercury News, June 13, 2011.Android has become the top smartphone operating system

in the United States, but Google’s ambitions for it go be-yond tablet computers and handheld devices.

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