Edelman, Benjamin. “Antitrust Scrutiny of Google.” Journal of Law 2, no. 2 (2012): 445-464.
I evaluate antitrust claims against Google and propose possible remedies. While Google’s specific tactics are often novel, I show connections to practices deemed unlawful over a period of decades, and I identify remedies well grounded in antitrust precedent.
Edelman, Benjamin, and Michael Luca. “Airbnb (A).” Harvard Business School Case 912-019, December 2011. (Revised March 2012.) (educator access at HBP. request a courtesy copy.)
After widely-publicized complaints of destructive guests and unreliable hosts, online apartment rental site Airbnb explores mechanisms to facilitate trust between guests and hosts. Flexible online reputation systems can collect and share information with ease, but Airbnb must decide which information guests and hosts should have to provide and how much flexibility each should have in selecting who to do business with. A full-featured system could provide all the information users have been requesting, but would it be too complicated for routine use?
Supplements:
Airbnb (B) – Supplement (HBP 912019)
Teaching Material:
Airbnb (A) and (B) – Teaching Note (HBP 912021)
Coles, Peter A., and Benjamin Edelman. “Attack of the Clones: Birchbox Defends Against Copycat Competitors.” Harvard Business School Case 912-010, November 2011. (Revised October 2014.) ( educator access at HBP. request a courtesy copy.)
Birchbox offers trial-sized beauty products delivered monthly by mailattracting rave reviews. Seeing the success of this model, numerous “copycat” clones seek to offer the same service. Many of these copycats focus on non-U.S. countries, but others are challenging Birchbox on its home territory. Can Birchbox defend its position? How?
Last week Joshua Wright posted a critique of my January 2011 Measuring Bias in ‘Organic’ Web Search (with Ben Lockwood). Some quick thoughts –
First, there’s some important common ground here: Wright and I both find that Google shows many of its own results, and does so in prominent positions.
Now, Wright says Bing presents its own results slightly often more than Google does so. In contrast, important portions of my analysis indicated that own-service links are particularly prominent at Google. Why the gap between my analysis and Wright’s? One key challenge is the lack of a natural basis of comparison. Suppose Google controlled 50% market share while five competitors held 10% each. Then we could compare Google’s results to a possible consensus among the others — better revealing whether and when Google favors its own services. But in fact the runners-up are much smaller: after Bing+Yahoo, we reach smaller firms like Blekko, each with market share far below 1%. Without a competitive marketplace providing a baseline, comparisons between search engines are necessarily difficult. So it’s no surprise that the numbers come out differently depending on the approach.
Wright criticizes my decision to examine brief, popular searches rather than a selection of actual user searches. But searches are messy and idiosyncratic: Each day at Google, 20% to 25% of searches are completely new, never before seen. Wright favor analysis of searches seen in AOL logs, but this method tends to emphasize unusual searches like "dog who urinate on everything" and "you’re pregnant he doesn’t want the baby" (the first two examples in Paul Boutin’s 2006 examination of AOL logs). In contrast, I chose to focus on short, simple searches where biased results have a particularly broad effect.
Wright argues that if Bing presents its own results as often as Google does, then own-service links must be pro-competitive, raising no antitrust concern. I disagree. The same behavior can have very different consequences when performed by a dominant firm versus a smaller competitor. Indeed, section 2 of the Sherman Act only applies to companies with market power. Meanwhile, companies without market power may engage in the exact conduct that Section 2 prohibits. For example, Microsoft faced antitrust litigation when it included Internet Explorer in Windows, even as Apple permissibly included its Safari browser in MacOS.
Wright suggests that antitrust investigation of Google is stillborn for lack of consumer harm. I see two problems with this argument. First, competitive foreclosure is a sufficient cause for concern. Certainly Google’s own-service links can stymie competition: It’s a tall order to start the next Yelp if Google may adjust its algorithm to always put Google Places first. From 2006 through June 2011, ads from Google Checkout merchants featured a special logo — a benefit unavailable to merchants using competing checkout systems (like PayPal). Even the perception of such favoritism can disrupt competition: In June 2011 a Google Offers salesperson told a merchant that signing up with Offers would provide "SEO benefits" to make the merchant "number one in Google." Google quickly disavowed that statement, but on Wright’s theory, this tactic would be entirely permissible. Imagine the harm to Groupon, LivingSocial, and fellow travelers if Google gave Offers advertisers the favored map placement that AdWords advertisers already enjoy. In my view, that’s the wrong result. New providers necessarily rely on Google to reach users, but their business plans won’t work if Google can systematically favor its own services at competitors’ expense.
Second, when Wright says there’s no consumer harm, he has the wrong consumers in mind. The folks paying the bills for Google are advertisers — and advertisers pay a high price that has only grown as Google gains market share.
Ultimately, Google’s antitrust problems go far beyond algorithmic search preference. Google’s harsh treatment of advertisers smacks of market power; an advertiser with a real choice of ad networks would not accept Google’s high prices and one-sided terms. Google’s dealings with mobile handset makers similarly draw on Google’s dominance: If there were numerous popular third-party operating systems for mobile handsets, Google wouldn’t be able to compel manufacturers into dropping third-party software like Skyhook; and if there were numerous strong vendors for search, maps, videos, and other core mobile apps, Google wouldn’t be able to bundle its mobile apps to compel handset manufacturers to take all of these as a condition of preinstalling any of them. At every turn, we see Google leveraging its dominance in certain sectors to shore up its position in others – and that’s a n approach that rightly raises significant antitrust concern.
Edelman, Benjamin. “Towards Improvement in Singapore’s Transportation Efficiency and Environmental Impact.” October 2011. (Submission to the National Climate Change Secretariat of Singapore.)
I evaluate the suitability of Personal Rapid Transport (PRT) for transportation problems in Singapore, and I propose short-term and long-term applications.
Understanding the Purposes – and Weaknesses – of Online-to-Offline Discounting. PYMNTS.COM. October 26, 2011.
Daily deals sites often promise discounts exceeding 50% — mobilizing millions of consumers spending billions of dollars. Yet this model faces growing resistance, particularly from merchants concerned that “deals” offers are unprofitable. The natural question: When and how are large discounts sustainable?
Deals services seem to envision delivering new customers who return paying full price, yet they’ve done little to demonstrate that return visits actually occur. And there’s reason to doubt whether customers enticed by a discount will actually return to pay full price. I explore the implications, including the requirements for a profitable discounting model grounded in price discrimination rather than full-price return visits.
This week Google ex-CEO Eric Schmidt will testify at a Senate Antitrust Subcommittee hearing that investigates persistent allegations of Google abusing its market power. Other witnesses include Jeff Katz, CEO of Nextag, and Jeremy Stoppelman, CEO of Yelp — ably representing the publishers whose sites are pushed lower in search listings as Google gives its own services preferred placement. But who will speak for advertisers’ interests?
Each year Google bills advertisers some $30+ billion; advertisers quite literally pay the bill for Google’s market dominance. Yet advertisers seeking search traffic have little alternative to the prices and terms Google demands. Consider some of Google’s particularly onerous terms:
Google tells advertisers nothing about others’ bids, and Google provides only ambiguous information about its assessments of advertisers’ ads. So advertisers are left to wonder "have I been penalized?" without rigorous methods to answer that question. Advertisers would flock to a viable alternative search engine that treated them fairly and predictably while offering high-volume search traffic. But Google’s market power makes any such switch unrealistic.
Even Google’s notification provisions are one-sided: An advertiser with a complaint to Google must sent it by "first class mail or air mail or overnight courier" with a copy by "confirmed facsimile." (Despite my best efforts, I still don’t know how a "confirmed" facsimile differs from a regular fax.) Meanwhile, Google may send messages to an advertiser merely by "sending an email to the email address specified in [the advertiser’s] account" (clause 9).
These terms smack of market power: Rare is the advertiser who would accept such terms if reasonable choices were available.
Google has never offered any pro-competitive or competitively-neutral explanation for restricting how advertisers copy their own ad campaigns. In a rare moment of frankness, one Google executive once told me "we don’t have to make it easy" for advertisers to use competitors’ services. That argument might have passed muster a decade ago, but Google’s dominance puts such tactics in a new light.
Google likes to argue that "competition is one click away." First, I question whether users can actually leave as easily as Google suggests: Popular web browsers Firefox and Chrome strongly favor Google, as Google CFO Patrick Pichette recently admitted ("everybody that uses Chrome is a guaranteed locked-in user for us"). In the mobile context, Android offers Google similar lock-in. And even on non-Google mobile platforms, Google serves fully 95% of searches thanks to defaults that systematically direct users to Google. Meanwhile, syndication contracts assure Google exclusive long-term placement on most top web sites. Against this backdrop, users are bound to flow to Google. Then advertisers must go where the users are. Whatever choice users have, advertisers end up with much less.
In the last ten years, Google grew from 12% to well over 80% worldwide. In that time, Google moved from zero ads to a dozen or more per page; from placing ads only on its own site to requiring advertisers to purchase ads with thousands of partners of dubious or unknown quality; from hustling to convince advertisers to buy its novel offering, to compelling advertisers to accept the industry’s most opaque pricing and most onerous terms. At the start of a new decade, Google is stronger than ever, enjoying unrivaled ability to make advertisers do as Google’s specifies. It’s time for advertisers — and the regulators who protect them — to put a check on Google’s exploitation of its market power.
This week the Department of Justice announced the conclusion of its investigation of Google permitting online Canadian pharmacies to place advertisements through AdWords, facilitating the unlawful importation of controlled pharmaceuticals into the United States. Google’s large forfeiture — fully $500 million — reveals the gravity of the offense, and as part of the settlement, Google affirmatively admits liability. These admissions and the associated documents confirm what I had long suspected: Not only does Google often ignore its stated “policies,” but in fact Google staff affirmatively assist supposed “rule-breakers” when Google finds it profitable to do so.
Google’s Role in Unlawful and Deceptive Advertisements
The DOJ’s non-prosecution agreement has not been widely circulated but is well worth reading because it reveals the depth of Google’s misbehavior. As a condition of the non-prosecution agreement, Google specifically admits its knowledge of, and participation in, unlawful advertising.
Tension with Google’s Prior Statements Denying Knowledge of and Responsibility for Unlawful Advertisements
Previously, Google has always styled itself as an innocent victim of fraudulent online advertising, but a diligent foe of harmful ads. For example, when I presented dozens of deceptive AdWords advertisements in 2006, Google told Information Week "When we become aware of deceptive ads, we take them down." In a 2010 blog post, Google claimed to "work very hard" to block deceptive ads, calling the process "a cat-and-mouse game" in that advertisers purportedly hide from Google’s efforts.
I have long doubted Google’s claims of innocence. For one, Google has an obvious incentive to allow deceptive and unlawful ads: each extra ad means extra revenue — an ad in lieu of white space, or an extra competitor encouraging other advertisers to bid that much higher. Furthermore, unlawful and deceptive ads have been widespread; I found dozens in just a few hours of work. Meanwhile, it’s hard to reconcile Google’s engineering strength — capably indexing billions of pages and tabulating billions of links — with the company’s supposed inability to identify new advertisements mentioning or targeting a few dozen terms known to deceive consumers. From these facts, I could only suspect what the DOJ investigation now confirms: Unlawful ads persist at Google not just because advertisers seek to be listed, but also because Google intentionally lets them stay and even offers them special assistance.
Problems Reach Beyond Deceptive Advertisements
Unlawful and deceptive ads are just one of many areas where Google has claimed to oppose bad behavior, but where there’s growing reason to doubt Google’s diligence.
Consider advertisements promoting services that infringe copyright. Google’s AdWords Policy Center indicates that Google prohibits ads promoting the copying or distribution of copyrighted content without permission from the rights-holder. How diligent is Google in blocking such ads? A 2007 Wall Street Journal article revealed Google’s affirmative support for sites engaged in copyright infringement: Seeing high traffic to web sites EasyDownloadCenter.com and TheDownloadCenter.com, Google offered those sites account representatives who suggested advertising keywords to optimize their AdWords campaigns. Google also offered those sites a line of credit , whereas ordinary AdWords advertisers must pay in advance. Anyone browsing the sites would have immediately recognized that they distributed copyrighted material without permission from the corresponding rights-holders, which should have caused Google to keep its distance. But Google staff looked the other way in order to retain and expand their business with a profitable advertising customer.
In revising its policy for use of trademarks in advertising, Google also put revenue considerations before users’ interests. Google promises that ads will be shown in a manner that is "clearly identified" to avoid user confusion, even if such placements reduce Google’s revenue. Indeed, through 2004, Google had required a trademark holder’s approval for a trademark to appear in search advertisements. But in 2009, Google identified an opportunity for at least $100 million of additional annual revenue, and potentially more than a billion dollars of additional annual revenue, by reversing that policy. Crucially, Google made that reversal even though Google’s own tests found that the change would cause an "overall very high rate of trademark confusion" in that "94% of users were confused at least once" during Google’s testing of the change.
Google has also ignored unlawful conduct in order to retain and expand its "domain parking" business which includes ads on tens of thousands of typosquatting domains (unlawful under the Anti-Cybersquatting Consumer Protection Act). Google claims to be diligent in preventing placement of ads on unlawful sites. Yet Google acts only in response to trademark owners’ complaints; Google could easily run its own searches, thanks to its superior information-processing systems and instant knowledge of which domains are showing Google ads. By allowing typosquatting to continue, I estimate that Google reaps additional revenue of approximately $497 million per year.
So too in the realm of copyright infringement at YouTube. By 2007, Google had installed a filter to identify YouTube videos which included copyrighted content. Google could have processed all YouTube videos through the filters in order to identify and remove all copyright-infringing content. Instead, Google offered the filter only to rights-holders who signed license agreements to let Google use their content. A copyright holder who simply wanted to keep its content off of YouTube had no means to do so: the company could not use Google’s filter because Google conditioned use of the filter on receipt of a license to the underlying content; and the company could not run its own filter because YouTube’s Terms of Service disallow the automated access and bulk downloads necessary for efficient searches. The DOJ’s investigation gives that much more reason to conclude what content owners long argued: Google’s approach was motivated not by genuine technical necessity, but rather by Google’s desire to impose its will on copyright holders.
Users’ privacy is also vulnerable to Google "errors" for the company’s benefit. When Google engineers deployed hundreds of cars with custom hardware and software that recorded WiFi users’ data, Google claimed the collection was "a mistake." When Google Toolbar continued tracking users’ browsing even after users "disable[d]" the toolbar and even after the toolbar disappeared from view, Google called that behavior a "bug." Though Google says its overbroad data collection was unintentional, both examples are suspicious. With thousands of programmers and an engineering culture, how could Google deploy software to hundreds of cars without a thorough code review? And Google Toolbar runs on hundreds of millions of computers, so one might expect at least basic testing of all disable features. Various critics speculated that Google’s WiFi data collection was actually intentional, and ArsTecnica inferred that Google had already known about the Toolbar’s overbroad data collection. Previously, others might have given Google the benefit of the doubt. But seeing Google’s obfuscation and duplicity in pharmaceutical advertising, it gets easier to believe that these "mistakes" were intentional too.
What Comes Next
The DOJ’s pharmacy investigation undermines Google’s credibility on questions of compliance with the law and good faith in enforcing its supposed policies. Previously, when Google argued that it was difficult to find bad ads, trademark-infringing domains, or copyrighted content, the world could only wonder what made these tasks so difficult for Google. Now we know: at least sometimes, Google’s difficulties were a farce; behind the scenes, Google employees were encouraging and supporting the very unlawful conduct they claimed to oppose.
As I noted in June, Google’s bad ads span myriad categories beyond pharmaceuticals– charging for services that are actually free, promising free service when there’s actually a charge, promoting copyright infringement, promoting spyware/adware, bogus mortgage modification offers, work-at-home scams, investment rip-offs, identify theft, and more. Each of these categories of scam advertisements is in fact unlawful, and most are prohibited under Google’s existing advertising policies. But policies alone are not enough. Will Google step forward with a serious effort to block these dubious offers? Or does Google prefer to retain the ads and enjoy the resulting revenue, but leave users vulnerable? The world is watching!
Following up on my recent article about consumer protection problems in discount voucher sales, I’ve posted a letter-writing tool to help consumers resolve their voucher problems. From expiration to cashback to day-of-week, time-of-day, and unexpected terms added after purchase, there are quite a few ways consumers can end up dissatisfied with the discount vouchers they buy. Many voucher services offer refunds only if consumers complain vigorously. Our tool helps consumers write concise but persuasive letters, including drawing on applicable state law where appropriate.
Give it a try:
We evaluate five areas where online discount voucher services — Groupon and similar sites — risk falling afoul of applicable consumer protection law. We present applicable laws from selected states and evaluate compliance by voucher services and their affiliated merchants. We examine voucher services’ attempts to limit their liability, and we explain why consumers and regulators should find current practices insufficient.
Details, including specific legal requirements, vendors’ practices, and assessing responsibility:
