I examine Google’s pattern and practice of tying to leverage its dominance into new sectors. In particular, I show how Google used these tactics to enter numerous markets, to compel usage of its services, and often to dominate competing offerings. I explore the technical and commercial implementations of these practices, then identify their effects on competition. I conclude that Google’s tying tactics are suspect under antitrust law.
Disclosure: I serve as a consultant to various companies that compete with Google. That work is ongoing and covers varied subjects, most commonly advertising fraud. I write on my own—not at the suggestion or request of any client, without approval or payment from any client.
Google claims that its Android mobile operating system is “open” and “open source”—hence a benefit to competition. Little-known contract restrictions reveal otherwise: In order to obtain key mobile apps, including Google’s own Search, Maps, and YouTube, manufacturers must agree to install all the apps Google specifies, with the prominence Google requires, including setting these apps as default where Google instructs. It’s a classic tie and an instance of full line forcing: If a phone manufacturer wants any of the apps Google offers, it must take the others also.
To distribute Google’s mobile applications—Google Search, Maps, YouTube, Calendar, Gmail, Talk, the Play app store, and more—a phone manufacturer needs a license from Google, called a Mobile Application Distribution Agreement (MADA). Key provisions of the MADA:
“Devices may only be distributed if all Google Applications [listed elsewhere in the agreement] … are pre-installed on the Device.” See MADA section 2.1.
The phone manufacturer must “preload all Google Applications approved in the applicable Territory … on each device.” See MADA section 3.4(1).
The phone manufacturer must place “Google’s Search and the Android Market Client icon [Google Play] … at least on the panel immediately adjacent to the Default Home Screen,” with “all other Google Applications … no more than one level below the Phone Top.” See MADA Section 3.4(2)-(3).
The phone manufacturer must set “Google Search … as the default search provider for all Web search access points.” See MADA Section 3.4(4).
Google’s Network Location Provider service must be preloaded and the default. See MADA Section 3.8(c).
These provisions are confidential and are not ordinarily available to the public. MADA provision 6.1 prohibits a phone manufacturer from sharing any Confidential Information (as defined), and Google labels the MADA documents as “Confidential” which makes the MADA subject to this restriction.
I know, cite, and quote these provisions—and I am able to share them with the public—because two MADA documents became available during recent litigation: In Oracle America v. Google, the HTC MADA and Samsung MADA were admitted as Trial Exhibit 286 and 2775, respectively. Though both documents indicate in their footers that they are “highly confidential – attorney’s eyes only,” both documents were admitted in open court (the clerk’s minutes indicate no admission under seal), and court staff confirm that both documents are available in the case records in the court clerk’s office. (However, the documents are not available for direct download in PACER. Instead, PACER docket number 1205 references “five boxes of trial exhibits placed on overflow shelf.”)
Effects on Consumers, Competitors, and Competition
These MADA provisions serve both to help Google expand into areas where competition could otherwise occur, and to prevent competitors from gaining traction.
Consider the impact on a phone manufacturer that seeks to substitute an offering that competes with a Google app. For example, a phone manufacturer might conclude that some non-Google service is preferable to one of the listed Google Applications—perhaps faster, easier to use, or more protective of user privacy. Alternatively, a phone manufacturer might conclude that its users care more about a lower price than about preinstalled Google apps. Such a manufacturer might be willing to install an app from some other search engine, location provider, or other developer in exchange for a payment, which would be partially shared with consumers via a lower selling price for the phone. Google’s MADA restrictions disallow any such configuration if the phone is to include any of the listed Google apps.
Tying its apps together helps Google whenever a phone manufacturer sees no substitute to even one of Google’s apps. Manufacturers may perceive that Bing Search, Duckduckgo, Yahoo Search, and others are reasonable substitutes to Google Search. Manufacturers may perceive that Bing Maps, Mapquest, Yahoo Maps, and others are reasonable substitutes to Google Maps. But it is not clear what other app store a manufacturer could preinstall onto a smartphone in order to offer a comprehensive set of apps. Furthermore, a manufacturer would struggle to offer a phone without a preinstalled YouTube app: Without the short-format entertainment videos that are YouTube’s specialty, a phone would be unattractive to many consumers—undermining carriers’ efforts to sell data plans, and putting the phone at heightened risk of commercial failure. Needing Google Play and YouTube, a manufacturer must then accept Google Search, Maps, Network Location Provider, and more—even if the manufacturer prefers a competitor’s offering or prefers a payment for installing some alternative.
In principle, the MADA allows a phone manufacturer to install certain third-party applications in addition to the listed Google Applications. For example, the phone manufacturer could install other search, maps, or email apps in addition to those offered by Google. But multiple apps are duplicative, confusing to users, and a drain on limited device resources. Moreover, in the key categories of search and location, Google requires that its apps be the default, and Google demands prominent placements for its search app and app store. These factors sharply limit users’ attention to other preloaded apps, reducing competitors’ willingness to pay for preinstallation. Thus, even if phone manufacturers or carriers preload multiple applications in a given category, the multiple apps are unlikely to significantly weaken the effects of the tie.
These MADA restrictions suppress competition. Thanks to the MADA, alternative vendors of search, maps, location, email, and other apps cannot outcompete Google on the merits; even if a competitor offers an app that’s better than Google’s offering, the carrier is obliged to install Google’s app also, and Google can readily amend the MADA to require making its app the default in the corresponding category (for those apps that don’t already have this additional protection). Furthermore, competitors are impeded in using the obvious strategy of paying manufacturers for distribution; to the extent that manufacturers can install competitors’ apps, they can offer only inferior placement adjacent to Google, with Google left as the default in key sectors—preventing competitors from achieving scale or outbidding Google for prominent or default placement on a given device.
These MADA restrictions harm consumers. One direct harm is that competing app vendors face greatly reduced ability to subsidize phones through payments to manufacturers for preinstallation or default placement; Google’s rules leave manufacturers with much less to sell. Furthermore, these restrictions insulate Google from competition. If competing vendors were nipping at Google’s heels, Google would be forced to offer greater benefits to consumers—perhaps fewer ads or greater protections against deceptive offers. Instead, the MADA restrictions increase Google’s confidence of outmaneuvering competitors—insulating Google from the usual competitive pressures.
One might reasonably compare these MADA restrictions to other recent Google rules — also secret — apparently requiring phone manufacturers to install only a recent version of Android if they want to install Google apps (even if the apps run on earlier versions, which in general they do). But there are plausible pro-consumer benefits for Google to require that manufacturers move to the latest version of Android, including facilitating upgrades and coordinating platform usage on the latest version of Android. In contrast, there are no plausible pro-consumer benefits to the Google MADA restrictions I analyze above. For example, consumers do not benefit when Google prevents phone manufacturers from installing apps in whatever combination consumers prefer.
Little Prior Public Understanding of Google’s Restrictions on Phone Manufacturers
To date, these MADA restrictions have been unknown to the public. Meanwhile, Google’s public statements indicate few to no significant restrictions on use of the Android operating system or Google’s apps for Android—leading reasonable observers and even industry experts to conclude, mistakenly, that Google allows its apps to be installed in any combination that manufacturers prefer.
For example, on the “Welcome to the Android Open Source Project!” page, the first sentence touts that “Android is an open source software stack.” Nothing on that page indicates that the Android platform, or Google’s apps for Android, suffer any restriction or limitation on the flexibility standard for open source software.
Moreover, senior Google executives have emphasized the importance of Google’s openness in mobile. Google SVP Jonathan Rosenberg offered a 4300-word analysis of the benefits of openness for Google generally and in mobile in particular. For example, Rosenberg argued: “In an open system, a competitive advantage doesn’t derive from locking in customers, but rather from understanding the fast-moving system better than anyone else and using that knowledge to generate better, more innovative products.” Rosenberg also argued that openness “allow[s] innovation at all levels—from the operating system to the application layer—not just at the top”—a design which he said helps facilitate “freedom of choice for consumers” as well as “competitive ecosystem” for providers. Rosenberg says nothing about MADA provisions or restrictions on what apps manufacturers can install. I see no way to reconcile the MADA restrictions with Rosenberg’s claim of “allow[ing] innovation at all levels” and claimed “freedom of choice for consumers.”
Andy Rubin, then Senior Vice President of Mobile at Google, in 2011 claimed that “[D]evice makers are free to modify Android to customize any range of features for Android devices.” He continued: “If someone wishes to market a device as Android-compatible or include Google applications on the device, we do require the device to conform with some basic compatibility requirements [hyperlink in the original]. (After all, it would not be realistic to expect Google applications—or any applications for that matter—to operate flawlessly across incompatible devices).” Rubin’s post does not explicitly indicate that the referenced “basic compatibility requirements” are the only requirements Google imposes, but that’s the natural interpretation. Reading Rubin’s remarks, particularly in light of his introduction that Android is “an open platform,” most readers would conclude that there are no significant restrictions on app installation or search defaults.
Google Chairman Eric Schmidt offered particularly far-reaching remarks on Google’s rules about mobile apps and search defaults. After a 2011 Senate hearing about competition in online search, Senator Kohl asked Schmidt (question 8.a):
Has Google demanded that smartphone manufacturers make Google the default search engine as a condition of using the Android operating system?
Google does not demand that smartphone manufacturers make Google the default search engine as a condition of using the Android operating system. …
One of the greatest benefits of Android is that it fosters competition at every level of the mobile market—including among application developers. Google respects the freedom of manufacturers to choose which applications should be pre-loaded on Android devices. Google does not condition access to or use of Android on pre-installation of any Google applications or on making Google the default search engine. …
Manufacturers can choose to pre-install Google applications on Android devices, but they can also choose to pre-install competing search applications like Yahoo! and Microsoft’s Bing. Many Android devices have pre-installed the Microsoft Bing and Yahoo! search applications. No matter which applications come pre-installed, the user can easily download Yahoo!, Microsoft’s Bing, and Google applications for free from the Android Market.
Taken on its own, Schmidt’s statement seems to offer a categorical denial that Google in any way restricts what apps manufacturers and carriers install. But in fact Schmidt’s statement is much narrower. For example, reread Schmidt’s assertion that “Google does not condition access to or use of Android on pre-installation of any Google applications or on making Google the default search engine.” The natural interpretation is that no Google rule requires manufacturers to preinstall any Google app or make Google the default search. But Schmidt actually leaves open the possibility that some other Google-granted benefit, other than permission to use Android, imposes exactly these requirements. Indeed, the above-referenced documents reveal that Google imposes these requirements if a manufacturer seeks any of the listed Google apps. But Schmidt’s statement indicates nothing of the sort.
Similarly, notice the ambiguity in Schmidt’s statement that “Manufacturers can choose to pre-install Google applications on Android devices, but they can also choose to pre-install competing search applications like Yahoo! and Microsoft’s Bing.” The clear implication is that manufacturers can pre-install Google, Yahoo, Microsoft, and other applications in any combination they choose. But her too, Schmidt’s carefully-worded response is narrower. Specifically, Schmidt indicates that manufacturers can install Google apps or they can install competitors’ apps. With the benefit of the above-referenced MADA, we see the gaps in Schmidt’s representation—leaving open the possibility that, as the MADA reveals, the choice is all-or-nothing. Yet ordinary readers have no reason to suspect the possibility of an all-or-nothing choice, and Schmidt’s response does nothing to suggest any such requirement. Schmidt’s statements—at best incomplete, and I believe affirmatively misleading—gave the senators and the general public a mistaken sense that Google apps and competing apps could be installed in any combination.
Even when industry experts have inquired, they have struggled to uncover Google’s true rules for mobile app preinstallations. Consider the September 2012 post entitled Google Doesn’t Require Google Search On Android by Danny Sullivan, arguably the web’s leading search engine expert. In that analysis, Sullivan consults publicly available sources to attempt to determine whether Google allows Android manufacturers to change Android default search while installing other Google apps. Finding no prohibition in any available document, Sullivan tentatively concludes that such changes are permitted. Sullivan clearly recognizes the difficulty of the question—he resorts to four separate postscripts as he consults additional sources. But with no document indicating that Google imposes any such restriction, Sullivan has no grounds to conclude that such a restriction exists. As it turns out, Sullivan’s conclusion is manifestly contrary to the plain language of the MADA: Sullivan concludes, for example, that a carrier could configure phones to “use the Android app store if [the carrier] made Bing [Search] the default.” In fact, a manufacturer must accept a MADA in order to obtain App Store access, and MADA Section 3.4(4) then imposes the requirement that Google Search be the default search at all web access points. But Sullivan had no access to a MADA, and MADA provision 6.1 prohibited manufacturers from telling Sullivan about MADA terms. No wonder Sullivan concluded there was no such restriction.
Similarly, when tech journalist Charles Arthur examined “why Google Android software is not as free or open-source as you may think,” he had to resort to unnamed sources and inferences from publicly-available materials. Arthur’s hypothesis was correct. But by keeping MADA’s secret, Google prevented Arthur from substantiating his allegations.
In principle, the public could have learned about MADA provisions through periodic company disclosures of key supplier contracts. Indeed, in 2011 Motorola circulated a redacted MADA as an exhibit to an SEC filing. But Motorola removed crucial provisions from the public version of this document. For example, the redacted Motorola MADA removes the most important sentence of MADA section 2.1—leaving only a placeholder where the original document stated “Devices may only be distributed if all Google Applications … are pre-installed.” Thus, even if a reader is savvy enough to find this SEC filing, the MADA’s key provisions remain unavailable.
MADA secrecy advances Google’s strategic objectives. By keeping MADA restrictions confidential and little-known, Google can suppress the competitive response. If users, app developers, and the concerned public knew about MADA restrictions, they would criticize the tension between the restrictions and Google’s promise that Android is “open” and “open source.” Moreover, if MADA restrictions were widely known, regulators would be more likely to reject Google’s arguments that Android’s “openness” should reduce or eliminate regulatory scrutiny of Google’s mobile practices. In contrast, by keeping the restrictions secret, Google avoids such scrutiny and is better able to continue to advance its strategic interests through tying, compulsory installation, and defaults.
Relatedly, MADA secrecy helps prevent standard market forces from disciplining Google’s restriction. Suppose consumers understood that Google uses tying and full-line-forcing to prevent manufacturers from offering phones with alternative apps, which could drive down phone prices. Then consumers would be angry and would likely make their complaints known both to regulators and to phone manufacturers. Instead, Google makes the ubiquitous presence of Google apps and the virtual absence of competitors look like a market outcome, falsely suggesting that no one actually wants to have or distribute competing apps.
Tying to Benefit Google’s Other Services
If a phone manufacturer wants to offer desired Google functions without close substitutes, the MADA provides that the manufacturer must install all other Google apps that Google specifies, including the defaults and placements that Google specifies. These requirements are properly understood as a tie: A manufacturer may want YouTube only, but Google makes the manufacturer accept Google Search, Google Maps, Google Network Location Provider, and more. Then a vendor with offerings only in some sectors—perhaps only a maps tool, but no video service—cannot replace Google’s full suite of services.
I have repeatedly flagged Google using its various popular and dominant services to compel use of other services. For example, in 2009-2010, to obtain image advertisements in AdWords campaigns, an advertiser had to join Google Affiliate Network. Since the rollout of Google+, a publisher seeking top algorithmic search traffic de facto must participate in Google’s social network. In this light, numerous Google practices entail important elements of tying:
If a ___ wants ___
Then it must accept ___
If a consumer wants to use Google Search
Google Finance, Images, Maps, News, Products, Shopping, YouTube, and more
If a mobile carrier wants to preinstall YouTube for Android
Google Search, Google Maps (even if a competitor is willing to pay to be default)
If an advertiser wants to advertise on any AdWords Search Network Partner
All AdWords Search Network sites (in whatever proportion Google specifies)
If an advertiser wants to advertise on Google Search as viewed on computers
Tablet placements and, with limited restrictions, smartphone placements
If an advertiser wants image ads
Google Affiliate Network (historic)
If an advertiser wants a logo in search ads
Google Checkout (historic)
If a video producer wants preferred video indexing
YouTube hosting
If a web site publisher wants preferred search indexing
Google Plus participation
Looking at Google’s dominance, many critics focus on Google’s power in search and search advertising. But this table shows the breadth of Google’s dominant services and the many ways in which Google uses its dominant services to cause usage of its less popular offerings.
I do not claim that tying always makes Google’s products succeed. Weak offerings, strong competition, and competitors’ network effects can all still stand in the way. But by tying its offerings in these ways detailed above, Google increases the likelihood that its offerings will succeed. One might reasonably ask, for example, what chance Google Checkout should have had: Reaching users a decade after Paypal and competing with Paypal’s huge user base, by ordinary measures Checkout should have been entirely stillborn. Indeed Checkout’s growth has been slow. But what would have happened if, rather than featuring a special logo only for AdWords advertisers who joined Checkout, Google had shown such logos for all popular payment intermediaries? Surely equal treatment of Checkout versus competitors would have reduced Checkout’s adoption and harmed Checkout’s relative prospects. Yet equal treatment would have provided consumers with timely and actionable information, and would have facilitated genuine competition on the merits.
Google used a similar technique in its 2003 launch of AdSense. At the time, advertisers largely sought Google’s AdWords placements within Google’s search engine. Upon launching AdSense, Google required advertisers to accept placements through Google’s new contextual network. These placements offered additional exposure which some advertisers surely valued. But publishers have an obvious incentive to commit click fraud—increasing the amount that Google pays to advertisers, but at the same time inflating advertisers’ costs. Furthermore, some publishers present material that advertisers would not want to be associated with (such as adult material and copyright infringement). Many advertisers would have declined to participate in the contextual network had they been asked to make a decision one way or the other. By insisting that advertisers accept such placements, Google gave itself instant scale—hence ample resources to pay publishers and outbid other networks seeking space on publishers’ sites. In contrast, competing ad platforms had to recruit skeptical advertisers through long sales pitches, performance guarantees, and lower prices—yielding fewer advertisers, lower payments to publishers, and a weaker competitive position. No wonder AdSense achieved scale while competitors struggled—but Google’s success should be attributed as much to the tie as to the genuine merits of Google’s offering.
In a forthcoming article, I’ll explore these and other contexts in which Google ties its services together. Applicable antitrust law can be complicated: Some ties yield useful efficiencies, and not all ties reduce welfare. But Google’s use of tying gives it a leg up in numerous markets that would otherwise enjoy vibrant competition. Given Google’s dominance in so many sectors, this practice deserves a closer look.
In the course of my research on spyware/adware, typosquatting, popups, and other controversial online practices, I have developed the ability to identify practices that overcharge online advertisers. I report my observations to select advertisers and top networks in order to assist them in improving the cost-effectiveness of their advertising including by flagging improper ad placements, rejecting unjustified charges, and avoiding untrustworthy partners. This page summarizes the kinds of practices I uncover and presents representative examples drawn from my publications:
Ashlagi, Itai, Benjamin Edelman, and Hoan Soo Lee. “Competing Ad Auctions.” Harvard Business School Working Paper, No. 10-055, January 2010. (Revised May 2010, February 2011, September 2013.)
We present a two-stage model of competing ad auctions. Search engines attract users via Cournot-style competition. Meanwhile, each advertiser must pay a participation cost to use each ad platform, and advertiser entry strategies are derived using symmetric Bayes-Nash equilibrium that lead to the VCG outcome of the ad auctions. Consistent with our model of participation costs, we find empirical evidence that multi-homing advertisers are larger than single-homing advertisers. We then link our model to search engine market conditions: We derive comparative statics on consumer choice parameters, presenting relationships between market share, quality, and user welfare. We also analyze the prospect of joining auctions to mitigate participation costs, and we characterize when such joins do and do not increase welfare.
The European Commission last month posted a restatement of its concerns at certain Google practices as well as Google’s proposed commitments. This week I filed two comments, including one with Zhenyu Lai, critiquing Google’s proposal. They are available here:
Comments on AT.39740 (Edelman and Lai) as to Google’s exclusive use of screen space to promote its own specialized services, and as to an alternative remedy to preserve competition and user choice in the area of specialized search services.
Comments on AT.39740 (Edelman) as to the failure of Google’s proposed commitments to undo the harm of Google’s past violations, and alternative remedies preserve competition in the area of specialized search services, taking data from publishers, providing advertising services to publishers, and allowing advertisers to use multiple ad platforms.
As to Google’s decision to favor its own specialized search services, Zhenyu and I question whether Google’s proposed commitments would effectively preserve competition. In our recent measurement of the effects of Google Flight Search, we found that Google’s large Flight Search "onebox" displays sharply reduced traffic to other online travel agencies as well as driving up the proportion of clicks to AdWords advertising. Google proposes to display a few small "Rival Links" to competitors, but these links would be placed and formatted in ways that make them unlikely to attract users’ attention or facilitate competitive markets.
Instead, we suggest a "ballot box" in which users can choose their preferred specialized search services in any area where Google offers and favors its own specialized search services. For example, the first time a user runs a hotel search or flight search, the user would be presented with a menu of options — reminiscent of the "browser ballot box" a user sees when first booting Windows in Europe. This approach is entirely feasible: Facebook has long merged content from myriad independent developers; numerous developers quickly built browser add-ons to disable Google Search Plus Your World when they found its initial results unhelpful; and the G++ for Google Plus browser add-on integrates other social networks with G+ even though Google declines to provide such integration. Indeed, search engine guru Danny Sullivan in September 2011 suggested that Google "let[] people choose their shopping, local, etc one box provider?", echoing my February 2011 call for interchangeable components for competing specialized search services. In our comment, Zhenyu and I explore a proposed implementation of this concept.
As to the Commission’s concerns more generally, my comment addresses Google’s failure to undo the harm resulting from Google’s past violations. For each of the Commission’s concerns, I present alternative remedies focused on protecting competition and affirmatively undoing the harm from Google’s past violations. I also flag the need for tough penalties to deter further violations by Google and others.
Reuters yesterday reported that the Commission is likely to require further concessions from Google, including improved remedies. Comments to the Commission are due by June 27.
We evaluate Google’s proposed Commitments in light of our research on the effects of Google Flight Search on traffic to competing online travel agencies.
Google often shows “OneBox” search results promoting its own services. These results have prompted antitrust scrutiny: Google awards these preferred placements exclusively to Google’s own services, such as Google Flight Search and Google Maps, but never to competing services such as Kayak or Mapquest. Moreover, Google presents OneBox with special format, including distinctive layouts, extra images, and even in-page interactivity — benefits not available to ordinary listings for other sites. Regulators and competitors sense that these exclusive practices can undermine competition and innovation by denying traffic to would-be competitors. But how large is the effect? How much does Google’s exclusive OneBox placement impact search engine traffic to adjacent online markets?
In a working paper, Zhenyu Lai and I measure the impact of OneBox by using a quasi-experiment before and after the introduction of Google Flight Search. Using a third-party data service, we compare user behavior on searches across thousands of search queries like “cheap flights from sfo to san ” (which displayed a OneBox for Google Flight Search), and similar search queries like “cheaper flights from sfo to san” (emphasis added) (which did not display OneBox). We find that Google’s display of Flight Search in an exclusive OneBox decreased user click-through rates on unpaid search results by 65 percent, and increased user click-through rates on paid advertising links by 85 percent. This effect was disproportionately evident among online travel agencies that were popular destinations for affected search queries.
Our draft provides detailed empirical results as well as a model of how a search engine’s incentives to divert search depend on consumers’ perceptions of the difference between non-paid and paid placements.
Crucially, IAC remains substantially dependent on Google for monetization of IAC’s search services. A rigorous application of Google’s existing rules would put a stop to many of IAC’s practices, and sensible updated rules — following the stated objective of Google’s existing policies — would end much of the rest.
IAC’s search toolbar business is grounded in placing IAC toolbars on as many computers as possible. To that end, IAC offers 50+ different toolbars with a variety of branding — Webfetti (“free Facebook graphics”), Guffins (“virtual pet games”), religious toolbars of multiple forms (Know the Bible, Daily Bible Guide, Daily Jewish Guide), screensavers, games, and more. One might reasonably ask: Why would a user want such a toolbar?
IAC ad promises “free online television” but actually merely links to material already on the web; promises an “app” but actually provides a search toolbar.
IAC ad solicits installations via “virtual pet” ad distinctively catering to kids.
Other IAC Guffins ads specifically invite “kids” to install. (Screenshot by iSpionage)
IAC Guffins offer features multiple animated cartoon images, distinctively catering to kids.
The Television Fanatic toolbar is instructive. IAC promotes this toolbar with search ads that promise “free online television” and “turn your computer into a TV watch full TV episode w free app.” It sounds like an attractive deal — many users would relish the ability to watch free live broadcast television on an ordinary computer, and it would not be surprising if such a service required downloading some sort of desktop application or browser plug-in. But in fact Television Fanatic offers nothing of the sort. To the extent that Television Fanatic offers the “free online television” promised in the ad, it only links to ordinary video content already provided by others. (For example, I clicked the toolbar’s “ABC” link and was taken to http://abc.go.com/watch/ — an ordinary ABC link equally available to users without Television Fanatic. That’s a far cry from IAC’s promise of special access to premium material.
Meanwhile, IAC’s Guffins toolbar distinctively targets kids. IAC promotes Guffins via search ads for terms like “virtual pet”, and the resulting ad says Guffins offers “puppy, cats, bunny, dragons & more” which a user can “feed, play, [and] care for.” The landing page features four animated animals with oversized faces and overstated features, distinctively attractive to children. Under COPPA factors or any intuitive analysis, IAC clearly targets kids. Indeed, ad tracking service iSpionage reports Guffins ads touting “Free Kids Games Download”, “Free Kids Computer Games”, “Play Kids Games Online”, and more — explicitly inviting children to install Guffins. Of course kids are ill-equipped to evaluate IAC’s offer — less likely to notice IAC’s disclosures of an included toolbar, less likely to understand what a search toolbar even is, and less able to evaluate the wisdom of installing such a toolbar in exchange for games.
While IAC’s ads often promise an “app” (including as shown in the ad screenshots at right), IAC actually offers just toolbars — add-ins appearing within web browsers, not the freestanding applications that the ads suggest. That’s all the more deceptive: IAC enticed users with the promise of genuine distinct programs offering exceptional video content and rich gaming. Instead IAC provided browser plug-ins that claim valuable screen space whenever users browse the web. And far from providing exclusive content, IAC toolbars send users to material already on the web and driving traffic to IAC’s advertising displays (as detailed in the next section). That’s strikingly inferior.
IAC’s toolbar installation practices stack up unfavorably vis-a-vis applicable Google policies, industry standards, and regulatory requirements. Google’s Software Principles call for “Upfront disclosure” with no suggestion that an app may promise one thing in an initial solicitation, then something else in a subsequent landing page. (IAC is obliged to comply with Google’s rules because IAC toolbars show ads from Google, as discussed in the next section.) Meanwhile, the Anti-Spyware Coalition specifically flags installations targeting children, allowing bundling by affiliates, and modifying browser settings as risk factors making software a greater concern. Even decades-old FTC rules are on point, disallowing “deceptive door openers” that promise one thing at the outset (like IAC’s initial promise of “free online television”) but later deliver something importantly different (a search toolbar).
Web searches reveal numerous user complaints about IAC toolbars. Consider search results for “televisionfanatic”. A first result links to product’s official site. Second is a Sitejabber forum with 20 harsh reviews. (17 reviewers gave Television Fanatic just one star out of five, with comments systematically reporting surprise and annoyance at the toolbar’s presence.) The third result advises “How to uninstall a Television fanatic toolbar”, and the fourth is multiple Yahoo Answers discussions including a user asking “Is television fanatic toolbar a virus?” and others repeatedly complaining about unintended installation. Clearly numerous users are dissatisfied with Television Fanatic.
So too for DailyBibleGuide. In a Q1 2011 earnings call, IAC CEO Greg Blatt touted the DailyBibleGuide toolbar as a new product IAC is particularly proud of. But a Google search results for “DailyBibleGuide” include a page advising “do not download Dailybiblestudy, Dailybibleguide, or Knowthebible extension.” There and elsewhere, users seem surprised to receive IAC’s toolbars. Reading users’ complaints, it seems their confusion ultimately results from IAC’s decision to deliver bible trivia via a toolbar. After all, such material would more naturally be delivered via a web page, email newsletter, or perhaps RSS feed. IAC chose the odd strategy of toolbar-based delivery not because it was genuinely what users wanted, but because this is the format IAC can best monetize. No wonder users systematically end up disappointed.
By all indications, a huge number of users are running IAC toolbars. The IAC toolbars discussed in this section all send users to mywebsearch.com, a site users are unlikely to visit except if sent there by an IAC toolbar. Alexa reports that mywebsearch.com is the #41 most popular site in the US and #71 worldwide — more popular than Instagram, Flickr, Pandora, and Hulu.
Some of IAC’s browser configuration changes remain in place even if a user removes an IAC toolbar. I installed then uninstalled an IAC Television Fanatic toolbar and received a prompt instructing “Click here for help on resetting your home page and default search settings.” The resulting page specified four different procedures totaling 16 steps — far more lengthy than the initial installation. I can see no proper reason why uninstall is so difficult. Indeed, IAC’s incomplete uninstall specifically violates Google’s October 2012 requirement that “During the uninstall process, users must be presented with a choice that gives them the option of returning their browser’s user settings to the previous settings.” Google’s Software Principles are also on point, instructing that uninstall must be “easy” and must disable “all functions of the application” — whereas IAC’s automated installer does not undo all of IAC’s changes, and IAC’s manual 16-step process is the opposite of “easy.”
The Special Problems of IAC Ask Toolbar Installed by Oracle’s Java Updates
Java security update installs Ask Toolbar by default — a single click in a multi-step installer.
Ongoing Oracle Java updates also install the IAC Ask Toolbar. I discuss these installations in this separate section because they raise concerns somewhat different from the IAC toolbars discussed above. I see five key problems with Oracle Java updates that install IAC toolbars:
First, as Ed Bott noted last week, the “Install the Ask Toolbar” checkbox is prechecked, so users can install the Ask toolbar with a single click on the “Next” button. Accidental installations are particularly likely because the Ask installation prompt is step three of five-screen installation process. When installing myriad software updates, it’s easy to get into a routine of repeatedly clicking Next to finish the process as quickly as possible. But in this case, just clicking Next yields the installation of Ask’s toolbar.
Second, although the Ask installation prompt does not show a “focus” (a highlighted button designated as the default if a user presses enter), the Next button actually has focus. In testing, I found that pressing the enter or spacebar keys has the same effect as clicking “Next.” Thus, a single press of either of the two largest keys on the keyboard, with nothing more, is interpreted as consent to install Ask. That’s much too low a bar — far from the affirmative indication of consent that Google rules and FTC caselaw call for.
Third, in a piece posted today, Ed Bott finds Oracle and IAC intentionally delaying the installation of the Ask Toolbar by fully ten minutes. This delay undermines accountability, especially for sophisticated users. Consider a user who mistakenly clicks Next (or presses enter or spacebar) to install Ask Toolbar, but immediately realizes the mistake and seeks to clean his computer. The natural strategy is to visit Control Panel – Programs and Features to activate the Ask uninstaller. But a user who immediately checks that location will find no listing for the Ask Toolbar: The uninstaller does not appear until the Ask install finishes after the intentional ten minute delay. Of course even sophisticated users have no reason or ability to know about this delay. Instead, a sophisticated user would conclude that he somehow did not install Ask Toolbar after all — and only later will the user notice and, perhaps, proceed with uninstall. Half a decade ago I found WhenU adware engaged in similar intentional delay. Similarly, NYAG litigation documents revealed notorious spyware vendor Direct Revenue intentionally declining to show ads in the first day after its installation. (Direct Revenue staff said this delay would “reduce the correlation between the Morpheus download [which bundled Direct Revenue spyware] and why they are seeing [Direct Revenue’s popup] ads” — confusion that DR staff hoped would “creat[e] less of a path to what they [users] should uninstall.”) Against this backdrop, it’s particularly surprising to see IAC and Oracle adopt this tactic.
Fourth, IAC makes changes beyond the scope of user consent and fails to revert these changes during uninstall. The Oracle/IAC installation solicitation seeks permission to install an add-on for IE, Chrome, and Firefox, but nowhere mentions changing address bar search or the default Chrome search provider. Yet the installer in fact makes all these changes, without ever seeking or receiving user consent. Conversely, uninstall inexplicably fails to restore these settings. As noted above, these incomplete uninstalls violate Google’s Software Principles requirement that an “easy” uninstall must disable “all functions of the application.”
Finally, the Java update is only needed as a result of a serious security flaw in Java. It is troubling to see Oracle profit from this security flaw by using a security update as an opportunity to push users to install extra advertising software. Java’s many security problems make bundled installs all the worse: I’ve received a new Ask installation prompts with each of Java’s many security updates. (Ed Bott counts 11 over the last 18 months.) Even if the user had declined IAC’s offer on half a dozen prior requests, Oracle persists on asking — and a single slip-up, just one click or keystroke on the tenth request, will nonetheless deliver Ask’s toolbar.
A security update should never serve as an opportunity to push additional software. As Oracle knows all too well from its recent security problems, users urgently need software updates to fix serious vulnerabilities. By bundling advertising software with security updates, Oracle teaches users to distrust security updates, deterring users from installing updates from both Oracle and others. Meanwhile, by making the update process slower and more intrusive, Oracle reduces the likelihood that users will successfully patch their computers. Instead, Oracle should make the update process as quick and easy as possible — eliminating unnecessary steps and showing users that security updates are quick and trouble-free.
Toolbar Operations and Result Format
Once a user receives an IAC toolbar, a top-of-browser stripe appears in Internet Explorer and Firefox, and IAC also takes over default search, address bar search, and error handling. That’s an intrusive set of changes, and particularly undesirable in light of the poor quality of IAC’s search results.
If a user runs a search through an IAC toolbar or through a browser search function modified by IAC, the user receives Mywebsearch or Ask.com results page with advertisements and search results syndicated from Google. The volume of advertisements is remarkable: On a 800×600 monitor, the entire first two screens of Mywebsearch results presented advertisements (screen one, screen two) — four large ads with a total of seven additional miniature ads contained within. The first algorithmic search result appears on the third on-screen page, where users are far less likely to see it. At Ask.com, ads are even larger: fully seven advertisements appear above the first algorithmic result, and three more ads appear at page bottom — more than filling two 800×600 screens.
IAC obtains these advertisements and search results from Google, but IAC omits features Google proudly touts in other contexts. For example, Google claims that its maps, hotel reviews, and hotel price quotes benefit users and save users time — but inexplicably IAC Mywebsearch lacks these features, even though these features appear prominently and automatically for users who run the same search at Google. In short, a user viewing IAC results gets listings that are intentionally less useful — designed to serve IAC’s business interest in encouraging the user to click extra advertisements, with much less focus on providing the information that IAC and Google consider most useful.
The ad format at IAC Mywebsearch and Ask.com makes it particularly likely that users will mistake IAC ads for algorithmic results. For one, IAC omits any distinctive background color to help users distinguish ads from algorithmic results. Furthermore, IAC’s voluminous ads exceed beyond the first screen of results for many searches. A user familiar with Google would expect ads to have a distinctive background color and would know that ads typically rarely completely fill a screen — so seeing no such background color and similar-format results continuing for two full screens, the user might well conclude that these are algorithmic listings rather than paid advertisements.
Traffic Arbitrage
IAC buys traffic from Google and other search engines. The resulting sequence is needlessly convoluted: A user runs a search at Google, clicks an IAC ad purporting to offer what the user requested], then receives an IAC landing page with the very same ads just seen at Google. For example, I searched for [800 number look up] at Google and clicked an Ask ad. The resulting Ask page allocated most of its the above-the-fold space to three of the same ads I had just seen at Google! This process provides zero value to the user — indeed, negative value, in that the extra click adds time and confusion. But IAC monetizes its site unusually aggressively — for example, regularly putting four ads at the top of the page, where Google sometimes puts none and never presents more than three. Of course these extra ads serve IAC’s interest: By pushing a fraction of users to click multiple ads, IAC can more than cover its costs of buying the traffic from Google in the first place.
Longstanding Google rules exactly prohibit IAC’s search arbitrage. Google’s AdWords Policy Center instructs that “Google AdWords doesn’t allow the promotion of websites that are designed for the sole or primary purpose of showing ads.” Google continues: “One example of this kind of prohibited behavior is called arbitrage, where advertisers drive traffic to their websites at low cost and pay for that traffic by earning money from the ads placed on those websites”
Why isn’t Google enforcing its rules against arbitrage? An October 2012 Search Engine Land article quotes a reader who wrote to Google AdWords support, where a representative replied with unusual candor: “Since Ask.com is considered a Google product, they are able to serve ads at the top of the page when the search query is found to be relevant to their ads.” Of course Ask.com is not actually “a Google product” — it’s a Google syndicator, showing Google ads in exchange for a revenue share, just like thousands of other sites. But with IAC reportedly Google’s biggest advertising customer, special privileges would be less than surprising. Meanwhile, Google lets IAC do Google’s dirty work — showing extra ads to gullible users — which could let Google collect additional ad revenue from those users’ clicks. Still, that’s no help to users (who get pulled into extra page-views and less useful pages with more advertisements) or advertisers (whose costs increase as a result). And once the public recognizes Google’s role in authorizing this scheme, selling all advertising, and funding the entirety of IAC’s activity, Google ends up looking at least as culpable as IAC.
Ads with Oversized Clickable Areas
Contrary to standard industry practice and Google rules, IAC makes the entire ad — including domain name, ad text, and large whitespace — into a clickable link. Notice the large clickable area flagged in the red box.
At Google, only the ad itself is clickable. Not the much smaller red box.
IAC’s ads also flout industry practice and Google rules as to the size of an ad’s clickable area. Both in arbitrage landing pages and in toolbar results, IAC’s search result pages expand the clickable area of each advertisement to fill the entire page width, sharply increasing the fraction of the page where a click will be interpreted as a request to visit the advertiser’s page.
See the screenshot at right. (To create the red-outlined box showing the shape of the clickable area, I clicked an empty section of the ad and began a brief drag, causing my browser to highlight the ad’s clickable area in red as shown in the screenshot.)
Ask is an outlier in converting whitespace around an ad into a clickable area. Every other link on Ask.com landing pages — every link other than an advertisement — follows standard industry practice with only the words of the link being clickable, but not the surrounding whitespace. Indeed, at Google, Bing, and Yahoo, white space is never clickable. At Google and Bing, only ad titles are clickable, not ad domain names, or ad text. (See Google screenshot at right, showing the limited clickable area of a Google ad.) At Yahoo, only ad titles and domain names are clickable, not ad text or white space.
IAC has taken intentional action to expand its ads’ clickable area to cover all available width. As W3schools explains, “A block element is an element that takes up the full width available.” To expand ad hyperlinks to fill the entire width, Ask tags each ad hyperlink with the CSS STYLE of display:block.
Google’s rules prohibit IAC’s expanded clickable areas. Google requires that “clicking on space surrounding an ad should not click the ad.” Yet IAC nonetheless makes a clickable area out of the area surrounding each ad, extending all the way to the right column.
IAC’s expanded ads invite accidental clicks. Accidental clicks are particularly likely from the inexperienced users IAC systematically targets for toolbar installations, and also from users searching on tablets, phones, and other touch devices. These extra clicks waste users’ time and drive up advertisers’ costs — but every such click yields extra revenue for IAC and Google.
What Comes Next
Google should enforce its rules strictly. No doubt IAC can offer Google some short-term revenue via extra ad-clicks from unsophisticated or confused users. But this isn’t the kind of business Google aspires to, and Google’s public statements indicate no interest in such bottom-feeding. Indeed, a fair application of Google’s existing AdWords rules would disallow both IAC’s toolbar ads (using AdWords to solicit installations) and IAC’s search arbitrage ads (using AdWords to send users to IAC pages presenting syndicated AdWords ads). Meanwhile, numerous Google AdSense rules are also on point, including prohibiting encouraging accidental clicks, prohibiting site layout that pushes content below the fold, and limiting the number of ads per page. So too for Software Principles requiring up-front disclosure as well as “easy” and complete uninstall.
As a publicly-traded company, IAC should benefit from the oversight and guidance of its outside directors. But the New York Times commented in 2011 that “IAC’s board is filled with high-powered friends of Mr. Diller,” calling into question the independence and effectiveness of IAC’s outside directors. Of particular note is Chelsea Clinton, who joined IAC’s board in September 2011. Ms. Clinton’s prior experience includes little obvious connection to Internet advertising or online business, suggesting that she might need to invest extra time to learn the details of IAC’s business. Yet she also has weighty commitments including ongoing doctoral studies, serving as an Assistant Vice Provost at NYU, and reporting as a special correspondent for the NBC Nightly News — calling into question the time she can devote to IAC matters. The Times questioned why IAC had brought in Ms. Clinton, concluding that “This is clearly an appointment made because of who she is, not what she has done.” Indeed, Ms. Clinton’s background means she will be held to a particularly high standard: if she fails to stop IAC’s bad practices, the public may reasonably ask whether she has done her duty as an outside director.
Recent research from Goldman analyst Heath Terry flags investor concerns at IAC’s tactics. In a December 4, 2012 report, Terry downgraded IAC to sell due to vulnerability from Google policy changes. A January 9, 2013 follow-up noted IAC changing its uninstall practices to comply with Google policy as well as slowdown in arbitrage. Terry flags some important factors, and I share his bottom line that IAC’s search practices are unsustainable. But the real shoe has yet to drop. If Google is embarrassed at IAC’s actions — and it should be — Google is easily able to put an end to this mess.
I prepared a portion of this article at the request of a client that prefers not to be listed by name. The client kindly agreed to let me include that research in this publicly-available posting.
Last week the FTC closed its 21-month investigation of Google after Google made several small concessions, among them dropping certain restrictions on use of Google’s AdWords API — rules that previously limited how advertisers and tool-makers may copy advertisers’ own data from Google’s servers. Removing the restrictions is a step forward for advertisers and for competition. But the FTC could and should have demanded more from Google in order to address the harm resulting from seven years of these restrictions.
I first flagged Google’s AdWords API restrictions in my June 2008 senate testimony and in greater detail in PPC Platform Competition and Google’s “May Not Copy” Restriction. In short, the restrictions prohibited making and sharing tools to quickly copy and synchronize ad campaigns across multiple ad platforms — effectively compelling small to midsized advertisers to use Google only, for lack of tools to manage their campaigns on multiple platforms. Google enforces this prohibition with a system of tool passwords and audits — letting Google swiftly and completely disable any tool that Google deems impermissible. Indeed, any tool-maker found offering a noncompliant tool would immediately lose all access to Google’s AdWords API, as to all of its tool-using subscribers, a devastating blow that kept tool-makers under Google’s thumb.
As I pointed out, these AdWords API restrictions let Google charge prices higher than competing platforms: Thanks to these restrictions, a small to midsized advertiser would struggle to buy some placements from Yahoo or Microsoft, even if those vendors offered lower prices. Higher advertising costs directly harm advertisers, and higher prices get passed to consumers (according to the relative elasticity of supply and demand). I also pointed out harms to others in the advertising ecosystem: Competing ad platforms struggle to attract advertisers, hence showing less relevant advertising (discouraging users from clicking ads) and enjoying less auction pressure to push prices upward. Meanwhile, I noted, the AdWords API restrictions give Google that much more leverage in its negotiations with publishers: by weakening other ad platforms’ monetization, Google can more easily win deals for publishers’ inventory, granting publishers lesser compensation for the content they post.
Strikingly, Google has never seriously defended the AdWords API restrictions. In June 2008, Doug Raymond, Product Manager for AdWords API, argued that advertisers are free to export their data in other ways, e.g. as a CSV text file. But that far-inferior manual export is ad-hoc, time-consuming, and error-prone — a poor fit for high-priced online advertising. Indeed, this manual approach is a sharp contrast from a modern automation API, and a far cry from what Google offers in other contexts.
By all indications, competition regulators share my concerns. In a November 2010 press release, the European Commission flagged "restrictions on the portability of online advertising campaign data" as its fourth concern in reviewing Google’s conduct, a concern most recently reiterated in December 2012 remarks by EC Competition Commissioner Joaquín Almunia. Last week’s statement by FTC Chairman Leibowitz is in accord: "Some Commissioners were concerned by the tendency of Google’s restrictions to raise the costs of small businesses to use the power of internet search advertising to grow their businesses."
So everyone but Google agrees that the AdWords API restrictions are improper, and even Google has little to say in its defense. Indeed, despite abandoning most other aspects of its investigation, the FTC did pursue this matter. But the FTC reports only that Google is to remove AdWords API restrictions and that, the FTC indicates, ends the FTC’s concern on this subject. I am surprised by such a narrow remedy. The AdWords API restrictions have been in place for more than five years. Were it not for these restrictions, advertisers for five years would have enjoyed lower prices. For five years, third-party publishers would have received higher payment for their ad space. For five years, consumers would have seen more relevant ads at competing ad platforms, perhaps helping to increase competitors’ market shares and put a check on Google’s dominance. Moreover, for five years competing ad platforms would have enjoyed higher advertising revenues and higher ad click-through rates. It’s all well and good for Google to remove the API restriction going forward. But that does nothing at all to address past harm to advertisers and others.
Three Appropriate Remedies
What remedies would be appropriate for Google’s seven years of improper AdWords API restrictions? Let me offer three suggestions:
First, after years of improper conduct in this area, Google should expect to pay monetary damages. Google’s AdWords API restrictions inflated the prices charged to advertisers. Google should disgorge these ill-gotten gains via pro-rata refunds to advertisers.
Second, Google’s changes should be formal binding commitments formalized in a consent agreement. The 1969 Report of the American Bar Association Commission to Study the Federal Trade Commission recognized that voluntary commitments were ineffective, and the FTC largely discontinued voluntary commitments after that report. Indeed, FTC Commissioner Rosch last week noted that the FTC’s voluntary commitment approach lets Google offer a statement of its current intent, which Google could reverse or alter at any time. Moreover, an order would have required the FTC to take a clearer position on whether Google’s conduct violated the law: An order would have required the FTC to file a complaint, which in turn requires a finding by the FTC that there is reason to believe a violation has occurred. This formality would offer a useful confirmation of the FTC’s view — either the FTC believes a violation occurred, or it does not, but the voluntary commitment process lets the FTC avoid a public statement on this subject. Finally, orders are also vetted with third parties to make sure they will be effective. Microsoft’s Dave Heiner immediately offered several gaps in the FTC’s approach on AdWords API restrictions. I would have offered additional feedback had I been asked.
Finally, the FTC’s investigation surely found documents or records confirming the intent and effect of Google’s AdWords API restrictions. The FTC should at least describe those documents — if not release them in full. Describing or releasing these documents would let concerned parties determine what private claims they may have against Google. If the documents confirm meritorious claims, victims can pursue these claims through private litigation (here too, as Commissioner Rosch suggested).
Google’s AdWords API restrictions were a direct assault on competition — indefensible rules serving only to hinder advertisers’ efforts to efficiently use competing search engines, without any plausible pro-competitive justification. On this clear-cut issue, the FTC should have pursued every remedy permissible under its authority. Fortunately it’s not too late for state attorneys general and the European Commission to insist on more.
IAC ad promises “free online television” but actually merely links to material already on the web; promises an “app” but actually provides a search toolbar.
![searched for [800 number look up] at Google](/images/iac-jan13/google-lookup_800_numbers-011613.png){kind=link}
