By Brian E. Clark
With more than 70 percent of the online search market share in the United States, Google is by far the dominant Internet player with roughly $28 billion in ad revenue.
Google also controls 98 percent of the U.S. mobile search market and has an overall search market share of 94 percent in Europe, according to published reports.
That power has allowed Google to unfairly squeeze out competitors, a veteran of the online publishing industry charged Tuesday at a Wisconsin Innovation Network luncheon in Madison.
Dan Savage, a New York-based serial entrepreneur, said Google is abusing its search engine dominance to stifle competition and capture increasing control over commerce and the flow of information online.
Savage, who sued Google in 2008 (the litigation is pending) said state and federal officials need to enforce existing anti-trust laws to prevent Google from continuing to curtail Internet competition.
Savage is working with FairSearch.org, a coalition of businesses doing battle with Google. The company is being investigated by the Federal Trade Commission and the state attorneys general in California, Ohio, New York and Texas.
In addition, anti-trust officials at the U.S. Department of Justice are looking into Google’s plan to acquire the Internet advertising company Admeld.
Sen. Herb Kohl, head of the Senate Anti-Trust Committee, also has announced he will hold a hearing Sept. 21 at which Google executive chairman Eric Schmidt is expected to testify. The title of the hearing is “The Power of Google: Serving Consumers or Threatening Competition?”
In published reports, Google executives have said the company is merely trying to “enhance the customer experience” and is not behaving in a monopolistic manner.
Savage said his Internet company, Sourcetool.com – which listed and ranked several hundred thousand firms that sell industrial products – at first got along well with Google after it was launched in 2005.
Within the first year, it was making more than $150,000 a month. He was paid roughly a dime every time someone clicked an ad on his site. Meanwhile, he was paying Google about 5 cents a click. The difference was his profit.
By mid-summer in 2006, Google raised his rates to $5 from 5 cents, he said. Moreover, because his ads did not meet Google’s “googly” quality standards, Sourcetool’s ads fell off Google’s search results page and his ad traffic dried up.
“It was no longer a level playing field,” Savage told his Madison audience.
“No one really cared about our brand,” he said. “But we were the canary in the coal mine.”
Savage said he asked Google to tell define “quality,” but was told that algorithm on which it was based is proprietary.
Sourcetool.com ultimately went out of business and Savage sued Google. He estimates it may take years for the case be settled.
Savage said he believes Google saw his company as a threat because it was a kind of search engine. In addition, Sourcetool.com was in competition with business.com, a Google content network partner, he said.
Savage told WisBusiness.com that he believes his company was worth $400 million – the price a competitor’s business sold for in 2006 – before it ran afoul of Google. And he hopes to recover that amount through his suit.
But he is hoping the U.S. Department of Justice, the Federal Trade Commission, or some of the attorneys general will crack down on Google, just as they did Microsoft a decade ago.
In the Microsoft case, the software maker lost in court and reached a settlement that prohibited it from what critics called strong-arm tactics involving its operating system sales and web browser sales. Microsoft also was hit with record fines in Europe.
Microsoft now is urging European Union officials to restrict what it calls Google’s anti-competitive practices.
Savage said he wants Google to be forced to operate fairly and be forced to treat competing ads as it does those of partner firms or its own subsidiaries.
“I believe the decision in the Microsoft case was good for the browser market,” noted Savage, who said he is not advocating the breakup of Google.
“My goal is competition, which is good for the marketplace,” he said. “Google should not be allowed to arbitrarily squash competitors.”
Several representatives of Google attended the WIN luncheon, but they said they were not allowed to speak on the record about Savage’s suit or any anti-trust investigations. Google has an R&D office in Madison that has about 15 researchers.
Savage, for his part, hasn’t given up on the Internet. In 2007, he formed a successful ad agency. And later this year, he will launch another business-to-business website dubbed BtoBanywhere.com.
But Savage said he is convinced Google’s “monopolistic” tendencies are keeping entrepreneurs from entering the marketplace because they cannot compete with Google.
And while that might not affect consumers now, he said it will raise costs for companies who must deal with Google. And they will eventually be passed on to the public, he argued.
While some at the WIN luncheon were sympathetic to Savage’s plight, not everyone agreed that government action against Google would be a good idea.
Earl Humphrey, a former senior director at Interactive Data Corp., said any business would be envious of Google’s position.
“Doesn’t every company want to dominate?” he asked. “I’m not an anti-trust expert, but my concern is that the government will force Google to change its business practices.
“Just because companies are successful, does that mean they’ll have to be always looking over their shoulder because the government thinks they are too big,” he said.
“Philosophically, I have to question that.”