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What the potential FTC investigation of Google means

The FTC may be looking into some of Google's online advertising strategies. Find out why and what this could mean for Internet ads.

Bloomberg News reported on May 24th that the U.S. Federal Trade Commission (FTC) may commence a probe of Google to see if they've broken any rules in their online display advertising operations. The source of this allegation is based on whether Google stifled competition via an attempt "to push companies to use more of its other services, a practice that can be illegal under antitrust laws." As the New York Times put it, this may have involved "bundling advertising services together in a way that prohibited rivals from competing for the business of advertisers...or tying one application to another by offering below-cost pricing in exchange for a customer's guarantee not to buy ads through Google's competitors."

What is the Federal Trade Commission?

The Federal Trade Commission is an organization intended to protect consumers (particularly in high-spending areas) and the concept of fair competition. It determines whether "unfair methods of competition" or "unfair or deceptive acts or practices" have occurred. If so, the FTC can go to a federal court to seek penalties and redress on behalf of consumers, as well as obtain injunctions to compel businesses to act in a certain way. The FTC can also pass evidence of illegal antitrust violations to the Department of Justice, which then metes out criminal sanctions.

This possible probe comes four months after a similar investigation into Google's search results rankings and whether the company presented these in a manner which favored its own businesses. That probe concluded with the decision not to proceed with an antitrust case against Google. Google stated they would provide businesses a way to opt out or restrict their information from appearing in Google search results, indicating a mutual agreement by both parties.

It's worth noting that Microsoft publicly registered its disappointment with FTC's decision not to pursue antitrust case against Google last January. "Google effectively prohibited its primary paying customers (advertisers) from using data about their own advertising campaigns on any ad platform other than Google's," protested Microsoft Vice President Dave Heiner on January 3. 2013.

Part of Microsoft's angst also centers on their allegation that Google is blocking Microsoft's efforts to bring a YouTube application to the Windows 8 phone by altering code which causes the app to fail playing videos. One might wonder whether Microsoft, no stranger to anti-trust cases themselves, is pressuring the FTC to launch this new investigation.

After all, Microsoft and Google are a bit like Nick Nolte and Eddie Murphy in the movie "48 Hours." Before these characters became friends, they had to co-exist and communicate with one another to an extent, but clearly without with admiration or enthusiasm. One can easily picture Microsoft and Google hissing "We ain't partners. We ain't brothers. And we ain't friends" at each another. I'll leave it up to the reader to decide who is who (personal opinion: Google is Murphy). A source listed in the Bloomberg article referenced above claims Microsoft has no involvement in this latest potential FTC inquiry, however.

This latest action by the FTC centers on banner ads and Google's DoubleClick Ad Exchange (where companies can bid on ads for a particular consumer segment). Display ads are an industry that generates over $17 billion per year, and advertising is Google's main source of revenue (the amount they earn from Google Apps customers is a mere pittance by comparison). As of the first quarter this year Google, Yahoo, and Facebook held the most market share in the display ad segment, with Google receiving over two billion dollars last year in digital ad revenue. Clearly there are big players with big stakes here.

As of mid-June, Google has neither addressed nor commented on this issue other than to indicate the FTC hasn't told them anything about this.

What does this issue mean?

I do not have a personal opinion on the case since the facts aren't known yet; nor do I believe there's a "good guy" or "bad guy" at hand. Bickering between tech giants is of less concern than how those entities may change their policies or products in the aftermath.

It's a tricky subject, figuring out whether business practices were standard or crossed the line. It's not a surprise when a company promotes its own software through tighter integration (for instance, meshing Drive with Gmail) or discourages the use of competing products. Nor is it anything to raise an eyebrow over when a business relies on its strength and fame in a field like search advertising to increase their revenue. The entire concept of AdWords is based on promoting the advertisements of paying Google customers. The question here is if competitors are being unfairly squeezed out or Google is making it too inconvenient for them to operate in the ad space.

Based on this I think finding concrete evidence will be tricky. Therefore, this FTC probe isn't a definite thing - it may not proceed at all. If it does go forward, any results found and subsequent action taken won't be immediate. I don't expect to see any impact to the manner in which display ads are bought from Google - or the policies Google employs in this arena - anytime in the near future.

What may change down the road?

An important factor at hand here may that the prior FTC investigation from four months ago did not result in antitrust charges due to lack of evidence. The FTC might not elect to proceed with this probe so soon after the last one concluded, out of a fear of wasting time coming up dry (and therefore appearing to "cry wolf" once more). On the other hand, they may feel it necessary to dig even harder this time because this is another in a string of allegations against Google. The future will tell.

Violations of antitrust laws can result in fines against companies of up to $10 million, depending on the findings. Given the fact Google earned over 200 times that amount in advertising revenue last year it's not a concept that threatens to put the company out of business. More significantly, an order can be issued for violators to "stop anticompetitive practices," but the vagueness of this makes it difficult to determine what if any impact will result.

Ultimately, I doubt Google's customers or competitors will be affected much by these episodes - but it bears watching nonetheless. Pressure either looming from the FTC or public outcry may compel Google to make alterations in their practices on their own. I'm thinking specifically of the way in which they bundle their advertising services, but this might also mean less pressure on Google customers not to purchase ads elsewhere.

Integration may also be in the cross hairs. Forbes states "Even if it's demanded by customers, 'integration' can easily cross the line to 'anticompetitive' if it becomes too hard for rival services to work with DoubleClick products, Google's ad exchange, or other Google services. That integration also could make other ad tech companies feel forced to use Google's ad exchange over those from AppNexus, OpenX, or Yahoo's Right Media." Therefore, one form of pressure or another may compel Google to open up its services to broader possibilities. You don't have to be wrong or right in a court of law to evolve; it's the public perception that generally determines the next step.

Bottom line

The most significant component of this episode is how it factors into Google's public persona. They've already taken a significant amount of heat for their privacy policies and this may be more "piling onto the heap" as far as their image goes. Just as the FTC may feel that if they go forward on an investigation they'd better get some evidence this time, Google may conclude that there's been enough saber rattling and now they need to open their doors wider to put the antitrust concerns to bed. Hopefully the most important player in all this - the consumer - will wind up winning the advantage.

About

Scott Matteson is a senior systems administrator and freelance technical writer who also performs consulting work for small organizations. He resides in the Greater Boston area with his wife and three children.

2 comments
adornoe
adornoe

nowhere, because, Google is too valuable an ally to the folks in the White House, and the White House is the one calling the shots in the investigations. Google is a huge contributor to Obama and the democrats, in more ways than one. Google contributed heavily to Obama's campaign, and of course, Obama would want to pay them back. But, Google is a big ally to Obama and democrats in much bigger way. That way is by means of favoritism in the placement of articles or anything that has to do with Obama and democrats. Thus, if there is a negative article regarding Obama, chances are that, it won't be appearing in the first page of results, and perhaps not even the top three pages. On the other hand, a negative article of Obama's opponents, and that of democrats in general, would appear in the top set of results. It is suspected that (and with good reason), that Google was instrumental in getting Obama elected, via the favoritism he got with the Google placement of anything which favored Obama, including poll results and articles and favorable interviews on TV and radio programs. That is suspected to have given Obama the edge, some even suspect that, Google was responsible for about 10-15 points in the vote last November. That's huge, and that's why Google will just get a slap on the wrist and told to "just behave", with no real actions taken.

Mark W. Kaelin
Mark W. Kaelin

Many TechRepublic readers express a palatable amount of disdain for all things Google. What specifically concerns you about Google and the way it conducts business?