Maybe it’s a Bit Harsh — But the Two Gorillas Are at it Again

Gorilla #1: Microsoft. Gorilla #2: Google.

I’ve noted in the past that these two companies like nothing more to claim that the other is acting unfairly. Bo ho0.

… They are stifling the competition. They are preventing innovation from occurring. They are doing this, they are doing that … blah blah …. Well you know the rest. Both of these tech giants are telling that to the Justice Department and to anyone else that will listen.

Gloves off?

In the latest salvo, Microsoft in a blog posted Friday, 2-26-10, entitled: Competition Authorities and Search. The following was introduced: ” Government competition agencies are increasingly focused on Google’s growing power in search and online advertising. The U.S. Federal Trade Commission, the U.S. Department of Justice and the European Commission have all determined that Google is dominant in certain markets, including search advertising. In late 2008 the DOJ was prepared to go to court to block Google’s attempt to partner with its largest search rival, Yahoo!.

Last year the DOJ told a federal court that Google’s book search plan is anticompetitive in several respects. (One big problem is that Google would help itself to essentially exclusive rights to tens of millions of books—effectively locking out everyone else.)

Last week the DOJ reiterated that view in court, even after Google had an opportunity to address the DOJ’s concerns. This week came news that the European Commission is investigating various aspects of Google’s conduct, including claims of retaliation, exclusivity and manipulation of search results to disadvantage rivals. The European Commission is likely to treat these cases quite seriously, given that Google’s share of search and search advertising is north of 95% in many European countries.”

Well there’s no mistaking what Microsoft is talking about, search engine results. The issue of search is two fold.  How Google works and partners with other search engines is that they do not allow rival search engine companies to use the Adwords feed unless the other search engines reciprocate and agree to use Google’s algorithmic search results.

This strikes as a case of using a monopoly in one the search advertising market to maintain a monopoly in another, the algorithmic search market. The network search effect means that the search advertising market is economically more influential than the search algorithm market. Since advertising is the revenue driving economic force, having more advertisers tends to equal larger keyword coverage and higher advertising bids and revenue. However, as I recently posted, (see Microsoft and Yahoo! Reach Agreement on Search) the Microsoft-Yahoo merger was driven by the attempt to close the gap in per search revenue between Google’s Adwords and Microsoft/Yahoo’s ad networks. While the merger between the two companies is off again, but on again, in some respects they are trying to challenge Google, because the future of computing is at stake.

Consider how the computer market has moved in the past 25 years. Initally, the PC on the desktop was the model. Then it moved to the PC on the network model, then to the PC on the Internet model, and the next one is supposed to be the PC on the Cloud model. Operating systems and applications are expected to be delivered over the Internet. Google Docs, for example, is a word processor, and spreadsheet that competes directly with Microsoft Office. It is a Cloud based application system. Perhaps the Cloud delivery will come over Internet 2, the next generation of the Internet. Internet 2 is to be faster and more secure than the current version which is now over 40 years old. (A lifetime in technology.) The Cloud model is supposed to be the future of computing. Because it will drive how information and applications get to the user. Who controls the delivery mechanism is what this fight is all about.

What will happen is that both companies will spend time in court trying to make their case that they are doing things legally, and the other is doing things illegally. Stay tuned.

Source: Competition Authorities and Search