Can Google be regulated?

Europe's competition tsar is weighing up taking on Google over the fairness of its searches and, whatever the outcome, this is likely to be just the beginning of ongoing examination of the search behemoth.

FT.com

While indicating that this week’s deadline for his staff to complete their work on Google has slipped slightly, European competition commissioner Joaqun Almunia made it clear that a decision will follow soon.

After more than two years of investigation and plenty of rhetoric that suggests he will not let this pass easily, it is unimaginable that Google will be given a completely clean bill of health. But even people close to the situation in Brussels say it is a close call as to whether Almunia will push ahead with the most prominent transatlantic competition case since Microsoft, or opt instead for a quick settlement with Google.

The complaints boil down to two main issues. One is that Google gives unfair preference to its own services in its search results. Type a location, or the codes of two airports, into the search box and the top result will be a map from Google or suggested flight times with prices.

For other companies that supply things like online maps or travel services, and which rely on being found through search engines, this is a death sentence. Newer forms of online discovery – led by social networks Facebook and Twitter – may have emerged, but they have done little yet to dilute the power of search.

The other complaint is that Google manipulates algorithms to harm rivals, whether by relegating them in its search rankings or by reducing the all-important quality score that is applied to the 'landing pages' of advertisers. The lower the assessed quality of their pages, the more advertisers have to pay for a prominent position in ads.

Of the two issues, the former is the more susceptible to a quick regulatory fix. Google is right to argue that searchers want quick answers, not just a list of links to other sites – but those answers could be drawn from other services, not just Google’s own. Brussels already has a recent precedent to draw on here. Three years ago, it forced Microsoft to offer Windows users a choice of browsers, rather than simply making Internet Explorer the default choice for all PC users. There are many ways the search interface could be adapted to prompt users to choose their own specialist services – indeed, Google itself once gave a choice of maps to select from.

The second issue – correcting any perceived bias in Google’s algorithms – is a tougher nut to crack. Brussels can hardly get into the business of regulating algorithms. The other extreme, of forcing some degree of structural separation at the company to reduce the incentives for Google to manipulate the 'black box' of search in its own favour, would be draconian and guarantee a transatlantic clash. This hardly feels as egregious as the Microsoft case – and even there, a push to break up the company was reversed when the political winds changed.

That leaves relatively minor procedural steps and undertakings by Google as the most workable outcome – with tough penalties for any transgressions in future. Google already does much to help companies design their sites to work better with its search service and in some cases responds directly to complaints. But codifying its procedures would reduce the risk of appearing arbitrary.

Together with some changes in the interface to give more choice, along with one or two other relatively minor concessions, such as making it easier for advertisers to take their campaigns to rival search services without having to start again from scratch, this might bring a truce with regulators.

The question will be whether Almunia feels a package of remedies such as this is enough to limit Google’s growing power – and whether Google itself feels it needs to make any concessions at all to head off what its leaders believe are wholly unwarranted concerns. To judge by recent history, European competition regulators often shoot first – by issuing a formal statement of objections – and negotiate later, though the thoughtful and highly detail-oriented Almunia is still an unknown quantity.

Of course, even if Google concedes to a series of relatively unobtrusive remedies – with or without a statement of objectives – this is unlikely to be the end of the matter. As Microsoft found, such cases are rarely resolved in one round.

Other issues are already stacking up in the Google case file. These include the rising influence of the Android mobile operating system, which has drawn complaints from mobile operators who balk at being forced to accept Google services as part of the deal. Though unlikely to figure prominently in the current case, mobile search is guaranteed to rise to the top of the regulatory agenda eventually. For Google, this looks like just the beginning.

Richard Waters is the West Coast managing editor of the Financial Times.

Copyright The Financial Times Limited 2012.

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