• EconAfterHours

To Google or not to Google, that is the question

Updated: Mar 11, 2020

By Prapanj R

Google, which had its humble beginning in 1996, boasts a revenue of US$ 55.519 billion (2013), 49829 employees (Q1 2014), a profit of over US$10 billion (the practicalities behind the numerous profit oriented terminologies elude me, but US$13 billion seems to be a good estimate) and assets worth US$ 110.92 billion (2013). A spectacular growth.

Google has been hailed as one of the biggest innovators of the century. They have revolutionized the way we pursue information on the net, the services provided on the net and our access to these services. The Google search engine, Gmail, Google maps, Youtube are few of the services we access everyday on the net. In today’s world where large corporations are seen as the devils, Google is among the few companies who have come out looking like saints. We trust Google maps more than the signs our government has put up (understandably). If you Google ‘India’s best company to work for’, the answer you will get is — Google. Googling has become the mania of the decade. Google holds the solutions to all our problems. In fact, Google even provides us life advice. No more shrinks for me, oh no! And if you want to rail against anyone, just type all of it into Google Translate and you will get something extraordinary that you can send to anyone anywhere in the world, guaranteed to make the most educated man fumble. Google completes our projects on time. Googling has been recognized as a word by the Oxford Dictionary (why MS word shows an error on typing ‘googling’ says a lot about Google-Microsoft relationship, but I digress….). It’s no wonder that today many of us can write Google as an example of a necessity. What with Google building an elevator to the ISS (International Space Station), and their promise to reinvent philanthropy (whatever that means), Google seems set to save the world.

Until very recently I was a die-hard Google fan. I held the belief that Google would give the human race 1) the solution to world poverty, hunger, 2) guide to salvation 3) an escalator to the ISS, among many other less important things. This belief began to be rattled when in 2013 newspapers started reporting a standoff between Google and European authorities. To begin with, I took it with a pinch of TATA salt (another company I idealize). Attacking a company set to save the world is something you totally expect the West to do. In addition, with Microsoft, Google, Apple and Samsung all suing each other for everything under the moon, this seemed to be something that would blow over quick. But as the reports persisted, I decided to read into the issue. And that is when I discovered the narrow, winding trails of deception, seduction, betrayal ……… and anti-trust laws.

Since 2000, Google has acquired more than 100 other companies. Google has been has been acquiring, on average, more than one company per week since 2010. How does this make Google an innovator? In fact, Google is doing the least innovative, oldest trick in the book. In addition, with each purchase, Google has also acquired the horde of patents these companies held. Just to give an example, when Google purchased Motorola in 2011 (though the acquisition was formally completed in 2012), Google acquired around 17,000 patents related to mobile phones. Though the achievements of Google search engine is indeed admirable, most every other service Google provides, like Google earth, Google groups, YouTube etc. have either been purchased, or have benefitted greatly from outside patents. This is all well and good. Innovations and patents have a value and price to the owner, and at this price he faces no lose in selling it, especially taking into account the risk of returns and success. However, the financial power and influence of Google (and by indulging in anti-competitive practices) allows it to make profits far greater than what it pays for the patents (which is to say, though the price the owner gets might be equal to his value for it, Google might be able to monetize the patent far greater). This is where Google’s unorthodox practices are crucial.

Google deals mostly in open- source software. This is not surprising as most of Google’s services we access, we do so for free. But then how does Google make a profit out of purchasing patents and then providing services for free? This is where most of us are in the dark. Though all of us consider Google to be a software company specializing in internet-related services, this is only partially true. It would be more accurate to say that Google is an advertising company (out of Goggle’s US$55.519 billion revenue in 2013, US$50.547 billion was from advertising). The same is true for most every internet based company, which are in fact online advertising platforms.

The major debate during the early era of internet was whether consumers should pay for internet based services or not. Google took a staunch stand against consumers having to pay for internet based services. Slowly this became the rule of thumb. This also resulted in the enormous expansion of internet, whereby it became cheap enough for everyone to access. Everyone is happy. But doesn’t it sound too good to be true? And the truth is, it is. Since the internet companies need some form of income, they turn to advertising. They allow other companies to advertise on their websites. This works efficiently. As the service becomes more popular, companies are charged more for advertising, which covers the cost of providing the services to the additional number of people. However, the companies have to fund the advertising somehow.

We now know for sure that taxes and advertising cost, even if the producers pays them exclusively, the burden is shared between the consumer and the producer. Unlike taxes, since increased advertising costs actually increases demand, producers can shift the entire burden on to the consumers. So the price we do not pay for internet services are actually paid by us, indirectly, in the form of increased prices of goods we purchase. And how many of us are even aware of this? Every time we use Facebook (which is free by the way), Facebook in turn increases the advertising cost they charge from companies, which in turn results in higher prices of other goods.

This explains the “saint status” Google enjoys (and the ‘no evil’ philosophy Google employees constantly allude to). Google provides us all its services for free. They don’t deplete the ground water, or pollute the air. They don’t force families out of their homes. Nobody ever finds out how they fund their projects. Many critics now accuse Goggle’s philanthropy as nothing more than stunts meant to generate goodwill. NY Times reports how Google’s promise to reinvent poverty continues to remain elusive. Clearly, the years from 2010 seems to be years of disenchantment, at least as far as Google is concerned. 2010 was the year when EU watchdogs began gathering evidence against Google. They came out in 2011 with scathing allegations. They accused Google of severely weakening EU economies. Since Google controls around 80% of Europe’s search engine traffic, it can easily divert searches to its own products, which in turn result in supernormal advertising costs for other companies. Their competitors rarely figure in search results, and thus despite good products, lose sales, and eventually sink under overheads. Thus indirectly Google aids in maintaining abnormal prices of goods. EU investigators collected data of how Google’s entry into several sectors resulted in it gaining an immediate majority of market share in those sectors, followed by a jump in advertising revenues. Google offering its services for free might generate goodwill, but it cripples competitors and gains them dominance in the market. Google settled with the European commission, Europe’s top court, in Feb 2014, where it admitted to work on four areas of concern, namely, how Google promotes its own services over others in search results; “scrapes” content from other websites; engages in anti-competitive advertising agreements; and restricts advertisers from moving campaigns to rival advertising platforms. The commission explained how Google updating their search algorithms daily, sometimes several times a day, makes it hard to sue them. In addition, since judges can hardly understand the workings behind the patented algorithm, and they have no hope of employing the help of cyber experts, Google can explain away such accusations as lapses in their algorithms. The Open Internet Project, which includes 400 players in Europe’s digital markets, has also since lodged a complaint with the European Commission against what it alleges are new anti-competitive abuses by Google. The European commission is also looking into how Google has used Android as a means to monopolize mobile search traffic. They have also signed deals to share evidence with India, Canada and US.

Economists now speculate regarding a ‘Google tax’, a tax a consumer has to pay because of Google’s anti-competitive policies. With more attention being given towards regulating the internet sector, we can expect some ugly stories to come out. While I continue to hope Google can convince us of their good intentions, clearly they are struggling to put up defenses against accusations.

PS: I warn you that searching for this article on Google might prove futile.

PPS: To all Google fans who intend to send me hate messages through SSC shots or Gmail, I express my genuine gratitude. Good luck paying more for everything.

Bibliography

Fairsearch. “EUROPEAN COMMISSION EXPLORING ‘TECHNICAL’ CHANGES TO GOOGLE ANTI-COMPETITIVE PRACTICES.” http://www.fairsearch.org. july 25, 2012. http://www.fairsearch.org/content-scraping/european-commission-exploring-technical-changes-to-google-anti-competitive-practices/.

—. GOOGLE’S ANTICOMPETITIVE PRACTICES HURT CONSUMERS. july 12, 2011. http://www.fairsearch.org/deceptive-display/googles-anticompetitive-practices-hurt-consumers/.

Google. Google’s income statement information. n.d. https://investor.google.com/financial/tables.html (accessed june 29, 2014).

HELFT, STEPHANIE STROM and MIGUEL. Google Finds It Hard to Reinvent Philanthropy. january 29, 2011. http://www.nytimes.com/2011/01/30/business/30charity.html?pagewanted=all.

Seifert, Dan. “EU committee to probe Google over alleged anticompetitive behavior with Android.” theverge. june 13, 2013. http://www.theverge.com/2013/6/13/4427706/eu-committee-probe-google-over-android-anticompetitive.

The Hindu. “Digital cos demand probe against Google’s anti-competitive practices.” http://www.thehindubusinessline.com. may 16, 2014.

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