Is Google a monopoly?

by George Gkoutzouvalos about a month ago in economy

A discussion on whether Google is a monopoly, or not

Perhaps the biggest supporters of the view that Google is a monopoly, and therefore, immediate action should be taken in the form of laws and regulations to restrict its huge market power, are companies that were affected negatively by its algorithm changes and, as a result, they have dropped way down (they have become literally “invisible”) in Google’s search results for specific search terms.

One such company is comparison site Nextag, the CEO of which, Jeffrey Katz, has written a relevant article on Wall Street Journal, titled: “Google’s monopoly and internet freedom”.

Although, the first impression from reading this article is that Google is the “bad wolf” who victimizes “honest” companies, in order to favorite its “own” products and services, or other companies that pay for that, reading the article carefully could raise serious doubts on the author’s validity of arguments.

For example, Katz claims that when searching for the term “convection microwave oven”, the top search results are dominated by Google’s own products or services, or other companies that are favored by Google.

However, if you open a new browser window and type the above search term, you would be surprised to see that Katz’s allegation is far from truth. The first result for “convection microwave oven” comes from the usual suspect, i.e. Wikipedia, which is by no means controlled by or affiliated to Google, and its level of information is generally accepted and respected. Other results follow that come from commercial sites of major companies selling electrical appliances, such as General Electric, Samsung, and LG. The fact that these companies have managed to climb high in Google’s search results shows that they are authority websites, which have met successfully the conditions required by Google’s various algorithms, in order to rank high. This has definitely not happened overnight, and it has been the result of a stronger and more widespread online presence, in terms of quality, and relevant and fresh content, which has been reflected finally on the evaluation of these websites by Google’s algorithms. So, in this case, accusing Google of violating anti-monopoly laws could be seen as farfetched and not reflecting reality. Perhaps Katz has confused ads showing on the top and right side of Google’s search results page (which are clearly disclosed as “Ads by Google”) with the ad-free search engine results that are on the left and take the biggest part of the page.

Comparing the Internet to Gutenberg’s typography

The main purpose of this article is to examine whether the online search facility provided by Google is a monopoly or not.

In this context, it could be a good starting point to highlight the fact that the Internet has started taking over the power of another monopoly that has existed for six centuries now, in terms of dissemination of knowledge to the masses.

That older model, which is still being used, is that created by Gutenberg’s invention of typography.

Apart from the technological and physical difference of the actual mean, which is paper in one case, and electronic digits in the other, similarities are evident in the development and growth of the Internet and typography.

According to Gentry Holbert, Library Director of the Mobile Infirmary Medical Center at the University of South Alabama, typography and the Internet have three things in common, referring to how they disseminate knowledge to people: “Freedom, Access, and Control”.

In other words, knowledge is freely available, accessible, and not controlled by any single person or organization, for the purpose of man’s and society’s benefit and progress, and provided that any applicable copyright and intellectual property laws are respected.

Is Google another case of a monopoly of knowledge?

Monopolies of knowledge have been present in the history of civilization for thousands of years, since the time of ancient Egyptians.

In ancient Egypt, literacy was regarded as the safest path to personal wealth and social success. This was because the limited number of people who possessed and applied the skills of reading and writing had formed a monopoly around how knowledge was created and transferred.

In this way, they protected their own personal benefit and social status by establishing closed clubs of experts. On top of that, mastering those vital skills was itself a long and laborious process, which was an additional barrier of entry to the established monopoly of knowledge.

On the other hand, mastering the basics of surfing and searching for information on the Internet is not hard at all. The layout of Google’s search engine is as simple as it could be, making it user friendly even to a little child. So in that aspect, Google’s monopolistic power does not apply to its users, but rather to its business competitors, since users are not refrained, by definition, to use it.

According to economic historian Innis, book and newspaper publishers have possessed monopolistic power over the content of learning and news offered to their audience. This is similar to what ancient Egyptians writers could do, and it could be compared to how knowledge is transferred through today’s online media.

However, there is a fault in this rationale. Readers are not restricted to a specific book, newspaper or online publication or social media, since there is an abundance of various sources of information, covering as many different views as possible.

On this basis, Google’s search engine enhances the readers’ ability to have access to virtually unlimited resources and, as a result, form opinions and make informed judgments on issues.

So the ball lies in the users’ court, since the latter have to develop the relevant skills, in order to make best use of available knowledge and apply the highest level of objectivity. When it comes to selecting Google’s search engine over, let’s say, Bing or Yahoo, users have freedom of choice, which is based on their own evaluation of the features and search potential of each search engine.

Was it Google’s original purpose to establish a monopoly of knowledge?

Despite the highly ambitious goal of Larry Page, one of Google’s founders, to “download the entire web”, Google’s mission statement is to “organize the world’s information and make it universally accessible and useful”.

That means that Google does not produce new knowledge; it just provides the means, through its various algorithms, to arrange online information in a better way. Google has followed the practice of “open knowledge”, and is in fact against any form of restrictions, when it comes to accessibility of online information.

Perhaps, Google’s only business secret is the way it classifies search results (ranking)-just like Coke keeps its beverage recipe secret-which makes it different from its competitors and keeps spamdexers away.

Consumers, as usual, vote for the company that offers the best service or product (or that closer to their tastes) and decide for market winners. So, Google’s competitive advantage originates from the power of their users’ voting, who are the ones that elevate it to monopoly status.

Google’s ultimate purpose was (and still is in many aspects) to become a great tool for academic research, facilitated by the innovative technology hyperlinking. In the same line, Facebook, as a network of communication, was originally intended for use by students at Harvard University. Both Internet companies moved to their present powerful position through continuous support by the public, because they offered a unique service and product, and because they were in the right place at the right time. It was exactly what Internet users were looking for, and it is really hard to find a substitute, for various reasons. Of course, market dominance was followed by commercial profit, and this improved and strengthened their market position even more.

A war of online powerhouses: Google vs Facebook

In many instances, online social media have used methods of service integration and have formed integrated account facilities for the benefit and convenience of their users. For example, by using connected accounts, members of Facebook can tweet their updates, and vice versa.

However, there is growing level of competition among the biggest players, with Google and Facebook being two of them. Not only is Google itself under official scrutiny for violation of antitrust laws, but it also accuses Facebook of undermining the open and free transmission of information and knowledge on the Internet.

Are we reaching a market equilibrium, where the number of Facebook members and/or the number of daily searches on Google’s search engine is about to reach a plateau? Maybe these companies have started to realize it, and “online civil wars” are about to break between the holders of dominant monopolistic power within the same pool of online users.

Is Google a utility?

This is a truly critical question. Providing an effective answer has proved to be difficult for Internet users, lawyers, and the relevant government regulatory bodies.

It looks like there are two opposing camps, each of them having its own supporters, based on substantial reasoning, either for or against treating Google as public utility. The innovation of the online search engine is a fairly new concept. Therefore, it is not yet possible to fully understand its potential, when it comes to favoring a specific company to gain a dominant or monopolistic position in the market of online information.

How easy is it for Internet users to turn to an alternative service?

When Google’s search engine went temporarily down in 2009, web users had to press a couple of keys to change to the next best alternative, for example the search engine provided by Yahoo. Of course, based on the number of users, Google’s search engine is considered to be better than Yahoo’s, so using an alternative search engine could only be a short-term solution; just like when you use candles, in case of power failure.

In fact, web users’ dependence on Google’s search engine increases day by day, when it comes to finding the best available sources of information online. People’s need for more information should be taken for granted and it is something that has not changed throughout history, from the ancient Egyptians, to the readers of Gutenberg’s books. It’s this need that makes a book or a search engine a “utility”, as it happens with water, electricity, and communication: we can’t really live or imagine our lives without them. A highly popular and successful book or search engine is the result of people’s preference, in order to satisfy their aforementioned need for information. Therefore, regulation should be applied to the market of dissemination of information and knowledge as a whole, rather than the specific mean. What if, by regulating Google, Bing finds the opportunity to increase its power and obtain a biggest market share? Regulation should not be restricted to a specific company; otherwise it will result in a new monopoly by another company. The real monopoly is people’s need for information, which of course is not possible to be regulated, and is the another side of freedom of expression.

Google and the traditional definition of a monopoly

According to the Concise Encyclopedia of Economics, “A monopoly is an enterprise that is the only seller of a good or service”.

In that sense, Google is definitely not a monopoly, because users of the Internet can have access to readily available alternatives elsewhere, i.e. other search engines. Google does not sell its services, i.e. doesn’t charge users for the benefit of performing online search, and is not the only organizer of online information, since there are other applications doing exactly the same thing, offering a similar, if not an identical, product/service, in the English-speaking world; not to mention countries like Russia and China, where the prevalence of Yandex and Baidu cannot be challenged by Google, due to the language barrier.

In the same definition of a monopoly according to traditional economics, some interesting observations can be made, which are crucial for a deeper understanding and analysis of Google’s alleged monopolistic advantage.

1. The longevity of monopolies relies heavily on government support and subsidization. This means that responsibility for creating a long-standing monopoly lies with the government, rather with the free market, as it could be thought.

2. Monopolies that do not rely on backing from the government are short-lived and result from a very small-sized market, which of course does not apply in the case of Google. Otherwise, they can result from “…temporary leadership in innovation…”

Google is a leader in search engine innovation. What is more, this type of competitive advantage is not going to last for a long period of time.

What is going to last, however, and usually without the provision of additional monopolistic privileges by the government, is the establishment of trusts among the holders of the rights for exploitation of innovative products and services.

Larry Page and Sergey Brin would not have any motivation to invent their innovative Google search engine, if Microsoft had already managed to dominate the search engine market with an unbeatable product. The same applies of course to Google today. What are the possibilities for a new search engine to emerge and beat Google in its own game? Google’s search engine was launched, in order to serve more efficiently a market gap for faster, more, and better organized access to online information. Since this gap has been successfully filled, aspiring search engine programmers have to look for greener pastures elsewhere.

It could be argued that, since Facebook beat Myspace, the once leading social network, there is no reason why a new search engine could not sideline Google. Innovation and progress never end, and academic institutes will continue to produce bright and talented graduates.

From old-fashioned monopolies to antitrust laws for Internet companies

The market of providing knowledge and information through the Internet should rather be defined as an oligopoly, rather than a monopoly, of knowledge. Even if Google fails as a business, there are other competitors willing to replace it in its role as a dominant search engine. One thing is for sure: it can be difficult to apply the principles of perfect competition to the search engine market, due to the fact that it is impossible for a large and potentially unlimited number of programmers to be in the position to offer an identical search engine product. Consumers would be spoilt for choice, and supply would exceed demand; however, this would be a science fiction scenario. Not all programmers can come up with an idea such as Google’s PageRank algorithm.

The question that arises automatically is whether innovation and inspiration for unique market-winning products/services should be rewarded, in terms of increased market share and profits, or restricted by antitrust legislation. Google and Facebook have had their share of huge profits and success, just like Microsoft has done before them. Problems arise, when Google, for example, attempts to enter other companies’ territories, and vice versa. The antitrust problems for Microsoft did not arise as a result of the superiority of its Windows software, but were rather the aftermath of Microsoft’s entry in the hardware market (IBM’s case), and later, in the search engine market (Netscape). State regulators are worried more, when companies that possess cutting-edge technology achieve a high level of market penetration, which could result in the latter becoming more powerful and able to control the market. This power is not reversible. Like a beast, it needs to be fed on a constant basis to keep growing. If it becomes static, profits will become stagnant, and competitors will have the opportunity to beat those companies. That is the reason why Internet companies decide to expand their operation in relevant fields of technology, in order to increase their market dominance horizontally, and this is where concerns about violating antitrust laws come into the picture.

Sources and further reading:

The web’s new monopolists, Justin Fox, The Atlantic

Google’s monopoly and Internet freedom

Technology, libraries and the Internet: A comparison of the impact of the printing press and World Wide Web

Monopolies of knowledge

Google’s mission statement

Understanding Facebook’s monopoly

Google+ and Facebook’s natural monopoly in social networks

Antitrust and social networking

A plan to challenge the Facebook monopoly

Apple, Facebook threats to open Internet, says Google’s Sergey Brin

Monopoly

Are patents “Monopolies”?

Google: The unique case of the monopolistic search engine

Search in China-How Baidu is different from Google

Monopoly

Long run equilibrium for a monopoly

The aftermath of calculator use in college classrooms

What you need to know about monopolies and monopoly power

Innovation and competition policy in the IT sector: the European perspective

Metcalfe’s law

Metcalfe’s law is wrong

Similarities between monopolistic competition vs. perfect competition

economy
George Gkoutzouvalos
George Gkoutzouvalos
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George Gkoutzouvalos

Hi,

I have written articles for various websites, such as Helium, Hubpages, Medium, and many more.

Currently, I work as a translator. I have studied Tourism Management at college.

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