On 27th of November, EU lawmakers voted in favor of a resolution that would force Internet companies to separate search engines from commercial services. Although no company was mentioned, it was clear that it was the Internet search giant Google that they had on mine. (i.)
In USA, Google has 68% of the web market searches while in Europe it counts for more than 90%. It benefits from the network effects whereby the popularity of a service attracts more users that then becomes self-perpetuating; in this way, once people start to use Google’s search they rarely substitute it for other product. Small advertisers do not switch to other platforms because it is too laborious. (ii.)
In his book “Zero to One”, Peter Thiel, the co-founder of PayPal says that Google is a monopoly and every firm should want to be one too. He says that a monopoly is “a kind of company that’s so good at what it does that no other firm can offer a close substitute”. He adds that economists “obsession” with competition, that will incentive companies to serve customers better is “a relic of history” and that competition explains failure, not success. A smart start up should not compete directly with an incumbent, but pick a seemingly unimportant market which it can monopolise. (iii.)
The fact that Google monopolises the search is not what worries EU, but EU antitrust law applies when companies abuse their monopoly to manipulate markets around them unfairly. Google has been accused of favoring its own services in search results, making difficult for advertisers to manage campaigns across several online platforms, and presenting on some search pages directly rather than referring users to other websites.
So, should governments regulate internet monopolies with the same effort as offline ones?
Well, first, Google may dominate the world of search but it does not get any direct revenue from it, it dominates the sale of advertisements related with search but it competes with other firms in the large overall market for online advertising.
Second, barriers to entry are lower in the digital realm. For example, building a rival infrastructure to a physical incumbent is more expensive, and consequently there is less competition than launching a new online product or service. It is true that Google has been buying upstart rivals like Waze and Apture, but this acquisition can encourage the formation of more start-ups, creating more competition for incumbents. (iv.)
Finally, it seems that Google dominance has been starting to be threatened. Facebook is now eating Google’s advertising revenues. Also, the rise of smartphones is undermining Google, users have been spending more and more time on apps than on web, and Google is losing control of Android as other firms build their own mobile ecosystems on top of its open-source underpinnings. In fact, no technology monopolist firm has remained monopolist for more than one cycle, just see the example of Microsoft or IBM that passed from monopolies to lucrative franchises in a legacy area.
American politicians point out this week that the concern of EU is not the abuse of Google dominance but the desire to protect European companies, like Axel Springer and Hubert Burda Media, two German giants. Instead of attacking successful American companies, Europeans should ask themselves why they not produce companies like Google or Facebook. Still, we are in a long way from seeing Google hived off into a competitive company; it probably won’t happen due to European law makers. (v.)