Should the Google Search Engine Be Answerable to Competition Regulation Authorities?

ISSN (Online) - 2349-8846 Should the Google Search Engine Be Answerable To Competition Regulation Authorities? AKASH KRISHNAN Akash Krishnan ([email protected]) is a doctoral student in Economics at Indian Institute of Management Calcutta. Vol. 53, Issue No. 35, 01 Sep, 2018 The thought process of major competition authorities across the globe and their response to Google’s conduct in terms of manipulating its search engine is traced in this article. “The predominant business model for commercial search engines is advertising. The goals of the advertising business model do not always correspond to providing quality search to users . we expect that advertising funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers.” The above excerpt borrowed from Brin and Page (1998) is a testimony to the fact that the Google creators Sergey Brin and Larry Page foresaw the predicaments of operating a search engine prior to the launch of Google, much before it was faced with regulatory hurdles. Thus, it comes as no surprise perhaps that Google has been under the scanner of competition authorities across the globe including the Federal Trade Commission (FTC) of United States of America (US), the European Commission (EC) in the European Union (EU) and most recently the Competition Commission of India (CCI). The CCI on 8 February 2018 came out with an order imposing a Rs 136 crore fine on Google for “search bias” and ISSN (Online) - 2349-8846 potential abuse of dominance. Google and Competition Regulation: The US and EU Experience The first real regulatory action against search engines was when FTC (2002) issued a letter in response to the complaint filed against the search engines of the time, namely Alta Vista Co, AOL, Time Warner Inc, Direct Hit Technologies, iWon, Inc, Looksmart Ltd, Microsoft Corp and Terra Lycos SA (Google had not emerged yet). Commercial Alert, the plaintiff, alleged that search engines failed to disclose that advertisements are inserted into the search result lists, thereby deceiving its users into believing that “search results are based on relevance alone and not marketing ploys.” This was the first instance of the usage of terms “paid placement” and “paid inclusion.” The former refers to a programme where individual websites or URLs can pay for a higher ranking in a search results list, with the consequence that relevance alone will not determine the ranking order, while the latter refers to a programme in which individual websites and URLs are included in a search engine’s index, available for display as search results, when in reality, that website should not have featured in the search results, but for participation in the paid programme. In the case of paid placement, the FTC argued that there needed to be clear disclosure regarding the same, as users had historically been used to search engines providing them with search results based on relevancy, and any deviation from the standard practice needed to be stated explicitly. As far as paid inclusion is concerned, the argument is slightly more complex; so long as paid inclusion does not result in distortion of the ranking of a website or URL, it provides benefits to the consumer in terms of increased choice in search results list. The FTC encouraged search engines to disclose the criteria for selection. The ultimate action of the FTC to the above complaint was to abstain from undertaking any formal legal action against the search engines, and instead resorting to communicating with these search engines to impress upon them the need for “clear and conspicuous disclosures” of paid placement, and in some instances, of paid inclusion. Advertising, Revenue and the Business of Search To understand this contradiction between providing relevant search results and advertising, one needs to look more closely at the business model of these search engines. Google and other search engines are media companies, or what is known as two-sided markets. Their revenues come from the ad slots that they auction to different entities. And the auction of these ad slots, in turn, depends on the number of users that subscribe to the search engine. All else constant, an advertiser will be willing to advertise in a search engine with a larger number of users. Therefore, larger the number of users of a search engine, greater the volume of advertisements that it will be able to generate. Paid inclusion and paid placement ISSN (Online) - 2349-8846 are forms of advertisement, and therefore translate to revenues for search engines. Resorting to paid inclusion and paid placement are part of the modus operandi of search engines. The problem arises when users think of search results to be benign and reflecting nothing but relevance. This information asymmetry between users and search engines is what needs to be bridged through better disclosure by search engines. Nevertheless, given the present business model of these search engines, this tension is inevitable. A landmark regulatory event occurred in 2010 in Europe when the EC encountered critical questions regarding Google’s functioning which included the following (EC 2010). First, Google abused a dominant position in the EU in online search by allegedly lowering the rank of unpaid search results, especially the so-called “vertical search services.” Second, the issue of Google having imposed exclusivity obligations on advertising partners, with the aim of shutting down competing search engines. Third, the issue of Google having imposed restrictions on the portability of online advertising campaign data to avoid competing online platforms. The most serious of the above allegations pertains to Google’s unfair conduct vis-à-vis vertical search services. In this context, one has to note the difference between horizontal and vertical search services. While the former refers to search engines such as Google, Bing, Ask.com, etc, which provide general search services, the latter provide search services of a specific kind only, which includes the likes of Zomato (restaurant reviews), MakeMyTrip (travel), Amazon (e-commerce), Pinterest (images). Google itself runs several vertical search services like YouTube (videos), Google Maps (maps and GPS), Google Shopping, among others. The allegation was that Google threw up search results in favour of its own vertical searches and/or other paid entities, jeopardising other vertical search services. Apart from the allegations already pointed out, the EC vice president in his speech pointed towards Google possibly engaging in a practice of scraping content (such as user reviews) from the website of their competitors and using that material on its own sites without prior authorisation (Almunia 2014). While on the one hand this translates to greater information dissemination to users, as the same information is now more accessible to them, this practice of scraping content also has the effect of reducing the incentive for the vertical search services to incur costs in producing new content, in the fear that it would be scraped and posted on a Google vertical search service website. All of the above allegations seem to have a common thread of directly or indirectly disparaging the prospects of vertical search engines other than those of Google’s; by favouring its own vertical searches and imposing exclusivity agreements with advertisers, Google limited competition and created a potential entry barrier. By imposing exclusivity agreements on advertisers, funds for other vertical search services dried up, as advertisements are the major source of funding for search engines. Subsequently, in 2015, the EC issued a Statement of objections (the first step to officially initiate a case in the EU) stating that Google abused a dominant position by providing illegal ISSN (Online) - 2349-8846 advantages to its own shopping services, and thereby violated Article 102 of the Treaty on the Functioning of the European Union (TFEU) (EC 2015), which eventually translated into a fine of Euro 2.42 billion being imposed on Google in the 2017 judgment, the highest ever by any regulator in the world in antitrust history (EC 2017). Research by the EC revealed that the 10 highest-ranking generic search results on the first page together generally received approximately 95% of all clicks on generic search results (with the top search result receiving about 35% of all the clicks), thus making any change in the positioning of links have huge consequences. Interestingly, the EC study noted that when the first result was moved to the third rank, there was a reduction in the number of clicks by 50%, dismissing the rationale that the first few search results received huge traction as they are most appropriate! In 2015, the EC also initiated an investigation to scrutinise a potential abuse of dominance by Google in operating systems, applications and services for smart mobile devices, the investigations for which are still in progress. In the context of the US likewise, the FTC initiated an investigation to assess whether Google unfairly promoted its own vertical searches with the introduction of measures like the universal search box that displays Google’s proprietary content with prominence, and hence allegedly pushed the organic search results further below on the page (FTC 2013). The FTC also looked for an alleged manipulation in the search algorithm which potentially resulted in the demotion of vertical websites that competed with Google’s vertical properties. The alleged behaviour was in violation of Section 2 of the Sherman Act, by monopolisation or attempted monopolisation, and in violation of Section 5 of the Clayton Act, by creating a likelihood of significant injury to competition. The crux of the matter to be determined was whether Google brought about a change in its search results display to exclude actual or potential competitors, or to improve the quality of its search product.

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