Google as a Public Utility? No Results in This Search for Monopoly

November 14, 2003 • TechKnowledge No. 65

The Google search engine is one of the Net’s great success stories, with one analyst projecting possible revenues of $800 million and profits of $200 million this year. Just a few short years ago no one had even heard of this company. But today Google represents a classic example of the little guy going up against the Goliaths of the industry‐Yahoo!, Lycos, AltaVista-and winning, and now there’s talk of a possible $15-$25 billion IPO. But companies, ideas, and fortunes rise and fall in the blink of the eye in the digital economy. Remember Disney/Infoseek’s “GO” network and the “portal wars”? GO’s portal is now “powered by Google.” Today Google may be king of the hill, yet it’s just as easy to imagine a world without it.

But jealous rivals and would‐​be reformers aren’t always patient. So a Google backlash was almost inevitable. One scheme gaining some traction would classify Google as a “public utility” and regulate it accordingly. In the high‐​tech sector and network industries, the “open access” mentality is increasingly prevalent. Competitors want government, via regulatory mandate, to guarantee them access to a rival’s property, whether it’s the Windows desktop, AOL’s Instant Messenger service, the telephone loop, the electricity grid, satellite TV, or so on. One coalition even wants to pre‐​regulate broadband Internet service providers on the theory that they might interfere with access to certain websites.

Google’s rise is occurring against this unfavorable backdrop. When one thinks of a public utility or a “natural monopoly,” local water and sewer systems come to mind‐​not Internet search tools. But consider this flash of economic wisdom regarding Google from technology consultant Bill Thompson in a recent online BBC News column: “Perhaps the time has come to recognize this dominant search engine for what it is‐​a public utility that must be regulated in the public interest.” Thompson adds, “A government serious about ensuring that the net benefits society as a whole could start by investigating Google and considering whether we should create Ofsearch, the Office of Search Engines.” Daniel Brandt of Google Watch / Public Information Research, Inc., has similar dire predictions. “It’s way too powerful…It’s scary because if Google drops you, you could be out of business in no time.”

It’s difficult to address such proposals with a straight face, but we’ll give it a shot. Proposals to turn Google into a public utility assume that it is a “natural monopoly” or an “essential facility” that acts as a bottleneck to consumer choice and competition. Those amorphous concepts have been used to justify an array of regulatory shenanigans. Regardless, Google doesn’t meet even the textbook definition of a natural monopoly. Switching by consumers is easy, and Google has no government protection from rivals. In fact, as CNN recently reported, “Yahoo has committed nearly $2 billion to its Google counterattack [and] Microsoft is devoting an unspecified portion of its $49 billion war chest to building a better search engine.” Even using Google itself to search for other search engines, one finds hundreds of global options. For example, typing the phrase “search engines” on the Google homepage yields the “Search Engine Colossus,” basically, as the name implies, a search engine of search engines, with listings for almost every country on the planet. Over 100 search engines are listed for the United States. For the United Kingdom there are over 50. From Afghanistan to Zimbabwe, the Search Engine Colossus “offers you links to search engines and directories from 195 countries and 43 autonomous territories around the world.” So what’s the problem here again? With so many competitors in the market, Google cannot be regarded as having monopolistic market power.

The idea of an essential facility, even a low‐​barrier one made of software, unfortunately has no patience for the evolutionary nature of a market and information economy. P.H. Longstaff, author of The Communications Toolkit, has commented that, “Discussions of essential facilities often ignore the existence of alternative channels in which the traffic in question could flow.” To micromanage technology policy under the assumption that no other channels will emerge would be terribly short sighted, with unintended consequences galore.

In fact, treating Google as a public utility may have the perverse effect of locking in Google’s own current generation of search engine technology. That would be a huge mistake. Business 2.0 notes that search technology is “still in its infancy as a computer science problem,” given that half or more search queries are unsatisfactorily answered by any search engine. The magazine quoted one executive who argues that “No one is successfully doing [search] today.The Wall Street Journal notes, “Some search industry gurus even preach heresy: that Google isn’t the field’s technology leader anymore.” Google’s PageRank system, which ranks sites on the basis of websites that link to it, is merely one imperfect approach, and may be superceded by others like Teoma, or perhaps even the open source project called Nutch.

Clearly those who blithely advocate public utility‐​style regulation of Google see only benefits and no costs. The purported benefits of public utility regulation is that it brings down the cost of what many consider an essential good and helps ensure that deployment to most members of a given community. But public utility regulation typically results in mediocre service quality and limited innovation. Do we really want Google to become just another lazy public utility providing basic, plain vanilla service? We should aspire for more in the Internet world, especially with relatively low barriers to entry in the search engine market. Public utility regulation rarely delivers the goods faster than markets, and in this case, the universal service rationale behind regulation has been satisfied by a vigorously competitive marketplace. If Google abuses its market position, web surfers will quickly flee. But it’s hard to make a case for abuse when the service in question is free to the public and millions have voluntarily flocked to it over its many rivals.

Of course, if the public utility crusade dies the death it deserves, other regulatory agendas await. The Google Watch web page catalogs grievances against the search engine and calls for government regulation on the grounds that it is “a privacy disaster waiting to happen.” Others warn that Google’s “cache” raises intellectual property concerns. So stay tuned.

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