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September 2012 Policy Study, Number 12-10

   

The Federal Trade Commission’s Investigation of Google

   

Introduction

   

 

The news that the Federal Trade Commission (FTC) is investigating Google’s search business should worry all Internet users.

 

The details of the Federal Trade Commission’s concerns about Google’s business practices are not public yet (that is standard practice), but the assumption is that the FTC believes that when Google displays the result of a search, it gives priority to results that relate to its own services — and that there is something wrong with that.

 

In a blog concerning the Texas investigation, Google’s Deputy General Counsel wrote, “We look forward to answering their questions because we’re confident that Google operates in the best interests of our users.” That may be an overstatement: who could look forward to a government investigation? Nevertheless, the search business is not well understood, by the public or by government, and these investigations will provide Google with an opportunity to explain it. Whether the government will listen is difficult to say.

 

But the public — consumers (including consumers in Iowa) — should urge government to listen. In 2010, Google’s search results helped 9,790 Iowa businesses (advertisers and website publishers) receive economic value of $129,980,000. And all this only represents direct economic impact from three sections of Google’s business (Google Search and AdWords, AdSense, and Google Grants), and does not take into account the significant productivity increases and time and resources saved by individuals and small and large businesses from using Google search.[1] For Iowa and Iowans, therefore, it is critical that the investigators reach the right result.

 

There are threshold questions, one of which is: how people who use Google’s search engine can be harmed if they are not paying for the service? Search is a free good. The Internet user types in a question, clicks on a button, and, about half a second later, gets an answer. Half a generation ago, that was science fiction. Today it’s reality. And it’s free. If the user is dissatisfied, he can try a different search engine — with a single click. Government investigators must think clicking to a different search engine is beyond the capability of Internet users. Ordinary people, however, have more faith in the ability of Internet users. They know that anyone who can find Google can also find one of its competitors.

 

People may ask: who pays for that magic — i.e., why does Google provide answers for free? Google is not a charity; it is a for-profit business. How does Google make money if Internet searchers pay nothing for answers to their questions? Google charges companies that get to place advertisements for their goods or services on the screen with the free answers Google provides to the searcher. Those advertisements are near the answers, but are clearly designated as not being part of the answers. Google says its “natural” search results are never influenced by advertisers.

 

   

 

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