Writing in the FT, Baroness Kingsmill (former deputy chairman of the Competition Commission) calls for an inquiry into Google’s pseudo-monopoly (I found this via searchengineland).

She positions it as a small-business issue, saying:

by far the largest and most vulnerable group are the millions of small companies with niche products and a geographically dispersed customer base that rely entirely on online adverts to reach customers.

I would agree with this, and I think that Google’s dominance of PPC advertising does pose a serious risk to a lot of online businesses (particularly in the UK where the other search engines have much lower market shares than the US). I think, however, that there is some confusion between the paid- and natural-search markets. The Baroness goes on to say:

For most of these companies, there is no viable alternative advertising mechanism. Because these organisations are so readily identifiable, they are prone to price discrimination by a dominant broker.

This statement is true; these companies have little choice in who supplies them with PPC advertising. There is a parallel with the ruling on mobile phone competition here: it was ruled that mobile operators have significant market power because you do not have a choice of who ‘terminates’ your mobile phone call. While you can choose which operator you use, you can’t choose your friends’ mobile operators, which means that each operator can set higher rates for inbound calls to their network than they should be able to and people will (to some degree) be forced to pay them because they want to speak to their friends.

The parallel with search is that while Google’s near-monopoly of search queries isn’t a problem for searchers (they can choose another search engine as easily as typing w w w . y a h o o . c o . u k into their address bar), advertisers have no choice but to advertise on the dominant platform if they wish to reach those users.

However, the article goes on to claim:

This power was demonstrated when one website saw its traffic slump by 70 per cent after Google removed its site from the search index in March 2006.

…and this is where I disagree with the Baroness.

This is surely natural search? ‘removed… from the search index’ doesn’t sound like a banned advertiser - it sounds to me like someone was caught not obeying Google’s webmaster guidelines and removed from the natural listings. Now, while I’m sure they did see a huge slump in traffic, that’s very different to using market power to control pricing in advertising.

There is a whole other debate about the power Google can wield against those who disobey its guidelines (or live in that ‘grey area’ near the edge), but I don’t think it’s a monopolistic argument - it applies just as much to all the search engines. What right do companies like Google have to determine who they list in their search results? To me, the answer is pretty clear - they can list who they like. If they allow themselves to become corrupted, they will gradually die, and be overtaken by a better solution.

I haven’t been able yet to contact the author of the article. If anyone knows how I can get in touch with Baroness Kingsmill, please let me know!

To be clear, I don’t necessarily disagree with the conclusion that an inquiry would help small businesses, just that I feel whenever we are talking about issues as large as this, our thinking should be as clear as possible.

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