Google Wasn’t Evil, Just Greedy

09/22/2011 10:00 am EST

Focus: STOCKS

Igor Greenwald

Chief Investment Strategist, MLP Profits

But that may not help the Internet search giant in its antitrust fight against seemingly half the known world, writes MoneyShow.com senior editor Igor Greenwald.

Yesterday was a busy news day.

The Federal Reserve announced it would tinker with its portfolio a bit in response to “significant downside risks to the economic outlook.”

The US House of Representatives voted to shut down parts of the government next week, because Democrats were opposed to offsetting disaster relief with cuts elsewhere, while the Tea Party deemed the Republican appropriation bill insufficiently thrifty.

Georgia executed a man convicted largely on the now mostly recanted testimony of eyewitnesses.

Hewlett-Packard (HPQ) shares defied the latest market selling spree on news that the board of the flailing tech behemoth was getting ready to oust another boss, after a gloriously inept year-long reign of error.

All of which was a real blessing for Google (GOOG), which had been hauled before a Senate antitrust subcommittee to rebut damning evidence about the way it does business.

The company founded with “don’t be evil” as its creed has fallen prey to the more commonplace failing of greed, which has driven it to tilt the playing field it controls in its own favor.

At issue is Google’s manipulation of search results to favor its own sites at the expense of competitors.

For example, testified the CEO of Yelp, after licensing Yelp’s local reviews, Google unsuccessfully tried to buy the company. After that deal went through, Yelp’s content was used without permission in Google’s competing offering, and when Yelp complained it was initially told the only alternative was to exile itself entirely from Google’s search results.

Only when regulators intervened did Google relent, and even then it found a way to punish its rival.

Representatives of Expedia (EXPE) and the product-comparison site Nextag echoed his complaint. So did subcommittee members, Democrats and Republicans alike.

“You run the racetrack. You own the racetrack. For a long time, you didn’t have any horses,” said Sen. Richard Blumenthal, D-Conn., as quoted by the Los Angeles Times. “Now you have horses…and your horses seem to be winning.”

Defending this race fixing was Google Chairman Eric Schmidt, and he earned his billions by presenting a much savvier and humbler face than another monopolist, Bill Gates, managed on Microsoft’s (MSFT) behalf 13 years earlier.

In substance, though, his defenses were necessarily specious. Ignore our dominant market share in search and paid search advertising, he invited senators, just think of the competition we face if you conceive of everyone in traditional and online media and telecoms as our direct competitor.

As for the way Google’s search results favor Google’s destination sites—go ahead, google a city and a type of business, click any of the most prominent links, and see where you end up—well, that’s just Google delivering information to grateful consumers, according to Schmidt.

It was, recall, grateful consumers who clamored for the bundling of Microsoft software with every computer sold, just as grateful consumers undoubtedly appreciated the lower tariffs Standard Oil got on Standard Oil trains, back in the day.

Also, according to Schmidt, Google search works the way it works for technical reasons, and not because senior Google executives have repeatedly stated that preferential treatment for Google’s sites is a legitimate business strategy.

Ironically, Microsoft is now among the rivals hounding Google with antitrust complaints, in its case over Google’s discretion to jack up ad rates on links deemed to lead to “low-quality” Web sites, like Microsoft’s, in the case now under Federal Trade Commission investigation, according to Bloomberg.

In another irony, Expedia’s lawyer is the former chief of the do-little Justice antitrust division under George W. Bush, who now bleats about the danger companies with undue market power pose to competition.

Most ironic of all, Republicans deeply distrustful of the government’s regulatory powers will have no qualms at all about reining in a California company led by prominent Democratic supporters. In his spare time from defending indefensible business practices, Schmidt has been stumping for President Obama's jobs bill. If you don’t think this matters to the legislative and regulatory climate Google will face, think again.

How did Google, a company that left billions on the table by pulling out of China rather than censor Chinese search results, end up manipulating them to pad its bottom line in the US? I found it telling that Yelp’s troubles really began when a new executive arrived to oversee Google’s competing offering.

Issuing lofty statements of principle is one thing, but the thousands of ambitious go-getters hired since are likely to have a narrower vision and attenuated notions of enlightened self-interest.

Those who think regulation has no value should look at Google as a test case for how unregulated abuse of market power can stifle competition. And I think they will.

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