By: John Darsie of T3LIVE
Google Inc. (Nasdaq:GOOG) has grown from a simple search portal into one of the strongest and fastest growing brands in the world. The company’s stranglehold on the search market has allowed it to monetize its brand through advertising, but competitors have often cried foul over practices they deem as anti-competitive. Finally, it appears, regulators are taking a serious look into whether Google abuses its search dominance.
The European Commission’s antitrust department has launched a formal investigation into Google’s advertising practices that looks to open the lid on the company’s secretive search algorithm. The investigation covers five main allegations:
- Whether Google abused its dominant market position in online search by lowering the rankings of unpaid search results of competing services that specialize in providing users with specific online content, such as price comparisons.
- Whether Google gave preferential placement to the results of its own vertical search services in order to shut out competing services.
- Whether Google lowered the “Quality Score” for sponsored links of competing vertical search services. The Quality Score is one factor that determines the price advertisers pay to Google.
- Whether Google imposes exclusivity obligations on its advertising partners, which could prevent them from placing ads on their own Web sites and that of other computer and software vendors’ sites. If this is true, the EC said Google could, in essence, shut out competing search tools.
- Whether Google restricts the ability of its advertisers to take their ad campaigns and use them on competing online ad platforms.
The investigation comes after multiple allegations over the last few years that Google’s algorithm was in violation on competition laws. Microsoft’s price comparison sites Ciao.de (Germany) and Foundem.co.uk (UK), and French legal search site Ejustice, all alleged that the ‘Quality Score’ of their organic listings were demoted automatically on Google search. In September, regulators in Texas began looking into whether Google abuses its search dominance, but has had no significant finds to report to this point. Google has an even greater market share in Europe(87% in the UK).
Ultimately, it appears Google will be forced to give over chunks of its secretive search algorithm as part of the investigation. Google’s clients have increasingly expressed qualms about the implications of Google’s search dominance and seek greater transparency over search rankings. In essence, by breaking down the black box algorithm that has driven Google’s rise to the top of the search totem pole, the European Commission is examining the very core of Google’s business.
The stock is trading off nearly 3% in today’s session as investors grapple with the most serious investigation to-date into Google’s business practices, as well as strong rumors that Google is preparing a ~$6b takeover of discount deal website Groupon. The stock is down more than 10% over the last three weeks and is more than halfway into its earnings gap up. FREE GOOG Stock Analysis Here
