The Google Staff Report: March Madness Not Worth Watching

The accidental release of the FTC's unredacted staff report on the Google investigation has caused quite a stir. However, what initially seems like The Sound and the Fury is actually just a tempest in a teapot.
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The accidental release of the Federal Trade Commission's unredacted staff report on the Google investigation has caused quite a stir. However, what initially seems like The Sound and the Fury is actually just a tempest in a teapot.

Let's get the process straight. The staff memo was just an advocacy memo, not some determination of right and wrong. As the Former FTC Policy Director, I am very familiar with these advocacy memos and the process in which they are written. The staff is always instructed to make these memos as tough and adversarial as possible so that the Commission can hear the best case for prosecution. A memo is not a judicial proceeding and these are not tested facts. It is up to the Commission to decide if there is any basis for a prosecution and up to the courts to determine if the agency is right.

In the case of Google, a unanimous Commission decided that there was no basis for any prosecution based on its assessment of the facts and the law. Period.

The Commission's decision to close the investigation was ultimately right. Indeed, the staff lawyers did not have the support of the Bureau of Economics who didn't favor legal action against any of Google's conduct. This is often fatal to a case given how important economic analysis is to actually proving an antitrust violation in a court of law.

We like to think about resolving matters in a court of law but when it comes to competition, the market is the most effective tribunal. And here the market has clearly spoken -- the conduct at issue does not harm competition. Look at how the markets are rapidly evolving with new forms of competition since the FTC closed its investigation in January 2013.

For one, established players are doing just fine at challenging Google. Google lost share in search when Firefox abandoned Google for Yahoo as its default search engine last year. Search assistants like Apple's Siri, Microsoft's Cortana, and Amazon Echo have begun to completely change the way consumers search. Specialized search has also grown. Expedia, Orbitz, Priceline and Travelocity account for 95 percent of the U.S. online travel market. A consumer looking for a product is more likely to turn to Amazon than Google.

Social networks have also changed the way consumers interact with the internet. Search engines used to almost be necessary to interact with the internet, now users of social sites like Facebook, Twitter, Pinterest, and Tumblr can get website recommendations directly from their friends. Since the FTC has closed its investigation, Facebook has launched "Graph Search" and Pinterest has launched "Guided Search."

We've seen other new players in search as well, like newcomer DuckDuckGo which almost quadrupled its daily searches and is now included as a pre-installed search engine option in Safari and Firefox. Other new players like Qwant, Blekko and Quixey have also established themselves in the market. And Axel Springer, on investing in Qwant, declared that "[t]here is a lot of innovation [in] the search market." In emerging markets, local search engines Yandex and Baidu are comfortably beating Google in Russia and China respectively.

Social networks aren't the only players creating new on-ramps onto the internet. Hundreds of thousands of new apps have been created that take people directly to the information they want. Consumers can use their smart devices to find great food near them with Urbanspoon, local businesses with Yelp, and interesting things with Pinterest without even opening a browser.

But what was the alternative to the Commission closing its investigation? Litigation, and the glacial pace of antitrust litigation is renown. Take the recent DOJ case against American Express that involved only a single practice. The case took over five years to get to trial and still is being litigated. With the benefit of only three years hindsight on Google, we know with certainty that litigation here was the wrong choice.

The accidental release of this staff report might seem to be breathing new life into a settled matter, but at the end of the day, it is like knowing who lost in the first round of last year's NCAA basketball playoffs. In this case, consumers won because of the FTC's prudent deference and any staff materials are a March Madness not worth watching.

David Balto is a former policy director of the Federal Trade Commission, attorney-adviser to Chairman Robert Pitofsky, and antitrust lawyer at the U.S. Department of Justice. He has been a senior fellow at the Center for American Progress and has worked with the International Center on Law and Economics, both of which receive funding from many organizations including Google. Balto has also published research and authored white papers for Google on technology policy topics.

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