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Last week the editorial board of the Washington Post penned an excellent editorial responding to the European Commission’s announcement of its decision in its Google Shopping investigation. Here’s the key language from the editorial:

Whether the demise of any of [the complaining comparison shopping sites] is specifically traceable to Google, however, is not so clear. Also unclear is the aggregate harm from Google’s practices to consumers, as opposed to the unlucky companies. Birkenstock-seekers may well prefer to see a Google-generated list of vendors first, instead of clicking around to other sites…. Those who aren’t happy anyway have other options. Indeed, the rise of comparison shopping on giants such as Amazon and eBay makes concerns that Google might exercise untrammeled power over e-commerce seem, well, a bit dated…. Who knows? In a few years we might be talking about how Facebook leveraged its 2 billion users to disrupt the whole space.

That’s actually a pretty thorough, if succinct, summary of the basic problems with the Commission’s case (based on its PR and Factsheet, at least; it hasn’t released the full decision yet).

I’ll have more to say on the decision in due course, but for now I want to elaborate on two of the points raised by the WaPo editorial board, both in service of its crucial rejoinder to the Commission that “Also unclear is the aggregate harm from Google’s practices to consumers, as opposed to the unlucky companies.”

First, the WaPo editorial board points out that:

Birkenstock-seekers may well prefer to see a Google-generated list of vendors first, instead of clicking around to other sites.

It is undoubtedly true that users “may well prefer to see a Google-generated list of vendors first.” It’s also crucial to understanding the changes in Google’s search results page that have given rise to the current raft of complaints.

As I noted in a Wall Street Journal op-ed two years ago:

It’s a mistake to consider “general search” and “comparison shopping” or “product search” to be distinct markets.

From the moment it was technologically feasible to do so, Google has been adapting its traditional search results—that familiar but long since vanished page of 10 blue links—to offer more specialized answers to users’ queries. Product search, which is what is at issue in the EU complaint, is the next iteration in this trend.

Internet users today seek information from myriad sources: Informational sites (Wikipedia and the Internet Movie Database); review sites (Yelp and TripAdvisor); retail sites (Amazon and eBay); and social-media sites (Facebook and Twitter). What do these sites have in common? They prioritize certain types of data over others to improve the relevance of the information they provide.

“Prioritization” of Google’s own shopping results, however, is the core problem for the Commission:

Google has systematically given prominent placement to its own comparison shopping service: when a consumer enters a query into the Google search engine in relation to which Google’s comparison shopping service wants to show results, these are displayed at or near the top of the search results. (Emphasis in original).

But this sort of prioritization is the norm for all search, social media, e-commerce and similar platforms. And this shouldn’t be a surprise: The value of these platforms to the user is dependent upon their ability to sort the wheat from the chaff of the now immense amount of information coursing about the Web.

As my colleagues and I noted in a paper responding to a methodologically questionable report by Tim Wu and Yelp leveling analogous “search bias” charges in the context of local search results:

Google is a vertically integrated company that offers general search, but also a host of other products…. With its well-developed algorithm and wide range of products, it is hardly surprising that Google can provide not only direct answers to factual questions, but also a wide range of its own products and services that meet users’ needs. If consumers choose Google not randomly, but precisely because they seek to take advantage of the direct answers and other options that Google can provide, then removing the sort of “bias” alleged by [complainants] would affirmatively hurt, not help, these users. (Emphasis added).

And as Josh Wright noted in an earlier paper responding to yet another set of such “search bias” charges (in that case leveled in a similarly methodologically questionable report by Benjamin Edelman and Benjamin Lockwood):

[I]t is critical to recognize that bias alone is not evidence of competitive harm and it must be evaluated in the appropriate antitrust economic context of competition and consumers, rather individual competitors and websites. Edelman & Lockwood´s analysis provides a useful starting point for describing how search engines differ in their referrals to their own content. However, it is not useful from an antitrust policy perspective because it erroneously—and contrary to economic theory and evidence—presumes natural and procompetitive product differentiation in search rankings to be inherently harmful. (Emphasis added).

We’ll have to see what kind of analysis the Commission relies upon in its decision to reach its conclusion that prioritization is an antitrust problem, but there is reason to be skeptical that it will turn out to be compelling. The Commission states in its PR that:

The evidence shows that consumers click far more often on results that are more visible, i.e. the results appearing higher up in Google’s search results. Even on a desktop, the ten highest-ranking generic search results on page 1 together generally receive approximately 95% of all clicks on generic search results (with the top result receiving about 35% of all the clicks). The first result on page 2 of Google’s generic search results receives only about 1% of all clicks. This cannot just be explained by the fact that the first result is more relevant, because evidence also shows that moving the first result to the third rank leads to a reduction in the number of clicks by about 50%. The effects on mobile devices are even more pronounced given the much smaller screen size.

This means that by giving prominent placement only to its own comparison shopping service and by demoting competitors, Google has given its own comparison shopping service a significant advantage compared to rivals. (Emphasis added).

Whatever truth there is in the characterization that placement is more important than relevance in influencing user behavior, the evidence cited by the Commission to demonstrate that doesn’t seem applicable to what’s happening on Google’s search results page now.

Most crucially, the evidence offered by the Commission refers only to how placement affects clicks on “generic search results” and glosses over the fact that the “prominent placement” of Google’s “results” is not only a difference in position but also in the type of result offered.

Google Shopping results (like many of its other “vertical results” and direct answers) are very different than the 10 blue links of old. These “universal search” results are, for one thing, actual answers rather than merely links to other sites. They are also more visually rich and attractively and clearly displayed.

Ironically, Tim Wu and Yelp use the claim that users click less often on Google’s universal search results to support their contention that increased relevance doesn’t explain Google’s prioritization of its own content. Yet, as we note in our response to their study:

[I]f a consumer is using a search engine in order to find a direct answer to a query rather than a link to another site to answer it, click-through would actually represent a decrease in consumer welfare, not an increase.

In fact, the study fails to incorporate this dynamic even though it is precisely what the authors claim the study is measuring.

Further, as the WaPo editorial intimates, these universal search results (including Google Shopping results) are quite plausibly more valuable to users. As even Tim Wu and Yelp note:

No one truly disagrees that universal search, in concept, can be an important innovation that can serve consumers.

Google sees it exactly this way, of course. Here’s Tim Wu and Yelp again:

According to Google, a principal difference between the earlier cases and its current conduct is that universal search represents a pro-competitive, user-serving innovation. By deploying universal search, Google argues, it has made search better. As Eric Schmidt argues, “if we know the answer it is better for us to answer that question so [the user] doesn’t have to click anywhere, and in that sense we… use data sources that are our own because we can’t engineer it any other way.”

Of course, in this case, one would expect fewer clicks to correlate with higher value to users — precisely the opposite of the claim made by Tim Wu and Yelp, which is the surest sign that their study is faulty.

But the Commission, at least according to the evidence cited in its PR, doesn’t even seem to measure the relative value of the very different presentations of information at all, instead resting on assertions rooted in the irrelevant difference in user propensity to click on generic (10 blue links) search results depending on placement.

Add to this Pinar Akman’s important point that Google Shopping “results” aren’t necessarily search results at all, but paid advertising:

[O]nce one appreciates the fact that Google’s shopping results are simply ads for products and Google treats all ads with the same ad-relevant algorithm and all organic results with the same organic-relevant algorithm, the Commission’s order becomes impossible to comprehend. Is the Commission imposing on Google a duty to treat non-sponsored results in the same way that it treats sponsored results? If so, does this not provide an unfair advantage to comparison shopping sites over, for example, Google’s advertising partners as well as over Amazon, eBay, various retailers, etc…?

Randy Picker also picks up on this point:

But those Google shopping boxes are ads, Picker told me. “I can’t imagine what they’re thinking,” he said. “Google is in the advertising business. That’s how it makes its money. It has no obligation to put other people’s ads on its website.”

The bottom line here is that the WaPo editorial board does a better job characterizing the actual, relevant market dynamics in a single sentence than the Commission seems to have done in its lengthy releases summarizing its decision following seven full years of investigation.

The second point made by the WaPo editorial board to which I want to draw attention is equally important:

Those who aren’t happy anyway have other options. Indeed, the rise of comparison shopping on giants such as Amazon and eBay makes concerns that Google might exercise untrammeled power over e-commerce seem, well, a bit dated…. Who knows? In a few years we might be talking about how Facebook leveraged its 2 billion users to disrupt the whole space.

The Commission dismisses this argument in its Factsheet:

The Commission Decision concerns the effect of Google’s practices on comparison shopping markets. These offer a different service to merchant platforms, such as Amazon and eBay. Comparison shopping services offer a tool for consumers to compare products and prices online and find deals from online retailers of all types. By contrast, they do not offer the possibility for products to be bought on their site, which is precisely the aim of merchant platforms. Google’s own commercial behaviour reflects these differences – merchant platforms are eligible to appear in Google Shopping whereas rival comparison shopping services are not.

But the reality is that “comparison shopping,” just like “general search,” is just one technology among many for serving information and ads to consumers online. Defining the relevant market or limiting the definition of competition in terms of the particular mechanism that Google (or Foundem, or Amazon, or Facebook…) happens to use doesn’t reflect the extent of substitutability between these different mechanisms.

Properly defined, the market in which Google competes online is not search, but something more like online “matchmaking” between advertisers, retailers and consumers. And this market is enormously competitive. The same goes for comparison shopping.

And the fact that Amazon and eBay “offer the possibility for products to be bought on their site” doesn’t take away from the fact that they also “offer a tool for consumers to compare products and prices online and find deals from online retailers of all types.” Not only do these sites contain enormous amounts of valuable (and well-presented) information about products, including product comparisons and consumer reviews, but they also actually offer comparisons among retailers. In fact, Fifty percent of the items sold through Amazon’s platform, for example, are sold by third-party retailers — the same sort of retailers that might also show up on a comparison shopping site.

More importantly, though, as the WaPo editorial rightly notes, “[t]hose who aren’t happy anyway have other options.” Google just isn’t the indispensable gateway to the Internet (and definitely not to shopping on the Internet) that the Commission seems to think.

Today over half of product searches in the US start on Amazon. The majority of web page referrals come from Facebook. Yelp’s most engaged users now access it via its app (which has seen more than 3x growth in the past five years). And a staggering 40 percent of mobile browsing on both Android and iOS now takes place inside the Facebook app.

Then there are “closed” platforms like the iTunes store and innumerable other apps that handle copious search traffic (including shopping-related traffic) but also don’t figure in the Commission’s analysis, apparently.

In fact, billions of users reach millions of companies every day through direct browser navigation, social media, apps, email links, review sites, blogs, and countless other means — all without once touching So-called “dark social” interactions (email, text messages, and IMs) drive huge amounts of some of the most valuable traffic on the Internet, in fact.

All of this, in turn, has led to a competitive scramble to roll out completely new technologies to meet consumers’ informational (and merchants’ advertising) needs. The already-arriving swarm of VR, chatbots, digital assistants, smart-home devices, and more will offer even more interfaces besides Google through which consumers can reach their favorite online destinations.

The point is this: Google’s competitors complaining that the world is evolving around them don’t need to rely on Google. That they may choose to do so does not saddle Google with an obligation to ensure that they can always do so.

Antitrust laws — in Europe, no less than in the US — don’t require Google or any other firm to make life easier for competitors. That’s especially true when doing so would come at the cost of consumer-welfare-enhancing innovations. The Commission doesn’t seem to have grasped this fundamental point, however.

The WaPo editorial board gets it, though:

The immense size and power of all Internet giants are a legitimate focus for the antitrust authorities on both sides of the Atlantic. Brussels vs. Google, however, seems to be a case of punishment without crime.

Regardless of the merits and soundness (or lack thereof) of this week’s European Commission Decision in the Google Shopping case — one cannot assess this until we have the text of the decision — two comments really struck me during the press conference.

First, it was said that Google’s conduct had essentially reduced innovation. If I heard correctly, this is a formidable statement. In 2016, another official EU service published stats that described Alphabet as increasing its R&D by 22% and ranked it as the world’s 4th top R&D investor. Sure it can always be better. And sure this does not excuse everything. But still. The press conference language on incentives to innovate was a bit of an oversell, to say the least.

Second, the Commission views this decision as a “precedent” or as a “framework” that will inform the way dominant Internet platforms should display, intermediate and market their services and those of their competitors. This may fuel additional complaints by other vertical search rivals against (i) Google in relation to other product lines, but also against (ii) other large platform players.

Beyond this, the Commission’s approach raises a gazillion questions of law and economics. Pending the disclosure of the economic evidence in the published decision, let me share some thoughts on a few (arbitrarily) selected legal issues.

First, the Commission has drawn the lesson of the Microsoft remedy quagmire. The Commission refrains from using a trustee to ensure compliance with the decision. This had been a bone of contention in the 2007 Microsoft appeal. Readers will recall that the Commission had imposed on Microsoft to appoint a monitoring trustee, who was supposed to advise on possible infringements in the implementation of the decision. On appeal, the Court eventually held that the Commission was solely responsible for this, and could not delegate those powers. Sure, the Commission could “retai[n] its own external expert to provide advice when it investigates the implementation of the remedies.” But no more than that.

Second, we learn that the Commission is no longer in the business of software design. Recall the failed untying of WMP and Windows — Windows Naked sold only 11,787 copies, likely bought by tech bootleggers willing to acquire the first piece of software ever designed by antitrust officials — or the browser “Choice Screen” compliance saga which eventually culminated with a €561 million fine. Nothing of this can be found here. The Commission leaves remedial design to the abstract concept of “equal treatment”.[1] This, certainly, is a (relatively) commendable approach, and one that could inspire remedies in other unilateral conduct cases, in particular, exploitative conduct ones where pricing remedies are both costly, impractical, and consequentially inefficient.

On the other hand, readers will also not fail to see the corollary implication of “equal treatment”: search neutrality could actually cut both ways, and lead to a lawful degradation in consumer welfare if Google were ever to decide to abandon rich format displays for both its own shopping services and those of rivals.

Third, neither big data nor algorithmic design is directly vilified in the case (“The Commission Decision does not object to the design of Google’s generic search algorithms or to demotions as such, nor to the way that Google displays or organises its search results pages”). In fact, the Commission objects to the selective application of Google’s generic search algorithms to its own products. This is an interesting, and subtle, clarification given all the coverage that this topic has attracted in recent antitrust literature. We are in fact very close to a run of the mill claim of disguised market manipulation, not causally related to data or algorithmic technology.

Fourth, Google said it contemplated a possible appeal of the decision. Now, here’s a challenging question: can an antitrust defendant effectively exercise its right to judicial review of an administrative agency (and more generally its rights of defense), when it operates under the threat of antitrust sanctions in ongoing parallel cases investigated by the same agency (i.e., the antitrust inquiries related to Android and Ads)? This question cuts further than the Google Shopping case. Say firm A contemplates a merger with firm B in market X, while it is at the same time subject to antitrust investigations in market Z. And assume that X and Z are neither substitutes nor complements so there is little competitive relationship between both products. Can the Commission leverage ongoing antitrust investigations in market Z to extract merger concessions in market X? Perhaps more to the point, can the firm interact with the Commission as if the investigations are completely distinct, or does it have to play a more nuanced game and consider the ramifications of its interactions with the Commission in both markets?

Fifth, as to the odds of a possible appeal, I don’t believe that arguments on the economic evidence or legal theory of liability will ever be successful before the General Court of the EU. The law and doctrine in unilateral conduct cases are disturbingly — and almost irrationally — severe. As I have noted elsewhere, the bottom line in the EU case-law on unilateral conduct is to consider the genuine requirement of “harm to competition” as a rhetorical question, not an empirical one. In EU unilateral conduct law, exclusion of every and any firm is a per se concern, regardless of evidence of efficiency, entry or rivalry.

In turn, I tend to opine that Google has a stronger game from a procedural standpoint, having been left with (i) the expectation of a settlement (it played ball three times by making proposals); (ii) a corollary expectation of the absence of a fine (settlement discussions are not appropriate for cases that could end with fines); and (iii) a full seven long years of an investigatory cloud. We know from the past that EU judges like procedural issues, but like comparably less to debate the substance of the law in unilateral conduct cases. This case could thus be a test case in terms of setting boundaries on how freely the Commission can U-turn a case (the Commissioner said “take the case forward in a different way”).

In a recent article for the San Francisco Daily Journal I examine Google v. Equustek: a case currently before the Canadian Supreme Court involving the scope of jurisdiction of Canadian courts to enjoin conduct on the internet.

In the piece I argue that

a globally interconnected system of free enterprise must operationalize the rule of law through continuous evolution, as technology, culture and the law itself evolve. And while voluntary actions are welcome, conflicts between competing, fundamental interests persist. It is at these edges that the over-simplifications and pseudo-populism of the SOPA/PIPA uprising are particularly counterproductive.

The article highlights the problems associated with a school of internet exceptionalism that would treat the internet as largely outside the reach of laws and regulations — not by affirmative legislative decision, but by virtue of jurisdictional default:

The direct implication of the “internet exceptionalist’ position is that governments lack the ability to impose orders that protect its citizens against illegal conduct when such conduct takes place via the internet. But simply because the internet might be everywhere and nowhere doesn’t mean that it isn’t still susceptible to the application of national laws. Governments neither will nor should accept the notion that their authority is limited to conduct of the last century. The Internet isn’t that exceptional.

Read the whole thing!

Last week, the Internet Association (“IA”) — a trade group representing some of America’s most dynamic and fastest growing tech companies, including the likes of Google, Facebook, Amazon, and eBay — presented the incoming Trump Administration with a ten page policy paper entitled “Policy Roadmap for New Administration, Congress.”

The document’s content is not surprising, given its source: It is, in essence, a summary of the trade association’s members’ preferred policy positions, none of which is new or newly relevant. Which is fine, in principle; lobbying on behalf of members is what trade associations do — although we should be somewhat skeptical of a policy document that purports to represent the broader social welfare while it advocates for members’ preferred policies.

Indeed, despite being labeled a “roadmap,” the paper is backward-looking in certain key respects — a fact that leads to some strange syntax: “[the document is a] roadmap of key policy areas that have allowed the internet to grow, thrive, and ensure its continued success and ability to create jobs throughout our economy” (emphasis added). Since when is a “roadmap” needed to identify past policies? Indeed, as Bloomberg News reporter, Joshua Brustein, wrote:

The document released Monday is notable in that the same list of priorities could have been sent to a President-elect Hillary Clinton, or written two years ago.

As a wishlist of industry preferences, this would also be fine, in principle. But as an ostensibly forward-looking document, aimed at guiding policy transition, the IA paper is disappointingly un-self-aware. Rather than delineating an agenda aimed at improving policies to promote productivity, economic development and social cohesion throughout the economy, the document is overly focused on preserving certain regulations adopted at the dawn of the Internet age (when the internet was capitalized). Even more disappointing given the IA member companies’ central role in our contemporary lives, the document evinces no consideration of how Internet platforms themselves should strive to balance rights and responsibilities in new ways that promote meaningful internet freedom.

In short, the IA’s Roadmap constitutes a policy framework dutifully constructed to enable its members to maintain the status quo. While that might also serve to further some broader social aims, it’s difficult to see in the approach anything other than a defense of what got us here — not where we go from here.

To take one important example, the document reiterates the IA’s longstanding advocacy for the preservation of the online-intermediary safe harbors of the 20 year-old Digital Millennium Copyright Act (“DMCA”) — which were adopted during the era of dial-up, and before any of the principal members of the Internet Association even existed. At the same time, however, it proposes to reform one piece of legislation — the Electronic Communications Privacy Act (“ECPA”) — precisely because, at 30 years old, it has long since become hopelessly out of date. But surely if outdatedness is a justification for asserting the inappropriateness of existing privacy/surveillance legislation — as seems proper, given the massive technological and social changes surrounding privacy — the same concern should apply to copyright legislation with equal force, given the arguably even-more-substantial upheavals in the economic and social role of creative content in society today.

Of course there “is more certainty in reselling the past, than inventing the future,” but a truly valuable roadmap for the future from some of the most powerful and visionary companies in America should begin to tackle some of the most complicated and nuanced questions facing our country. It would be nice to see a Roadmap premised upon a well-articulated theory of accountability across all of the Internet ecosystem in ways that protect property, integrity, choice and other essential aspects of modern civil society.

Each of IA’s companies was principally founded on a vision of improving some aspect of the human condition; in many respects they have succeeded. But as society changes, even past successes may later become inconsistent with evolving social mores and economic conditions, necessitating thoughtful introspection and, often, policy revision. The IA can do better than pick and choose from among existing policies based on unilateral advantage and a convenient repudiation of responsibility.

Today ICLE released a white paper entitled, A critical assessment of the latest charge of Google’s anticompetitive bias from Yelp and Tim Wu.

The paper is a comprehensive response to a study by Michael Luca, Timothy Wu, Sebastian Couvidat, Daniel Frank, & William Seltzer, entitled, Is Google degrading search? Consumer harm from Universal Search.

The Wu, et al. paper will be one of the main topics of discussion at today’s Capitol Forum and George Washington Institute of Public Policy event on Dominant Platforms Under the Microscope: Policy Approaches in the US and EU, at which I will be speaking — along with a host of luminaries including, inter alia, Josh Wright, Jonathan Kanter, Allen Grunes, Catherine Tucker, and Michael Luca — one of the authors of the Universal Search study.

Follow the link above to register — the event starts at noon today at the National Press Club.

Meanwhile, here’s a brief description of our paper:

Late last year, Tim Wu of Columbia Law School (and now the White House Office of Management and Budget), Michael Luca of Harvard Business School (and a consultant for Yelp), and a group of Yelp data scientists released a study claiming that Google has been purposefully degrading search results from its more-specialized competitors in the area of local search. The authors’ claim is that Google is leveraging its dominant position in general search to thwart competition from specialized search engines by favoring its own, less-popular, less-relevant results over those of its competitors:

To improve the popularity of its specialized search features, Google has used the power of its dominant general search engine. The primary means for doing so is what is called the “universal search” or the “OneBox.”

This is not a new claim, and researchers have been attempting (and failing) to prove Google’s “bias” for some time. Likewise, these critics have drawn consistent policy conclusions from their claims, asserting that antitrust violations lie at the heart of the perceived bias. But the studies are systematically marred by questionable methodology and bad economics.

This latest study by Tim Wu, along with a cadre of researchers employed by Yelp (one of Google’s competitors and one of its chief antitrust provocateurs), fares no better, employing slightly different but equally questionable methodology, bad economics, and a smattering of new, but weak, social science. (For a thorough criticism of the inherent weaknesses of Wu et al.’s basic social science methodology, see Miguel de la Mano, Stephen Lewis, and Andrew Leyden, Focus on the Evidence: A Brief Rebuttal of Wu, Luca, et al (2016), available here).

The basic thesis of the study is that Google purposefully degrades its local searches (e.g., for restaurants, hotels, services, etc.) to the detriment of its specialized search competitors, local businesses, consumers, and even Google’s bottom line — and that this is an actionable antitrust violation.

But in fact the study shows nothing of the kind. Instead, the study is marred by methodological problems that, in the first instance, make it impossible to draw any reliable conclusions. Nor does the study show that Google’s conduct creates any antitrust-relevant problems. Rather, the construction of the study and the analysis of its results reflect a superficial and inherently biased conception of consumer welfare that completely undermines the study’s purported legal and economic conclusions.

Read the whole thing here.

Since the European Commission (EC) announced its first inquiry into Google’s business practices in 2010, the company has been the subject of lengthy investigations by courts and competition agencies around the globe. Regulatory authorities in the United States, France, the United Kingdom, Canada, Brazil, and South Korea have all opened and rejected similar antitrust claims.

And yet the EC marches on, bolstered by Google’s myriad competitors, who continue to agitate for further investigations and enforcement actions, even as we — companies and consumers alike — enjoy the benefits of an increasingly dynamic online marketplace.

Indeed, while the EC has spent more than half a decade casting about for some plausible antitrust claim, the online economy has thundered ahead. Since 2010, Facebook has tripled its active users and multiplied its revenue ninefold; the number of apps available in the Amazon app store has grown from less than 4000 to over 400,000 today; and there are almost 1.5 billion more Internet users globally than there were in 2010. And consumers are increasingly using new and different ways to search for information: Amazon’s Alexa, Apple’s Siri, Microsoft’s Cortana, and Facebook’s Messenger are a few of the many new innovations challenging traditional search engines.

Advertisers have adapted to this evolution, moving increasingly online, and from search to display ads as mobile adoption has skyrocketedSocial networks like Twitter and Snapchat have come into their own, competing for the same (and ever-increasing) advertising dollars. For marketers, advertising on social networks is now just as important as advertising in search. No wonder e-commerce sales have more than doubled, to almost $2 trillion worldwide; for the first time, consumers purchased more online than in stores this past year.

To paraphrase Louis C.K.: Everything is amazing — and no one at the European Commission is happy.

The EC’s market definition is fatally flawed

Like its previous claims, the Commission’s most recent charges are rooted in the assertion that Google abuses its alleged dominance in “general search” advertising to unfairly benefit itself and to monopolize other markets. But European regulators continue to miss the critical paradigm shift among online advertisers and consumers that has upended this stale view of competition on the Internet. The reality is that Google’s competition may not, and need not, look exactly like Google itself, but it is competition nonetheless. And it’s happening in spades.

The key to understanding why the European Commission’s case is fundamentally flawed lies in an examination of how it defines the relevant market. Through a series of economically and factually unjustified assumptions, the Commission defines search as a distinct market in which Google faces limited competition and enjoys an 80% market share. In other words, for the EC, “general search” apparently means only nominal search providers like Google and Bing; it doesn’t mean companies like Amazon, Facebook and Twitter — Google’s biggest competitors.  

But the reality is that “general search” is just one technology among many for serving information and ads to consumers online. Defining the relevant market or limiting the definition of competition in terms of the particular mechanism that Google happens to use to match consumers and advertisers doesn’t reflect the substitutability of other mechanisms that do the same thing — merely because these mechanisms aren’t called “search.”

Properly defined, the market in which Google competes online is not search, but something more like online “matchmaking” between advertisers, retailers and consumers. And this market is enormously competitive.

Consumers today are increasingly using platforms like Amazon and Facebook as substitutes for the searches they might have run on Google or Bing. “Closed” platforms like the iTunes store and innumerable apps handle copious search traffic but also don’t figure in the EC’s market calculations. And so-called “dark social” interactions like email, text messages, and IMs, drive huge amounts of some of the most valuable traffic on the Internet. This, in turn, has led to a competitive scramble to roll out completely new technologies like chatbots to meet consumers’ informational (and merchants’ advertising) needs.

Properly construed, Google’s market position is precarious

Like Facebook and Twitter (and practically every other Internet platform), advertising is Google’s primary source of revenue. Instead of charging for fancy hardware or offering services to users for a fee, Google offers search, the Android operating system, and a near-endless array of other valuable services for free to users. The company’s very existence relies on attracting Internet users and consumers to its properties in order to effectively connect them with advertisers.

But being an online matchmaker is a difficult and competitive enterprise. Among other things, the ability to generate revenue turns crucially on the quality of the match: All else equal, an advertiser interested in selling widgets will pay more for an ad viewed by a user who can be reliably identified as being interested in buying widgets.

Google’s primary mechanism for attracting users to match with advertisers — general search — is substantially about information, not commerce, and the distinction between product and informational searches is crucially important to understanding Google’s market and the surprisingly limited and tenuous market power it possesses.

General informational queries aren’t nearly as valuable to advertisers: Significantly, only about 30 percent of Google’s searches even trigger any advertising at all. Meanwhile, as of 2012, one-third of product searches started on Amazon while only 13% started on a general search engine.

As economist Hal Singer aptly noted in 2012,

[the data] suggest that Google lacks market power in a critical segment of search — namely, product searches. Even though searches for items such as power tools or designer jeans account for only 10 to 20 percent of all searches, they are clearly some of the most important queries for search engines from a business perspective, as they are far easier to monetize than informational queries like “Kate Middleton.”

While Google Search clearly offers substantial value to advertisers, its ability to continue to do so is precarious when confronted with the diverse array of competitors that, like Facebook, offer a level of granularity in audience targeting that general search can’t match, or that, like Amazon, systematically offer up the most valuable searchers.

In order to compete in this market — one properly defined to include actual competitors — Google has had to constantly innovate to maintain its position. Unlike a complacent monopolist, it has evolved to meet changing consumer demand, shifting technology and inventive competitors. Thus, Google’s search algorithm has changed substantially over the years to make more effective use of the information available to ensure relevance; search results have evolved to give consumers answers to queries rather than just links, and to provide more-direct access to products and services; and, as users have shifted more and more of their time and attention to mobile devices, search has incorporated more-localized results.

Competitors want a free lunch

Critics complain, nevertheless, that these developments have made it harder, in one way or another, for rivals to compete. And the EC has provided a willing ear. According to Commissioner Vestager last week:

Google has come up with many innovative products that have made a difference to our lives. But that doesn’t give Google the right to deny other companies the chance to compete and innovate. Today, we have further strengthened our case that Google has unduly favoured its own comparison shopping service in its general search result pages…. (Emphasis added).

Implicit in this statement is the remarkable assertion that by favoring its own comparison shopping services, Google “den[ies] other companies the chance to compete and innovate.” Even assuming Google does “favor” its own results, this is an astounding claim.

First, it is not a violation of competition law simply to treat competitors’ offerings differently than one’s own, even for a dominant firm. Instead, conduct must actually exclude competitors from the market, without offering countervailing advantages to consumers. But Google’s conduct is not exclusionary, and there are many benefits to consumers.

As it has from the start of its investigations of Google, the EC begins with a flawed assumption: that Google’s competitors both require, and may be entitled to, unfettered access to Google’s property in order to compete. But this is patently absurd. Google is not an essential facility: Billions of users reach millions of companies everyday through direct browser navigation, apps, email links, review sites and blogs, and countless other means — all without once touching

Google Search results do not exclude competitors, whether comparison shopping sites or others. For example, 72% of TripAdvisor’s U.S. traffic comes from search, and almost all of that from organic results; other specialized search sites see similar traffic volumes.

More important, however, in addition to continuing to reach rival sites through Google Search, billions of consumers access rival services directly through their mobile apps. In fact, for Yelp,

Approximately 21 million unique devices accessed Yelp via the mobile app on a monthly average basis in the first quarter of 2016, an increase of 32% compared to the same period in 2015. App users viewed approximately 70% of page views in the first quarter and were more than 10 times as engaged as website users, as measured by number of pages viewed. (Emphasis added).

And a staggering 40 percent of mobile browsing is now happening inside the Facebook app, competing with the browsers and search engines pre-loaded on smartphones.

Millions of consumers also directly navigate to Google’s rivals via their browser by simply typing, for example, “” in their address bar. And as noted above, consumers are increasingly using Google rivals’ new disruptive information engines like Alexa and Siri for their search needs. Even the traditional search engine space is competitive — in fact, according to Wired, as of July 2016:

Microsoft has now captured more than one-third of Internet searches. Microsoft’s transformation from a company that sells boxed software to one that sells services in the cloud is well underway. (Emphasis added).

With such numbers, it’s difficult to see how rivals are being foreclosed from reaching consumers in any meaningful way.

Meanwhile, the benefits to consumers are obvious: Google is directly answering questions for consumers rather than giving them a set of possible links to click through and further search. In some cases its results present entirely new and valuable forms of information (e.g., search trends and structured data); in others they serve to hone searches by suggesting further queries, or to help users determine which organic results (including those of its competitors) may be most useful. And, of course, consumers aren’t forced to endure these innovations if they don’t find them useful, as they can quickly switch to other providers.  

Nostalgia makes for bad regulatory policy

Google is not the unstoppable monopolist of the EU competition regulators’ imagining. Rather, it is a continual innovator, forced to adapt to shifting consumer demand, changing technology, and competitive industry dynamics. And, instead of trying to hamstring Google, if they are to survive, Google’s competitors (and complainants) must innovate as well.

Dominance in technology markets — especially online — has always been ephemeral. Once upon a time, MySpace, AOL, and Yahoo were the dominant Internet platforms. Kodak, once practically synonymous with “instant camera” let the digital revolution pass it by. The invincible Sony Walkman was upended by mp3s and the iPod. Staid, keyboard-operated Blackberries and Nokias simply couldn’t compete with app-driven, graphical platforms from Apple and Samsung. Even today, startups like Snapchat, Slack, and Spotify gain massive scale and upend entire industries with innovative new technology that can leave less-nimble incumbents in the dustbin of tech history.

Put differently, companies that innovate are able to thrive, while those that remain dependent on yesterday’s technology and outdated business models usually fail — and deservedly so. It should never be up to regulators to pick winners and losers in a highly dynamic and competitive market, particularly if doing so constrains the market’s very dynamism. As Alfonso Lamadrid has pointed out:

It is companies and not competition enforcers which will strive or fail in the adoption of their business models, and it is therefore companies and not competition enforcers who are to decide on what business models to use. Some will prove successful and others will not; some companies will thrive and some will disappear, but with experimentation with business models, success and failure are and have always been part of the game.

In other words, we should not forget that competition law is, or should be, business-model agnostic, and that regulators are – like anyone else – far from omniscient.

Like every other technology company before them, Google and its competitors must be willing and able to adapt in order to keep up with evolving markets — just as for Lewis Carroll’s Red Queen, “it takes all the running you can do, to keep in the same place.” Google confronts a near-constantly evolving marketplace and fierce competition from unanticipated quarters; companies that build their businesses around Google face a near-constantly evolving Google. In the face of such relentless market dynamism, neither consumers nor firms are well served by regulatory policy rooted in nostalgia.  

Scolding teacher

I have small children and, like any reasonably competent parent, I take an interest in monitoring their Internet usage. In particular, I am sensitive to what ad content they are being served and which sites they visit that might try to misuse their information. My son even uses Chromebooks at his elementary school, which underscores this concern for me, as I can’t always be present to watch what he does online. However, also like any other reasonably competent parent, I trust his school and his teacher to make good choices about what he is allowed to do online when I am not there to watch him. And so it is that I am both interested in and rather perplexed by what has EFF so worked up in its FTC complaint alleging privacy “violations” in the “Google for Education” program.

EFF alleges three “unfair or deceptive” acts that would subject Google to remedies under Section 5 of the FTCA: (1) Students logged into “Google for Education” accounts have their non-educational behavior individually tracked (e.g. performing general web searches, browsing YouTube, etc.); (2) the Chromebooks distributed as part of the “Google for Education” program have the “Chrome Sync” feature turned on by default (ostensibly in a terribly diabolical effort to give students a seamless experience between using the Chromebooks at home and at school); and (3) the school administrators running particular instances of “Google for Education” have the ability to share student geolocation information with third-party websites. Each of these violations, claims EFF, violates the K-12 School Service Provider Pledge to Safeguard Student Privacy (“Pledge”) that was authored by the Future of Privacy Forum and Software & Information Industry Association, and to which Google is a signatory. According to EFF, Google included references to its signature in its “Google for Education” marketing materials, thereby creating the expectation in parents that it would adhere to the principles, failed to do so, and thus should be punished.

The TL;DR version: EFF appears to be making some simple interpretational errors — it believes that the scope of the Pledge covers any student activity and data generated while a student is logged into a Google account. As the rest of this post will (hopefully) make clear, however, the Pledge, though ambiguous, is more reasonably read as limiting Google’s obligations to instances where a student is using  Google for Education apps, and does not apply to instances where the student is using non-Education apps — whether she is logged on using her Education account or not.

The key problem, as EFF sees it, is that Google “use[d] and share[d] … student personal information beyond what is needed for education.” So nice of them to settle complex business and educational decisions for the world! Who knew it was so easy to determine exactly what is needed for educational purposes!

Case in point: EFF feels that Google’s use of anonymous and aggregated student data in order to improve its education apps is not an educational purpose. Seriously? How can that not be useful for educational purposes — to improve its educational apps!?

And, according to EFF, the fact that Chrome Sync is ‘on’ by default in the Chromebooks only amplifies the harm caused by the non-Education data tracking because, when the students log in outside of school, their behavior can be correlated with their in-school behavior. Of course, this ignores the fact that the same limitations apply to the tracking — it happens only on non-Education apps. Thus, the Chrome Sync objection is somehow vaguely based on geography. The fact that Google can correlate an individual student’s viewing of a Neil DeGrasse Tyson video in a computer lab at school with her later finishing that video at home is somehow really bad (or so EFF claims).

EFF also takes issue with the fact that school administrators are allowed to turn on a setting enabling third parties to access the geolocation data of Google education apps users.

The complaint is fairly sparse on this issue — and the claim is essentially limited to the assertion that “[s]haring a student’s physical location with third parties is unquestionably sharing personal information beyond what is needed for educational purposes[.]”  While it’s possible that third-parties could misuse student data, a presumption that it is per se outside of any educational use for third-parties to have geolocation access at all strikes me as unreasonable.

Geolocation data, particularly on mobile devices, could allow for any number of positive and negative uses, and without more it’s hard to really take EFF’s premature concern all that seriously. Did they conduct a study demonstrating that geolocation data can serve no educational purpose or that the feature is frequently abused? Sadly, it seems doubtful. Instead, they appear to be relying upon the rather loose definition of likely harm that we have seen in FTC actions in other contexts ( more on this problem here).  

Who decides what ambiguous terms mean?

The bigger issue, however, is the ambiguity latent in the Pledge and how that ambiguity is being exploited to criticize Google. The complaint barely conceals EFF’s eagerness, and gives one the distinct feeling that the Pledge and this complaint are part of a long game. Everyone knows that Google’s entire existence revolves around the clever and innovative employment of large data sets. When Google announced that it was interested in working with schools to provide technology to students, I can only imagine how the anti-big-data-for-any-commercial-purpose crowd sat up and took notice, just waiting to pounce as soon as an opportunity, no matter how tenuous, presented itself.

EFF notes that “[u]nlike Microsoft and numerous other developers of digital curriculum and classroom management software, Google did not initially sign onto the Student Privacy Pledge with the first round of signatories when it was announced in the fall of 2014.” Apparently, it is an indictment of Google that it hesitated to adopt an external statement of privacy principles that was authored by a group that had no involvement with Google’s internal operations or business realities. EFF goes on to note that it was only after “sustained criticism” that Google “reluctantly” signed the pledge. So the company is badgered into signing a pledge that it was reluctant to sign in the first place (almost certainly for exactly these sorts of reasons), and is now being skewered by the proponents of the pledge that it was reluctant to sign. Somehow I can’t help but get the sense that this FTC complaint was drafted even before Google signed the Pledge.

According to the Pledge, Google promised to:

  1. “Not collect, maintain, use or share student personal information beyond that needed for authorized educational/school purposes, or as authorized by the parent/student.”
  2. “Not build a personal profile of a student other than for supporting authorized educational/school purposes or as authorized by the parent/student.”
  3. “Not knowingly retain student personal information beyond the time period required to support the authorized educational/school purposes, or as authorized by the parent/student.”

EFF interprets “educational purpose” as anything a student does while logged into her education account, and by extension, any of the even non-educational activity will count as “student personal information.” I think that a fair reading of the Pledge undermines this position, however, and that the correct interpretation of the Pledge is that “educational purpose” and “student personal information” are more tightly coupled such that Google’s ability to collect student data is only circumscribed when the student is actually using the Google for Education Apps.

So what counts as “student personal information” in the pledge? “Student personal information” is “personally identifiable information as well as other information when it is both collected and maintained on an individual level and is linked to personally identifiable information.”  Although this is fairly broad, it is limited by the definition of “Educational/School purposes” which are “services or functions that customarily take place at the direction of the educational institution/agency or their teacher/employee, for which the institutions or agency would otherwise use its own employees, and that aid in the administration or improvement of educational and school activities.” (emphasis added).

This limitation in the Pledge essentially sinks EFF’s complaint. A major part of EFF’s gripe is that when the students interact with non-Education services, Google tracks them. However, the Pledge limits the collection of information only in contexts where “the institutions or agency would otherwise use its own employees” — a definition that clearly does not extend to general Internet usage. This definition would reasonably cover activities like administering classes, tests, and lessons. This definition would not cover activity such as general searches, watching videos on YouTube and the like. Key to EFF’s error is that the pledge is not operative on accounts but around activity — in particular educational activity “for which the institutions or agency would otherwise use its own employees.”

To interpret Google’s activity in the way that EFF does is to treat the Pledge as a promise never to do anything, ever, with the data of a student logged into an education account, whether generated as part of Education apps or otherwise. That just can’t be right. Thinking through the implications of EFF’s complaint, the ultimate end has to be that Google needs to obtain a permission slip from parents before offering access to Google for Education accounts. Administrators and Google are just not allowed to provision any services otherwise.

And here is where the long game comes in. EFF and its peers induced Google to sign the Pledge all the while understanding that their interpretation would necessarily require a re-write of Google’s business model.  But not only is this sneaky, it’s also ridiculous. By way of analogy, this would be similar to allowing parents an individual say over what textbooks or other curricular materials their children are allowed to access. This would either allow for a total veto by a single parent, or else would require certain students to be frozen out of participating in homework and other activities being performed with a Google for Education app. That may work for Yale students hiding from microaggressions, but it makes no sense to read such a contentious and questionable educational model into Google’s widely-offered apps.

I think a more reasonable interpretation should prevail. The privacy pledge is meant to govern the use of student data while that student is acting as a student — which in the case of Google for Education apps would mean while using said apps. Plenty of other Google apps could be used for educational purposes, but Google is intentionally delineating a sensible dividing line in order to avoid exactly this sort of problem (as well as problems that could arise under other laws directed at student activity, like COPPA, most notably). It is entirely unreasonable to presume that Google, by virtue of its socially desirable behavior of enabling students to have ready access to technology, is thereby prevented from tracking individuals’ behavior on non-Education apps as it chooses to define them.

What is the Harm?

According to EFF, there are two primary problems with Google’s gathering and use of student data: gathering and using individual data in non-Education apps, and gathering and using anonymized and aggregated data in the Education apps. So what is the evil end to which Google uses this non-Education gathered data?

“Google not only collects and stores the vast array of student data described above, but uses it for its own purposes such as improving Google products and serving targeted advertising (within non-Education Google services)”

The horrors! Google wants to use student behavior to improve its services! And yes, I get it, everyone hates ads — I hate ads too — but at some point you need to learn to accept that the wealth of nominally free apps available to every user is underwritten by the ad-sphere. So if Google is using the non-Education behavior of students to gain valuable insights that it can monetize and thereby subsidize its services, so what? This is life in the twenty-first century, and until everyone collectively decides that we prefer to pay for services up front, we had better get used to being tracked and monetized by advertisers.

But as noted above, whether you think Google should or shouldn’t be gathering this data, it seems clear that the data generated from use of non-Education apps doesn’t fall under the Pledge’s purview. Thus, perhaps sensing the problems in its non-Education use argument, EFF also half-heartedly attempts to demonize certain data practices that Google employs in the Education context. In short, Google aggregates and anonymizes the usage data of the Google for Education apps, and, according to EFF, this is a violation of the Pledge:

“Aggregating and anonymizing students’ browsing history does not change the intensely private nature of the data … such that Google should be free to use it[.]”

Again the “harm” is that Google actually wants to improve the Educational apps:  “Google has acknowledged that it collects, maintains, and uses student information via Chrome Sync (in aggregated and anonymized form) for the purpose of improving Google products”

This of course doesn’t violate the Pledge. After all, signatories to the Pledge promise only that they will “[n]ot collect, maintain, use or share student personal information beyond that needed for authorized educational/school purposes.” It’s eminently reasonable to include the improvement of the provisioned services as part of an “authorized educational … purpose[.]” And by ensuring that the data is anonymized and aggregated, Google is clearly acknowledging that some limits are appropriate in the education context — that it doesn’t need to collect individual and identifiable personal information for education purposes — but that improving its education products the same way it improves all its products is an educational purpose.

How are the harms enhanced by Chrome Sync? Honestly, it’s not really clear from EFF’s complaint. I believe that the core of EFF’s gripe (at least here) has to do with how the two data gathering activities may be correlated together. Google has ChromeSync enabled by default, so when the students sign on at different locations, the Education apps usage is recorded and grouped (still anonymously) for service improvement alongside non-Education use. And the presence of these two data sets being generated side-by-side creates the potential to track students in the educational capacity by correlating with information generated in their non-educational capacity.

Maybe there are potential flaws in the manner in which the data is anonymized. Obviously EFF thinks anonymized data won’t stay anonymized. That is a contentious view, to say the least, but regardless, it is in no way compelled by the Pledge. But more to the point, merely having both data sets does not do anything that clearly violates the Pledge.

The End Game

So what do groups like EFF actually want? It’s important to consider the effects on social welfare that this approach to privacy takes, and its context. First, the Pledge was overwhelmingly designed for and signed by pure education companies, and not large organizations like Google, Apple, or Microsoft — thus the nature of the Pledge itself is more or less ill-fitted to a multi-faceted business model. If we follow the logical conclusions of this complaint, a company like Google would face an undesirable choice: On the one hand, it can provide hardware to schools at zero cost or heavily subsidized prices, and also provide a suite of useful educational applications. However, as part of this socially desirable donation, it must also place a virtual invisibility shield around students once they’ve signed into their accounts. From that point on, regardless of what service they use — even non-educational ones — Google is prevented from using any data students generate. At this point, one has to question Google’s incentive to remove huge swaths of the population from its ability to gather data. If Google did nothing but provide the hardware, it could simply leave its free services online as-is, and let schools adopt or not adopt them as they wish (subject of course to extant legislation such as COPPA) — thereby allowing itself to possibly collect even more data on the same students.

On the other hand, if not Google, then surely many other companies would think twice before wading into this quagmire, or, when they do, they might offer severely limited services. For instance, one way of complying with EFF’s view of how the Pledge works would be to shut off access to all non-Education services. So, students logged into an education account could only access the word processing and email services, but would be prevented from accessing YouTube, web search and other services — and consequently suffer from a limitation of potentially novel educational options.

EFF goes on to cite numerous FTC enforcement actions and settlements from recent years. But all of the cited examples have one thing in common that the current complaint does not: they all are violations of § 5 for explicit statements or representations made by a company to consumers. EFF’s complaint, on the other hand, is based on a particular interpretation of an ambiguous document generally drafted, and outside of the the complicated business practice at issue. What counts as “student information” when a user employs a general purpose machine for both educational purposes and non-educational purposes?  The Pledge — at least the sections that EFF relies upon in its complaint — is far from clear and doesn’t cover Google’s behavior in an obvious manner.

Of course, the whole complaint presumes that the nature of Google’s services was somehow unfair or deceptive to parents — thus implying that there was at least some material reliance on the Pledge in parental decision making. However, this misses a crucial detail: it is the school administrators who contract with Google for the Chromebooks and Google for Education services, and not the parents or the students.  Then again, maybe EFF doesn’t care and it is, as I suggest above, just interested in a long game whereby it can shoehorn Google’s services into some new sort of privacy regime. This isn’t all that unusual, as we have seen even the White House in other contexts willing to rewrite business practices wholly apart from the realities of privacy “harms.”

But in the end, this approach to privacy is just a very efficient way to discover the lowest common denominator in charity. If it even decides to brave the possible privacy suits, Google and other similarly situated companies will provide the barest access to the most limited services in order to avoid extensive liability from ambiguous pledges. And, perhaps even worse for overall social welfare, using the law to force compliance with voluntarily enacted, ambiguous codes of conduct is a sure-fire way to make sure that there are fewer and more limited codes of conduct in the future.

Last year, Microsoft’s new CEO, Satya Nadella, seemed to break with the company’s longstanding “complain instead of compete” strategy to acknowledge that:

We’re going to innovate with a challenger mindset…. We’re not coming at this as some incumbent.

Among the first items on his agenda? Treating competing platforms like opportunities for innovation and expansion rather than obstacles to be torn down by any means possible:

We are absolutely committed to making our applications run what most people describe as cross platform…. There is no holding back of anything.

Earlier this week, at its Build Developer Conference, Microsoft announced its most significant initiative yet to bring about this reality: code built into its Windows 10 OS that will enable Android and iOS developers to port apps into the Windows ecosystem more easily.

To make this possible… Windows phones “will include an Android subsystem” meant to play nice with the Java and C++ code developers have already crafted to run on a rival’s operating system…. iOS developers can compile their Objective C code right from Microsoft’s Visual Studio, and turn it into a full-fledged Windows 10 app.

Microsoft also announced that its new browser, rebranded as “Edge,” will run Chrome and Firefox extensions, and that its Office suite would enable a range of third-party services to integrate with Office on Windows, iOS, Android and Mac.

Consumers, developers and Microsoft itself should all benefit from the increased competition that these moves are certain to facilitate.

Most obviously, more consumers may be willing to switch to phones and tablets with the Windows 10 operating system if they can continue to enjoy the apps and extensions they’ve come to rely on when using Google and Apple products. As one commenter said of the move:

I left Windows phone due to the lack of apps. I love the OS though, so if this means all my favorite apps will be on the platform I’ll jump back onto the WP bandwagon in a heartbeat.

And developers should invest more in development when they can expect additional revenue from yet another platform running their apps and extensions, with minimal additional development required.

It’s win-win-win. Except perhaps for Microsoft’s lingering regulatory strategy to hobble Google.

That strategy is built primarily on antitrust claims, most recently rooted in arguments that consumers, developers and competitors alike are harmed by Google’s conduct around Android which, it is alleged, makes it difficult for OS makers (like Cyanogen) and app developers (like Microsoft Bing) to compete.

But Microsoft’s interoperability announcements (along with a host of other rapidly evolving market characteristics) actually serve to undermine the antitrust arguments that Microsoft, through groups like FairSearch and ICOMP, has largely been responsible for pushing in the EU against Google/Android.

The reality is that, with innovations like the one Microsoft announced this week, Microsoft, Google and Apple (and Samsung, Nokia, Tizen, Cyanogen…) are competing more vigorously on several fronts. Such competition is evidence of a vibrant marketplace that is simply not in need of antitrust intervention.

The supreme irony in this is that such a move represents a (further) nail in the coffin of the supposed “applications barrier to entry” that was central to the US DOJ’s antitrust suit against Microsoft and that factors into the contemporary Android antitrust arguments against Google.

Frankly, the argument was never very convincing. Absent unjustified and anticompetitive efforts to prop up such a barrier, the “applications barrier to entry” is just a synonym for “big.” Admittedly, the DC Court of Appeals in Microsoft was careful — far more careful than the district court — to locate specific, narrow conduct beyond the mere existence of the alleged barrier that it believed amounted to anticompetitive monopoly maintenance. But central to the imposition of liability was the finding that some of Microsoft’s conduct deterred application developers from effectively accessing other platforms, without procompetitive justification.

With the implementation of initiatives like the one Microsoft has now undertaken in Windows 10, however, it appears that such concerns regarding Google and mobile app developers are unsupportable.

Of greatest significance to the current Android-related accusations against Google, the appeals court in Microsoft also reversed the district court’s finding of liability based on tying, noting in particular that:

If OS vendors without market power also sell their software bundled with a browser, the natural inference is that sale of the items as a bundle serves consumer demand and that unbundled sale would not.

Of course this is exactly what Microsoft Windows Phone (which decidedly does not have market power) does, suggesting that the bundling of mobile OS’s with proprietary apps is procompetitive.

Similarly, in reviewing the eventual consent decree in Microsoft, the appeals court upheld the conditions that allowed the integration of OS and browser code, and rejected the plaintiff’s assertion that a prohibition on such technological commingling was required by law.

The appeals court praised the district court’s recognition that an appropriate remedy “must place paramount significance upon addressing the exclusionary effect of the commingling, rather than the mere conduct which gives rise to the effect,” as well as the district court’s acknowledgement that “it is not a proper task for the Court to undertake to redesign products.”  Said the appeals court, “addressing the applications barrier to entry in a manner likely to harm consumers is not self-evidently an appropriate way to remedy an antitrust violation.”

Today, claims that the integration of Google Mobile Services (GMS) into Google’s version of the Android OS is anticompetitive are misplaced for the same reason:

But making Android competitive with its tightly controlled competitors [e.g., Apple iOS and Windows Phone] requires special efforts from Google to maintain a uniform and consistent experience for users. Google has tried to achieve this uniformity by increasingly disentangling its apps from the operating system (the opposite of tying) and giving OEMs the option (but not the requirement) of licensing GMS — a “suite” of technically integrated Google applications (integrated with each other, not the OS).  Devices with these proprietary apps thus ensure that both consumers and developers know what they’re getting.

In fact, some commenters have even suggested that, by effectively making the OS more “open,” Microsoft’s new Windows 10 initiative might undermine the Windows experience in exactly this fashion:

As a Windows Phone developer, I think this could easily turn into a horrible idea…. [I]t might break the whole Windows user experience Microsoft has been building in the past few years. Modern UI design is a different approach from both Android and iOS. We risk having a very unhomogenic [sic] store with lots of apps using different design patterns, and Modern UI is in my opinion, one of the strongest points of Windows Phone.

But just because Microsoft may be willing to take this risk doesn’t mean that any sensible conception of competition law and economics should require Google (or anyone else) to do so, as well.

Most significantly, Microsoft’s recent announcement is further evidence that both technological and contractual innovations can (potentially — the initiative is too new to know its effect) transform competition, undermine static market definitions and weaken theories of anticompetitive harm.

When apps and their functionality are routinely built into some OS’s or set as defaults; when mobile apps are also available for the desktop and are seamlessly integrated to permit identical functions to be performed on multiple platforms; and when new form factors like Apple MacBook Air and Microsoft Surface blur the lines between mobile and desktop, traditional, static anticompetitive theories are out the window (no pun intended).

Of course, it’s always been possible for new entrants to overcome network effects and scale impediments by a range of means. Microsoft itself has in the past offered to pay app developers to write for its mobile platform. Similarly, it offers inducements to attract users to its Bing search engine and it has devised several creative mechanisms to overcome its claimed scale inferiority in search.

A further irony (and market complication) is that now some of these apps — the ones with network effects of their own — threaten in turn to challenge the reigning mobile operating systems, exactly as Netscape was purported to threaten Microsoft’s OS (and lead to its anticompetitive conduct) back in the day. Facebook, for example, now offers not only its core social media function, but also search, messaging, video calls, mobile payments, photo editing and sharing, and other functionality that compete with many of the core functions built into mobile OS’s.

But the desire by apps like Facebook to expand their networks by being on multiple platforms, and the desire by these platforms to offer popular apps in order to attract users, ensure that Facebook is ubiquitous, even without any antitrust intervention. As Timothy Bresnahan, Joe Orsini and Pai-Ling Yin demonstrate:

(1) The distribution of app attractiveness to consumers is skewed, with a small minority of apps drawing the vast majority of consumer demand. (2) Apps which are highly demanded on one platform tend also to be highly demanded on the other platform. (3) These highly demanded apps have a strong tendency to multihome, writing for both platforms. As a result, the presence or absence of apps offers little reason for consumers to choose a platform. A consumer can choose either platform and have access to the most attractive apps.

Of course, even before Microsoft’s announcement, cross-platform app development was common, and third-party platforms like Xamarin facilitated cross-platform development. As Daniel O’Connor noted last year:

Even if one ecosystem has a majority of the market share, software developers will release versions for different operating systems if it is cheap/easy enough to do so…. As [Torsten] Körber documents [here], building mobile applications is much easier and cheaper than building PC software. Therefore, it is more common for programmers to write programs for multiple OSes…. 73 percent of apps developers design apps for at least two different mobiles OSes, while 62 percent support 3 or more.

Whether Microsoft’s interoperability efforts prove to be “perfect” or not (and some commenters are skeptical), they seem destined to at least further decrease the cost of cross-platform development, thus reducing any “application barrier to entry” that might impede Microsoft’s ability to compete with its much larger rivals.

Moreover, one of the most interesting things about the announcement is that it will enable Android and iOS apps to run not only on Windows phones, but also on Windows computers. Some 1.3 billion PCs run Windows. Forget Windows’ tiny share of mobile phone OS’s; that massive potential PC market (of which Microsoft still has 91 percent) presents an enormous ready-made market for mobile app developers that won’t be ignored.

It also points up the increasing absurdity of compartmentalizing these markets for antitrust purposes. As the relevant distinctions between mobile and desktop markets break down, the idea of Google (or any other company) “leveraging its dominance” in one market to monopolize a “neighboring” or “related” market is increasingly unsustainable. As I wrote earlier this week:

Mobile and social media have transformed search, too…. This revolution has migrated to the computer, which has itself become “app-ified.” Now there are desktop apps and browser extensions that take users directly to Google competitors such as Kayak, eBay and Amazon, or that pull and present information from these sites.

In the end, intentionally or not, Microsoft is (again) undermining its own case. And it is doing so by innovating and competing — those Schumpeterian concepts that were always destined to undermine antitrust cases in the high-tech sector.

If we’re lucky, Microsoft’s new initiatives are the leading edge of a sea change for Microsoft — a different and welcome mindset built on competing in the marketplace rather than at regulators’ doors.

Recent years have seen an increasing interest in incorporating privacy into antitrust analysis. The FTC and regulators in Europe have rejected these calls so far, but certain scholars and activists continue their attempts to breathe life into this novel concept. Elsewhere we have written at length on the scholarship addressing the issue and found the case for incorporation wanting. Among the errors proponents make is a persistent (and woefully unsubstantiated) assertion that online data can amount to a barrier to entry, insulating incumbent services from competition and ensuring that only the largest providers thrive. This data barrier to entry, it is alleged, can then allow firms with monopoly power to harm consumers, either directly through “bad acts” like price discrimination, or indirectly by raising the costs of advertising, which then get passed on to consumers.

A case in point was on display at last week’s George Mason Law & Economics Center Briefing on Big Data, Privacy, and Antitrust. Building on their growing body of advocacy work, Nathan Newman and Allen Grunes argued that this hypothesized data barrier to entry actually exists, and that it prevents effective competition from search engines and social networks that are interested in offering services with heightened privacy protections.

According to Newman and Grunes, network effects and economies of scale ensure that dominant companies in search and social networking (they specifically named Google and Facebook — implying that they are in separate markets) operate without effective competition. This results in antitrust harm, they assert, because it precludes competition on the non-price factor of privacy protection.

In other words, according to Newman and Grunes, even though Google and Facebook offer their services for a price of $0 and constantly innovate and upgrade their products, consumers are nevertheless harmed because the business models of less-privacy-invasive alternatives are foreclosed by insufficient access to data (an almost self-contradicting and silly narrative for many reasons, including the big question of whether consumers prefer greater privacy protection to free stuff). Without access to, and use of, copious amounts of data, Newman and Grunes argue, the algorithms underlying search and targeted advertising are necessarily less effective and thus the search product without such access is less useful to consumers. And even more importantly to Newman, the value to advertisers of the resulting consumer profiles is diminished.

Newman has put forth a number of other possible antitrust harms that purportedly result from this alleged data barrier to entry, as well. Among these is the increased cost of advertising to those who wish to reach consumers. Presumably this would harm end users who have to pay more for goods and services because the costs of advertising are passed on to them. On top of that, Newman argues that ad networks inherently facilitate price discrimination, an outcome that he asserts amounts to antitrust harm.

FTC Commissioner Maureen Ohlhausen (who also spoke at the George Mason event) recently made the case that antitrust law is not well-suited to handling privacy problems. She argues — convincingly — that competition policy and consumer protection should be kept separate to preserve doctrinal stability. Antitrust law deals with harms to competition through the lens of economic analysis. Consumer protection law is tailored to deal with broader societal harms and aims at protecting the “sanctity” of consumer transactions. Antitrust law can, in theory, deal with privacy as a non-price factor of competition, but this is an uneasy fit because of the difficulties of balancing quality over two dimensions: Privacy may be something some consumers want, but others would prefer a better algorithm for search and social networks, and targeted ads with free content, for instance.

In fact, there is general agreement with Commissioner Ohlhausen on her basic points, even among critics like Newman and Grunes. But, as mentioned above, views diverge over whether there are some privacy harms that should nevertheless factor into competition analysis, and on whether there is in fact  a data barrier to entry that makes these harms possible.

As we explain below, however, the notion of data as an antitrust-relevant barrier to entry is simply a myth. And, because all of the theories of “privacy as an antitrust harm” are essentially predicated on this, they are meritless.

First, data is useful to all industries — this is not some new phenomenon particular to online companies

It bears repeating (because critics seem to forget it in their rush to embrace “online exceptionalism”) that offline retailers also receive substantial benefit from, and greatly benefit consumers by, knowing more about what consumers want and when they want it. Through devices like coupons and loyalty cards (to say nothing of targeted mailing lists and the age-old practice of data mining check-out receipts), brick-and-mortar retailers can track purchase data and better serve consumers. Not only do consumers receive better deals for using them, but retailers know what products to stock and advertise and when and on what products to run sales. For instance:

  • Macy’s analyzes tens of millions of terabytes of data every day to gain insights from social media and store transactions. Over the past three years, the use of big data analytics alone has helped Macy’s boost its revenue growth by 4 percent annually.
  • Following its acquisition of Kosmix in 2011, Walmart established @WalmartLabs, which created its own product search engine for online shoppers. In the first year of its use alone, the number of customers buying a product on after researching a purchase increased by 20 percent. According to Ron Bensen, the vice president of engineering at @WalmartLabs, the combination of in-store and online data could give brick-and-mortar retailers like Walmart an advantage over strictly online stores.
  • Panera and a whole host of restaurants, grocery stores, drug stores and retailers use loyalty cards to advertise and learn about consumer preferences.

And of course there is a host of others uses for data, as well, including security, fraud prevention, product optimization, risk reduction to the insured, knowing what content is most interesting to readers, etc. The importance of data stretches far beyond the online world, and far beyond mere retail uses more generally. To describe even online giants like Amazon, Apple, Microsoft, Facebook and Google as having a monopoly on data is silly.

Second, it’s not the amount of data that leads to success but building a better mousetrap

The value of knowing someone’s birthday, for example, is not in that tidbit itself, but in the fact that you know this is a good day to give that person a present. Most of the data that supports the advertising networks underlying the Internet ecosphere is of this sort: Information is important to companies because of the value that can be drawn from it, not for the inherent value of the data itself. Companies don’t collect information about you to stalk you, but to better provide goods and services to you.

Moreover, data itself is not only less important than what can be drawn from it, but data is also less important than the underlying product it informs. For instance, Snapchat created a challenger to  Facebook so successfully (and in such short time) that Facebook attempted to buy it for $3 billion (Google offered $4 billion). But Facebook’s interest in Snapchat wasn’t about its data. Instead, Snapchat was valuable — and a competitive challenge to Facebook — because it cleverly incorporated the (apparently novel) insight that many people wanted to share information in a more private way.

Relatedly, Twitter, Instagram, LinkedIn, Yelp, Pinterest (and Facebook itself) all started with little (or no) data and they have had a lot of success. Meanwhile, despite its supposed data advantages, Google’s attempts at social networking — Google+ — have never caught up to Facebook in terms of popularity to users (and thus not to advertisers either). And scrappy social network Ello is starting to build a significant base without data collection for advertising at all.

At the same time it’s simply not the case that the alleged data giants — the ones supposedly insulating themselves behind data barriers to entry — actually have the type of data most relevant to startups anyway. As Andres Lerner has argued, if you wanted to start a travel business, the data from Kayak or Priceline would be far more relevant. Or if you wanted to start a ride-sharing business, data from cab companies would be more useful than the broad, market-cross-cutting profiles Google and Facebook have. Consider companies like Uber, Lyft and Sidecar that had no customer data when they began to challenge established cab companies that did possess such data. If data were really so significant, they could never have competed successfully. But Uber, Lyft and Sidecar have been able to effectively compete because they built products that users wanted to use — they came up with an idea for a better mousetrap.The data they have accrued came after they innovated, entered the market and mounted their successful challenges — not before.

In reality, those who complain about data facilitating unassailable competitive advantages have it exactly backwards. Companies need to innovate to attract consumer data, otherwise consumers will switch to competitors (including both new entrants and established incumbents). As a result, the desire to make use of more and better data drives competitive innovation, with manifestly impressive results: The continued explosion of new products, services and other apps is evidence that data is not a bottleneck to competition but a spur to drive it.

Third, competition online is one click or thumb swipe away; that is, barriers to entry and switching costs are low

Somehow, in the face of alleged data barriers to entry, competition online continues to soar, with newcomers constantly emerging and triumphing. This suggests that the barriers to entry are not so high as to prevent robust competition.

Again, despite the supposed data-based monopolies of Facebook, Google, Amazon, Apple and others, there exist powerful competitors in the marketplaces they compete in:

  • If consumers want to make a purchase, they are more likely to do their research on Amazon than Google.
  • Google flight search has failed to seriously challenge — let alone displace —  its competitors, as critics feared. Kayak, Expedia and the like remain the most prominent travel search sites — despite Google having literally purchased ITA’s trove of flight data and data-processing acumen.
  • People looking for local reviews go to Yelp and TripAdvisor (and, increasingly, Facebook) as often as Google.
  • Pinterest, one of the most highly valued startups today, is now a serious challenger to traditional search engines when people want to discover new products.
  • With its recent acquisition of the shopping search engine, TheFind, and test-run of a “buy” button, Facebook is also gearing up to become a major competitor in the realm of e-commerce, challenging Amazon.
  • Likewise, Amazon recently launched its own ad network, “Amazon Sponsored Links,” to challenge other advertising players.

Even assuming for the sake of argument that data creates a barrier to entry, there is little evidence that consumers cannot easily switch to a competitor. While there are sometimes network effects online, like with social networking, history still shows that people will switch. MySpace was considered a dominant network until it made a series of bad business decisions and everyone ended up on Facebook instead. Similarly, Internet users can and do use Bing, DuckDuckGo, Yahoo, and a plethora of more specialized search engines on top of and instead of Google. And don’t forget that Google itself was once an upstart new entrant that replaced once-household names like Yahoo and AltaVista.

Fourth, access to data is not exclusive

Critics like Newman have compared Google to Standard Oil and argued that government authorities need to step in to limit Google’s control over data. But to say data is like oil is a complete misnomer. If Exxon drills and extracts oil from the ground, that oil is no longer available to BP. Data is not finite in the same way. To use an earlier example, Google knowing my birthday doesn’t limit the ability of Facebook to know my birthday, as well. While databases may be proprietary, the underlying data is not. And what matters more than the data itself is how well it is analyzed.

This is especially important when discussing data online, where multi-homing is ubiquitous, meaning many competitors end up voluntarily sharing access to data. For instance, I can use the friend-finder feature on WordPress to find Facebook friends, Google connections, and people I’m following on Twitter who also use the site for blogging. Using this feature allows WordPress to access your contact list on these major online players.


Further, it is not apparent that Google’s competitors have less data available to them. Microsoft, for instance, has admitted that it may actually have more data. And, importantly for this discussion, Microsoft may have actually garnered some of its data for Bing from Google.

If Google has a high cost per click, then perhaps it’s because it is worth it to advertisers: There are more eyes on Google because of its superior search product. Contra Newman and Grunes, Google may just be more popular for consumers and advertisers alike because the algorithm makes it more useful, not because it has more data than everyone else.

Fifth, the data barrier to entry argument does not have workable antitrust remedies

The misguided logic of data barrier to entry arguments leaves a lot of questions unanswered. Perhaps most important among these is the question of remedies. What remedy would apply to a company found guilty of leveraging its market power with data?

It’s actually quite difficult to conceive of a practical means for a competition authority to craft remedies that would address the stated concerns without imposing enormous social costs. In the unilateral conduct context, the most obvious remedy would involve the forced sharing of data.

On the one hand, as we’ve noted, it’s not clear this would actually accomplish much. If competitors can’t actually make good use of data, simply having more of it isn’t going to change things. At the same time, such a result would reduce the incentive to build data networks to begin with. In their startup stage, companies like Uber and Facebook required several months and hundreds of thousands, if not millions, of dollars to design and develop just the first iteration of the products consumers love. Would any of them have done it if they had to share their insights? In fact, it may well be that access to these free insights is what competitors actually want; it’s not the data they’re lacking, but the vision or engineering acumen to use it.

Other remedies limiting collection and use of data are not only outside of the normal scope of antitrust remedies, they would also involve extremely costly court supervision and may entail problematic “collisions between new technologies and privacy rights,” as the last year’s White House Report on Big Data and Privacy put it.

It is equally unclear what an antitrust enforcer could do in the merger context. As Commissioner Ohlhausen has argued, blocking specific transactions does not necessarily stop data transfer or promote privacy interests. Parties could simply house data in a standalone entity and enter into licensing arrangements. And conditioning transactions with forced data sharing requirements would lead to the same problems described above.

If antitrust doesn’t provide a remedy, then it is not clear why it should apply at all. The absence of workable remedies is in fact a strong indication that data and privacy issues are not suitable for antitrust. Instead, such concerns would be better dealt with under consumer protection law or by targeted legislation.

The Wall Street Journal reported yesterday that the FTC Bureau of Competition staff report to the commissioners in the Google antitrust investigation recommended that the Commission approve an antitrust suit against the company.

While this is excellent fodder for a few hours of Twitter hysteria, it takes more than 140 characters to delve into the nuances of a 20-month federal investigation. And the bottom line is, frankly, pretty ho-hum.

As I said recently,

One of life’s unfortunate certainties, as predictable as death and taxes, is this: regulators regulate.

The Bureau of Competition staff is made up of professional lawyers — many of them litigators, whose existence is predicated on there being actual, you know, litigation. If you believe in human fallibility at all, you have to expect that, when they err, FTC staff errs on the side of too much, rather than too little, enforcement.

So is it shocking that the FTC staff might recommend that the Commission undertake what would undoubtedly have been one of the agency’s most significant antitrust cases? Hardly.

Nor is it surprising that the commissioners might not always agree with staff. In fact, staff recommendations are ignored all the time, for better or worse. Here are just a few examples: R.J Reynolds/Brown & Williamson merger, POM Wonderful , Home Shopping Network/QVC merger, cigarette advertising. No doubt there are many, many more.

Regardless, it also bears pointing out that the staff did not recommend the FTC bring suit on the central issue of search bias “because of the strong procompetitive justifications Google has set forth”:

Complainants allege that Google’s conduct is anticompetitive because if forecloses alternative search platforms that might operate to constrain Google’s dominance in search and search advertising. Although it is a close call, we do not recommend that the Commission issue a complaint against Google for this conduct.

But this caveat is enormous. To report this as the FTC staff recommending a case is seriously misleading. Here they are forbearing from bringing 99% of the case against Google, and recommending suit on the marginal 1% issues. It would be more accurate to say, “FTC staff recommends no case against Google, except on a couple of minor issues which will be immediately settled.”

And in fact it was on just these minor issues that Google agreed to voluntary commitments to curtail some conduct when the FTC announced it was not bringing suit against the company.

The Wall Street Journal quotes some other language from the staff report bolstering the conclusion that this is a complex market, the conduct at issue was ambiguous (at worst), and supporting the central recommendation not to sue:

We are faced with a set of facts that can most plausibly be accounted for by a narrative of mixed motives: one in which Google’s course of conduct was premised on its desire to innovate and to produce a high quality search product in the face of competition, blended with the desire to direct users to its own vertical offerings (instead of those of rivals) so as to increase its own revenues. Indeed, the evidence paints a complex portrait of a company working toward an overall goal of maintaining its market share by providing the best user experience, while simultaneously engaging in tactics that resulted in harm to many vertical competitors, and likely helped to entrench Google’s monopoly power over search and search advertising.

On a global level, the record will permit Google to show substantial innovation, intense competition from Microsoft and others, and speculative long-run harm.

This is exactly when you want antitrust enforcers to forbear. Predicting anticompetitive effects is difficult, and conduct that could be problematic is simultaneously potentially vigorous competition.

That the staff concluded that some of what Google was doing “harmed competitors” isn’t surprising — there were lots of competitors parading through the FTC on a daily basis claiming Google harmed them. But antitrust is about protecting consumers, not competitors. Far more important is the staff finding of “substantial innovation, intense competition from Microsoft and others, and speculative long-run harm.”

Indeed, the combination of “substantial innovation,” “intense competition from Microsoft and others,” and “Google’s strong procompetitive justifications” suggests a well-functioning market. It similarly suggests an antitrust case that the FTC would likely have lost. The FTC’s litigators should probably be grateful that the commissioners had the good sense to vote to close the investigation.

Meanwhile, the Wall Street Journal also reports that the FTC’s Bureau of Economics simultaneously recommended that the Commission not bring suit at all against Google. It is not uncommon for the lawyers and the economists at the Commission to disagree. And as a general (though not inviolable) rule, we should be happy when the Commissioners side with the economists.

While the press, professional Google critics, and the company’s competitors may want to make this sound like a big deal, the actual facts of the case and a pretty simple error-cost analysis suggests that not bringing a case was the correct course.