Just sharing, as often, an interesting article I came accross. It is an open comment in the Financial Times from the former chairman of the Competition Commission on why Google needs to be under scrutiny when it comes to consumers’ privacy. Outside from what is at stake here for Google, it is worth noting that online advertising slowly emerges as an industry of its own and not as a mere “sister channel” of the wider, global and very established advertising industry (see the last part of the article).
Google warrants an inquiry
By Denise Kingsmill – Baroness Kingsmill is former deputy chairman of the Competition Commission
Published: June 12 2007
Copyright The Financial Times Limited 2007
As the gateway to the internet for more than 1.1bn people around the world, search companies wield enormous power. The dominance of search engines was demonstrated by a recent study that found Google is the most visited internet destination in 13 of the 16 European nations covered. Research by Hitwise found that in the four weeks to February 10 this year, Google powered a staggering 77 per cent of all internet searches in the UK.
This represents huge commercial power because of the ability to charge a fee to businesses or individuals each time a search engine facilitates “click-through” to their website. In the UK, the latest Internet Advertising Bureau figures show Google commands a 43 per cent share of the £2bn marketers spent on online advertising in 2006, up from 35 per cent in 2005. This represents 11.4 per cent of all UK advertising revenues, up from 7.8 per cent in 2005. In short, this market is not only of growing strategic importance but also one that is dangerously unbalanced. This concentration of power creates risks for businesses and consumers that ought to be the subject of a market inquiry in the UK, to complement the Federal Trade Commission investigation taking place in Washington. The enormous revenues generated by the dominant players are being used to acquire stronger positions in other online advertising markets. Google’s bid to acquire DoubleClick illustrates these risks. Until now publishers have had two options: Google and DoubleClick. Google delivers adverts on behalf of advertisers based on the content of the page that the consumer is visiting, while DoubleClick delivers adverts based on a profile of that consumer, which it builds from the consumer’s prior visits to DoubleClick-powered websites. Publishers who previously turned to DoubleClick over Google will now lack a meaningful choice.
In terms of the risks for consumers, by far the largest and most vulnerable group are the millions of small companies with niche products and a geographically dispersed customer base that rely entirely on online adverts to reach customers. For most of these companies, there is no viable alternative advertising mechanism. Because these organisations are so readily identifiable, they are prone to price discrimination by a dominant broker. This power was demonstrated when one website saw its traffic slump by 70 per cent after Google removed its site from the search index in March 2006.
Detractors might argue that any search engine’s rival is only ever one click away. But the growing size and complexity of the web make it difficult and costly for new entrants to develop the web-crawling and indexing technologies, as well as the storage capacity to index billions of web pages required to build a viable search engine. Another area of concern, and one that is increasingly on the radar of US and European Union regulators, is the vexed issue of privacy and data protection. In the context of Google’s proposed acquisition of DoubleClick, consumer groups in the US have argued strongly to the FTC that a combined Google/DoubleClick will have access to more information about the internet activities of consumers than any other company in the world. In the UK, the information commissioner Richard Thomas should take an urgent look at the privacy issue. It is a matter of regret among some competition specialists that the UK’s competition authorities no longer have a public interest remit that would enable them to look at these issues.
To ensure continued competition in internet commerce, it is vital that government officials at the European Union and national level address the extraordinary changes taking place in the online advertising industry. Regulators who have not considered it a separate market must now do so and take a more proactive approach to this and subsequent acquisitions by the industry’s main operator. I firmly believe that a logical starting point would be for the UK’s Office of Fair Trading to initiate a thorough study of the online marketplace. This should look at whether the market is having a detrimental effect on consumers, stifling innovation and leading to higher prices. If this were found to be the case, it could then refer the industry to the Competition Commission for a full market inquiry, such as those supermarkets are being subjected to. It is extraordinary that the online marketplace, where the dynamics are potentially even more anti-competitive, has been so neglected.
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