While all companies increasingly use big data to strengthen their competitive position, user data is the singular critical element for market power in advertising-supported sectors, because the core product sold to advertisers is access to that user data. (For data platforms like Apple and Amazon whose products are sold directly to users, not advertisers, this dynamic is different). Media studies professor, Siva Vaidhyanathan, has noted that we have allowed our “our fancies, fetishes, predilections, and preferences” to be captured by companies like Google and resold to their advertisers.[i]
Search, email, online video, social media—these aren’t products sold to users. They are offered to users for free essentially as bait to encourage them to give up their data and agree to become a product packaged by behavioral and demographic category to advertisers. And that user product is not merely a compilation of user activities in any one service but of the combined activity across all the services provided by that advertising-based platform. The more services the user uses, the more data to be packaged for the advertising clients.
So when thinking about competition in these advertising-driven data markets, the point is not how easy it is for users to switch to an alternative product but whether advertisers can easily substitute an alternative online advertising service for a dominant one like Google. Competition in search is not the relevant market; competition in search advertising should be the focus for regulators and the Federal Trade Commission itself has argued that search advertising is even a distinct market for antitrust analysis compared to online display advertising[ii], as have competition authorities in other countries.[iii] It’s worth emphasizing that the FTC’s ruling in January 2013 was only that Google had no harmful monopoly in search as a market, without any finding or analysis of whether Google’s dominance of search advertising violated antitrust law.
For advertisers seeking the product Google sells, namely ads tailored to targeted behavioral characteristics of online users, there is no economically viable competition to Google that has the same one-stop reach. Facebook and Twitter are working hard to develop alternative sources of user data to get a similar claim, but the competition for online advertising is increasingly limited to a narrow set of players. The people who use Google search are the product sold to those search advertisers and to the degree Google has unique data on those users, any advertisers wanting to reach those users has to go through Google. And because no new competitor can get access to that user data without getting the scale of Google-- and can't get that scale without the user data -- you have little chance of new competition displacing Google's dominance in search advertising. Even Facebook is making inroads only in the much smaller sector of online display advertising online and mostly at the expense of other players, not Google.
Evidence of this market power from controlling user data is the premium price Google is able to demand from advertisers, one reason that the company is able to translate a 65% of all searches by United States users online into 78% of all search advertising revenue. Yet while a dominant player like Google is inevitably going to deliver more clicks on any keyword because it has more users, all things being equal, the Cost Per Click (CPC) price – how much an advertiser pays when an online user clicks on an ad -- should be roughly the same since a user ultimately clicking through to an advertiser’s page should in theory be just as valuable if the customer reaches the page via Google, as via AOL or via Microsoft’s Bing.
However, even in the United States where Bing has a significant minority share of searches—especially when including its alliance with Yahoo!—Google receives a high premium on its CPC. One advertising analyst estimated that for the same keywords, the “average CPC on Bing is somewhere around 1/4 or 1/5 of our average CPC on Google.”[iv] Another found that on specific search terms, CPC rates on Bing were slightly higher but still were discounted 49% to 71% compared to Google.[v]
What this means is that even if a United States advertiser pays for a search term on both Google and Bing, Bing would end up generating only one-tenth to one-fourth of the revenue Google received from the same advertiser’s campaign using the exact same keywords on each site (i.e. roughly half the number of clicks times one fifth to half the revenue per click). This explains at least part of the reason why Bing may have nearly half the U.S. users of Google, but generates less than twenty percent of sector revenue.
The lower CPC rate means that potential competitors to Google receive much less revenue but have to invest similar amounts in fixed costs as Google to maintain a competitive search engine and platform. Bing has not been able to attain a financially viable competitive challenge and the fixed costs for entry create a major barrier to entry for any new potential challengers to Google, so its market dominance seems unlikely to be eroded by market forces.
As Jonathan Rosenberg, Google’s own VP of Product Management and Marketing explained in an unguarded statement in 2008:
We get more users because we have more advertisers because we can buy distribution on sites that understand that our search engine monetizes better. So more users more information, more information more users, more advertisers more users, it’s a beautiful thing, lather, rinse, repeat, that’s what I do for a living. So that’s … the engine that can’t be stopped.[vi]
That Google’s own executives argue that its control of user data has helped create a self-reinforcing circle that has strengthened its dominance should encourage regulators to investigate how Google and other big data platforms use user data to create and extend their market power.
Aside from the broader harm to society and consumers outlined earlier in this paper, the most basic consumer harm that should demand a regulatory response are the inevitable higher costs to the advertising customers. Now, average people don't necessarily have to cry tears for those advertisers, but from a competition viewpoint, higher costs spilling into the economy due to monopoly is a sufficient basis for antitrust action. There are plenty of antitrust cases over the years over higher costs charged to advertisers[vii], one reason the government had to grant special antitrust dispensation in the Newspaper Preservation Act[viii] to many of the joint advertising operations by newspapers. Newspaper advertising was considered a unique sector and other forms of advertising were not a legal substitute, so dominance in reaching any unique set of readers was anti-competitive. Similarly, the Federal Trade Commission itself has affirmed that search advertising is a different industry sector for analysis from online display advertising.[ix]
What makes the harm to average consumers from current dominance by big data platforms seem distinctly worse is that the higher profit margins for those data platforms do not seem to be plowed back into providing equally valuable services for end users in the same way advertising in traditional media was reinvested into media content. What Google users get in free services is a tiny fraction of the value of the data they have given up and the advertising profits generated by Google. Instead, Google has plowed that revenue into new ventures -- buying YouTube, expanding Android, moonshot projects like driverless cars, Google Fiber, etc. -- and just piling up its current $59 billion cash on hand. Users aren't getting the value for their data, either in cash payments or in services provided, which goes to the consumer harm that differs from other traditional advertising-supported media where the value provided to readers/viewers was pretty comparable to the advertising dollars generated.
[i] Siva Vaidhyanathan, The Googlization of Everything (and Why We Should Worry) 3 (2011).
[ii] See Google/DoubleClick, No. 071-0170 at 3 (F.T.C. 2007) (statement of the Commission), available at http://1.usa.gov/RGkEVe (The FTC approved Google’s acquisition of the online display advertising company DoubleClick because “advertising space sold by search engines is not a substitute for space sold directly or indirectly by publishers [of display advertising] or vice versa.”); Press Release, U.S. Department of Justice, Yahoo! Inc. and Google Inc. Abandon Their Advertising Agreement: Resolves Justice Department’s Antitrust Concerns, Competition Is Preserved in Markets for Internet Search Advertising (Nov. 5, 2008), available at http://1.usa.gov/eILMV6 (barring Google from coordinating its search advertising with Yahoo!).
[iii]TK In Europe, see, Case IV/JV.1 . Telia/Telenor/Schibstedt, 27 May 1998, Case IV/M.1439 . Telia/Telenor, 3 October 1999 and Case IV/M.0048 . Vodafone/Vivendi/Canal Plus, 20 July 2000; COMP/M.4731 Google/DoubleClick, 11 March 2008 and COMP/ M.5727.Microsoft/Yahoo! Search business, 18 February 2010. In Australia, see Microsoft/Yahoo! Ref. 38377.
[iv] Natalia Klishina, “PPC Search: Google AdWords vs. Microsoft AdCenter (Bing),” CallFire (Jan. 7, 2011), http://www.callfire.com/blog/2011/01/07/ppc-search-google-adwords-vs-microsoft-adcenter-bing/
[v] Donald Nosek, “5 Reasons Why Bing is the Best Deal in Paid Search,” Y Digital Marketing Blog (July 11, 2011), http://www.ymarketing.com/blog/5-reasons-why-bing-is-the-best-deal-in-paid-search/.
[vii] See for example Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 610-14 (1953) (Supreme Court distinguished newspaper advertising from “advertising placed through other communication media” based on the “[advertising] trade's own characterization of the products involved” and the way the advertising industry differentiates “between advertising in newspapers and in other mass media.”)
[viii] CFR Title 28, Chapter I, Part 48; See Newspaper Preservation Act of 1970, Wikipedia, http://en.wikipedia.org/wiki/Newspaper_Preservation_Act_of_1970
[ix] See Google/DoubleClick, No. 071-0170 at 3 (F.T.C. 2007) (statement of the Commission), available at http://1.usa.gov/RGkEVe (The FTC approved Google’s acquisition of the online display advertising company DoubleClick because “advertising space sold by search engines is not a substitute for space sold directly or indirectly by publishers [of display advertising] or vice versa.”); Press Release, U.S. Department of Justice, Yahoo! Inc. and Google Inc. Abandon Their Advertising Agreement: Resolves Justice Department’s Antitrust Concerns, Competition Is Preserved in Markets for Internet Search Advertising (Nov. 5, 2008), available at http://1.usa.gov/eILMV6 (barring Google from coordinating its search advertising with Yahoo!).