Last month a Paris appeals court annulled some €3.9 million (US$5.2M) in fines imposed on endive producers and their trade associations by the French Competition Authority (the Autorité de la concurrence). Not dissuaded, that French competition agency just slapped a €1.6M (US$2.1M) fine on Caribbean yogurt maker Societe Nouvelle des Yaourts de Littee (SNYL) for falsely questioning the safety and quality of a rival brand in Martinique and Guadeloupe, characterizing the practice as “abuse of dominance” in the marketplace.
This epitomizes a fundamental disconnect between antitrust law and competition policy in the U.S. and that of many other nations. (No, the French are not alone…) American antitrust principles and decisions generally limit the reach of competition law — aside from competitor collision like price-fixing cartels — to business conduct that uses market power in an exclusionary manner. As the Supreme Court emphasized in 1993, “[e]ven an act of pure malice by one business competitor against another does not, without more, state a claim under the federal antitrust laws; those laws do not create a federal law of unfair competition or ‘purport to afford remedies for all torts committed by or against persons engaged in interstate commerce.'” In sharp contrast, the FCA reasoned about yogurt that “the dissemination of misleading and disparaging remarks by a dominant operator against one of its competitors is a serious practice with regard to competition rules.”
“Between December 2007 and December 2009, SNYL broadcast information discrediting the sanitary quality of Laiterie de Saint-Malo products using the questionable results of bacteriological tests and questioning the irregular consumption deadlines affixed to its products,” the FCA reported in a (translated) statement. This led a number of retailers to pull Malo products from shelves for an extended period. “This behavior had the effect of limiting product sales of Laiterie de Saint-Malo in Martinique and Guadeloupe — an abuse of dominant position prohibited by Article L 420-2 of the Commercial Code,” the FCA concluded.
In the United States, legal standards for proving antitrust claims are rightly rigorous; they are strict in order to reduce the risk that enforcement of the antitrust laws may chill the very sort of vigorous, competitive conduct they are intended to encourage. It’s been true forat least 35 years that the Sherman Act “is not a panacea for all evils that may infect business life.” Legendary antitrust law scholars Phillip Areeda and Herbert Hovenkamp have advocated a nearly insurmountable presumption against deception and fraud serving as the basis for a monopolization claim, a presumption most courts have readily embraced. As one court of appeals cogently explained, “[i]solated tortious activity alone does not constitute exclusionary conduct for purposes of a [Sherman Act] § 2 violation, absent a significant and more than a temporary effect on competition, and not merely on a competitor or customer…. Business torts will be violative of § 2 only in ‘rare gross cases.’”
The difference is that between competition and consumer protection, which are quite distinct concepts in American jurisprudence. If a firm uses a monopoly to harm competition without business justification, that’s an antitrust violation. If a firm lies about a competitor’s products or runs false advertising, that’s a deceptive business practice. The two legal regimes are directed at different constituencies and conduct, which is why the Federal Trade Commission Act was amended in the 1930s to add a separate provision (Section 5) for “unfair or deceptive” business practices, and why the FTC accordingly is separated into its two principal divisions: the Bureau of Competition and the Bureau of Consumer Protection. Likewise, the Lanham Act specifically prohibits false advertising and provides a damages remedy for injured companies. Thus, false representations around a firm’s own, or it’s competitor’s, products can be legally actionable, as the Supreme Court again ruled this year in a case about beverage labeling (Pom Wonderful v. Coca-Cola). They’re just not an antitrust violation in the United States.
Continue reading There Go the French Again On Competition
Google’s competitors “are locked in hand-to-hand combat with Google around the world and have the mistaken belief that criticizing us will influence the outcome in other jurisdictions.”
The coalition of companies that for years has unsuccessfully been pressing antitrust complaints against Google for search “abuse” — FairSearch.org — insists Google must be restrained for fear the Mountain View company will steer search users to its commercial products, like flight bookings. The group’s most recent publicity event, held at the ABA’s Antitrust Section annual spring meeting last week, repeated those same claims. FairSearch ventured as well into new ground, attacking what it terms Google’s unreasonably restrictive Android licensing practices.
There are four straightforward reasons FairSearch is wrong.
1. Predictions of Foreclosure Have Proven Totally Baseless.
When Google purchased travel software maker ITA in 2011, FairSearch maintained that Google would exploit its control over the ITA tools that power other online travel agencies, along with many of the airlines’ own sites, to usher competing search services off the stage, then jack up ad rates for travel queries and favor flights from particular airlines. Three years later, nothing like that has happened. In fact, Google Flight Search is not among the top 100 or even the top 200 travel listing sites. Rather, it’s in 244th place, behind Hipmunk, with just .04% of travel queries. Real-world experience, in other words, reveals that the predicted competitive risks on which FairSearch bases its advocacy are both hypothetical and fanciful. Continue reading Four Reasons Fairsearch Is Wrong
Thirteen months after the U.S. Federal Trade Commission settled its antitrust investigation of Google Inc. by flatly declining to regulate the company’s search practices, the European Union is poised to do just that. This development highlights a serious rift between the two most influential competition authorities worldwide — and their very different value systems.
It has been true for years that on important Internet policy issues such as privacy, defamation, censorship and government surveillance, the 30-member EU has adopted principles far more intrusive for businesses, and likewise more protective of consumers, than in the U.S. Similarly, ever since a proposed General Electric-Honeywell merger was scuttled by the European Commission’s competition directorate in 2000, there have been a few highly visible cases in which the EU’s view of antitrust as a basis for protection of smaller entities in the marketplace has produced sharply different results.
So it is hardly surprising that EU Competition Commissioner Joaquin Almunia announced recently that several expanded concessions offered by Google to resolve his concerns about the fairness of the company’s search practices — which would fundamentally alter search by requiring Google to display links to rival search competitors on results pages served to its own search users — had finally borne fruit. The most basic competition issue asserted by the European authorities was that Google gives preference to its own services, like travel search, by placing those “specialised” (in European spelling) results above “organic” or natural search results. Google proposes to label these specialized results as paid placements and to add prominent links to rivals alongside. Despite vocal complaints by Google’s so-called vertical competitors that these substantial changes in search display — putting Expedia travel link results, for instance, on the same level of visibility as Google’s own sponsored links — still do not meet their needs, the fact that the EU is using its power to force serious search engine revisions on Google represents a watershed moment illustrating how far apart the two systems were and can still be at times.
There are three principal ways in which the inconsistent U.S. and EU Google settlements epitomize this continuing war of the worlds over antitrust enforcement:
- Is Google a Bottleneck “Gateway”? Almunia’s investigation was overtly premised on the concept that Google’s 90 percent share of Web searches in Europe (compared to some 70 percent in the U.S.), equals monopoly power as a gateway essential to success for Internet businesses. American jurisprudence, in contrast, has largely abandoned the bottleneck classification and its corollary, the “essential facilities” doctrine. Moreover, U.S. competition enforcers and courts distinguish between consumer preferences (which are changeable) and a dominant’s firm’s economic power (which can persist for long only when sheltered by entry barriers) in a way that contradicts the EU premise. As one federal court explained in January, the “ability to act as a ‘gatekeeper’ distinguishes broadband providers from other participants in the Internet marketplace — including prominent and potentially powerful edge providers such as Google and Apple — who have no similar control over access to the Internet for their subscribers and for anyone wishing to reach those subscribers.”
- Is Consumer Deception an Antitrust Issue? The EU has been focused, in large part, on the fact that when redesigning its search result displays, Google may have confused Internet users by not specifically indicating that some results are now based not on generic search algorithms, but instead a decision to integrate links to Google’s own services on results pages. Almunia believes that the potential for misleading consumers justifies a competition remedy, saying that Google must “signal what are the relevant options, alternative options, in the way they present the results.” In contrast, American antitrust law is clear that fraud, deceptive advertising and other commercial bad acts alone are not of competitive concern. Consumer protection remains important in the U.S., but our legal principles separate regulation of consumer issues from the competition-preservation function of antitrust policy.
- Should Antitrust Protect Traffic to Google’s Competitors? By far the biggest difference in the EU approach to competition enforcement is the historical European preference for domestic firms in established industries. In France, for instance, Internet publishers pay a tax that subsidizes newspapers and printed mapmakers, something anathema to the American idea of a free market. Where Google is concerned, the question becomes whether, as an important source of Web traffic for competing specialized search services, its practices should be regulated in order to guarantee hits to rival sites. The EU has been somewhat schizophrenic, at first condemning what it termed “diversion of traffic” to Google itself and characterizing its mission as to “guarantee that search results have the highest possible quality,” then later stressing that its “aim is not to artificially send traffic to sites that compete with Google.” The bottom line, however, is that by seeking to stop Google from “diverting” Internet search users from the complaining sites, the EU is in part attempting to dictate the results of competition, something American antitrust leaves to the marketplace.
Yes, these differences can sometimes be overstated. Both the EU and American antitrust agencies mutually believe that competitive markets produce the best outcomes and that, absent abuse by firms with monopoly power, the government should not try to pick winners and losers. The contrasting values typically appear only in hard cases, where the facts are ambiguous or the competitive consequences difficult to predict. Different enforcement decisions in Europe and the U.S. are uncommon, but when they do occur, are important as more than isolated instances.
There is a ray of light in all of this, one conclusion on which both Almunia and Jon Leibowitz, the former FTC Chairman who closed the U.S. government’s investigation of Google last year, agree wholeheartedly. Neither the EU nor the FTC accepts the premise of complaining search competitors that antitrust law embraces a concept they term “search neutrality,” namely that search providers must treat all queries and results under the same objective standard. The FTC said it had neither the desire nor institutional expertise to “regulate the intricacies of Google’s search engine algorithm.” The EU likewise concluded that its Google remedies should address “the way they present their own services” rather than “discussing the algorithm” used for Internet search.
This is one way, unlike the Martian invaders in the H.G. Wells novel, that the shared histories of America and Europe give the developed world a sustainable advantage in economic performance. On both the continent and in the New World, new business ideas succeed if they are better designed to meet the needs of consumers. With rare exceptions, we do not intervene in the marketplace to achieve government-desired competition results or to exclude some firms for political or social reasons. That is particularly key to the different Google search remedy approaches. Since everyone admits Google got to its present position by building a better search engine, the consequences of allowing competition policy to morph into an artificial tool of technology regulation by way of search neutrality are enforcement quicksand for the government, regardless of which “side of the pond” it sits.
In the ongoing saga of governmental antitrust investigations of Google, recent weeks have witnessed a new level of rhetoric and disingenuous use of the regulatory process to handicap, rather than promote, competition and innovation. The current case in point relates once again to search neutrality, but this time complaining rivals remarkably object to getting exactly what they’ve asked for over many years.
Just a little less than four months after the U.S. Federal Trade Commission (FTC) closed its monopolization investigation into alleged “search bias” by Google, the European Commission (EC) — the pan-European competition authority for the 30-nation European Economic Area (EEA) — released a set of proposed commitments by Google designed to resolve the competition “concerns” preliminarily outlined by EC competition chief Joaquin Almunia. That set off a firestorm of criticism from so-called “vertical” competitors (e.g., travel booking or consumer shopping sites), led by UK firm Foundem, a plaintiff against Google in its own antitrust lawsuit in England.
The first and most basic competition concern asserted by the EC was that Google gives preference to its own services, like travel search, by placing those “specialised” (in European spelling) search results above “organic” or “natural” search results. Google proposes to label these specialized results as paid placements and to add equally prominent links to vertical rivals alongside. Under the commitments Google would auction links for commercial services to qualifying rivals using a lengthy set of rules for transparent and equal treatment. It is precisely the paid link insertion remedy that Google critic and long-time legal adversary Gary Reback called for at an April 2013 FairSearch.org event in Washington, DC.
Foundem opposes that solution. But making heads or tails of Foundem’s rather incoherent response to Google’s EC settlement proposal is difficult. In part that’s because the response is a hodge-podge of discredited claims, incorrect assumptions and fuzzy reasoning. In part it’s because Foundem’s use of over-the-top language and Chicken Little predictions makes it impossible to decipher facts and reality from mere opinions and sour grapes. For instance:
If the Commission were to adopt Google’s proposals in anything like their present form, it would be unwittingly playing into Google’s hands — aiding and abetting Google in its long running strategy to transition commercial searches away from its natural search results and into its paid advertisements. Under these proposals, Google would not only continue to profit from the traffic it hijacks from rivals, but it would now also profit from the traffic it sends to rivals…. Any vertical search companies that survive the transition to such a radically altered and unfavourable marketplace would be left eking out a living on the slimmest of margins from the scraps left over from the traffic, and now revenues, that Google would be diverting to its own services.
If one separates the adjectives from Foundem’s substantive criticisms, there are four principal contentions it makes.
1. “Universal Search” labeling does not fix organic search manipulation. Foundem says the EC proposal addresses only the “preference” of Google’s own links in a prominent area of its redesigned Universal Search results pages, not the use of search algorithms allegedly to demote links to vertical rivals. “Instead, with a flourish of misdirection, they focus exclusively on its [sic] Universal Search inserts.” Because the commitments “ignore Google’s natural search results, they are misdirected in their application and fall far short of their target.”
2. Paid Rival Links would benefit Google financially. Foundem complains that Google’s proposal to insert paid links to vertical rivals for commercial searches will allow it to “monetise” (again in European spelling) rivals’ Web traffic. The proposal, Foundem claims, would allow Google to become “the main beneficiary of its rivals’ vertical search services as well as its own,” which would “extend Google’s existing monopoly powers and could eventually leave it in sole possession of the efficient, low-overhead, business model that has characterised and fuelled the internet revolution.”
3. Google should be prohibited from applying site quality algorithms. Foundem asserts that the use of website quality metrics designed to weed out malware, spam and search-manipulated sites that lack content is inherently anticompetitive, but that Google’s corresponding commitment to include all vertical rivals absent “some clearly defined Harmful Practices (such as illegal content and consumer deception)” or with “prior individual approval from the [European] Commission” is inadequate.
4. The Google commitments do not extend to non-search services. Foundem complains that ”vertical search was simply the natural first target for Google. Google can (and will, if it isn’t stopped) extend the same abusive practices into other sectors, including e-commerce, auctions, and social networks.” It opposes the proposed commitments because they do not cover these other Internet-based services.
Each of these criticisms is misplaced, but none more so than the claim that the Google proposal should be rejected because it somehow misses the big problem in search. The EC’s principal competition concern was that Google gave undue preference to its own vertical services with the invention of Universal Search. Therefore, inserting links to rivals in that same “preferential,” prominently outlined space above organic search results provides obvious parity between Google’s shopping service, for instance, and Foundem’s consumer electronics listings. The second concern was that Universal Search deceives users into thinking results are something other than promotion of Google’s own commercial services because the lack of a clear distinction between a promoted link and normal search results “left some consumers less able to make an informed choice.” Hence, as I’ve addressed in detail before, a label remedy is precisely the right solution to what is, at heart, a contention of misleading trade practices.
The FTC notably concluded that Google’s switch to Universal Search was a bona fide search innovation that benefited consumers. Mr. Almunia has made essentially the same concession. To the extent Foundem believes the practice is inherently anticompetitive and should be banned, as it appears, its critique is inapposite to an evaluation of the effectiveness of Google’s proposed EC commitments. Even in Europe, competition authorities do not outlaw products developed by firms with market power, and EC competition law, like that in the US, is strongly disinclined to sanction an antitrust case based on allegations of “anticompetitive product design.”
The reason for this restraint is simple: competition officials and courts are not engineers or businessmen and thus have no objective basis on which to assess whether product designs are “good” or not. That is a decision left to the marketplace, with consumers literally voting with their clicks and wallets. Indeed, such reserve is essential in technology markets, where product innovation occurs at the speed of light in and in which user interface and consumer experience are so subtle and competitively important. It is the reason former FTC chairman Jon Leibowitz — on behalf of a unanimous, politically diverse five-commissioner agency — rejected calls that antitrust should be used to “regulate the intricacies of Google’s search algorithms.” Ditto Mr. Almunia, who likewise told the Financial Times back in January that his concern is “the way they present their own services” and that he was “not discussing the algorithm” used for Internet search.
Foundem’s other critiques are nonsensical. Including Paid Rival Links alongside Google’s own universal shopping and commercial links (themselves paid) requires someone to set a fair price. That is something bureaucrats and antitrust agencies again do not do well, if at all, but an auction does perfectly. There is plainly no room to include links for every commercial search site on every Google search results page, so an auction system allocates that scarce space to businesses based on their own financial calculus of the benefit of preferential placement. That’s not monetizing rivals’ traffic and does not require Foundem or any other Google competitor to participate. If these Paid Rival Links are as worthless as Foundem implies, then its prediction of Google using them as a way to usurp competitors’ revenues is especially silly, because the auction prices will be negligible. Indeed, to suggest that paid placement is for some reason invalid as a competitive search service represents the height of hubris for Foundem, whose business model is to sell all search results. If paid placement is OK for Foundem it is equally permissible for any other search firm, small or big or anywhere in between.
It’s hard to take seriously a company which contends that site quality algorithms are invalid, when we all know the entire SEO, pornography and content piracy industries try their damnedest to game search results and avoid content filters established by responsible search engines like Google. Foundem never explains why the objective criteria Google has committed to apply do not resolve its allegation that rival links were targeted for demotion unfairly. While I personally disagree with the need or justification for any such remedy, the fact is that Google’s proposed settlement directly addresses organic link results by precluding exactly the type of targeted “link demotion” that FairSearch.org, Mr. Reback and Foundem itself have long alleged Google engages in as a matter of ordinary course.
Lastly, consider for a brief moment Foundem’s odd criticism that Google has not offered proposals for “other sectors” like auctions and social networks. Foundem itself does not operate in those markets, which are obviously not Internet search. With the rather spectacular failure to date of Google+ to challenge Facebook and Twitter, or any Google service to take on eBay, no one has even claimed Google has any chance of monopolizing these very different markets. When and if there are problems of Google accumulating market power in new services against entrenched Web firms — an eventuality that is all but inconceivable today — antitrust authorities can intervene. To do so in a case about allegations of Web search dominance and abuse is unseemly by any standard, European or American.
Note: Originally prepared for and reposted with permission of the Disruptive Competition Project.
A few weeks ago, the head of competition for the European Union, Joaquin Almunia, reportedly instructed Google that the search giant must make “sweeping changes” to its business model by extending restrictions the Europeans are insisting upon for Web search into the mobile realm. (See EU Orders Google to Change Mobile Services | Reuters.)
Is he possibly for real? We all know mobile is growing by leaps and bounds, powering political revolutions, connecting the developing world to the new information economy, and disrupting legacy industries. That market dynamism should instead counsel for a restrained approach, delaying government intervention until at least some of the dust settles, because mobile is different. Here’s why — and how that matters.
1. Apps Rule Mobile, Not Web Search
With more than 300,000 mobile applications released in the last year alone, “apps are increasingly replacing browsers as the method of choice for connected consumers to find and use information.” This striking user preference is neither difficult to discern nor hard to understand. One can see it walking on nearly any downtown street as teenagers query Foursquare and Facebook apps for friend check-ins, businessmen find lunch spots with OpenTable or Yelp, and 20-somethings search for trending hashtag topics inside Twitter’s app. In other words, in the mobile realm apps rule.
Wired’s editor-in-chief Chris Anderson in 2010, along with Square’s COO Keith Rabois in 2011, both predicted flatly that the Web is dying and mobile devices with dedicated apps are to blame. Apple’s Steve Jobs (watch his keynote) said it a bit more provocatively:
On a mobile device, search hasn’t happened. Search is not where it’s at. People aren’t searching on a mobile device like they do on the desktop. What is happening is they are spending all of their time in apps.
The numbers now prove that all three of these pundits were correct. As much as 50% of mobile search is happening in apps today. In March, a remarkably small 18.5% of all smartphone and tablet usage was in the browser; the rest was through apps. Nearly half of smartphone owners today shop using mobile apps. The international wireless association GSMA reported as far back as 2011 that second only to texting (and even more than actual calls), native apps comprise the highest level of smartphone activity. Yelp’s CEO Jeremy Stoppelman told Wall Street on August 2 that a majority of weekend searches now come in through its mobile app and that “by choosing the Yelp app people are bypassing search engines and consequently their engagement is higher.” Even venerable Craigslist is today battling mobile apps.
So mobile Web search is either dead or dying. That’s in part, as explained in the next bullet, because mobile users need, want and expect immediate answers, not a listing of URLs for browsing. Blue links just do not cut it anymore when users are mobile.
2. Search Is Local, Targeted and Interactive For Mobile Users
CNN Mobile’s VP Louis Gump, a mobile legend, says that every business must “start with the assumption that mobile is different.” Reflecting that difference, mobile sites typically include only the most crucial and time- and location-specific functions and features, while desktop Web sites contain a wide range of content and information. The reason is that mobile users are looking for local, immediate and interactive information.
Consider these stats —
Our “information needs and habits” are different on mobile, reports TechCrunch, where users want “smaller bits of information quicker, usually calibrated to location.” The end result is a relationship between device owner and information which is far more personal, immediate and reciprocal in the mobile environment than on the desktop. Marketers know this and are working feverishly to engage their audiences using these new selling points. Mobile marketing is “immediate, personal and targeted to specific consumer groups” says Twitter marketing rockstar Shelly Kramer.
3. Voice As the Mobile UI Is a Game Changer
Along with everything from in-car services like Ford’s Microsoft-powered Sync and even TV remote controls, mobile UIs are evolving rapidly to offer the consistency that made the graphical UI (GUI) so important in evolution of the desktop PC. But in the mobile environment, voice is becoming the always-available common denominator as the size of devices and the desire (and legal need) for hands-free use limit the effectiveness even of touchscreens.
Using market leader Apple as our example again, as Frank Reed commented in Marketing Pilgrim,
Siri is definitely a form of search. It’s a request and answer mechanism that can do tasks outside of search (texts, emails, etc.) but when a user asks it for the closest Italian restaurant it is, in essence, a search engine. It is presenting what its backend calculations have decided are the best possible answers for the question asked by the iPhone user. Sounds exactly like Google’s function as a search engine, doesn’t it? Different delivery of a result set but it’s search.
Android users have a similar capability with Google Now, which has been called “more than just a new voice search application for Android; it’s also an indication of how Google will overhaul the user interface for its search products.” Consumers will soon see this same sort of voice interaction in mobile apps (powered by Nuance and others), on Windows phones and from well-funded voice search venture AskZiggy.
Voice is “the most revolutionary user interface in the history of technology,” according to Forbes. And it is all about search: search on steroids that is. As far as Google, the Mountain View company countered with a just-announced voice search app for the Apple iOS and interactive search results on its mobile Web properties. Whether Google can recapture the inventiveness in voice and mobile search that allowed its Web algorithms to dominate is open to serious question. Right now it’s rather desperately playing catch-up.
4. No One Has Yet Figured Out How To Monetize Mobile
Look closely at that graphic. Notice the dramatic difference between advertising spending and usage rates on mobile platforms compared to other media? That’s because no one has really figured out yet how to monetize mobile services. Social media darling Facebook — illustrated painfully by its revenue and stock price stumbles — for years has stood as the dominant supplier of display ads on the Web, but has just barely tried to introduce advertising into its mobile app. Considering that in May total usage of Facebook mobile surpassed that of its classic website for the first time and the clear lesson is that profiting from mobile information is a difficult endeavor, lagging well behind most technology markets.
Other than wireless network carriers, that is. As The Economist explains:
The [mobile] combination of personalisation, location and a willingness to pay makes all kinds of new business models possible….. Would-be providers of mobile Internet services cannot simply set up their servers and wait for the money to roll in, however, because the network operators — who know who and where the users are and control the billing system — hold all the cards.
This is not the place to discuss data caps and shared wireless plans, but the fact is that few if any mobile Internet services except those employing a pay-per-subscriber model have even come close to monetizing the mobile experience. That will and must change, although when and how remain unclear. As BusinessWeek notes, “desktop Internet use led to the rise of Google, eBay and Yahoo, but the mobile winners are still emerging.”
5. Mobile FIRST Is The New Reality
Ten, five or even two years ago, developers all talked about the need to adapt content to fit the smaller form factor, screen real estate and touch navigation features of mobile devices. That’s already ancient history today. The new reality is that everyone from television and media companies to PC manufacturers are thinking “mobile first,” designing interfaces (gesture-based and voice-powered), content (shorter, punchier and more micro blog-like) and interactivity (social media integration, video clip streams, etc.) to cater to an audience that is dominantly mobile, most of the time.
The title of Luke Wroblewski’s new book Mobile First says it all. In a mobile world, all we thought we had learned about the Web is reversed and upside down. Mobile starts from scratch and leads everything else.
So how do these profound differences matter? This author (and my Project DisCo colleague Dan O’Connor) has previously written about the difficulties of “market definition” in search, a big term for the simple idea that display ads, text ads and organic search results are all competing for the same customers. If the Federal Trade Commission (FTC), which is still “investigating” Google for alleged search monopolization two years on, took this into account, its lawyers would scuttle any government prosecution because Google’s market share would be well below that of search alone, hardly in monopoly territory.
Earlier DisCo commented about the European Union’s penchant for regulating nascent products and industries before they even exist. By moving against Google in mobile Web search, the EU is instead trying to regulate a market that is dying and all but irrelevant to the realities of today’s mobile Internet usage and experience. With news just days ago that Americans spend more time watching their smartphones than watching television, the reality is that the mobile market may have already hit an important inflection point. In the name of protecting the future, however, Europeans are living in the past.
The FTC should pay attention. Mobile is different and poised to surpass fixed Internet usage. Whatever “gatekeeper” functions Google plays on desktop PCs (which we think is a huge overstatement), it is plainly not the same in the mobile realm. Let’s free the competitive battles to flourish in mobile search before government steps in with its thumb on the scale. In a mobile world, everything is different; those differences need to and should be reflected in antitrust enforcement policies.
Note: Originally prepared for and reposted with permission of the Disruptive Competition Project.
People have been talking, and pontificating, about a coming “Internet of Things” since 1999. The idea is that the many sensors, actuators and digital data recorders in the environment around us — like the electronic control units (ECUs) in modern automobiles — will be uniquely identified and connected via IP to each other and to the world. This would allow instantaneous supply chain fulfillment, green initiatives like demand-side management and smart refrigerators, as well as simply cool stuff that puts remotely programming one’s DVR from a smartphone app to shame. As McKinsey & Co. noted in 2010:
The physical world itself is becoming a type of information system… When objects can both sense the environment and communicate, they become tools for understanding complexity and responding to it swiftly. What’s revolutionary in all this is that these physical information systems … work largely without human intervention.
So what’s going on? Two things. The obvious one is that more than a decade later (and despite the fact that by 2008 there were already more “things” connected to the Internet than people in the world) we are still not “there” yet. Refrigerators cannot detect when the last soda can is used, let alone order more autonomously; HVAC systems largely cannot interact with electricity genitors in real time to consume more energy when rates are lower, and vice-versa; and suitcases cannot communicate with airport luggage systems to tell the machines onto which flight they should be loaded (except with barcode readers). Partially, that’s because technologists frequently overstate adoption projections for new networks by 10 years or more. Less obvious is that there’s been a quiet push in the European Union (EU) to regulate the IoT even before it is fully gestated and born.
A European Commission “consultancy” on the Internet of Things was launched in 2008. By 2009 the EU had already issued an Action Plan for Europe for the IoT, which concluded:
Although IoT will help to address certain problems, it will usher in its own set of challenges, some directly affecting individuals. For example, some applications may be closely interlinked with critical infrastructures such as the power supply while others will handle information related to an individual’s whereabouts. Simply leaving the development of IoT to the private sector, and possibly to other world regions, is not a sensible option in view of the deep societal changes that IoT will bring about.
As a result, libertarian business groups such as the European-American Business Council and TechAmerica Europe have this summer come out in opposition to the EU’s approach, pressing for industry-led standards and application of existing measures, like the existing EU data protection rules (which already exceed the United States’ by a wide margin), “in lieu of a new regulatory structure.”
This is a scary prospect. That the EU would even consider crafting a regulatory scheme now for a technology revolution that realistically remains years away, requires immense levels of cooperation among industries, and holds the potential to transform business and life as we know it, is remarkable. Remarkable because such a philosophy is so alien to American economic values and to the spirit of innovation and entrepreneurship that launched the commercial Internet and Web 2.0 revolutions.
This article is not the place to debate the conflicts, trade-offs and differing views of government animating current technology policy issues like net neutrality, privacy and cybersecurity, copyright and the like. The reality though, is that issues such as those are generally being assessed within a spectrum of solutions, worldwide, which reflect known risks and benefits, some proposals of course being more interventionist than others. But that is far different from allowing a single bureaucratic monolith to dictate the shape of an industry and technology that remains embryonic. How is it even possible to develop fair rules for the IoT when no one has any real idea what or when it will be?
More than 15 years ago, this writer worked for one of his corporate clients on a legislative amendment offered by Rep. Anna Eshoo (D-Cal.) to the Telecommunications Act of 1996. The so-called “Eshoo Amendment,” designed to limit the role of the Federal Communications Commission in mandating standards for emerging, competitive digital technologies like home automation, passed. The irony, of course, is that at the time Congresswoman Eshoo analogized home automation to a future world like that of The Jetsons. Now 16 years down the road, we are barely closer to George, Elroy and their flying cars, robotic maids and the like than we were then.
But that ’96 effort illustrated a fundamental difference between the United States and the European Union about the proper role of government with respect to innovation. The EU subsidizes research, sets agendas and looks to intervene in the marketplace in order to establish rules of the road even before new industries are launched. The US sits back, lets the private sector innovate, and generally intervenes only when there has been a “market failure.” That’s a philosophy largely embraced by both major American parties regardless of the increasingly polarized political landscape in Washington, DC.
This basic difference in world views between the home of the Internet and European regulators — as true today as in 1996, if not more so — could doom the Internet of Things. So if you are a fan of future shock, then it’s clear you should not react to the EU’s efforts to shape the IoT with a viva la difference attitude. The difference is dangerous to innovation and especially dangerous to disruptive innovation. It’s no wonder that few real digital innovations have come from Europe. Don’t expect many in the future unless the EU finds a way to decentralize and privatize its bureaucratic tendency towards aggrandizing government in the face of what IoT experts anticipate will be “a small avalanche of disruptive innovations.”
Note: Originally prepared for and reposted with permission of the Disruptive Competition Project.
For all the discussion, dead-on accurate, about law holding back technological innovation, sometimes it works the other way around. When industries are transformed by disruptive new technologies and business models, the law itself can be in for a game-changing, forced makeover.
Take the European Union (EU) and digital music. Everyone by now realizes that the introduction of portable MP3 music players, coupled with Apple’s pioneering iPods and iTunes music store, have revolutionized the market for distribution of recorded music. Gone are the days of buying albums (or even CDs) just to get one hit song. Music is available on any device, in the cloud, streaming on desktops, and everywhere else, and it’s intensely personal playlists involved. As a result, the hockey stick adoption curve shows that hardly a decade after digital music downloads first gained popularity, “record stores” – Tower Records,
anyone? – are a thing of the past, record labels (EMI as the latest) appear to be on their last hurrahs, and fully 1/2 of all music
purchased in the United States is totally digital, never burned to a physical product.
That has not been the case in the EU. Despite a standard of living in excess of the US, less than 20% of music sold in Europe is digital. That’s in part because, under the EU Treaty, copyright licensing is conducted on a member state basis. This “balkanization” of the law (pun intended) means that digital sellers in the EU need to negotiate separate deals with each label and for each country, from France to the Czech Republic to Turkey, under very different legal regimes. That’s obviously a recipe for increasing costs and timeframes for entry, bad for business and keeping new distribution models from consumers.
In response, the EU Commission used its competition powers a couple of years ago to harmonize copyright laws in order to make them consistent throughout the EU, aimed at breaking down national barriers in the digital music business and making it possible for rights holders to issue pan-European licenses. As one can observe from a similar step towards telecom “liberalisation” in the ‘00s, however, that itself requires a vigilant enforcer at the EU level to ensure that parochial national legislatures and courts do not slow roll the process. This 2008 licensing change helped Apple launch its iTunes music store in all 27 European nations, but so far no one else. In 2009, major members of the online music industry — including
Amazon, iTunes, EMI, Nokia, PRS for Music, Universal, and others — signed a pact with the European Commission to work towards wider music distribution in Europe.
Yet Apple remains the only digital music seller with licenses to operate in every EU country. And even then, Apple rolled out iTunes stores in Poland, Hungary and 10 other European countries just last year, seven full years after arriving in Germany, the UK and France. As ArsTechnica comments:
Unlike the US, online music in Europe is typically only sold through one country’s stores at a time — this is despite the EU’s efforts to effectively eliminate the borders of its 27-country membership when it comes to products and services. As such, if you’re in Spain and want to buy a song from France’s iTunes store, you can’t — the store blocks you from making the purchase because you aren’t in France. This has led to companies like Apple rolling out individual music stores for each European country with a large enough market, but the fragmentation has caused nothing but headaches for end users who just want to listen to their favorite music.
Finally—One iTunes Store to Rule Them All (in Europe).
The reality is therefore that the “single market” for intellectual property rights (IPR) contemplated in the EU’s 2011 report is far from ready to roll. As Neelie Kroes, who once took on Microsoft and now serves as the EU’s Vice President, asked rhetorically in ’08, “Why is it possible to buy a CD from an online retailer and have it shipped to anywhere in Europe, but it is not possible to buy the same music, by the same artist, as an electronic download with similar ease?”
So this week the EU is going a step further. Singling out “collecting societies” – European analogs to ASCAP and BMI which gather royalties of about €6 billion, or $7.5 billion, annually from radio stations, restaurants, bars and other music users and distribute the proceeds to authors, composers and other rights holders – the EU plans to push towards a directive requiring greater efficiency, transparency and reciprocity. Royalty-collection societies could be forced under the draft rules to transfer their revenue-gathering activities to rivals if they lack the technical capacity to license music to Internet services in multiple countries. The idea seems to be that if it cannot reduce the sheer number (some 250) of collecting societies, at least the European Commission can make sure they operate as much in unison as possible.
A lesson to be drawn from this ongoing saga is that just as technical innovation can disintermediate industries and eliminate arbitrage as an economic profit motive among different markets, so too can it work to force elimination of legal differences among jurisdictions. Especially where the medium is the Internet, inherently global and regulated by no one (unless the European-centric International Telecommunications Union has its way), these legal changes can occur very quickly. Believe it or not, the four years over which the EU has been working for digital copyright licensing harmonization is lightning pace for the law.
Note: Originally prepared for and reposted with permission of the Disruptive Competition Project.
There has been a lot of talk, debate and criticism — leveled at Google, Microsoft and other major Internet content providers — about censorship of Internet content by the government of China. Google v. China: Principled, Brave, or Business As Usual? [Huffington Post]. The assumption most of these pundits make is that mandatory filtering and blocking of the Internet is a policy embraced only by repressive or authoritarian regimes. That’s not at all correct.
Iran's Green Revolution
Western nations are just as bad; worse in some ways. “Enemies of the Internet”: Not Just For Dictators Anymore [ReadWriteWeb]. As a few for instances:
Reporters Without Borders recently released a penetrating study of government Internet censorship, titled “Enemies of the Internet 2010.” It cogently observes:
Western democracies are not immune from the Net regulation trend. In the name of the fight against child pornography or the theft of intellectual property, laws and decrees have been adopted, or are being deliberated, notably in Australia, France, Italy and Great Britain. On a global scale, the Anti-Counterfeiting Trade Agreement (ACTA), whose aim is to fight counterfeiting, is being negotiated behind closed doors, without consulting NGOs and civil society. It could possibly introduce potentially liberticidal measures such as the option to implement a filtering system without a court decision.
So Internet censorship is alive and well in the world’s “progressive” industrialized nations. The liberating technology of the Web is under assault because, as in 2009’s “green revolution” in Iran via Twitter, it can catalyze viral growth in political opposition and tends to harbor folks, like pedophiles, who’s activities are politically disfavored (even repulsive). No one lobbies for child pornographers, after all.
Just do not operate under the misimpression that it is only Saudi Arabia, Syria, North Korea, Vietnam, China and the like that censor Internet content. Almost all governments do it. The United States, with its constitutional First Amendment protection for free speech, and the Scandinavian countries — where the Pirate Party was victorious in Swedish parliamentary elections — which have classified Internet access as a fundamental human right, are the exceptions. This blogger, for one, hopes the exception swallows the rule. One can always hope.