The eCommerce Blog - by Allegro Group

Broken Promises

In the beginning was Yahoo.

I am old enough to remember the days when Internet access was via dial-up modem, with its distinctive sound, and when finding things on the Internet required using Yahoo’s Web Directory. Looking for things thematically, in a hierarchically organised index, seemed logical and easy at the time. Anyone with a web site had to hope that Yahoo would add it to the Directory. At times, Yahoo was roundly criticised for promoting certain listings for money, which many felt undermined the value of the Directory to users.

In the late 1990s, interest began growing in new, automated ways of finding things on the Web. Some of the early pioneers included Ask Jeeves, HotBot, Excite, Alta Vista, Lycos, and Google. All of these companies contributed to a radical transformation of the way we use digital technology.

I remember being introduced to Google Search in 2001, and being struck, as a consumer, by how easy it was to use, and how good it became at finding the right things for me on the Web. From a business perspective, new and innovative startups became swiftly accessible to a potentially global customer base. This revolution was undoubtedly a major contributing factor to the explosive growth of the Internet economy.

Things have begun to change.

In recent years, Google has expanded its operations into strategic access points for digital services, such as the Chrome browser, the Android operating system, and even a mobile handsets division, purchased from Motorola (which they sold on, keeping the patents). If you want to participate in digital life today, chances are you do it at least partly, if not largely, through Google.

Google has begun to enter new strategic online markets like maps, and lucrative ones like shopping and travel. These businesses, although sometimes called “vertical search” businesses, are very different from the search advertising business in terms of their structure and dynamics. They are not just extensions of “horizontal” search. Google Shopping, for example, relies on a network of business partnerships with e-shops, rather than an algorithm that is designed to find the most relevant, or cheapest, product listing for users.

There is nothing wrong with this in principle, except that Google has been giving its new businesses, like Google Shopping, an unfair advantage by promoting them in super-dominant Google Search, to the detriment of Google Shopping’s competitors.

This isn’t just a competition problem. It raises fundamental questions about the value of search to the entire Web ecosystem, because now users are no longer given the same ease of access to the most relevant services as before. Search results are being pushed further away from them. The consequence for small innovative businesses on the Web is that it’s becoming much harder to be found. Larry Page and Sergey Brin used to believe that taking payment to promote search results was wrong. In fact, this belief was one of the fundamental philosophical underpinnings of their promises to investors when Google went public in 2004 (see the paragraph titled “Don’t Be Evil”), echoing the criticisms levelled at Yahoo some time earlier.

Google’s broken promise means bigger (mainly US) companies will survive because of digital industries’ reliance on data and scale, and there will be massive consolidation. Algorithmic search is losing its value to the economy, but in the meantime Google has built a near-impregnable position as an access point. User trust matters less now that so many are hooked. The consequences for innovation and the digital economy could be devastating in the long term, unless the European Commission acts to end Google’s abuse of its dominant position by forcing it to offer access to competing services on equal terms.

Let there be no doubt about the fact that even with such restrictions, Google will be super-dominant in search for the foreseeable future, and will continue to make immense profits from search advertising. Let’s just hope that others, with very different businesses, will be given a fighting chance.

 

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