Google Shouldn't Acquire Market Leaders So Its Rivals Can
Google should be prevented from buying leaders in adjacent markets so rivals such as Microsoft, Facebook and Yahoo and other companies can acquire them and make the online market more competitive.
The discussion has clearly vaulted off the rails of logic, as Pearlstein told the Washington Post Voices blog that while he doesn't feel Google should be precluded from competing in Internet markets it's not already in:
I do believe a less onerous structural remedy -- preventing Google from buying its way into an adjacent market -- is reasonable, if for no other reason than it forecloses the possibility that another major player might acquire the company in order to achieve the scale and scope necessary to challenge Google.In Pearlstein's view, Google shouldn't be allowed to acquire an ITA Software or a Groupon because they are market leaders and would extend the search engine's online dominance.
Instead, regulators should block these deals out of some antiquated antitrust law, to allow Google's rivals or others looking to expand to grow larger.
Viewed through Pearlstein's egalitarian goggles, this would, if not level the playing field online a bit, at least prevent Google from growing larger.
Pearlstein doesn't address the issues that no one is forced to or locked into using Google's vast palette of Web services, as I noted last week.
Pearlstein does say:
The problem for Google is that it is so good it now has what, for all intents and purposes, amounts to a monopoly in the key Internet portal market for web search. That means the law requires that it be treated differently. Not true in the case of many of the other acquirers it cites. Is this unfair? Does this punish a successful company? Yes and yes. But the basic premise of the anti-trust law is that this degree of unfairness is a reasonable price to pay to maintain robust competition in other markets. In the short run, consumers may be denied the benefits of the new products or the lower prices that might result from such a non-horizontal merger.
First, Google isn't charging for its Web services, at least not the ones we're talking about here. Second, Pearlstein doesn't provide proof that letting companies not named Google snap up market leaders is kinder for consumers.
Now let's address the antitrust issue. He clings to the 100-year-old antitrust laws, which few people believe are relevant in this newfangled tech age. If regulators ignore them often -- and they do -- in regard to Google's mergers and acquisitions, why shouldn't we?
Also, to the point of letting other companies acquire "adjacent market leaders" like ITA or Groupon, I'd argue that the companies that have the financial wherewithal to do so -- cite Microsoft, Facebook or Yahoo -- haven't proven they can handle large, industry-commanding purchases.
Microsoft's online businesses lose billions each year. Facebook's largest acquisition was a $40 million pickup of FriendFeed, and it prefers small talent buys to plug holes in its portfolio. Yahoo has acquired and closed more properties than anyone in the history of the Internet. People sell to Yahoo today for cash, not for scale.
Google, on the other hand, has done pretty well with acquisitions. I can say that now in 2010 after Google said its display ad business, driven by the DoubleClick and YouTube acquisitions, is operating at a $2.5 billion run-rate.
Google's AdMob buy from May is looking good, too, with mobile search ad generating $1 billion in annualized revenue.
I can't even guess how much money Google and Rovio Mobile are making from serving me in-app ads via Angry Birds. Nor would I want to because then you'd know how much I play Angry Birds.
Bottom line, Google isn't the only game in town. If Microsoft, Facebook or Yahoo wants to buy one of the companies Google wants, they must do what Google has done to Apple with AdMob -- outbid it for the company.
Google may be the biggest and best at what it does, but it is hardly the only player in the game. Others need to step up or step back from the table.
That would quiet calls for government regulation of Google. We don't need to do that ... yet.