Setting The Record Straight: The Intercept Misses The Mark On Basics Of Tech Industry
Yesterday in The Intercept, in reference to America’s leading technology services, columnist David Dayen advocated for “breaking the companies up and/or turning them into public utilities,” and argued the FTC is refusing to take action after overruling its economists in the past. Dayen is wrong on both counts.
First, not only does Dayen ignore low to zero switching costs between search platforms, but he fails to acknowledge the vast array of mediums available to advertisers beyond merely search and digital.
Search competition is robust on both the consumer and advertiser side of the market, and voice assistants are threatening to disrupt the industry soon. Antitrust experts Brendan Coffman and David Balto have detailed that Google competes against other search engines, social media platforms, voice assistants, and more to deliver information to users. Moreover, a number of studies have found that people do switch between search services. Competition is always a click away.
The advertising market is larger than two digital companies – many digital advertisers compete across online and offline platforms in the market for eyeballs. CCIA’s Matt Schruers recently explained that only 24 to 28 percent of ad dollars go to digital companies. Academic research by Avi Goldfarb and Catherine Tucker confirm online advertising competes with offline.
Completely missing from Dayen’s analysis is that America’s leading technology services are behaving like the opposite of monopolies, expanding supply, lowering costs, and investing more in research and development than any other sector, to the benefit of consumers.
Second, Dayen advances the false claim that, “In 2013, FTC staff wanted to sue Google over its preferential treatment to its own products in search, but the political staff overruled them.” As detailed here, “A leaked FTC memo, obtained by the Wall Street Journal in 2015, indicated that some staff in the agency’s Bureau of Competition (BC) had supported an enforcement action – but not regarding how Google showed ads and results on its Search page…What the BC recommended action on were issues entirely separate from search bias. In pursuing these separate concerns, the FTC secured commitments from Google to change various practices.”
Competition In Search Is Always A Click Away And People Do Switch, Search Competes With Other Platforms To Deliver Information To Users, And Technological Changes Constantly Threaten To Disrupt The Search Market
Search Engines Don’t Just Compete With One Another, Argue Balto And Coffman, But Across Various Platforms As Advertisers Are Not In The Market For Search Result Placement, But Eyeballs. “Advertisers compete with each other not for search result placement, but for ‘eyeballs,’ that is, views by people on the web. Google search is just one way that Internet advertisers can look for these views – in fact, advertisers pay to be included on websites throughout the Internet, not just search engines… If other forms of online advertising, such as display ads, were included within the relevant market, Google’s market share, and consequently any inference of monopoly power, would fall by the wayside.” (Brendan Coffman And David Balto, “Using Antitrust Enforcement Prudently In High-Tech Markets,” DC Antitrust Law, 2012)
Citing A One-Hour Human Error At Google In 2009 That Caused Competitor Searches To Double, Economist Mark Jamison Argues Customers Switch And Use Search Engines That Provide Them The Most Value. “An incident in 2009 illustrates how readily and easily consumers switch to alternative sources of general search if Google fails to perform according to their expectations. For about an hour on the morning of January 31, 2009, a human error at Google caused each and every Google search result to contain the message ‘This site may harm your computer’ (Google 2009). Even though the problem was short-lived, customers quickly moved to other search engines. During the one-hour time period that Google had the error, the number of Yahoo! searches doubled compared to the normal load (Vascellaro 2009). Once Google fixed the problem, customers quickly switched back to Google, indicating the quickness with which general search users recognize problems and adapt their behavior so that they are using the general search engine that provides them with the greatest value.” (Mark A. Jamison, “Should Google Search be Regulated as a Public Utility?” SSRN, 3/17/12)
Voice Search Is Poised To Gain Popularity In 2018, According To Forrester Analyst Brandon Verblow. “Voice is gaining popularity and is well-aligned with search. While spending on voice search marketing will remain imperceptible in the near term, it holds long-term promise. Forrester expects that the installed base of smart speakers in the US will grow significantly over the next five years – setting the stage for future voice-search-related marketing spending. And many smart-speaker users are interested in using their device for activities such as researching and ordering products, which could provide marketing opportunities. Still, voice technology capabilities and offerings will need to improve for these opportunities to materialize.” (Brandon Verblow, “Search Advertising Enters 2018 On The Cusp Of A Renaissance,” Forrester Research, 1/5/18)
The Market For Advertising Extends Far Beyond Search Or Digital Ads
Geoffrey Manne And William Rinehart Note That The Advertising Market Is “Enormous And Highly Competitive” And That “Google Represents A Relatively Small Piece Of It.” “The advertising market — both in total and even if limited only to online advertising — is enormous and highly competitive, and Google represents a relatively small piece of it.” (Geoffrey A. Manne And William Rinehart, “The Market Realities That Undermined The FTC’s Antitrust Case Against Google,” Harvard Journal Of Law And Technology, 7/13)
Professors Goldfarb And Tucker Find That Online Advertising Substitutes Offline Display (Billboard) Advertising. “These results suggest that the online advertising channel does substitute for the offline channel. From the advertisers’ point of view, they get more value from online display advertising when the potential customers do not see any offline billboard advertising. While we do not measure the exact strength of substitution between online display advertising and offline display (billboard) advertising, our evidence strongly suggests that advertisers should be able to substitute relatively easily between the two channels.” (Avi Goldfarb And Catherine Tucker, ‘Substitution Between Offline And Online Advertising Markets,’ SSRN, 4/2010)
CCIA’s Matt Schruers Argues Today’s Reality Is That “Advertisers Compete To Reach The Same Consumers Across Multiple Mediums,” With Digital Ads Competing Directly With TV, Print, And Outdoor Options. “Consider today’s reality: advertisers compete to reach the same consumers across multiple mediums. Services that deliver ads digitally to an individual’s mobile device don’t just compete against one another; they compete directly with television, print and outdoor options (e.g., highway billboards, subway stations, Times Square installations)…This competition is fierce, as advertisers continually shift budgets among platforms to maximize the return on their ad spend. What was once a quarterly or monthly re-evaluation of advertising programs has become a weekly and even a daily recalibration of how and where advertisers are reaching their audiences…As we’ve discussed here on DisCo before, Internet radio does compete with traditional broadcast radio – aggressively so. It would therefore be strange to suggest that advertising on digital radio doesn’t similarly compete with advertising on broadcast radio.” (Matt Schruers, “Infographic: How Ad Dollars Are Spent,” Project DisCo, 1/16/18)