Monday, May 01, 2006

Google Learns to Rent-Seek

The International Herald Tribune reports that Google, the search-engine giant with the “Don’t Be Evil” mission statement, is trying to sic the Department of Justice on Microsoft:

With a $10 billion advertising market at stake, Google, the fast-rising Internet star, is raising objections to the way that it says Microsoft, the incumbent powerhouse of computing, is wielding control over Internet searching in its new Web browser.

Google, which only recently began beefing up its lobbying efforts in Washington, says it expressed concerns about competition in the Web search business in recent talks with the Justice Department and the European Commission, both of which have brought previous antitrust actions against Microsoft.

The new browser includes a search box in the upper-right corner that is typically set up to send users to Microsoft's MSN search service. Google contends that this puts Microsoft in a position to unfairly grab Web traffic and advertising dollars from its competitors.

The move, Google claims, limits consumer choice and is reminiscent of the tactics that got Microsoft into antitrust trouble in the late 1990's.

"The market favors open choice for search, and companies should compete for users based on the quality of their search services," said Marissa Mayer, the vice president for search products at Google. "We don't think it's right for Microsoft to just set the default to MSN. We believe users should choose." Microsoft replies that Google is misreading its intentions and actions. It says the default settings in the browser, Internet Explorer 7, are easy to change.

Google is a babe in the woods when it comes to spending scarce resources to benefit from special privileges dispensed by government, what economists call rent-seeking. But apparently it is learning fast. According to this chart which I have been able to confirm myself from Center for Responsive Politics data, Google spent $80,000 in 2003 and$180,000 in 2004. Microsoft, in contrast, spent over $9 million in 2004.

Suppose that for the next five years Google expenditures continue to grow at this rate. (They surely won’t for too many years, because of diminishing returns). By 2009 they would be spending roughly $10 million. Now how much value could those resources create if they were devoted, to say, improving Google’s search technology so that consumers would choose it even with Microsoft’s bundling advantages? By making such expenditures the decision-makers at Google have decided that the marginal return to spending that money getting the government to cripple a rival is greater than the marginal return to spending it trying to improve their product.

And for what? Note first that it is pointless to talk about such a policy in terms of what is “fair.” That is the language of law and philosophy, and is utterly unhelpful when deciding which pressure group to favor with a government decision. To say also that "the market favors open choice for search" is similarly unhelpful, as it means instead that "the government should adopt our "definition of 'open choice for search.'" A sensible person might wonder whether "open choice for search" should mean that Google offers its product, and Microsoft offers its own, and consumers choose between them. That the phrase must be so meticulously deconstructed is a warning sign that it is unhelpful for the purpose of crafting law.

Let us speak instead of costs. To switch the default search engine is a trivial task, requiring, according to the article, all of four clicks. It is true that there are some Net users for whom such costs will be large, but it is such users who have made Microsoft what it is. Windows is unpopular with many technologically savvy people, who prefer Linux or Apple, but for those for whom the computer is a means to a much more important end rather than an end in itself the ease of use of Windows, combined with the suffuciently wide variety of capacities and software available for is, is valuable. And so there are undoubtedly many people who are perfectly content to let Microsoft, including the new Microsoft search engine, do the work for them. Furthermore, the people who might be most inconvenienced by the four clicks are likely to be mostly those who came to the Net in middle age and older, and this is a problem that is already vanishing as young people generally come to adulthood completely computer-literate. To set the precedent of having antitrust regulators pronounce on the acceptability of browser technology, for the (asserted) benefit of a small and vanishing number of computer users, is to set a disastrous precedent.

Note also that Google is hardly powerless in persuading people of the value of its search engine. It too is frequently subject to charges of unfair domination, but it attained that position by creating a technology that the greatest number of users find both easy to use and productive in yielding valuable information. Like switching the default browser, learning Google has fairly modest fixed costs, particularly involving search syntax. (These costs are of a similar variety to the ones Google is complaining about now because Google was a latecomer to the search-engine market, and many people, including me, had to get out of the habit of Alta Vista or Yahoo syntax as we became acclimated to Google. But we did.) But Google created a technology that made incurring these trivial costs worthwhile (and indeed has for several years made it possible to install a Google search bar in Explorer that negates the requirement to type in the Google URL), and so it would be best to have an environment in which their response to the Microsoft browser’s redirection of people to MSN if they use the default search is best met on the competitive rather than the political battlefield.

But that they see the benefits of lobbying as justifying the costs is disturbing, another sign that information technology is every day becoming more like cars, oil, and every other industry where the returns to pressuring the government are large. And that can have no good effects on the progress of the information revolution.


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