Analysis: Will Google follow Microsoft footsteps in EU probe?
A construction worker walks past a logo next to the main entrance of the Google building in Zurich May 25, 2010.
Credit: Reuters/Arnd Wiegmann
By Alexei Oreskovic and Foo Yun Chee
(Reuters) - Google Inc's (GOOG.O) Internet search algorithm is the technology world's equivalent of the Coca-Cola formula: a top-secret corporate crown jewel.
But pressure is growing on Google to lift the veil on some of its inner workings, as European regulators investigate complaints that Google's search engine unfairly discriminates against certain websites.
The case underscores the increased scrutiny over Google's influence in the Internet industry and could set the stage for the kind of long-running regulatory battle fought in the past by technology giants like Microsoft Corp (MSFT.O).
Odds are that the world's No. 1 search engine will seek to keep prying eyes, even those of the European Commission -- known in many circles globally as the toughest watchdog -- away from the ranking algorithms that are the core of its business.
"It is difficult to see how this won't come to an impasse in terms of how far can Google go, in terms of opening up access to their secret sauce as it were, which is the basis for their existence," said Martin Olausson at research firm Strategy Analytics.
If the EU determines that Google abused its position in the search market, the Commission could order Google to alter its search practices, such as providing more transparency into its algorithm, or face a fine of up to 10 percent of annual global revenue.
Google has faced criticism in the past that its technology for determining which websites get top billing in search results is too much of a black box. As Google has grown in clout, and as it begins providing its own Web content such as video within results, calls for greater transparency into its search algorithm have swelled.
The Commission ratcheted up pressure on Google this month when it opened a formal probe into allegations the company had abused its dominant position in the search market.
In addition to the charge that Google rigged its algorithms to lower rivals' rankings, complainants said it unfairly promoted its own services, forced advertisers to accept exclusivity deals, and blocked companies from transferring advertising data to other online ad platforms.
"The complaint is often that there's too much at stake. The claim is Google is now too powerful and it's really tantamount to a utility that everybody uses," said Greg Sterling, an Internet consultant and a contributing editor for the online blog Search Engine Land.
BIG IN EUROPE
The situation is particularly acute in Europe, where Google controls roughly 77 percent of the market share of search queries, according to industry analytics firm ComScore.
This month, the EU confirmed that it had also taken over two complaints about Google's search practices from German competition authorities.
Google has said it intends to cooperate with the EU's investigation. But the company has a history of keeping its search algorithm close to the vest.
While Google provides certain guidelines about its algorithms to help Web publishers ensure that their sites are accurately ranked, the hundreds of specific "ranking factors" that it uses to rank websites, and the weight it attaches to each of those factors, remain a much-speculated-upon mystery.
"We provide more guidance for websites than any other search engine, and we're constantly exploring new ways to be even more transparent with webmasters about our ranking principles," Google spokesman Adam Kovacevich said in an email. "But disclosing the exact details would only help spammers, make search engines less useful, and hurt our users."
Foundem, one of the complainants in the EU case, has said it is not seeking to get Google to publish details of its algorithm. Instead, it said on the website searchneutrality.org, the company wants Google to be more transparent about the rationale for the various "exclusionary penalties" that can keep certain sites out of search results, and for Google to provide an appeals process for websites that feel such penalties have been mistakenly applied to them.
EASY FIX?
Google joins other technology giants, including Apple Inc (AAPL.O), Intel Corp (INTC.O) and Microsoft, whose business practices have triggered scrutiny from European regulators.
Microsoft, which was fined 1.68 billion euros over the course of its decade-plus battle with the Commission, agreed to give European consumers better access to rival Internet browsers in Windows, and to improve interoperability with its products last December.
The key challenge for the Commission now is to show that Google conscientiously abused its power in the search market to harm certain websites, said Brett Gordon, a professor at Columbia Business School.
"The Commission would have to show that Google unfairly tampered with their algorithm to disadvantage other search services," he said.
Last week, France's antitrust watchdog warned the company not to abuse its dominant position in online advertising, citing a list of possible anticompetitive practices.
Google had settled with the French regulator two months earlier when it pledged to make its AdWords advertising policy in that country more clear and transparent following a complaint it had unfairly scrapped a company's contract.
A similar tactic could work with the European Commission, said Christopher Thomas, a partner at law firm Hogan Lovells.
"The issue is not the algorithms, the issue is whether they can be changed in a way to sufficiently reassure the Commission without undermining what Google feels is the core of its business. If easy changes can be made, Google may be inclined to do that," he said.
One thing's for sure: The pressure on Google can only grow, said Thomas Vinje, a partner at Clifford Chance, who had led a coalition that took on Microsoft, which then led to the European Commission imposing a total fine of 1.68 billion euros for antitrust infringements.
"The launch of formal probes tends to generate more voices, to cause more people to jump into the fray, and make it more likely that other complainants will come forward with other allegations of abusive conduct," he said.
"So this case might well go on for quite some time."
(Editing by Edwin Chan)
Credit: Reuters (www.reuters.com)
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