You're Not Google's Customer

You're Not Google's Customer -- You're the Product: Antitrust in a Web 2.0 World

You think Google's search engine is great. Gmail is easy to use. YouTube gives you instant access to funny pictures of dogs and music videos. And Google maps helps you find where you are and the nearest pizza place. And it's all free.

So you're a happy customer and don't understand why anyone would think antitrust action is needed against Google. Or why government officials from Europe to the U.S. Congress and, just last week, U.S. state governments are bringing antitrust investigations against Google.

Except remember -- it's free! Google doesn't make a dime of profit from you, so you aren't the customer. In fact, all those cool products are just bait to get your information in the Google ecosystem so your attention and eyeballs can be sold to Google's advertisers.

The pleasant experience of using Google products is little different (in any economic analysis) from the pleasant massage administered to Kobe beef cattle in Japan; each is just a tool to increase the quality of the product delivered up to the real customers.

What is Google's Market in a Web 2.0 World? So here's the key place to start in understanding proper technology policy for Google: there is no market for search engines; there is no market for online geolocation mapping software; there is no market for online video.

Google, by making these products free, has destroyed those markets in favor of an alternative economic model of selling individual attention and precise information about those users to advertisers. You are the product, not the customer. That market between Google and its advertisers is where antitrust authorities ultimately have to look to understand what public policy is needed.

As law professor Siva Vaidhyanathan describes in his just-published The Googlization of Everything (and Why We Should Worry), "Google's method of generating and selling advertisement placement is brilliant." Through user queries and searches, as well as personal information about those users, Google can deliver a product to advertisers tailored to their exact needs -- people looking for shoes are delivered to shoe sellers, people located in a certain town are delivered to local restaurants, and so on.

And while individual users may think the brilliance of Google is in the technical design of its search engines, as a company, its profit is driven by its brilliance in nearly monopolizing the online search marketplace serving these advertising companies.

And what profits! With revenue coming overwhelmingly from its advertising monopoly, in 2010,Google's net income was $8.51bn, up 30 percent from 2009 on total revenue that grew 24 percent to $29.32bn. And to understand Google's dominance, look at this chart of data from E-marketer, which shows Google's overwhelming dominance over its competitors in delivering search advertising:

Note that Google's dominance is growing and is projected to grow more. In mobile phone advertising, Google has established a phenomenal 97 percent of paid mobile search advertising, which by itself is projected to be worth $1.1 billion by the end of 2011 and is likely to skyrocket as a percentage of advertising.

And this dominance cannot easily be overcome by some alternative upstart website, even by well-capitalized competitors, since underlying Google's enterprise is, in Vaidhyanathan's words, a "monumental collection of physical sites such as research labs, server farms, data networks and sales offices." Given the interplay of different Google services and customization of results based on having so many users involved in its ecosystem, there are so-called "network effects" from being dominant that any competitor has too large a challenge in displacing Google.

So what are all the cool new Google products like Android, Chrome and Apps for?First, they are more ways to collect the personal information to target advertising to individuals (and new threats to personal privacy as described below).... http://www.huffingtonpost.com/nathan-newman/youre-not-googles-custome_b_841599.html