FTC probe could be hard, costly battle for Google

Investigation could prove to be good news for Microsoft -- FTC could push Google to be less aggressive

Google Friday acknowledged that it has received formal notification of a Federal Trade Commission review, prompting analysts to say the search company could be in for a long, tiring and expensive battle.

"These things are costly," said Geoffrey Manne, executive director of the International Center for Law & Economics, a global think tank.

"They'll have to come up with the usual millions of pages of documents," he said. "It's a costly ordeal. If [the FTC] decides they have enough of a case, they'll want to try it and not settle it. That is potentially very problematic for Google."

Earlier today, Amit Singhal, a Google Fellow, disclosed in a blog post that the company had received notification of an FTC probe into its business, including the search and advertising operations.

In the post, Singhal said the company would cooperate fully with the federal investigation.

"It's still unclear exactly what the FTC's concerns are, but we're clear about where we stand," Singhal wrote. "Using Google is a choice [for users] -- and there are lots of other choices available to you for getting information."

Singhal also noted that Google focuses on labeling advertisements correctly, being transparent about how their rankings work and providing the most relevant search results. "These are the principles that guide us, and we know they'll stand up to scrutiny," he said.

On Thursday, the Wall Street Journal reported that the FTC was gearing up to serve Google with civil subpoenas in what looked to be a formal, wide-ranging antitrust investigation into whether the company has abused its Web dominance.

Past federal investigations into Google focused on mergers and acquisitions. The new probe is a much broader look into the company's business practices and how much it might use its dominant position to muscle other players out of various markets.

The FTC action isn't the only antitrust investigation that Google has to deal with.

Late last fall, the European Commission launched an investigation into allegations that Google abused its heavily dominant position in online search to promote the company's other services.

"I think that this has been coming for a long time and it had to eventually happen," said Dan Olds, an analyst with The Gabriel Consulting Group. "Once Europe started their investigation, it was just a matter of time before the FTC did the same."

And both Olds and Rob Enderle, an analyst with the Enderle Group, noted that Google can't take the FTC investigation lightly.

"A full FTC investigation along these lines can take more than a decade from start to finish -- like with IBM back in the day," said Olds. "It's going to be a long and very expensive process for all concerned. With the level of electronic records we have today, just the discovery process is going to be massive, with investigators having the ability to make Google give up emails, meeting notes, and other records stretching back years."

Enderle added that Google needs to be careful not to be perceived as arrogant during the proceedings, as such an attitude could fan the flames. "This will likely dictate both the effort put into this by the government and the probable outcome," he said.

While Google is up to its neck in documents and legal filings, Microsoft will likely be looking to take advantage of any slip in Google's focus. For instance, the investigation could give Microsoft's Bing search engine a boost.

"There's no question that [Microsoft] is the impetus behind this in the first place," said Manne, also a lecturer at Lewis and Clark Law School. "I don't know that Yahoo has been doing this but Microsoft certainly has been spending an enormous amount of time with agencies and legislatures, trying to get them to bring a case against Google. They are complaining and want a case to be brought because of only one thing -- they think they will be benefit and Google will be harmed."

Olds added that the FTC's initial probe into Google could make for some interesting shifts in the search market down the road.

"I think that this might tamp down Google's aggressiveness a bit, but we'll have to wait to see for sure," said Olds.

"The thing to keep in mind is that it isn't illegal to have a monopoly. It's illegal to abuse monopoly power," he said. "This preliminary phase is just the FTC deciding if there is enough evidence of anti-competitive abuse to justify opening up a formal investigation, [which] could take a year or longer to decide."

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin, or subscribe to Sharon's RSS feed . Her e-mail address is sgaudin@computerworld.com.

Copyright © 2011 IDG Communications, Inc.

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