Google’s unhealthy dominance will end

By David Rowan (THE TIMES, 06/05/08):

A funky new boardgame is doing the geek rounds – you can easily find it by Googling. It is called Googolopoly, and, just as with traditional Monopoly, you move round the board in single-minded pursuit of global domination. Land on the Yahoo! or Microsoft squares, for instance, and for just 350 Google shares, each is yours to entrap any subsequent visitors; but find yourself on “Income Tax”, and you’ll drop 10 per cent of your entire fortune on government lobbyists to defend your avaricious predations. The winner, of course, is the first player “to organise all the world’s information” – everything from personal health records to flirtatious phone messages, all stored for ever in a vast unregulated data bank.

They feel pretty damn lucky over in Google’s Mountainview headquarters this week, after the $47.5 billion Microsoft-Yahoo! challenge to its omnipotence collapsed into a welter of acrimonious 404-Error messages. Even as analysts were debating whether the emerging giant should be called “Myhoosoft” or “Microhoo”, Google was consolidating its ownership of the online economy, stretching its share of searches to 60 per cent in recent weeks, and boosting its revenue in this year’s first quarter by another 42 per cent to $5.2 billion. Add in its plans for phone handsets, social networking tools and its own version of Wikipedia – not to mention the other web giants, such as Doubleclick, that it keeps buying – and you can understand why Google feared the renewed challenge that a well-resourced, large-scale competitor would pose to its ability, in effect, to control the information age.

In the information marketplace, it is in none of our interests for one overweening quasi-monopoly to wield its power to set global advertising rates, determine which information may be censored to placate an oppressive regime, or build detailed profiles of its users based on their e-mail history, their medical concerns and the real-world locations logged by their Googlephone.

And if you think that governments, or enlightened self-interest, will force an ever more dominant Google to place the public interest before its own private whims, just pause awhile to reflect how reliant your own life has become on the internet in the past decade. From nowhere we are now blithely banking and gambling online, Facebooking and navigating to the pub by satellite. Now consider what further technological upheavals, as yet unknown, we will face over the next decade. As one anxious CEO told his staff at a meeting last Thursday: “The future of the way people consume information, the way people socialise and connect, is going to change a lot more in the next ten years even than in the last ten. How you find information, how you consume it, how you share it and connect with your friends… dramatic changes.”

That agitated CEO, by the way, was Steve Ballmer, of Microsoft, which to date has thrown a $10 billion investment at its internet operations without turning a profit. True, his firm’s own record on monopolistic abuse of power is pretty colourful, and its cash pile of an estimated $40 billion hardly makes it a minnow.

But Mr Ballmer understands that the “network effect” that made Windows a world-beater – the “everyone else is using it, so I ought to” pressure – is at least as powerful when “everyone else” is using the same location-based services to hook up with friends, or the same advertising service to promote their business. Scale, in this industry, is what matters, and Google has scale in terabytes. Which is why Mr Ballmer confessed to an industry gathering in March: “We’ve got an aspiration in online. And in online, yeah, it’s Google, Google, Google.”

So think of this as a moment of consolidation in an industry that is finally starting to mature. Microsoft may not have gone to the altar with Yahoo! this time but both parties are desperately flirting on the rebound with any reasonable second-chance candidate. AOL is reportedly being courted by both untrothed parties; MySpace (owned by this newspaper’s ultimate owner) is fast rising in acquisition value as the sixth-most trafficked website; and let’s not forget Facebook, in which Microsoft already owns a stake. There may just be a summer wedding yet – though not before Google has used its competitors’ disarray further to strengthen its lead.

The other option for Microsoft and Yahoo!, dare we say it, is to develop more products that people actually want to use. There is a reason that Googlemail kicked sand in Hotmail’s face, and Google Maps showed the way to Yahoo! Local: users preferred the experience. For all the inequity of its excessive dominance, Google knows what the marketplace wants, and is prepared to experiment creatively along the way.

Yahoo!, by contrast, is a business-school case history of an industry leader, once worth $134 billion, whose arrogance, mismanagement and lack of strategic vision brought it all the grief that it deserved. From its 2002 offer to buy Google for $3 billion, rejected at the time as insulting, to its latest overestimate to Microsoft of its own share value, the company is a mess, the least of whose problems now will be its share-price plunge.

The only good news to come out of Yahoo!’s last-minute jilting by Microsoft is that the marriage would only have failed dismally. Just like AOL’s disastrous $103.5 billion merger with Time Warner in 2001 – possibly the most efficient demolition of shareholder value in economic history – the mismatch would quickly have exposed non-existent “synergies”, incompatible business cultures and technology platforms, and raging egos that would have turned on each other as the regulators and shareholders came calling.

The rest of us, meanwhile, can only sit by our Googlephones and monitor our Googlemail accounts for news of the next challenger to emerge. Or better still, rent yourself a garage and start tinkering with a computer. You never know where it will lead you.