[21 August 2007]
San Jose Mercury News (MCT)
SAN JOSE, Calif.—Google’s historic IPO took place three years ago this month, and the Mountain View, Calif., search giant has an anniversary present for its founders: Not only did Larry Page and Sergey Brin beat Bill Gates in developing a better search engine, the young technologists also can boast of bringing shareholders a bigger reward.
Since Google went public Aug. 19, 2004, at $85 a share, its market value has grown nearly 500 percent to $156 billion. In comparison, Microsoft’s value had not quite quadrupled on its third anniversary way back in March 1989.
But Google’s precocious performance has come at a price: Antitrust regulators in the United States are probing its proposed $3.1 billion purchase of DoubleClick, an Internet advertising company, and European regulators are poised to follow suit. Meanwhile, open-source activists are developing alternatives to Google’s popular search engine.
It’s a position that Google’s top rival, Microsoft, knows all too well. Less than a decade ago, the same combination of colorless bureaucrats and colorful coders helped end the software giant’s spectacular growth spurt, sending its stock into a seven-year slump.
Industry experts say there are cautionary lessons to be drawn in comparing the two companies.
“There’s clearly a strong parallel on the antitrust front. You can draw a line from IBM through Microsoft to Google,” said Tom Eisenmann, a Harvard Business School professor who has written a case study on Google.
But Eisenmann noted that Google’s market share in Internet search—about 50 percent in the United States—is significantly less than the 70 percent share of the computer mainframe market that IBM enjoyed before regulators cracked down, or Microsoft’s share of the personal-computer software market, which was more than 90 percent.
“I don’t think that is going to be the comeuppance of Google,” he said of current antitrust review.
Others say trouble appears to be brewing.
“Just as concerns about Microsoft gradually increased until they reached critical mass, I think that is starting to happen with Google,” said Lauren Weinstein, co-founder of People for Internet Responsibility. “We are starting to approach a tipping point in all this, where the risks to Google are becoming greater and greater.”
Microsoft faced its first antitrust probe four years after it went public. That investigation ended in July 1994 after the software giant agreed it would not use its dominance in computer operating systems to undercut competitors.
However, Microsoft’s antitrust problems continued. An order from a federal judge to break up the company was replaced by a settlement in 2002. A European Commission ruling against the Redmond, Wash., company is currently on appeal and is expected to be decided next month.
In Google’s case, opponents in the United States and Europe are already citing Microsoft’s dominance of office applications to bolster their arguments. They contend the Mountain View company’s acquisition of DoubleClick could help it dominate the rapidly growing market for Internet advertising, combining Google’s leadership in search-related ads with DoubleClick’s strength in display ads.
They also warn that the vast amount of data about people’s behavior on the Internet held by the combined company could threaten consumer privacy.
In a statement to the San Jose Mercury News, Google said it is “confident that this acquisition poses no risk to competition and respects consumer privacy.”
But Jeff Chester, executive director of the Center for Digital Democracy, one of several consumer groups that asked the Federal Trade Commission to review the acquisition, said it would eliminate meaningful competition, not only because the new entity would control so much of the market, but because publishers might fear that if they did not deal with Google, their ranking in Google’s search engine might be affected, making their content harder to find.
“There’s more at stake here than just control of online advertising and privacy,” Chester said. “I believe the future of online content will be determined by the shape of the market” for Internet advertising.
Similar concerns are driving the effort to develop an open-source search engine.
“Search should be transparent, open and participatory,” said Jimmy Wales, founder of Wikipedia, the online encyclopedia written by volunteers, who is spearheading the effort.
When Wales talks about Wikia Search, he consciously echoes the same concerns voiced by the developers who took on Microsoft in the 1990s as a way of rebelling against the control Microsoft was exerting over applications for personal computers. Wales says Internet search is plagued by the same problems that bedeviled proprietary software—lack of accountability, transparency and freedom.
Google closely guards its top-secret formula for ranking Web sites, making it impossible for a publisher to know why a site might enjoy front-page ranking one day in the search results and drop to Page 100 the next.
Just as open-source developers openly published the software code behind alternatives to the Windows operating system and Microsoft’s Internet Explorer, Wales’ programmers will publicly disclose their algorithms for ranking results in the Wikia Search project.
Still, open-source software could be far less of a challenge for Google than it was for Microsoft.
Google already makes liberal use of open-source software, including Linux, GNU tools, OpenSSL, MySQL and computer languages like Python and C. Hundreds of Googlers have worked on improving Linux. And Google has published more than a million lines of code under open-source licenses, according to a company representative.
“Open source benefits Google in many ways and it creates commercial challenges for Google in many ways,” said Paul Saffo, a respected technology forecaster.
One test could come from Openads, a London company whose free ad-server software competes with DoubleClick. Openads is headed by James Bilefield, a veteran of Skype and Yahoo, and backed by Index Ventures and Mangrove Capital Partners, who also backed Skype, as well as First Round Capital and O’Reilly AlphaTech Ventures.
Unlike DoubleClick, Openads does not collect consumer information from the publishers who use its software. While its 20,000 customers are primarily small publishers, larger players who are concerned that DoubleClick could end up sharing information with Google are looking at Openads as an alternative.
Rather than hurt Google, however, Openads’ very existence could help it persuade regulators to approve the DoubleClick merger.
Microsoft’s defense to regulators—that competition would inevitably emerge—has been validated in part by the success of open source.
“There was really a lot of justice to the complaints against Microsoft,” said tech publisher Tim O’Reilly. “They did have a monopoly position and they appeared to abuse it, but they were also right in saying that the market would correct, their monopoly wouldn’t be forever.”
Despite widespread admiration of Google’s success, O’Reilly said, there is growing animosity against the company, especially in Silicon Valley, where Google’s growth has made it increasingly hard for other companies to compete for talented employees.
“They are powerful, they are arrogant, but I don’t think they are winner-takes-all competitors in the way Microsoft was,” he said. “People got burned so badly by Microsoft they are kind of overreacting.”