June 24, 2011, 3:35 PM

Google’s search and ad services become the target of a U.S. antitrust investigation

The Federal Trade Commission issues a subpoena to the search engine giant.

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The U.S. Federal Trade Commission has opened an antitrust investigation into Google Inc.’s search and advertising business.

In a filing with the U.S. Securities and Exchange Commission, the search engine giant says it has received a subpoena and notice of civil investigative demand from the FTC. “It’s still unclear what the FTC’s concerns are,” writes Amit Singhal, Google fellow, in a blog posting today. The FTC offered no immediate comment.

Unclear, too, is what the investigation might mean for online retailers. “In the short term, I don’t see any impact on retail advertisers, but I do think Google may revise some policies as the probes go deeper into the company,” says Kevin Lee, CEO of search marketing firm Didit.

He says the FTC probe might touch upon multiple areas of search, including Google’s methods of punishing what it considers “black hat” search engine optimization tactics, such as when retailers pay for inbound links from other web sites in an effort to increase that retailer’s search rankings, as Overstock.com recently tried do with university-affiliated bloggers. When Google found out earlier this year, the search engine pushed down Overstock’s natural search rankings for about six weeks; Overstock said the punishment resulted in a 5% revenue drop during that period.

“Google can of course change its organic search algorithm at any time,” Lee said. “However, when folks buy or trade to get links to manipulate the results, most people believe that Google must simply attempt to invalidate the links it believes are gamed rather than punish the organization it believes purchased links.  Otherwise an incentive to further game the ecosystem exists—for example, Wal-Mart could buy links to Target to get Target penalized or punished.”

Singhal, in the blog, said that Google will continue to follow a principle of transparency when it comes to search. “We share more information about how our rankings work than any other search engine, through our Webmaster Central site, blog, diagnostic tools, support forum, and YouTube,” he writes. “We also give advertisers detailed information about the ad auction and tips to improve their ad quality scores.”

Late last year, the European Commission launched its own antitrust investigation of Google over allegations that it lowered the natural search rankings of companies that compete with Google properties, including Microsoft-owned Ciao, U.K.-based price comparison site Foundem, and French legal search engine ejustice.fr.

Google accounted for nearly 80% of spending on paid search ads by U.S. retailers in the first quarter of 2011, with Microsoft’s Bing accounting for the rest, according to IgnitionOne, a digital marketing company formerly known as SearchIgnite.

“For paid search, there is no doubt that Google commands the lion’s share of the market,” says Craig Macdonald, chief marketing officer of Covario Inc., a search services and technology vendor. "Antitrust suits are brought when market power leads to monopolistic pricing.  The interesting issue with Google is that its ability to enforce monopolistic pricing is very limited given the way its system works—the auction allows the advertisers to set pricing—and Google, for the most part, stays out of it.”

He expects, however, the antitrust probe to focus on Google’s natural search results, which, Google says, aim to return the most relevant answers to consumers. “Relevancy is a debatable standard and the relevancy goals of the consumers and the advertisers are going to always be at odds,” he says. If the FTC determines that Google has created what he calls an unlevel playing field, the government then might force Google to disclose more information about its closely held algorithms and algorithmic changes that determine search rankings, he adds.

“Advertisers should expect that the ability of Google to continue to innovate through acquisition of other technologies and companies will slow,” Macdonald says, adding that Google is facing the same type of antitrust scrutiny experienced in recent years by the likes of Microsoft and Yahoo.

 

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