Europe data regulators have apparently had it with Google.

After years of Google stonewalling governments on the so-called wi-spy scandal around Google snooping on individual data in homes using Street View vehicles and then, last year, changing its privacy policies without getting consent from its users, a taskforce of six European government data agencies announced this week that they were going to launch new enforcement actions against Google over violations of European privacy law.  And European legislators may tighten the continent’s privacy laws specifically to deal with Google.

As France’s National Commission for Computing and Civil Liberties wrote in an e-mailed statement, Google has defied European regulators in implementing privacy policies violating privacy laws and, when questioned on those actions, provided “often incomplete” information.  France is joined by Great Britain, Spain, Germany, Italy and Holland in this stepped up enforcement.

The final straw for European regulators was the decision by Google that when a user used any service of Google’s, information about that user would be available to advertisers on any other Google service for targeting ads.   So if you watch a YouTube video on your phone, the ads you see would use your Google search habits, emails sent in your Gmail account and your location tracked by Google Maps to decide which ad you see.  Google refused to allow users the right to keep data from different services from being combined into an integrated profile for those advertisers, despite the change in policy requiring consent by users under European law, according to the data protection agencies.

The stonewalling of regulators by Google on exactly how that new integrated profiling of users on behalf of advertisers would work finally pushed European regulators to take legal action after hoping over the last year to negotiate a voluntary deal with the company.  But then the data protection agencies are used to stonewalling by Google after the Street View wi-fi evesdropping—which Google initially denied was happening, then denied any personal data was collected, and then refused to share what data had actually been collected by Google.  This is a similar experience to the U.S., where the Federal Trade Commission had a similar experience with lack of cooperation by Google over the wi-spy issue, eventually fining Google for  “willfully obstructing” the FTC’s investigation.   That itself followed a far more substantial half a billion dollar fine (yes, that’s b for billion) by federal prosecutors for assisting illegal pharmacies to market ads on Google, even after promising to stop the practice for years.

The question is what those data regulators can do to force Google to change its illegal actions?   The level of fines available to European data regulators is notoriously low—Google is facing official fines probably on the order of tens of thousands of dollars, or minutes of profit lost for the behemoth.  However, European privacy advocate Simon Davies argues that there are “unexplored areas” of EU data protection laws allowing regulators to intervene in the operations of a company violating privacy laws. Those regulators could even “shut down Google services” if the company doesn’t change its policies.

And if the regulators decide they lack the necessary enforcement tools, the EU Justice Commission Viviane Reding said this week that the European Parliament and member states “will strengthen Europe’s enforcement tools in the course of this year” as necessary to stop Google’s violations of privacy law.

With new laws in place in Europe to toughen enforcement, Google may have to substantially change its operations to give consumers more control over what personal data Google can use in targeting ads and how it combines data across its various services.

The question is whether we are likely to see similar action by regulators here in the United States. While the Federal Trade Commission gave Google a pass on antitrust concerns back in January, Commissioner J. Thomas Rosch in a partial dissent from the decision criticized Google for seeming to use “half-truths” in gaining consumer consent for “gathering of information about the characteristics of a consumer” for the benefit of its advertising clients.  While privacy law in the U.S. is substantively weak, federal regulators and state attorneys general have quite strong enforcement tools in taking on deceptive practices aimed at consumers.

Even more powerful would be various state attorneys general coordinating investigations with European data protection counterparts to challenge Google and other privacy-destroying social media companies to clean up their acts and strengthen protection of user privacy rights.

At least in Europe, 2013 looks to be the year for action.  Hopefully, U.S. regulators follow Europe’s lead.

As predicted, the Federal Trade Commission has punted any serious action against Google’s monopoly dominance of search advertising and related sectors.  Worse, it turns out the investigation was so narrow and ultimately so perfunctory that it’s hard to understand what took nineteen months to get such a meager result.

Conservative FTC Commissioner J. Thomas Rosch mocked his liberal colleagues, saying in a statement that “after promising an elephant more than a year ago, the Commission instead has brought forth a couple of mice.”

The FTC did not even get a consent decree to enforce its main complaints against Google, just voluntary commitments by Google, an almost unprecedented approach to enforcement that Commissioner Rosch noted is “an unjustified and dangerous weakening of the Commission’s law enforcement authority” and sets a terrible precedent for future FTC actions.

So what did the FTC kind of do to restrain Google?

• Google has to allow competitors to use Motorola patents considered important for interoperability of wireless phones and devices
• Google promised to stop “scraping” (grabbing snippets of reviews or information) from rival sites, notably something the company had already promised publicly to stop
• Google promised to allow its advertisers to more easily move data about advertising campaigns to rival ad platforms like Microsoft (multi-homing in industry parlance)

That’s it.

All claims of search bias by Google were dismissed by the Commission and they didn’t apparently investigate any of the other wide-ranging complaints about Google monopolistic activity across its various products.

Allowing multi-homing is a substantive change in Google behavior and of some importance as I argued here, but also ultimately not enough to change the power dynamics in the search advertising sector.

The real problem is that that the Commission apparently ignored so many other bigger antitrust issues in their investigation:

• At the most basic level, the FTC did not address the core problem that Google dominates not just two-thirds of all search queries but garners 78% of all revenue in the search advertising sector (and 85% globally), a monopoly concentration that leaves little room for competition in the whole sector.
• The FTC did not address how Google is using those super-profits ($12 billion per year on $50 billion annual revenue) to saturate other product areas with its own offerings, from specialized search verticals to the Android operating system to its YouTube video services.
• Most of all, the FTC did not say one word about Google’s increasingly dominant control of user data, which it adds to with each new product line launched as it tracks user behavior through its web services, apps, cookies and other online tools.
• Nowhere does the FTC discuss allegations that Google used its control of the Android operating system to strongarm manufacturers into using its geolocation services to better track the location of users, despite that issue being a focus of a private antitrust lawsuit.

The FTC in its statements just provide no real analysis that Google’s power in the marketplace, its value to advertisers, comes from its systematic undermining of user privacy and by having so much more data than any rival.  It’s a bit like doing an antitrust analysis of Standard Oil back in the day and ignoring whether its control of oil supplies might be giving it an advantage in the marketplace.

And nowhere does the FTC even acknowledge that Google’s business model of de facto selling user privacy to its advertisers might be a source of consumer harm, a point I detailed in my Cost of Lost Privacy posts.

For critics of Google, today’s FTC decision is not bad news because we disagree with the results, but bad news because it reflects an enforcement agency failing to even ask the right questions.

Luckily, the Federal Trade Commission is not the only game in town.  The European Commission is likely to come out with its own findings in coming weeks or months and in the U.S., states attorneys generals across the country have been pursuing their own antitrust investigations into Google.

Just as the FTC punted on investigating Microsoft back in the 1990s, leaving it to the states and ultimately the U.S. Department of Justice to launch a real investigation of Microsoft’s antitrust abuses, we will hopefully see a repeat of that history with hopefully the right questions being asked at the next step of what it likely to be a long road to reining in the Google monopoly.

With reports that Google is likely to be let off the hook with minor restrictions on its behavior, the Federal Trade Commission seems ready to punt on the most important antitrust case to come across its desk in years.

Given how narrowly the FTC had been approaching the case in the first place, that’s probably a good thing for consumers, since it means we can hope for the Department of Justice or state attorneys general to move forward in the future on a more comprehensive case against Google’s monopoly abuses.  Senator Richard Blumenthal (D-Conn.), a former state AG in Connecticut, has already argued, “If the [FTC] investigation concludes without a finding that would warrant some action, the Justice Department can take action as well to investigate and secure remedies.”

In fact, that’s exactly what happened with the Microsoft probe in the 1990s.  The Federal Trade Commission first looked at the Windows operating system monopoly problem back in 1991, but the department punted the case in 1993.   But that led the Department of Justice and state attorneys general across the country to take on Microsoft – see John Heilemann’s near-epic Wired recounting of the twists of that case – leading ultimately to the court decisions and consent decrees that reined in that company’s abuses over the last decade.

The problem has been that the FTC – and even its slightly more aggressive European counterparts – has been focusing on a handful of issues, like abuses of Google’s patents and its manipulation of search results.   While important, these are ultimately only symptoms of how Google uses its economic power to benefit itself.

What needs to be addressed in any antitrust probe is the source of Google’s monopoly power, namely its overwhelming control of user data.   Data is the oil power of the online economy, fueling advertising and profits, and Google is the modern Standard Oil dominating control of that data.

It’s not just all the search data that Google collects.

• Watch a video online? You’re probably feeding Google more data on your YouTube viewing habits.
• Sending an email?  All you Gmail users are giving Google a blow-by-blow on your interests through the text of emails.
• Checking your location on your cellphone?  You’re probably feeding Google location data through its Google maps and more general geolocation services.
• Visiting any website?  Google is tracking data on you through the Google Analytics software used by most websites to evaluate traffic on their sites.
• Or just surfing the web means you’re almost certainly being tracked by Google cookies and web ads delivered up through its DoubleClick visual ads subsidiary.

With that unprecedented amount of data about online users, Google becomes the only game in town for most online advertisers seeking to deliver ads to users searching words or products online.  Google faces no viable competition in the search advertising field because of this control of data.  Microsoft’s Bing loses as estimated $2.5 billion per year because Google is able to charge such a premium price to advertisers over its main rival.  And most so-called alternative search options for users are actually Google partners, either using its search technology or delivering up user data even without the Google brand in the online header.

Some antitrust regulators are beginning to admit that they need to change their view of how big data and its control should change antitrust policy.  Joaquín Almunia, who heads competition policy for the European Union, gave a speech last week where he admitted,  “Companies evidently try to use their access to personal data to gain commercial advantage vis à vis users.”   But this has not led to antitrust authorities in either Europe or the United States fully grappling with its implications for retraining Google’s power or other companies like it in other markets where control of user data will reinforce monopoly power.

The problem for consumers is not just that advertisers will face higher prices – with users ultimately getting those costs passed on to them.   The deeper problem, as I outlined last year in my Cost of Lost Privacy series, is that this deep control of user data allows Google to sell what can be predatory access to advertisers.  Payday lenders use Google to track financially distressed consumers to offer punishing terms, illegal online pharmacies offer illegal or fake drugs, and con job “loan adjustment firms” can find and ripoff homeowners with underwater mortgages.   More generally, advertisers can engage in a range of what economists call price discrimination to extract the highest price from each consumer and expanding  corporate profits at the expense of the consuming public generally.

If the FTC and European regulators are not yet ready to deal with the ultimate source of Google’s economic power, its control of user data, and the broad consumer harm being inflicted by its day-to-day tracking of user behavior on behalf of its advertising clients, then it may be just as well that any likely settlements in coming months will be limited.

As long as they don’t foreclose alternative investigative paths in any settlement, ideally the U.S. Department of Justice and the state attorneys general will step up with more comprehensive investigations in coming years, just as they did after the FTC punted on the Windows monopoly problem in the early 1990s.

Google recently made a radical revamp of its main search page, adding a new category of “sponsored” e-commerce results when consumers search for a particular product — and Microsoft is highlighting the change in a new ad campaign arguing users are getting “Scroogled.”

In the past, Google kept a firm distinction between search results that the company claimed were unbiased by payments to Google and ad results that were clearly marked as such.  Now, Google has introduced a new third category of e-commerce results that muddle the results for consumers considerably:

But anyone who clicks on a tab at the top for shopping-specific results will see only listings for paying merchants. That means results from sites, including Web retailing giant Amazon.com Inc., aren’t displayed unless they pay. Amazon so far has only occasionally paid to have some of its wares listed in Google’s shopping section…

Since mid-October, Google’s shopping section has included only listings from merchants who paid to be included in the results. In some cases, the order of the shopping results has been dictated by how much money Google received for the listing. The change coincides with what is expected to be the most lucrative holiday shopping season on the Web yet…

The financially driven system for determining the results in a major part of Google’s search engine breaks new ground for a company whose idealistic founders, Page and Sergey Brin, once railed against the perils of allowing money to influence which Web links to show.

With the company facing antitrust investigations in both Europe and the U.S. over how Google uses its dominant position to manipulate search results, it’s a sign of pretty hefty arrogance by the company to introduce this new manipulation just as it enters negotiations with antitrust authorities.   Given that the result of this new system is likely to be consumers being steered towards more expensive sites in many cases, those antitrust authorities don’t have to look far for a pretty clear example of consumer harm stemming from Google’s disproportionate dominance of online search.

Why is a software company like Google stringing cable in Kansas City for its Google Fiber initiative? Its Google Fiber announcement opens a lot of questions about where the company is going.  But the details are interesting to anyone committed to seeing a high-speed broadband future for America:

• The initiative will deliver1 gigabit of Internet speed for $70 a month, throwing in dozens of high-definition television channels for another $50 a month.
• For early subscribers, Google will even waive the $300 installation fee and deliver Internet speeds 500 times faster than the roughly 2-megabits-per-second that most Americans have in their homes.
• Google Fiber will also allow consumers to record eight TV programs at a time.
• Add in a Free Nexus 7 tablet as a remote control and a tetrabyte of storage.

With no data caps, that’s a pretty compelling package.

But can Google compete with Verizon FIOS offering 530 channels and broadband speeds up to 150MPs at a price of $205 per month?  Or with AT&T, Time Warner or Comcast with their combo Internet/TV plans?

So far in Kansas City, Google seems to have demonstrated that it has the potential to become a presence in the industry, with 89% of neighborhood “fiberhoods” signing up for deployment of fiber in their communities.   (The fact that the remaining neighborhoods seem to be disproportionately in low-income communities, however, indicates that Google’s plans may just increase the digital divide between communities.)

Financially, Google has the advantage in Kansas City that it can monetize its build-out costs not just through subscriber fees but also through its online advertising arm on the (hopefully) increased Internet content users view. At one level, Kansas City may be just a test bed for Google to have a complete local ecosystem to observe how broadband subscribers use the Internet. Google’s bread-and-butter is selling advertising online and the key to their dominance is collecting more and more data about people online, so they can deliver the exact slice of the online population to the exact slice of advertisers who can generate sales from those users.  Knowing users television viewing habits on a minute to minute basis and combining that with other data Google has on their online habits gives the company a whole new set of interconnected data to even more precisely target advertising–and increase its revenue to justify the build out costs in Kansas City.

Will Google Take on the Telecom Industry? This may be just a one-off move by the company to collect a whole new kind of marketing data to assist its online advertising algorithms across the country, while reaping some good public relations. But it could be just a test for going big into a whole set of fiber markets around the country. In other sectors, Google has shown a desire to move from providing the content to controlling the underlying infrastructure.  Originally, few people expected Google to move into mobile phones in direct competition with its one-time corporate ally Apple, but it first created the Android mobile operating system, then more recently purchased Motorola to begin itself manufacturing its own phones. Without abandoning all alliances, the company shows a strong desire to control end-to-end environments for online commerce and advertising.

If Google can in just four years, move from no presence in the mobile phone market toAndroid phoneshaving a 64.1% share of all phones sold, it would be a mistake to underestimate Google’s willingness to take on whole new markets.

And television itself is an industry that Google is already moving to control end-to-end, with Google Fiber potentially being just one element of that plan. Google already controls 40% of all online advertising, but the company clearly wants to make inroads into the television advertising sector, which is presently still significantly larger than its online counterpart. Or as Robert Kyncl, a senior manager at Google’s YouTube operation, said in a New Yorker interview last year, “[T]his industry [i.e. TV] is worth three hundred billion dollars, worldwide, and we hope to see value shiftinghands,” meaning into Google’s hands.

Google as Content Creator: Which puts in perspective another big announcement by Google this past week that it was adding 50 new original online television channels to its YouTube service on top of the 100 it introduced last year, an attempt by the company to produce long-form onlinevideo content to compete head-to-head with cable. If the company can shift viewers from traditional television watching to its own online channels, where the company controls all advertising, or to competing online video sites where the company is a major player through its online advertising arm, that would be a game changer in the television industry. In fact, a Nielsen study found in a fifty-country survey that more people are now watching online video that preprogrammed television shows.

That handy Nexus tablet remote Google is handing out in Kansas City then becomes a weapon to help steer customers to its ownYouTube channels or other online video where the company is getting a slice of the advertising revenue. Google is already deploying its Google TV service — a software standard embedded in televisions – to make watching television on any set more like surfing the Net. The company has cut deals with a large number of television manufacturers such that Google’s Eric Schmidt predicted this past December that a majority of televisions sold in stores would soon have Google TV embedded in the hardware.

Google’s Comprehensive Television Game Plan: Take a step back and Google is pursuing an integrated strategy to control television content via its YouTube channels, access to video services via Google TV, potentially control of the physical infrastructure via Google Fiber, and control of video advertising revenue through its Google Ads to make the whole thing pay off financially.

Google would be in the unprecedented position to eavesdrop on the complete cycle of users video watching, seeing which online shows they choose to watch, which ads grab their attention, and which they click on — a learning cycle of new data on users that would be priceless in making its ads more valuable to advertisers (and therefore generate more revenue for Google). And Google could then produce niche online channels to attract the exact mix of viewers desired by any particular set of advertisers.

Some analysts have argued that Google can’t afford the tens of billions, even hundreds of billions, required to deploy fiber in markets across the country. But that cost, while substantial, could easily make clear economic sense for Google if it can grab tens of billions of dollars annually from current traditional television advertisers. Google doesn’t have to make money on deploying fiber and could probably even afford to lose a bit, as long as it makes it up in its core advertising revenue source.

And if its deployment efforts just force existing cable companies to ramp up their own deployment of high-speed Internet options to fend off Google, Google still wins. Higher speed Internet makes online video more viable as a competitor to existing broadcast and cable channels and Google then reaps more online advertising revenue without even having to deploy everywhere.

Whether Google goes national no doubt depends on what happens in Kansas City and whether Google sees a spike in useful user data and advertising revenue from the fiber deployment. If it does, we should expect new convulsions in the local cable-Internet franchise sectors.

This is reposted from SpeedMatters

Slamming Google’s violation of European privacy laws, the Article 29 Data Protection Working Party of European data protection agencies issued its much anticipated report on Google’s  integration of user data across the company’s services.  Signed by  all 27 heads of European data agencies, the letter and the accompanying appendix laid out the ways Google had failed to acquire legal consent by its users for such a major change in its privacy policies and the ways this endangers privacy for users.

The investigation was launched earlier this year when Google announced that it was now combining all its services into a single account for each user, where data collected on user’s YouTube viewing habits would now be combined with data on topics contained in their Gmail messages and their search inquiries.  No consent was sought from users for this change and the European privacy authorities began their inquiry to determine what exactly was being done with user data and the ways it violated European privacy law.

Making User Consent Real: In the new report, the data agencies lay out a range of guidelines for Google to come into compliance with European law, including clearer modes of consent and differentiating consent for different kinds of data integration.

Everyone recognizes that consent is a bit of a joke online, with users almost automatically clicking on the “I agree” bubbles that pop up.  Considering that Google is a master of interactive engagement with users online, the Working Party report noted that the company’s use of “long and linear documents” explaining its privacy policies is not a reasonable approach to obtaining consent when it could instead use an “interactive presentation that allow users to explore the content of the privacy notices.”  Basically, users should have user-friendly interfaces to choose which data to share, which services to combine, and which data to keep private or separate.

The Tentacles of the Google Data Collection Octopus: One key point is, as the report indicates, most users are oblivious to the multiple ways that Google collects data on them and have no idea — and no simple mechanism — to control that data collection.  For example, they point out these give different data collection mechanisms by Google:

• Tracking user behavior once they are logged into their Google account (the one users are most familiar with);
• Cookies inserted onto user computers – the so-called PREF cookie — that tracks each user interaction with a google.com website and third party websites with ‘+1 buttons for example;
• DoubleClick display advertising tracking cookies inserted on user computers from third-party websites that display DoubleClick advertisements;
• Google Analytics cookies used by third party websites to track use of their sites;
• Mobile identifiers used to replace cookies on some mobile applications.

As the Working Party argues, “there is no valid consent from the user, in particular because the user is not aware of the exact extent of the combination of data”  As importantly, any consent mechanisms should actively inform users of how the data will be used so that any agreement is based on actual knowledge of why sharing the data matters.

There is some ambiguity in the report on how and whether Google is combining these different sources of data into a single profile of users, but they emphasize the problem that Google stores this data for up to two years tied to individual profiles.  So users may think they have deleted data on themselves by eliminating a cookie or logging out of a Google site, but if they return to a site that inserts cookies, they may have their whole profile revived based on those unique identifiers.

Missing Exploration of Consumer Harm from Data Collection: Still, while the agencies’ action is a good start, a weakness in the report is a failure to lay out exactly how such violations of user privacy harm consumers.  As I’ve detailed in pieces such as the Cost of Lost Privacy, regulatory authorities need to treat the economic harms to consumers from behavioral targeting more seriously so they can identify which data should be off the table for sharing with advertisers (intimate medical data, etc.) and which are relatively neutral aspects of consumer preference (preference for blue over red clothing).  This actually would help shape exactly what kinds of choices should be presented most prominently to users for controlling — and deleting — data from advertisers’ clutches.

As wel, while the Working Party made a passing reference to Google’s complete dominance of the search advertising field, they didn’t explore how stronger privacy controls also serve reducing Google’s economic power.   Since Google gains its heft and irreplaceability with advertisers through its control of user data, anything that increases user power to withhold that data inevitably will also reduce that monopoly power as well.

Still, these are small concerns with a report and joint recommendations by the data protection agency heads of 27 European Union countries, recommendations that should also influence the debate in the United States and around the world on better protecting user privacy and restricting the harms from behavioral targeting by advertisers.

In an anticipated move, the Federal Trade Commission levied a $22.5 million fine against Google for violating its ongoing consent decree by violating user privacy by secretly tracking Safari users who had asked not to be tracked:

In its complaint, the FTC charged that for several months in 2011 and 2012, Google placed a certain advertising tracking cookie on the computers of Safari users who visited sites within Google’s DoubleClick advertising network, although Google had previously told these users they would automatically be opted out of such tracking, as a result of the default settings of the Safari browser used in Macs, iPhones and iPads.

According to the FTC’s complaint, Google specifically told Safari users that because the Safari browser is set by default to block third-party cookies, as long as users do not change their browser settings…Despite these promises, the FTC charged that Google placed advertising tracking cookies on consumers’ computers, in many cases by circumventing the Safari browser’s default cookie-blocking setting.  Google exploited an exception to the browser’s default setting to place a temporary cookie from the DoubleClick domain.  Because of the particular operation of the Safari browser, that initial temporary cookie opened the door to all cookies from the DoubleClick domain, including the Google advertising tracking cookie that Google had represented would be blocked from Safari browsers.

Yet Google continues to deny liability for the infraction even as it agreed to pay the fine.  FTC Commissioner J. Thomas Rosch was so incensed by Google’s refusal to admit culpability that he dissented from the decision to accept the agreement, arguing:

This is Google’s second bite at the apple.  The Commission accuses it of violating the Google Buzz consent order by “misrepresent[ing] the extent to which users mayexercise control over the collection or use of covered information” and accordingly, seeks civilpenalties for those violations.  In other words, the Commission charges Google with contempt.

This scenario – violation of a consent order – makes the Commission’s acceptance of Google’s denial of liability all the more inexplicable.

So Google once again uses its checkbook to pay fines while denying responsibility for its ongoing illegal activity, similar to the sealing of evidence that Larry Page himself knew about facilitating illegal pharmacy ads.

This reflects the double standard of treatment for the rich versus the poor, since almost no street criminal would ever be allowed to make a plea without admitting responsibility for its criminal behavior.

It’s now being reported that Google has negotiated a deal with the FTC to settle charges of illegally bypassing privacy settings on users using the Safari browser.  According to the Guardian:

The Wall Street Journal reports that the FTC and Google are close to agreeing a settlement over the privacy breach, in which Google circumvented Apple‘s protections on the iPhone and iPad against the setting of third-party “cookies” – small text files stored on the user’s device – for tracking where users went on the web.

While the users had to press a link to ask for Google cookies to be set, the circumvention meant that cookies from Google’s DoubleClick ad network were also set on the their device – so that they would be tracked without their explicit consent. Apple’s browser settings would otherwise reject cookies from third-party sites such as DoubleClick.

The discovery of the circumvention, by Jonathan Mayer of Stanford University, was first revealed in February. Millions of users of Apple’s iOS software on iPhones and iPads could have been affected, said Mayer. Google declined a request from the Guardian to specify when it began the tracking.

Here’s the outrageous part.  The fine, while the largest in the FTC’s history, is hardly going to bust the bank at Google, but it’s at least a message that Google can’t break the law and just get away with it.  But apparently the company has negotiated the right to claim it did nothing wrong.

Google is not officially commenting on the settlement, but did issue a statement that

“The FTC is focused on a 2009 help center page published more than two years before our consent decree, and a year before Apple changed its cookie-handling policy. We have now changed that page and taken steps to remove the ad cookies, which collected no personal information, from Apple’s browsers.”

However Google is parsing reality to make this statement, they’d be keeping their mouths shut if the settlement required them to admit real wrongdoing.  So they’ve apparently paid a lot of money– at least a lot for those not living at the Googleplex — to once again claim they did nothing wrong.

The best thing about the settlement is that, in enforcing the consent decree with a substantial fine, the FTC is putting Google and other tech companies on notice that agreements not to breach user privacy can and will get enforced.

The European Union has all but announced that it will find that Google has abused its dominant position to undermine competition online – and they are giving the company two weeks to agree to remedies to fix the problems that the EU has identified.

The four main concerns include ones regularly discussed in the media – favoring its own content over potential competitors and scraping content from competitors to bolster its own offerings – but it also includes more specific concerns about how it deals with advertisers.

Since those advertisers are Google’s real customers, that’s significant in getting to the heart of the problem.  One concern identified is the way Google structures agreements to lock those advertisers into nearly exclusive deals with Google, thereby shutting out search advertising services.

Shutting down exclusive deals by dominant players is a pretty bread and butter move by antitrust authorities, so that’s not a big innovation for antitrust policy.  More significant is what Joaquín Almunia, Vice President of the European Commission responsible for Competition Policy, calls the “restrictions that Google puts to the portability of online search advertising campaigns from its platform AdWords to the platforms of competitors.”

Unpacking that sentence, what this means is that having invested the time to create a Google advertising campaign, Google makes it nearly impossible to create software to easily manage a parallel campaign using the same data on any competing search or online advertising platform.

Why Advertiser Campaign Portability Matters

The problem of Google’s dominance is not just that it controls 85% of global search advertising—and 44.1% of all global Internet advertising.

What’s remarkable is that its competitors, even when they have a moderate share of the market, as with Bing in the United States, make essentially no profits on those market shares.  Yahoo, once one of the main competitors to Google in the United States, has largely abandoned search in favor of an alliance where Microsoft’s Bing search engine now powers most search in Yahoo properties—and its payments to Microsoft equaled its costs in 2011.

Even in the U.S. where Microsoft’s Bing search engine has a 27% market share (including its alliance with Yahoo), what is remarkable is that Bing is losing something on the order of $2.6 billion per year in profits for Microsoft. In any other industry, a competitor with the heft of Microsoft — and a track record of pretty vicious competitive actions itself — would itself be seen as a threat but instead is almost not viable economically.   In Europe, Bing is barely in the game.

The question is why no competitors can make a profit against Google?

Google’s Monopoly Price on Cost Per Click Advertising

In the case of search advertising, the core product sold is the little text advertisements that appear on search page results after users enter a few keywords.   Advertisers bid on those keywords in an auction system, with a combination of the highest bid price and the quality of the advertising site linked to determining which ad gets most prominent placement on the search results page.  An innovation in search advertising is that advertisers don’t pay a dime for the ads being listed, but only pay a search engine the price bid in the auction when a user actually clicks on the ad.

This so-called Cost Per Click (CPC) price for a user to click to an advertiser’s site is ultimately the core product being sold.   While a dominant player like Google is inevitably going to deliver more clicks based on having more users, all things being equal, the CPC price should be roughly the same since a user ultimately clicking through to an advertisers page should in theory be just as valuable if the customer reaches the page via Google as via AOL or via Bing.

However, even in the United States Google receives an extremely high premium cost per click (CPC).   One advertising analyst estimated that the ”average CPC on Bing is somewhere around 1/4 or 1/5 of our average CPC on Google.” Another found that on specific search terms, CPC rates on Bing were slightly higher but still were discounted 49% to 71% compared to Google, while others estimate that the CPC rate is 20% to 40% lower on Bing.

But what this means is that even if an advertiser pays for a search term on both Google and Bing, Bing would end up generating only one-fourth to as low as one-tenth of the revenue Google received from the same advertiser’s campaign using the exact same keywords on each site.   Which explains at least part of the reason why Bing may have nearly half the users of Google in the U.S., but generates less than 17% of the revenue that Google receives from search advertising.

This seems like a classic instance of a monopolist being able to charge a monopoly price for the same product as its competitors—in this case a user visiting an advertisers’ site from a particular search engine.

Google’s Barriers to Entry

That this lower revenue has to cover much of the same fixed costs as Google for maintaining a competitive search engine illustrates the first major barrier to entry for existing or potential challengers to Google.   Online search engines and related enterprises require incredibly large fixed investments, what law professor Siva Vaidhyanathan described in his The Googlization of Everything as a “monumental collection of physical sites such as research labs, server farms, data networks and sales offices.” Google is estimated to have somewhere on the order of one million computer servers (with other estimates placing that number as high as 1.8 million servers in Jan. 2012) deployed to crawl the web and store the data needed to run its services. While this estimate covers all of Google’s operations, any competitor would have to invest in a significant percentage of those resources to be competitive.

New competitors are therefore automatically at a disadvantage with Google with fewer clicks to begin with, but if they also get a lower price per flick, it’s nearly impossible to meet the fixed costs of running a search engine or any of the other online products Google provides and reach a profit.

What the European Union is de facto arguing is that Google is using anti-competitive methods to prevent successful entry into its advertising markets.

Why Data Portability Could Help Level the Playing Field

In its details, creating an online ad campaign can be incredibly complicated since advertisers not only want to choose a wide variety of keywords and keyword combinations, but also combine them with particular demographic, locational and behavioral attributes of the users to potentially serve up links to different ads for different groups of users (more on that later).   Having invested the person-hours in creating such a campaign in Google’s system, an advertiser will find that they cannot simply export the campaign data to recreate the same searches on another platform.   Since repeating the costs of designing the campaign twice may not be effective for many companies, especially smaller advertisers, they may simply choose to invest those fixed costs in a campaign at Google where they reach a far larger number of users.

By decreasing the number of advertisers bidding for clicks at competing ad platforms like Bing’s, the CPC price would then end up lower at Google’s competitors.   Being the dominant player in an auction-based market, where the costs of competing in multiple markets is high, may thereby deliver a monopoly price for that dominant player.

To give some sense of the costs of managing campaigns across multiple platforms, Google itself through its DoubleClick affiliate provides a tool for advertisers –DoubleClick Search V3 — that will manage campaigns across both Google and Bing, but the price starts at a $10,000 setup fee and costs an additional 2.5% of all advertising spending on a monthly basis.

And here’s the kicker that the European Union is focused on.  Google deters third party software from providing similar functionality with tight contract restrictions on third party developers given access to AdCenter’s underlying code (so-called APIs).  For example, one provision says that third party software “may not offer a functionality that copies data between Google and a Third Party.”  Literally, the contract requires that most data be manually moved between different ad platforms, destroying any efficiency of using a computer to manage multiple platforms.

By requiring manual export of data to alternative ad campaigns, campaigns making repeat, often daily adjustments of ad campaigns will end up with a heavy burden of transferring data.  This is “both time-consuming and prone to error” in Harvard Business Professor Ben Edelamn’s words and will “ reinforce the tendency of small to medium-sized advertisers to ‘single-home’ — to use only Google AdWords, to the exclusion of competing platforms.”

And of course, even for companies choosing to run campaigns on multiple advertising plaforms, using Google software means that Google collects a share of advertising revenue on rival sites and will be able to collect data from advertisers on how they use rival advertiser platforms, giving the company advantages in designing their platform to maximize revenue.

So requiring Google to allow third party software makers to manage multiple advertising campaigns on multiple platforms would suddenly make using competitors to Google almost as easy as clicking a button.  There would no doubt be some additional costs but far less than currently and most advertising, if the marginal costs were negligible, would prefer to reach all users on the Internet—especially since search advertising is structured such that they only pay if someone actually clicks on their ad and goes to their site.

The European Union action could potentially make a dent in Google’s monopoly position.

What if Data Portability and Other Proposed EU Measures are Not Enough?

However, there is reason to suspect that the Cost Per Click advertising rates for Google AdWords are higher not just because of these structural issues, but because a customer linking to an advertiser’s site from Google is more valuable than a customer linking to it from a competing platform like Microsoft’s AdCenter.

The core source of value being delivered to advertisers by Google is by all accounts how well the company knows its users and that may mean it can deliver customers more likely to purchase an advertiser’s product and, as importantly, helping sell it at the highest price the user may be willing to pay.

The implications for what it means to controls markets through control of user data are quite broad.   It also makes better sense of what Google is doing as it spreads its business model into producing smart phone operating systems, email systems, video sites, e-commerce projects and it’s broad range of other endeavors.  What unites all of these actions is strengthening the breadth and depth of Google’s database of information on individuals across the Internet in ways that become almost impossible for any competitor to match.   To the extent that Google’s higher CPC rates come from its dominance of user data, its monopoly may be becoming almost unassailable.

And as I’ve described in my Cost of Lost Privacy series, its precisely the value advertisers place on knowing invasive amounts about users – particularly who will pay premium prices for their products – that raises the broader and knottier social concerns.  With subprime mortgage lenders being the poster children for this kind of “price discrimination” behavioral targeting, untangling the value Google delivers to advertisers and the monopoly position Google has by virtue of its unprecedented database of user information and behavior will require more than the simple laundry list of changes the European Union is currently promoting.

But at least it’s a start and a large statement that there is an antitrust problem with Google’s online dominance.

It’s not the crime, it’s the coverup.

You’d think most people would have learned that lesson of Watergate, but Friday’s decision by the Federal Communication Commission to fine Google $25,000 for “willfully” ignoring subpoenas and delaying investigations into the company’s “wi-spy” scandal should be a 25-page wake-up call that Google is accelerating its legal meltdown.

The 25K fine is chump change for a company with $40 billion in annual revenue, but following so soon after the $500 million fine the company agreed to as settlement for promoting illegal pharmacies online – including colluding with a felon who fled to Mexico to set up scam sites selling steroids – you’d think the leaders of Google would be making contrite statements of putting problems behind them and complying with the law in the future.

Not so much.  Here’s Google co-founder Sergey Brin in an interview with the British newspaper The Guardian:

“If we could wave a magic wand and not be subject to US law, that would be great.”

This is the arrogance of a company that has repeatedly violated the law and treats half billion fines as the costs of doing business, while their only comment seems to be sadness that they were caught or were subject to the law in the first place.

What’s most damning about the FCC Friday ruling is the detail upon detail of Google management lies, restatements when caught in the lies, delays in providing information, and outright maneuverings to block access to key witnesses in the probe.

As the FCC noted in its ruling, it’s not as if the matter was of minor public interest.   Privacy authorities in countries around the world were outraged when it emerged that Google has used cars driving down streets, supposedly to build pictures for its Street View maps, were covertly being used to map residential wi-fi hotspots and, more disturbingly, were downloading data from home communications, including personal emails and data revealing everything from people’s medical histories to their sexual preference to marital infidelity.   Multiple nations have found the company violated national privacy laws.

Yet Google ignored almost every initial request for information by the FCC until forced to comply.

• In response to the initial November 2, 2010 request by the FCC for information on the wi-fi data collection project and the names of individuals involved, the company included no emails and “admitted it had “not undertaken a comprehensive review of email or other communications” and failed to identify any individuals involved in the wi-spy operations.  The company also refused to provide a copy or access to the wi-fi data involved; the FCC only abandoned pursuit of that data from Google because other countries finally obtained data and published reports on the kinds of data Google had collected.
• After a followup FCC request on March 20, 2011 for more information, the company produced only eight e-mails and a few names of people involved in the project, but refused to certify that it had done a “comprehensive search of all materials within the company’s possession.”
• On August 18, 2011, the FCC sent a Demand Letter with a request for information under threat of subpoena.  Google finally made some of the employees involved available for interviews, but the key employee,  so-called “Engineer Doe” — who wrote the code that collected the wi-fi personal data and supposedly inserted it into cars all over the globe without management knowledge – invoked his Fifth Amendment right against self-incrimination and declined to testify.

Surveying this nearly year-long delay in responding to Commission requests for information, the FCC declared “Misconduct of this nature threatens to compromise the Commission’s ability to investigate violations of the Communications Act and the Commission’s rules.”

The $25,000 fine was assessed based on the FCC’s finding that “Google’s failure to cooperate with the Bureau was in many or all cases deliberate.”

There are two other notable things from the ruling.

First, the snark.  Responding to Google’s initial claims that it was too burdensome to find the information requested, the ruling snarked:

Although a world leader in digital search capability, Google took the position that searching its employees’ e-mail “would be a time-consuming and burdensome task.”

When agencies mock a company, you’ve really kind of pissed them off.

Second, there’s “Engineer Doe” taking the Fifth Amendment.  This mystery man supposedly single-handedly placed code in cars driving down the streets of five continents and collected the personal data of __ million households – all without any higher-ups at Google knowing what he was doing.

Google may be taking some comfort from Friday’s ruling, since the Commission itself declined to take enforcement action against Google for violated the federal Wiretap law for illegally intercepting the personal communications, but that was based partially on the FCC’s “inability to compel an interview of Engineer Doe [in order to determine] whether Google did make any use of any encrypted communications that it collected.”

But that raises the question of why Engineer Doe was not offered immunity?   The answer could be that some other enforcement agency, possibly the Department of Justice, is either pursuing criminal charges against Engineer Doe or planning to use his or her immunized testimony themselves to take on Google directly.

So Google avoiding the bullet on FCC enforcement action on Friday over the wi-spy scandal may be less than meets the eye.  It remains to be seen if the story of the mysterious Engineer Doe may yet appear in a courtroom.

With the best-intentioned and best-behaved caretaker, the unprecedented amount of personal and private data controlled by Google would raises concerns.

But the Friday ruling by the FCC just adds to the picture of Google as a law-breaking cowboy company that repeatedly violates user privacy for profit, condones illegal pharmacies and crooked “loan modification” firms preying on its users, uses its dominance to muscle allied manufacturers to help it spy on users, and, with this FCC ruling, stonewalls the government when caught acting improperly.

Maybe the company will keep skating above these problems, but this degree of illegal activity combined with the arrogance expressed by Google’s leaders promises what could be an epic corporate meltdown in the future.