German academics mull dangers of Google's quasi-monopoly (Feature)

By Peter Zschunke Jan 31, 2011, 2:06 GMT

Goettingen, Germany - The world faces a conundrum with Google, academics in Germany warn: everyone uses the comprehensive search site, but its sheer ubiquity rides roughshod over the rules of free competition.

During Google's rise and rise, everyone loved it. But in Germany particularly, many people are no longer so sure it is so lovable.

'Public opinion here has swung against it,' explained Torsten Koerber, a professor of law at Goettingen University in the centre of the country. 'Now the European Union competition authorities are gunning for it.'

He was speaking at a conference at the university on Google, the free flow of information and how knowledge is power.

'Our competition law does not make it an offence just to be big,' said Koerber. Nor does EU law allow regulators to punish powerfulness. But last year, competitors, including the Microsoft subsidiary Ciao, felt Google had gone too far and complained.

One focus of the EU investigation is the allegation that Google manipulates web search results lists in such a way that pages belonging to its competitors never show up near the top of the list.

Google, which took part in the conference, rejects claims that it is abusing a dominant market position.

Julia Holtz, Google's advocate in competition-law discussions with Brussels, told the German Press Agency dpa, 'The pressure from everybody's innovations means we are not market-dominant.

'We are hugely under pressure from competitors,' the lawyer said.

Jens Redmer, a Google Germany executive responsible for new products, echoes that: 'It's very important to us to work with an objective model. We have thousands of engineers who are honing the (search) ranking mechanism every day.'

Google's page-ranking algorithm, which is top secret, is the procedure that selects what a web user is likely to find the most relevant and puts this at the top of the results list.

'The search company is deciding what is 'good' and what is 'bad' in the line-up,' explains Wolfgang Sander-Beuermann, who heads a search-engine laboratory in the German city of Hanover.

'That's precisely where the real power of a search engine lies, and why there is a potential for manipulation.'

When a search engine has a semi-monopoly, this poses 'a danger to a society based on knowledge.'

Sander-Beuermann has calculated that it would require start-up capital of at least 5 billion dollars to establish a rival to Google. And if this were to fail, the entire investment would be lost.

Economists call this a 'winner takes all' market, where one company leads and rivals don't have a genuine opportunity to compete.

In Germany alone, more than 90 per cent of internet searches are conducted via Google, which is also operating from the background as provider for search engines with other names.

The main rivals, Yahoo and Microsoft (Bing), each have less than 3 per cent of Germany's market and are practically out of the race, observes Koerber.

'As a quasi-monopolist, Google will get even harder to catch up with,' forecasts a Goettingen economics professor, Claudia Keser.

As market leader, it can set ever-higher standards. Consumers have developed a steady trust in it and there is a certain inertia now that stops them trying out other providers, she adds. That means an increased risk that the company might abuse its dominance.

One way in which this might happen, according to the German academics, is that advertisers or some kind of governmental agency might be allowed to misuse the data Google has collected about its users.

Thilo Weichert, data privacy commissioner for the German state of Schleswig-Holstein, said in Goettingen, said he could imagine circumstances where the US Central Intelligence Agency or the Federal Bureau of Investigation might gain access to such data.

Weichert contends that Google does not reveal enough about what data it saves.

'We don't know what is going on in the background with it,' he said.

He and other German privacy commissioners worry that Google may stir together data from various websites plus connection records of where and when people were online to draw up a complete 'profile' of each user.

'The people who worry about Google's existing quasi-monopoly can at least take consolation in the fact that such an advantage in the internet often melts away quite suddenly,' commented Koerber.

Observers say the prevailing business model of Google and other search sites is indeed under attack from the trend to social networking that has driven up the market value of Facebook recently.

A current boom in mobile internet use, on tablets and smartphones, is also changing the emphasis in the web economy.

'We have to consider all the time that people of tomorrow may use the internet quite differently from the way we do today,' confirmed Google lawyer Holtz.

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