like Microsoft Corp. (MSFT),
was born out of a rebellious enterprising attitude. Unsatisfied with the
status quo, the company proceeded to rewrite the way people experience the
internet. But, much like Microsoft, as the company has aged and matured
its behavior has been increasingly called into question.
I. A Huge Fine Incoming?
According to a filing with
Securities and Exchange Commission, Google is setting aside a
whopping $500M USD to cover antitrust settlements stemming from a pending U.S.
federal antitrust inquiry. The U.S. Department of
Justice is reportedly in the preliminary stages of launching an investigation into
whether Google abused its dominant competition to crush smaller competitors in
the fields of search and online advertising.
That's not catastrophic, but it's no small chunk of change for the internet
giant, who earned $2.3B USD in profit in calendar Q1 2011.
This week was supposed to be a happy one for Google. The company is
currently holding its I/O Conference for
developers, announcing partnerships
with appliance manufacturers, a joint venture with Ford to improve
fuel economy, an upcoming version of the company's mobile
device Android operating system, a new cloud storage service -- Google Music --
II. To the Cloud -- the Antitrust Cloud, That is...
But it's hard to ignore the anti-trust cloud that has blown over Google.
Aside from the pending DOJ probe, there's an ongoing probe into Google's
internet activities by the European Union, whom previously levied billion
dollar fines against Microsoft and Intel Corp (INTC)
for antitrust violations.
And in the U.S. some states have also launched their own inquiries, compelled
by complaints from local businesses. Greg Abbott, Texas's attorney
general, has launched
an investigation into the giant's behavior. The inquiry
would be worrisome enough for Google were it coming from a pro-antitrust
liberal, but Mr. Abbott, a conservative official who is in the process of challenge
the Obama administration's National Health Care plan, is generally seen as a
The Department of Justice was among the first to latch on to Google as a possible antitrust
target. The DOJ struck down a court settlement that would
give Google exclusive rights to publish out of print books. It also only
approved Google's recent acquisition of online travel software giant ITA after
tacking on strict terms requiring Google to continue to offer competitors
III. A Unique Position -- Tempting Abuse?
Google is in a unique position, given that it controls over 80 percent of the
world's search traffic. Some accuse it of leveraging that position
illegally to preferentially direct customers to its services, such as email and
online office software. Others say Google is gaming its ad system to artificially
raise prices. Ads are Google's primary source of revenue -- it made $8.3B
USD off them in Q1 2011 alone.
Concerns are also growing about Google's increasingly dominant position in the
smart phone industry. A location-tracking software service provider, Skyhook
Inc. recently sued Google in Massachusetts
federal court, claiming that the company threatened hardware
partners Samsung Electronics Co., Ltd. (005930) and Motorola Mobility Solutions,
getting them to drop Skyhook's service for Google's own offering.
However all of these private and governmental court disputes pan out, there
seems a great potential for damage to Google's bottom line and reputation.
Investors have hammered Google stock in recent weeks, fearing that the
investigations will hurt its ability to compete with small challengers and
surging young powers like Facebook. Facebook recently passed Google to become the most
used site on the internet. The social networking site is increasingly
looking to rely on its own internal advertising and services platform, a threat
to Google's internet dominance.
Google refused comment concerning the detail in its filing with the SEC.