Yesterday, Google CEO Larry Page spoke publicly about the company’s antitrust woes revealing a casual indifference about its anticompetitive behavior. This display was surprising, particularly because Page was addressing a room of small businesses, some of whom had expressed concern about being Google’s next target.

This is remarkable considering the context. Last week, press reports indicated that the FTC and the EU are nearing a decision about pursuing antitrust action against Google. Regulators are considering enforcement measures against Google for abusing its market dominance in search and search advertising to punish competitors. Understandably, many expected the company to be on its best behavior.

by meneame comunicacions, sl

Not so. Speaking at Zeitgeist Americas, a conference for Google partner companies, CEO Larry Page addressed a question from the audience:

Q: Google is starting to compete with many of its clients in local, mortgage, travel, and now automotive categories. How do you decide whether a market is already being served well by existing sites or whether it’s a market Google needs to enter?

A: Yeah, that’s really a hard question. I just gave the maps example. If you think back then, we had the same sort of criticisms. There’s already Mapquest. Anybody heard of them? I mean no one uses them anymore.

This statement is astonishing for a number of reasons. Instead of reassuring uneasy partner companies, Larry Page highlights Google’s ability to enter an online marketplace and leverage its search dominance to take down industry leaders. So smug is he about this outcome, Page feels the need to derisively dismiss his competitor.

Mapquest: Classic Case Study of Google Manipulating Search Results to Thwart Competitors

What makes Page’s target of derision remarkable is that Mapquest is the poster child for victims of Google’s anticompetitive behavior. At one time, Mapquest was so widely used that it was a verb for online map searching. That changed when Google introduced its own map product, placing it atop the search results despite ranking considerably lower than Mapquest.

Regulators are keenly aware of this practice. Former head of Google search, and new Yahoo! CEO, Marissa Mayer specifically cited maps when explaining how the company favored its own properties in search rankings during a 2007 speech.

When we rolled out Google Finance, we did put the Google link first. It seems only fair, right? We do all the work for the search page and all these other things, so we do put it first. That’s actually been a policy, then, because of Finance we implemented it in other places. So for Google Maps, again, it’s the first link.

Placement is very important in search results. Since online businesses rely on traffic from search engines, lower rankings can have a devastating impact on revenues. The first three results account for nearly two-thirds of all clickthroughs. With an overwhelming majority of internet searches conducted by Google, it is critically important for online businesses to earn a high search ranking on its search engine.

When Google Maps debuted in the top position of search, it was uniquely provided the space used by the top three results. Not only did Google Maps benefit from this prime location where it captured nearly two-thirds of all traffic, it also featured an eye-catching graphical map display.

Mapquest and other competitors were denied the favorable treatment enjoyed by Google’s own property and found their links pushed lower down the page where their traffic dwindled. Lower traffic leads to fewer customers and diminished revenues. Soon Mapquest and others found Google had engineered its own rise to market leader.

Google and Small Business: Long Tail Threat to Vertical Dominance

What’s bizarre about Page’s statement is that the Google Partners in the room were expressing fears about suffering a fate similar to Mapquest. They were looking for a sign from Google that it wasn’t targeting their companies, and must have been alarmed by the response they received.

Google has been both a boon and a danger to small businesses. The integral role search engines play in everyday commerce has made search advertising a profitable enterprise. It has provided an entirely new venue for small businesses to advertise and reach a national marketplace at a much lower cost than traditional media.

What has emerged is an online “long tail” marketplace in which the combined revenues of many small companies exceed those of market leaders. Small businesses have found modest success using search engine rankings to produce a revenue stream that they would not have otherwise had. This was a profound development in our economy fostering innovation and creating jobs.

Recently, however, many small businesses sustained by Google search results have found that while the search giant giveth, the search giant can also taketh away. As Google has expanded into vertical search markets – travel, local, finance, etc. – it has found growth in these narrow markets proceeding slower than expected. The multitude of small innovators pose potentially serious competition for Google verticals.

Google, however, has the means to tilt the balance in its favor. To block competitors seeking a fraction of its revenues, Google simply adjusts its algorithm to effectively eliminate them from search results. Google often hails these changes as improvements in search quality, but many companies are devastated when the spigot of traffic is turned off.

Taking the Case to Washington

Back in 2010, I raised these concerns when testifying before the U.S. House Judiciary Committee about Google’s moves to crush Mapquest. Some of the bigger online companies disadvantaged by Google feel they can survive by going public with their concerns, but most do not. Small businesses, so reliant on Google traffic, are terrified of the consequences their businesses would face after sharing their experiences with regulators or legislators.

In the U.S., a company is subject to antitrust enforcement action only if it uses its dominant market share to restrict competition. Google has consistently exhibited this behavior. Page’s statement yesterday was telling. To freely discuss using your market dominance to crush competitors is arrogant. What is beyond arrogant is for Page to do so immediately after the regulators put Google on notice. This is why the FTC and the EU should weigh the Google CEO’s comments very seriously as it considers the severity of its enforcement options.

Today, Association for Competitive Technology president Jonathan Zuck welcomed reports that Google has made proposals to the European Commission that may quell growing fears about the company’s abuse of its monopolies.  Zuck offered the following comments in response to the news:

“It is encouraging to hear Google has accepted Commissioner Almunia’s offer and is proposing remedies to the Commission’s antitrust concerns up front.  We can only hope that Google is taking this opportunity seriously by offering legitimate solutions that could preempt a long court battle.”

“If Google has made serious proposals, we look forward to learning more and being able provide industry feedback as part of the Commission’s market testing of the proposals.”

I think we can officially call Eric Schmidt’s testimony a ‘failure’ now.  Whether it was a deliberate strategy or an effort to cleanup Schmidt’s mess, Google’s decision to give radically different answers to the Committee in its written responses has also backfired.

Today, the Senate Judiciary Antitrust Subcommittee sent a letter to Federal Trade Commission detailing Google’s incomplete and contradictory answers to the followup questions posed to the search giant after Eric Schmidt’s September 21st testimony.  Asking the commission look more closely into Google’s alleged anticompetitive behavior, the Antitrust Subcommittee’s Chairman and Ranking Republican highlighted their great concerns about the search giant’s business practices:

Rather than act as an honest broker of unbiased search results, Google’s search results appear to favor the company’s own products and services…[Google's answers to follow up questions] is a clear admission of preferencing Google results.  

Last month, we wrote about the glaring inconsistencies in Eric Schmidt’s oral testimony and the written responses to questions that Google submitted a few weeks later.

Last month, the committee chairman, Herb Kohl of Wisconsin asked Schmidt:

“Do recognize that in the words that are used in antitrust kind of oversight, your market share constitutes monopoly, dominant — special power, dominant firm, monopoly firm. Do you recognize you’re — you’re in that area?”

And Schmidt answered:

“I would agree, Senator, that we’re in that area. Again, with apologies because I’m not a lawyer, my understanding of monopoly findings is this is actually a judicial process. So I’d have to let the judges and so forth actually do such a finding. From our perspective, we see ourselves as having a special responsibility to debate all the issues that you are describing with us now. We do understand it.”

Yet, in his written response to Senator Blumenthal, Schmidt completely changed his story and tried to prevaricate:

“I would disagree that Google is dominant. By investing smartly, hiring extremely talented engineers, and working very, very hard (and with some good luck), Google has been blessed with a great deal of success. But given the rapid pace of change in the technology industry, we take nothing for granted. As I acknowledged during the Committee hearing, Google is “in the area” of 65% of queries in the U.S., if you look only at Google’s general search competitors, such as Microsoft’s Bing and Yahoo!. In fact, we find that the monthly general search query figures released by comScore and Hitwise don’t reflect the reality of how many sites Google competes with in search.

Eric Schmidt is a brilliant man and it is impossible to believe he “accidentally” admitted to being a dominant firm with special responsibilities during the hearing. Instead, it appears this was a deliberate and cunning strategy. Schmidt didn’t want to make the “Google is not dominant” claim and watch an entire panel of senators laugh at him. It would have been fodder for 24 hour news networks, late night tv hosts, and bloggers everywhere.  Instead he made one statement in front of the cameras and a completely different one in a quiet written response to the individual Senators questions.

This inconsistency by Google and its willingness to speak out of both sides of its mouth will likely have the FTC concerned about the reliability of the search giant’s testimony in their ongoing antitrust review.