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Google and Yahoo in Cahoots

Posted By egp On October 2, 2008 @ 9:07 pm In Editorial & Opinion | No Comments

At 15% of the U.S. population and with ever-growing political clout, Hispanic Americans have had their “coming of age” of sorts in this new millennium.   The power of the Hispanic vote can now tilt a presidential election; our $860 billion buying power has refocused marketing strategies for Fortune 500 companies, and our influence on the arts grows each day.   Hispanic Americans have become mainstream, gleefully embracing America as this beacon of freedom embraces us.

This is what makes so odd some possible policy decisions in the waning hours of the Bush administration that could foreclose opportunities – for Hispanics and millions of other Americans – in the newest and most exciting economic sector: Internet commerce.

Internet advertising revenue is expected to reach $50 billion in the next couple of years – quickly outstripping broadcast television.  The Internet is not just our source of news and entertainment; it’s become the meeting ground for commerce.  For any demographic group, succeeding in the Internet economy is becoming a matter of economic survival.

Yet there is a new boss in town.  Strangely, it’s a company long professed to be the bulwark of the Internet’s egalitarian ethic.  Google controls nearly 70 percent of the online search market; it now wants to effectively acquire much of Yahoo!, which owns 20 percent of the advertising market.  Google today controls not just the 5th Avenue prime real estate of search advertising, but has leveraged that power to control the largest video and other applications.

So what would this mega-joint venture mean for Hispanic Americans and others struggling to establish themselves in the fast-paced world of Internet commerce?   Not anything good.  To understand why, it’s important to understand how the market works.

Google, Yahoo and others sell ad space by keyword. “Automobile,” for instance, might cost more than “bicycle” or “garden rake” according to supply and demand along with a top secret “quality score” assigned to each bidder that tries to predict how profitable a bidder will be.

These same companies also buy and sell space for advertising on many websites. These ads are a significant source of revenue for newspapers in a time of declining print ad sales; news websites generated $3 billion in revenues last year from online publishing.

Despite its market dominance, Google today still must compete with a number of rivals – Yahoo! chief among them – for the rights to broker these ad deals.  Flush with cash, Google generally has the capacity to outbid its rivals but the competition keeps the market honest and generates higher revenue for online publishers.  That’s the competition that Google now wants to kill with its joint venture, effectively giving the company 90 percent control of the market.

This virtual non-compete pact will allow Google to charge excess premiums from advertisers and then pay a pittance to websites.  Both sides of this two sided market – those who produce and market items in Commerce and those on whose sites they are marketed – could get the screws, choking off Hispanic-owned publishers and burgeoning businesses.

Some observers predict that funneling virtually all search ads through Google’s platform will give the company unbridled power to discriminate in the larger search market.  Google has already been accused of inhibiting access to Websites promoting political candidates or public policy viewpoints with which it likely disagrees; it is not difficult to imagine this practice extending to commerce, where Google could tweak its search formulae to favor companies with which it has a financial relationship.

Hispanics can ill afford to be shut out of yet another medium. Among mainstream media outlets Hispanics own just 2.9 percent of radio stations and 1.5 percent of TV stations, figures that have been on a steady decline despite the concurrent rise in Hispanic population, buying power, median income and other measures of economic success.  At a time of new publishing opportunities not just for Hispanics but millions of other heretofore shut-out Americans, the loss of advertising competition becomes the beginning of the end of a viable marketplace.

None of this is to suggest that Google is inherently evil, but the threat of monopoly abuse is anything but abstract. From the railroads to big oil to the world’s phone networks, monopolists find ways to punish not just rivals but their customers, too – that is, until the balancing hand of government steps in to prevent abuse and protect marketplace competition. The Justice Department, Congress, and state attorneys general should continue to investigate this proposed alliance and prevent diversity-crushing consolidation online.

Clara Padilla Andrews is President of the National Association of Hispanic Publications and publisher of El Hispanic News and Más in Portland, Oregon.


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