Is Google Becoming Too Powerful?

The rise of Google has been fast and fierce since founders Sergey Brin and Larry Page began collaborating on a search engine in 1995 at Stanford University. Because Google was so effective, it quickly became the search engine of choice for Web users. Today, Google handles 56 percent of Web searches. In addition to searching for Web pages, Google users can search for PDF, PostScript, text, Microsoft Office, Lotus, PowerPoint, image, and video files. Google claims to be one of the five most popular sites on the Internet with nearly 400 million unique users per month and more than 50 percent of its traffic coming from outside the United States. Google’s IT infrastructure is a closely-guarded secret because it is part of its competitive advantage. The best guess is that Google has up to 450,000 servers spread over at least 25 locations around the world. These servers use inexpensive off-the-shelf hardware to run a customized version of the Linux operating system and other critical pieces of custom software. These include MapReduce, a programming tool to simplify processing and create large data sets; Google WorkQueue, a system that groups queries and schedules them for distributed processing, and the Google File System, which keeps copies of data in several places so that the data will always be available even if a server fails. According to a widely-cited estimate, Google only needs to spend $1 for every $3 its competitors spend to deliver a comparable amount of computing power. This inexpensive, flexible infrastructure explains the speed of Google Web searches and its ability to provide its users with such a vast array of Web-based services and software tools. Most of Google’s revenue comes from online advertising ($10.6 billion in 2006) and online search services. Google Search Services enable organizations to include the Google search engine on their own Web pages. This is a straightforward technology licensing arrangement—not groundbreaking, but profitable. The side of Google that has driven its phenomenal growth and profits is its advertising program. In a fraction of a second, Google’s technology can evaluate millions of variables about its users and advertisers, correlate them with millions of potential ads, and deliver the message to which each user is most likely to respond. Because this technology makes ads more relevant, users click on ads 50 to 100 percent more often on Google than on Yahoo!, creating a better return for advertisers. According to eMarketer, Google grabbed about 70 percent of all paid search advertising. In 2000, Google launched AdWords, a self-service advertising program in which vendors bid to have their ads placed alongside the search results for specific search terms. In 2002, AdWords Select introduced cost-per-click (CPC) pricing so that advertisers only pay for their ads when users actually click on them. Google determines the placement of ads through a combination of the CPC and click-through (total number of clicks) rates so that the most relevant ads for a keyword string appear in the most prominent positions. The keyword- targeted ads appear throughout the Google Network, which includes America Online, Shopping.com, Ask.com, The New York Times on the Web, and many other high-profile Web sites. AdWords has come under some fire for being vulnerable to a practice known as click-fraud, which we discuss in detail in Chapter 7. A business whose ad receives thousands of clicks from sources that have no intention of making a purchase may run through its marketing budget quickly. Unscrupulous businesses have tried to use click fraud to drive up the cost of competitors’ ads and put them at a competitive disadvantage. Google and its competitor Yahoo!, have been criticized for their vague response to the problem. Google credits customers for invalid clicks. It also has a system in place to detect click-fraud before customers are charged, but does not disclose details about its antifraud methods. Google must also be concerned with legitimate offensives from its rivals. Yahoo has been sponsoring prominent academic economists and other researchers to find new ways of using its data about online consumer behavior to increase market share for its services and the revenue generated by its searches. Microsoft has a history of diminishing or destroying its competitors by exploiting the fact that its Microsoft Windows operating system can be found on 95 percent of the world’s personal computers. Netscape Navigator, Lotus 1-2-3, and WordPerfect have all been defeated in this manner. Microsoft launched competing search service MSN Search in November 2004, followed by Windows Live Search two years later. Microsoft hoped that integrating search technology into Windows Vista and Office would boost its share of the search market, but so far that strategy has not panned out. Now Microsoft is trying to court businesses with a frequent-flier style rewards program. The company will pay large businesses in credits redeemable for Microsoft products and services based on the number of searches that employees perform with Windows Live Search. The challenge for IT departments will be convincing or forcing employees, who receive no personal reward, to change their search habits. To Microsoft, Google has ceased being a search technology company and is now a software company, capable of infringing on the markets that Microsoft dominates. In the past, Microsoft has thwarted competition through strategic pricing and featureenhancements, as well as by tying its products together so that they are the most convenient to use. Microsoft may not find it so easy to thwart Google. Other software manufacturers had to rely on Windows as a platform on which to run their products. Since Google’s applications are Web-based, and not tied to the Windows operating system, Microsoft cannot use its operating system monopoly to limit access to Google.