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Has Google Peaked? Signs In Europe Of Blind Spots In Search Giant's Strategy

Even as it continues to report record earnings, certain trends remind us that even the smartest, most dominant tech companies eventually are brought down to size.

Google's offices in Brussels
Google's offices in Brussels
Benedikt Fuest

BERLIN - The European Union’s anti-monopoly watchdogs may have never received so many complaints against a single company as they have against Google. To be sure that the EU Commission’s investigations really rolling, anti-Google alliances like Fairsearch and Microsoft-backed lobby Icomp have sent in 20 separate official complaints, some of them 100 pages long.

That’s not all. There are also all the letters and complaints of smaller competitors in the advertising, digital mapping, travel and mobile apps sectors. Google has no shortage of enemies -- and some would seem to want nothing less than the company’s complete destruction.

The main complaint is always the same: Google is using its market power in Internet search to exert an unfair advantage over its competitors. And by allying with manufacturers like Apple and browsing providers like Mozilla it has, over the past decade, cemented that power.

Google opponents back up their claims with hard numbers. According to EU competition monitors, in Europe the company has an Internet search market share of over 90%, even greater than in the 86.3% in the United States.

This market dominance is now more than seven years old, and counting, and Microsoft's attempt to compete on search, with Bing, has barely made a dent.

(Last week, Google's quarterly earnings beat industry forecasts, on the strength of growth of its core advertising business)

Google critic and Microsoft consultant Ben Edelman, an Internet economist at Harvard University, says that two factors support Google‘s web dominance. On the one hand, the web favors big providers, and huge oligopolistic or monopolistic structures can quickly form that are difficult to combat with traditional means. Advertising dollars play to this of course, as customers will favor providers with the biggest reach.

On the other hand, Edelman says, you have cross-subsidization: "Search income can be used to develop free mapping services that give it added popularity.”

In the coming weeks, EU Commission competition head Joaquín Almunia intends to market-test a final package of Google compromise suggestions. He is seeking feedback from both market players and individual complainants. An unidentified source close to the case said that Google is offering to create more distinction in Internet searches between its own services and those of competitors, and offer links to other search engines.

Fast changes

But Edelmann doubts that would break Google’s dominance: "Users have become accustomed to the convenience of finding everything in one place," he says.

This month, German data protectors awarded Google the "Big Brother Award," and using the AT&T example called for the firm to be split into smaller companies.

But doing that would not be justified in terms of classic competition economy because Google’s market power -- unlike for example the monopoly of an electricity or telecommunications provider -- is neither permanent nor insurmountable. Internet business moves too fast, as the latest American figures show: in 2012 on its home market Google lost one and a half percentage points of Internet advertising market share, putting its share at 71%.

More important still: the searches that, thanks to advertising, bring the company big bucks are now going to others -- like online merchandiser Amazon, which now leads the shopping search business in the States.

"For Internet searches, user expectations are changing," says Stefan Weitz, manager of online services at Google’s biggest competitor Microsoft in Seattle. "The classic results window with little blue links is not enough anymore, users now expect context-sensitive results that take into account their location, preferences, everyday life."

With that however, according to Weitz, Google‘s classic revenue model– ads near links – is in danger. Interfaces are also changing. "Users don’t want to type in search terms any more, they want to ask questions and get meaningful answers instead of links."

Google is reacting to this trend: for example, in the past year it has taken to answering searches with the Knowledge Graph function, a summary of results along the right edge of the screen.

But Knowledge Graph and the classic search results in the form of links work either badly or not at all on mobile devices: the screens are too small, and web connections too slow. Very few users have the patience to follow up several links on a smart phone.

And thus the hour of the specialized provider has struck: smart-phone applications are direct competition for Google’s top keyword categories. To find a good place to eat, users in the U.S. already prefer services like Yelp and Foursquare, or to follow the recommendations of friends on Facebook. And they can find cheap flights with a favorite travel app like Kayak.

While searches via app are not recorded in search market statistics, their success can be seen indirectly. According to market researcher Comscore, in 2012 the market for Internet searches from classic PCs shrunk for the first time in 10 years by three percentage points.

"The mobile market is changing classic user habits," Weitz says. In the coming months he believes there will be a search revolution brought on by new interfaces and more intelligent algorithms.

Google will react to that too – but the history of the IT industry, from IBM to Microsoft, shows that no company has ever succeeded in dominating the market for longer than a decade.

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