Google Proves DoJ’s Suspicions by Strangling Competitor, Suit Says

An Internet law expert told us that antitrust allegations over Google’s advertising practices were bound to increase as Google’s market share grows. But the expert, Eric Goldman, director of the High-Tech Law Institute at Santa Clara University, said the more explosive claims by TradeComet were that Google intentionally favors some “partners” who would otherwise fall lower in its ranking system.

TradeComet runs SourceTool.com, a “vertical” search engine specializing in business-to-business listings for more than 750,000 product and service suppliers. The previous businesses of its founder, Dan Savage, were early AdWords customers, and he started buying hundreds of thousands of keywords for SourceTool through AdWords in October 2005, the suit said. Savage had two meetings with Google representatives to talk about his business plans and “discuss strategies to maximize revenue.”

The minimum bids for keywords sought by SourceTool spiked in the second half of 2006, the suit said -- to $5 to $10, which SourceTool couldn’t afford, from 5 to 10 cents for some. SourceTool lost about 90 percent of its traffic from Google and millions of dollars in revenue. Google blamed SourceTool’s poor “landing page quality,” a variable that Google uses to rank advertisers for sponsored search placement and charge them for keywords, the suit said. But in an August 2006 meeting with Savage, Google representatives also “specifically acknowledged Google’s concern about competitive threats to its search advertising business,” it said. Savage made expensive changes in SourceTool to improve landing-page quality but Google refused to lower its “artificially-inflated minimum bids” for SourceTool’s keywords, leaving the company with “no viable competitive alternative” for marketing its search business, the suit said.

Google’s behavior constitutes abuse of a monopoly in the search advertising market, TradeComet said. The company said that during their reviews of the Google-Yahoo search deal the FTC and DoJ agreed with its position that search advertising is a market separate from Internet advertising overall. Google was well aware that SourceTool was planning to compete with Google for business-to-business search traffic and give advertisers “a more focused competitive alternative to Google’s generic, yet dominant, AdWords platform,” the suit said. Google also reinforced its dominance through exclusive search-syndication agreements with publishers like AOL. Such agreements aren’t always profitable, Google said in an SEC filing, implying that it sticks with the agreements to keep out search advertising competitors, TradeComet said. Google also makes it difficult for AdWords clients to take their campaign data to other search ad platforms, and the company routinely favors its own applications -- such as Google Maps -- over those of competitors, like MapQuest, in search results, the suit said.

Google declined to specifically respond to TradeComet’s claims. “We have not yet had a chance to review the complaint in detail, but, as we have consistently made clear, the advertising market in which Google operates is highly competitive, and advertisers have a huge range of choices,” the company said.

If SourceTool isn’t a “bona fide competitor” to Google, the case falls apart, said Goldman, of Santa Clara University. Even if it is, judges weighing similar claims have proclaimed that search advertising is only a subset of the relevant market -- all Internet advertising, he said.

The spike in keyword prices may have indicated that Google undervalued them to start with, Goldman said. “Google gets hammered all the time” for letting in “low-quality advertisers” whose sites don’t offer any perceived value to visitors or are actually malicious. It’s good that Google can “price out those threats… We don’t want Google just to say ’this is a pure pay-for-play auction.'” SourceTool’s home page carries no ads, but linked pages for distinct categories of products and services include Google AdSense ads on the top and right sidebars. Results from SourceTool’s search box include “featured listings” through Business.com at the top and AdSense on the right. Google has said previously that it frowns on “search arbitrage” of this kind, in which an AdWords ad links to a page full of AdSense ads.

What’s more notable is that Google is alleged to play down the relevance of its quality metrics with “search partners” like Business.com, Goldman said. TradeComet quoted a Google representative as saying that a handful of these partners “receive privileges outside of our other relationships.” “On information and belief, Google relaxes its Landing Page Quality methodology for certain ’search partners,'” which shows that “quality and relevance is not Google’s sole objective,” TradeComet said. Such relaxation also gives those partners, and Google’s own services, “an unfair and anticompetitive advantage over rival advertisers offering similar services.” If TradeComet can prove the preferable treatment, it could spark a backlash among Google advertisers, Goldman said.