Uncle Sam’s choke-hold on innovation


The Federal Trade Commission building is seen in Washington, Sunday, Sept. 5, 2010. (Jon Elswick/AP)
Vivek Wadhwa
Contributor, Innovations July 7, 2011

The Federal Trade Commission (FTC) is investigating whether Google is using its dominance in Web search to give its own services an unfair advantage. The FTC is also looking into whether Twitter is abusing its position to lock out competitors. But government intervention here is misguided. These investigations, and whatever results from them, won’t level the playing field. They will only stifle innovation and yank lawyers out of unemployment lines.

The technology sector moves so quickly that when a company becomes obsessed with defending and abusing its dominant market position, countervailing forces cause it to get left behind. Consider: The FTC spent years investigating IBM and Microsoft’s anti-competitive practices, yet it wasn’t government that saved the day; their monopolies became irrelevant because both companies could not keep pace with rapid changes in technology — changes the rest of the industry embraced. The personal-computer revolution did IBM in; Microsoft’s Waterloo was the Internet. This — not punishment from Uncle Sam — is the real threat to Google and Twitter if they behave as IBM and Microsoft did in their heydays.

Vivek Wadhwa is a fellow at Rock Center for Corporate Governance at Stanford University, director of research at Center for Entrepreneurship and Research Commercialization at Duke, and distinguished fellow at Singularity University. His past appointments include Harvard Law School, University of California Berkeley, and Emory University. View Archive

Google is already under fire on several fronts. It missed the social-media revolution, allowing Facebook to race ahead. And when it comes to search, Facebook is a fortress — Google doesn’t have access to the massive amounts of content being created on the social-media giant’s platform. Meanwhile, as of December, Facebook surpassed Google as the most popular site on the Internet, and it drives more traffic to popular Web sites than Google does. Google+ is a valiant attempt to catch up, but the odds are poor that it will succeed. (Washington Post Co. Chairman and chief executive Donald E. Graham is a member of Facebook’s board of directors.)

Similarly, Twitter has become one of the largest social networks in the world. It achieved this success, in part, because thousands of third-party developers built applications on its platform. But then Twitter started buying some of these companies and placing restrictions on others, such as Ubermedia, because they compete with its acquisitions. What Twitter is doing may or may not be legal, but its tactics will likely cause it to suffer the same backlash that Microsoft did when it mistreated its developers. They will simply move on to a new platform like Google+.

The FTC is focusing on the way Google places its own services, such as YouTube and Google Places, at the top of search results, which allows Google products to be ranked ahead of other, more relevant returns. But this is not the critical issue in Web search. A greater concern is Google’s practice of encouraging “content farms” to pollute the Web. Google makes billions of dollars through its AdWords service, which attaches ads to common search terms. Google then shares this revenue with third-party content farms, such as Demand Media, that provide traffic by employing legions of freelancers to create content that is optimized to appear at the top of Google’s search results.

When you search for a product, service or topic in the news, the first search result on Google increasingly will take you to sites that were created for the purpose of getting you to click on them. The content looks genuine but is almost always of lower quality and is sometimes dangerously inaccurate and misleading. Google and Microsoft executives and other experts agree that there is a huge amount of spam created every day, with one estimate putting it at more than 1 million pages per hour.

Should — or can — the government do anything to stop this pollution of the Internet? Absolutely not. As Google’s search results become less relevant, other search engines, such as Blekko and Microsoft’s Bing, are emerging. Blekko offers “curated search” that allows users to retrieve information from human-curated sets of Web sites on specific topics such as health, finance, sports, technology or colleges. If you are looking for information about swine flu, you can search merely the top 100 relevant health sites rather than tens of thousands of spam sites. Reliance on proven judgment is a known winner online: One reason for Facebook’s popularity and growth is that people are more inclined to trust the recommendations of their friends than those of Google.

Eventually, future technologies are likely to make all of these search engines obsolete. Increasingly, we use specialized applications that run on mobile phones and tablets. When we search for restaurants, we go to sites such as Yelp and Urbanspoon for recommendations. Newer generations of applications will automatically analyze the recommendations of our friends and take us directly to the site we are looking for or the service we desire, such as making a reservation. We won’t need to rely on the types of text links that Google provides.

Government has no place in this technology jungle. It shouldn’t be trying to tell Silicon Valley how to develop its products or how to make money. Instead, the role the government should play is to keep the poachers in check. It needs to take a close look at the secondary markets, which allow private companies to sell their stock to uninformed investors. This, in turn, has caused the valuations of companies that are now going public to become inflated beyond all reason, and created a bubble that, when it inevitably bursts, will hurt the entire technology industry. That is the real worry — not whether YouTube ranks higher than Vimeo on Google’s search results or whether you use Flickr or Instagram to share photos on Twitter.

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