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A Visit to Google Land The Intransparent Methods of an Internet Giant

Google has long insisted that it is "not a conventional company." An increasing number of users, competitors and advertisers are starting to doubt that claim. As the intransparent search engine giant expands its offerings, companies that stand in the way claim they are being made to suffer. Anti-trust agencies on both sides of the Atlantic are listening. By SPIEGEL Staff

Last Monday, visitors to Google's German website, google.de, were not greeted with the site's standard interface, but rather by a comic strip called "Little Nemo in Google-Land." The search engine was commemorating the day in 1905 when the comic-strip character and his fairytale-like dreams were first published in an American newspaper.

Google calls these colorful surprises on its otherwise Spartan search page "doodles." In the original comic strip, the character Nemo experiences his nightly escapades in a place called "Slumberland." Google's minor but cheeky tweak to the title seems fitting. These days, after all, we are all living in "Google-Land."

We live there voluntarily and happily, because Google is fast, easy and free. It's become our all-purpose tool for navigating through everyday life. It sorts out the world for us, performs searches and finds information. And thanks to the triumph of the smartphone, Google is now omnipresent, a sort of Swiss Army knife for the information thicket of the digital age. The world is that which Google presents to us. Nine out of 10 Germans searching for information online -- a number roughly consistent to Google's global presence -- now use the search engine that Sergey Brin and Larry Page launched in 1996 under the name "BackRub." Since 1997, their baby-turned-giant has been named after the number 10 to the power of 100, or googol -- the number one followed by 100 zeroes.

The name choice is an expression of the company's goal of indexing as many webpages as possible. It was an early and seemingly playful claim to omnipotence, one that didn't seem threatening at the time.

And why should it have? "Google is not a conventional company. We do not intend to become one," the founders wrote in the prospectus for their 2004 initial public offering. But now there are growing doubts over whether Google is truly so different from, or so much nicer than, other companies.

Misled and Ripped Off

Some companies complain that they have been booted out of the search engine. Others feel that they are punished when they make decisions Google doesn't like. And industry associations say that customers who depend on Google are misled and ripped off.

The key question is: Exactly how neutral is the company in the way it surveys the world of the Internet?

A good argument can be made that Google is not unlike other businesses, in that it rigorously seeks to leverage its market power, sometimes to the detriment of its customers and users. In the long term, this could affect the company much more adversely than the slide in its stock price, which fell by as much as 10 percent last Thursday on weaker-than-expected earnings.

Google has developed into the key gatekeeper in the interconnected world. Because the search engine decides what we find and in what order, it plays a key role in deciding where we get our information and where we shop.

Although the company promises transparency, it doesn't live up to that ideal when it comes to its own affairs. If Google comments at all on how it arrives at its search results, it does so only vaguely. For example, the company explains that the "relevance" of search results is a decisive factor. In February, a Google lobbyist told a German parliamentary committee that a Google search always looks for "the best response" for the user.

Directly Affecting Sales

Yet the company alone decides what is relevant and what is the best response. And this has serious consequences, both for users and the economy. Nowadays, the wellbeing of a company can depend on where it appears on the list of Google search results, because that position directly affects sales.

The message Google has been at pains to communicate, that search results are neutral and objective, is belied by the fact that the company's business model depends on monetizing its search results. Especially when it comes to searches for products and services, Google-Land is ruled by tangible interests, namely the company's own.

This has created an unhealthy situation in the online market, one in which Google can choose its own customers. The customers, for their part, have no choice but to ally with Google, and spend a lot of money doing so, if they hope to be successful online.

This alone is enough of a problem for many competitors, but it's reinforced by the fact that Google never rests; it is constantly moving into new fields of business, using its size to its advantage. That, though, also increases the number of Google's opponents, who accuse the giant of giving search-result preference to its own products, like "Google Maps" and, in product searches, "Google Shopping." It's both astonishing and telling that Google's critics now come from so many different industries, including tourism, trade and publishing.

Similar Concerns

So far, however, there has been relatively little criticism of Google on questions of data privacy. The company faced some heat in Germany when it began taking pictures of houses and placing them online through its "Google Street View" feature. Only last week, European Union data privacy experts told the company that it's the company's latest privacy rules do not comply with European standards.

But such minor wrinkles have done nothing to undermine the company's success, especially in light of the relatively small fines for data privacy violations in Germany, which are capped at €300,000. But now something bigger is taking shape in Brussels and Washington. Google has been under preliminary investigation for distorting competition and manipulating search results for its own benefit by the European Competition Commissioner since 2010 and the United States Federal Trade Commission (FTC) since 2011. The core issue is whether Google is abusing its power. The company could face the biggest antitrust suit since the trial against Microsoft in the late 1990s.

Joaquín Almunia, the European antitrust commissioner, told Google Executive Chairman Eric Schmidt in May that he had "concerns" about the company in four areas. The FTC apparently has similar concerns.

Why Google Is (No Longer) Objective

The secret of the Google search dates back to the early days of the company -- the PageRank method developed by Brin and Page when they were students at Stanford University. Some experts feel that neutrality was already forfeited back then; the programmers, after all, had to make decisions on how much weight to assign to which factors. Brin and Page chose "link popularity" as a characteristic of a search result. Under this principle, websites that are linked to by many other sites are ranked more highly than sites that are recommended less frequently. This is a constant in Google's top-secret search algorithm, a formula which is constantly being redeveloped and currently takes more than 200 criteria into account, including dwell time and -- a recent edition -- "quality."

For many critics, the real lapse on the question of neutrality began when Google, in the middle of the last decade, began offering new services of its own, from the Gmail email service to Google Maps and the video site YouTube, which it acquired, to the social network Google+. The preferential treatment of these Google products is also at the heart of the EU and FTC complaints about the company.

Shivaun Raff was one of the first people to legally challenge the company on competition grounds. Together with her husband, the London-based computer scientist runs a search website called Foundem. The price comparison site is considered a "vertical search engine," which, in contrast to Google's horizontal overview search, delves deeply into the sites of many providers.

The company suddenly disappeared in June 2006, or at least it seemed that way to the Raffs. Foundem was no longer appearing on the first page of Google search results and was often somewhere beyond page 10. A brutal reality in the world of online shopping is that results that don't appear on the first three pages of a Google search are practically nonexistent. The number of visitors to Foundem plunged and sales collapsed.

What had happened? Google had changed its search algorithm. The Foundem founders filed a complaint, but to no avail. They say that no one was willing to explain to them what exactly had caused the downgrade, or what they could do to be moved back up to the top of the list. Foundem was still getting top billing on other search engines, like Yahoo.

The Digital Wilderness

The couple filed a complaint with Competition Commissioner Almunia in November 2009. It worked. Only a month later, Google apparently reversed the banishment of Foundem, and the price search engine promptly shot back up to the first page of search results.

The Raffs' return from the digital wilderness, however, came only after being strung along by Google for more than 40 months. Their fighting spirit had been awakened. "The whole time, Google claimed that its searches were neutral and behaved as if there were no problems," says Shivaun Raff. "It's as if you were standing in front of an exploding fireworks factory and said: 'People, there's nothing to see here!'"

The couple documented how Google had allegedly handicapped their company and other vertical search engines. Foundem alleged that Google's "Product Search" price comparison service is systematically given preference. From 2007 to 2009 alone, "the flows of customers to leading British price comparison services declined by 41 percent, while the number of visitors to Google Product Search increased by 125 percent."

The Raffs provided extensive documentation of these figures with screenshots and infographics, and compiled a nine-page document summarizing their results. In the document, titled "How Google's Universal Search Mechanism Threatens Competition and Innovation on the Internet," they contend that the manipulation of search methods "transforms Google's ostensibly neutral search engine into an immensely powerful marketing channel for Google's other services."

Google counters that it analyzes websites "without consideration for whether they compete with Google," and that its main criterion is "what's useful for the user."

Don't Tangle with Google

A French court arrived at a different conclusion in early 2012. The mapping company Bottin had sued Google in Paris for exploiting its dominant market position. The court ordered Google to pay €500,000 ($649,000) in damages for having "abusively exploited" its market power. The Internet giant has appealed the verdict. Meanwhile, a French search engine is making similar claims and has sued the company for almost €300 million in the Paris Commercial Court.

The management at Munich-based German media conglomerate ProSiebenSat.1 Media AG is also unhappy about Google's business conduct. For instance, when Thomas Port, managing director of the conglomerate's marketing firm typed the name of the Sat.1 station's football program "ran" into a Google video search, YouTube content appeared ahead of the company's own video services at ran.de.

The German company isn't sure why this happened, especially as the YouTube reproductions of "ran" broadcasts are legally dubious. The station uses a system that Google offers to filter legally protected content. "Google doesn't disclose why one search result should be better than others," says Port. His boss, Thomas Ebeling, CEO of the media group, expressed his opinion a little more clearly recently, when he said: "Almost no one knows why a search result appears among the first 10 positions in the search result list. But we all know that it will no longer appear at the top if you tangle with Google," he said at a media conference in September.

ProSiebenSat.1 management believes it has cause for such skepticism. When Google offered the media group the chance to disseminate its content on YouTube and ProSiebenSat.1 declined, something mysterious happened: Its video site, MyVideo, suddenly tumbled rapidly downward on the Google search results list, and within a week, say company executives, the number of hits to MyVideo declined by 80 percent. Was it coincidence or punishment?

When asked why, Google offered only a general response, saying that a decline in a company's ranking is often caused by a "significant change in the search algorithm or a change in the technical structure of an Internet site." Officials at the Munich company insist that essentially nothing was changed on their video site.

'Truly Harmful to Business'

Google also seems to give preference to its business partners, sometimes at the consumer's expense. Only a few weeks ago, the search engine announced a joint venture with Deutsche Bahn. Soon afterwards, the private railway association Mofair began complaining that "Google and Deutsche Bahn are misleading and ripping off rail users."

German users of the search engine can now have rail connections displayed on Google's mapping services, but only those connections provided by the German national railway company are displayed. Competitors have been left out, even if their connections are cheaper or faster.

For example, those unaware that there is now an alternative on the Hamburg-Cologne rail line called HKX Express, a company whose highest-priced ticket is €15 cheaper than Deutsche Bahn, isn't about to find it through Google Maps.

Things get even more ludicrous should you wish to travel by train between the two eastern German cities of Cottbus and Görlitz. If you type this query into Google's route planner, it spits out a circuitous connection that involves changing trains in Wegliniec, Poland. Travel time: 4 hours, 32 minutes. This is almost four times as long as the direct trip with the private line, Ostdeutsche Eisenbahn. But it too isn't featured in Google Maps.

"What's happening at Google is truly harmful to business," says Wolfgang Meyer, the president of Mofair. Deutsche Bahn justifies its actions by saying that it isn't allowed to pass on information of its competitors, while Google insists that no one is being excluded, and that "other providers could have worked with us in the past."

The problem, namely that the US giant is abusing its dominant position to further its own interests, could intensify in the future. The company is currently developing new content and products. Google is buying up publishers of travel books, has hired producers to populate YouTube channels with exclusive material and, just last week, it was revealed that Google is also considering the launch of an online price comparison site for car insurance in Germany.

The Pitfalls of Google's Advertising Business

Because the top-ranked positions on a list of Google search results are so valuable, the company sells the best results for popular search terms like "vacation" or "private health insurance" as ads, and they are identified as such and displayed with a colored background. The results in the narrow right-hand column are also purchased positions.

Google says it uses an auctioning system to sell the keywords. The main feature is that companies only pay when users actually click on their websites. This system, known as AdWords, is supplemented by AdSense, which transports Google ads to third-party websites. The two features provide the company with more than 90 percent of its total sales.

Every millimeter of the search window is hard-fought, especially in the case of search terms that make it clear that users are likely to make a purchase.

The real estate market is an apt comparison. The upper half of a Google results page is the lakeside villa with a fabulous view, with the view being the equivalent of the prospective clicks and orders. Because search terms like "When did Johannes Gutenberg die?" translate into a low purchase intention, the results page is free of advertising. Of course, it's a different story with terms like "size 10 jogging shoes." Suddenly things get much more competitive, and three paid AdWords ads can often fill up much of the screen.

One of the reasons that top-of-the page placement in the paid search area is so coveted is that, according to an analysis of various studies by the Boston-based firm Wordstream, 45 percent of users can't distinguish between ads and organic results. This also indicates why this hotly contested business has its pitfalls. Companies that are adversely affected accuse Google of a lack of transparency and of violating its own advertising rules.

Sliding to the Bottom

There are also frequent complaints about the omnipotence of Google managers. They decide who is allowed to advertise and who isn't. Tobacco, gambling and prostitution, for example, are taboo. The company's Policy Team, which essentially polices advertising on Google, decides whether or not the quality of a page users reach through a Google search is adequate. The team also imposes penalties, and if a company is out of luck, it can slide to the bottom of a search results list. In the worst case, Google can close an AdWords account completely.

One person who feels unfairly treated is Markus Orth, the chairman of L'Tur, a German travel agency. It irritates him that Google sometimes looks the other way when large customers break the rules.

For instance, when Google users in Germany entered the especially coveted search term "Urlaub" ("vacation") last Friday evening, they received a list of search results that included, in the paid advertising section, three websites linked to the Leipzig-based travel company Unister. According to the AdWords rules, a company is only allowed to post one ad in response to a keyword. So-called double serving is prohibited.

"It's amazing that Google in this case clearly tolerates multiple bids on search terms," says Orth, especially as this has serious consequences for the marketplace. "In this way, the self-appointed Internet pioneers in the industry monopolize search terms like 'vacation,' 'holidays' and 'last minute,' driving up costs for everyone else." Google itself, of course, "makes plenty of money in the process," Orth adds.

Google insists that it constantly monitors compliance with the rules. Unister says that it is simply untrue that it is "violating policies in a unique way."

'Billions of Ads'

Some companies would like to buy ads but are not allowed to. One such case is Steamo.de, which sells e-cigarettes. Although the product is allowed in Germany and contains no tobacco, the AdWords rules prohibit e-cigarettes -- well, sort of.

Apparently the rules don't apply to everyone. Last Friday, the "e-cigarette" search term did in fact end up being served an ad corresponding to the search term, but it was for Amazon. "It infuriates me that Amazon, a major Google customer, is permitted to do something that we're not allowed to do. It greatly harms our business," says Steamo head Till Hermann.

When asked about the case, Google admits that it was a mistake. But in light of the "many billions of ads," says a company spokesman, "such rule violations are always going to happen."

Many companies that feel disadvantaged by Google are upset, but are taking action on the quiet. Hans Biermann, the chief executive of Euro-Cities AG, however, has already filed several lawsuits against Google. His company tries to attract users to its online city maps by taking out ads corresponding to search terms like "Munich city map" or "Hamburg city map." But after Google got into the map business itself, says Biermann, things became more difficult for his company. The Internet giant, for example, poached one of Biermann's old customers, the official Munich website Muenchen.de. Unlike Euro-Cities, Google provided the city website with its map material for free. In return, the Internet giant was guaranteed a share of ad revenues.

When Biermann launched an ad campaign on Google in early 2010 for city maps in various cities, he was surprised to see significant price differences for clicks. While Hamburg clicks maintained the standard price level, prices rose for Munich, where Google itself benefits from higher revenues, by about a factor of four. The litigious Biermann felt that Google's prohibitive pricing policy was keeping away the competition, and he filed a complaint for "unfair obstruction" with Germany's Federal Cartel Office. The Cartel Office has since passed on a portion of the case to the EU antitrust agency, where it is now part of the current investigation.

Biermann is also suspicious about Google's method of holding a non-transparent auction, and he performed a few tests of his own to see if his suspicions were legitimate. He obtained made-up domain names and used them to buy ads through AdWords. "The prices soon shot up, even though there were clearly no competing bidders for that keyword."

Tricks of the Trade

Google denies engaging in such underhanded behavior, saying: "There can be various reasons why the cost per click goes up for advertising customers, such as a decline in the quality factor or more competition in the auction."

Meanwhile, a young industry that has developed around ad placement is benefiting from the high prices of Google AdWords. Because the costs per click, especially with popular search terms, are constantly going up, and because some companies are not allowed to buy ads at all, so-called search engine optimizers, or SEOs, are doing very well. One of them is Maik Metzen of the Berlin agency AKM3.

At the moment, Metzen is analyzing the website of a financial service provider that appeared at the top of Google search result lists for years. But then came a precipitous plunge. At the time, Google was renovating its algorithm in the context of a project called "Panda."

Metzen is familiar with the tricks that can be used to make the website more attractive for Google, even with Panda, but he's also familiar with the problems of the industry and openly talks about it. "Of course, SEO is always risky, because Google cracks down on over-optimized websites," says Metzen. "But nothing works without SEO, because everyone does it." The SPIEGEL ONLINE website is also optimized, albeit by another provider.

In other words, a website's relevance to the user is only part of the reason that it ends up at the top of a Google search results list, even in the organic section of the list. Particularly when it comes to searches for products or services, the size of a provider's pocketbook plays an important role. A rule of thumb is that almost everyone appearing on the first page of a reasonably attractive search term has paid money to be there -- either directly to Google or to external or internal SEO specialists.

The Lobbying Battle over "Fair Search"

The opening of Google's new office on Unter den Linden, the famous boulevard in the heart of Berlin, was more like a hipster party than an evening for people in standard business attire. At the event in late September, catered by the popular nightclub Cookies, cocktails created for the evening were served at an enormous bar. The mood was relaxed and upbeat, though the VIP guests included no senior US Google executives or German cabinet ministers.

The growing group of Google opponents had done everything possible to spoil the party. That morning, a giant ad appeared on page 3 of the Frankfurter Allgemeine Zeitung. The ad depicted Google Executive Chairman Schmidt under the caption: "Trust Them?"

The message coming from the main organization behind the ad, the FairSearch Coalition, was clear: We have you in our sights.

Some of the founding members of FairSearch are Google competitors, including TripAdvisor and Expedia. The alliance was created after the search engine giant had acquired ITA, the market leader in flight booking software, in 2010. Microsoft joined the group later.

Another prominent member of the anti-Google lobby is the Initiative for a Competitive Online Marketplace, or ICOMP. Microsoft is also a driving force behind ICOMP, which counts ProSiebenSat.1 as one of its most recent members. ICOMP recently attracted attention when it released studies on Google's market power and the resulting threat to the diversity of opinions. Foundem is a member of both FairSearch and ICOMP.

Leaving the Party

Google is trying to downplay the lobbying and investigative work of the two organizations by noting that the driving force behind both is its main competitor, which is making little progress in the market with its own search engine, Bing. A story that supports this interpretation recently appeared in the German business magazine Brand eins.

Meanwhile, Google is gearing up for the lobbying battle over the pending antitrust issues by preparing its own expert opinions, some of which arrive at remarkable results. For example, the conservative US legal expert and blogger Eugene Volokh concludes in a paper commissioned by Google that the company essentially acts as a publisher when it issues search result lists, which would place the lists under the protection of the First Amendment to the US Constitution.

Volokh argues that even if Google did favor its own services, this is covered by free speech protections, which makes it virtually unassailable. Google summarizes this and other arguments on its German lobbying website www.google.de/competition.

Google promptly came up with a comeback to the unfriendly FairSearch ad on the opening day of its new Berlin office. Copies of the Brand eins issue containing the story about FairSearch and ICOMP were given to guests as they were leaving the party.

The Government Takes on Google

In front of the Federal Trade Commission Building in Washington, there are two sculptures depicting muscle-bound men trying to control wild horses. The pair of statues, created by artist Michael Lantz in 1942, is called "Man Controlling Trade."

FTC employees engage in this Herculean task in a building in which little seems to have change since its dedication in 1938. The corridors are long and gloomy, the furniture is made of dark wood and the chairs are uncomfortable. The contrast between the FTC Building and the airy, candy-colored Googleplex in California couldn't be more striking.

That the agency is gearing up for a significant antitrust battle isn't only apparent from the 100-page internal memo reported on by the New York Times. Some recent staffing decisions at the agency, involving the hiring of relevant experts, also suggest that this is the case.

Decision day is nearing on the European side of the Atlantic as well. So far, to be sure, Competition Commissioner Almunia had shied away from legal action, focusing on binding commitments by Google instead. A formal antitrust action would take years, as the commission knows all too well since its crusade against Microsoft. And consumers would benefit very little from such action, even if it ended in a hefty fine.

But Google seems to be spoiling for a fight. The company responded with a clear threat to France's plan to charge search engines a fee to link to French newspaper content. If the law is passed, says Google, it will simply stop listing French media sites on its search results. Germany is considering a similar law.

An Economic Growth Engine

In the antitrust case, on the other hand, an astonishing thing is happening: The company is making concessions for the first time. Until recently, Google had categorically denied all charges, arguing that the competition was just a click away. Besides, Google maintained, it doesn't impede competition, instead presenting itself as a growth engine for the economy.

Google was consistently self-confident, cool to the point of arrogance and, at least on the surface, completely undaunted. But now the company has made its first proposals to the commission, and they are being examined in Brussels. The Internet giant, for example, is offering to identify its own services more clearly, perhaps through the use of color and the Google brand name.

But that won't be enough for antitrust authorities on both sides of the Atlantic. In the search for remedies, Freiburg law professor Boris Paal suggests taking cautious steps: no national regulation, as is the case with broadcasting companies, but international standards of competition, seals of quality, a code of conduct and a complaint center. Foundem is calling for so-called search neutrality, which would mean listing Google-owned services according to the same search methods as those of the competition.

Others long for a real alternative, a sort of public European search engine. Last year Frankfurter Allgemeine Zeitung Co-publisher Frank Schirrmacher described it as perhaps the "most important technological project of today."

Just Google It

The only problem with the idea is that it's already been tried before, and it failed. Quaero was supposed to be the Franco-German answer to Google. But instead of participating in the joint venture, the German Economics Ministry decided to launch its own project, called Theseus. The government earmarked about €100 million in spending for each project over the course of several years. That may sound like a lot of money, but Google invested more than $5 billion in research and development -- in 2011 alone.

The upshot is that a company that was once so unconventional could now be forced down a conventional path, namely that of the antitrust agencies. But they too will have trouble creating fairer conditions in Google-Land. Old recipes and models have only limited use at a time when markets and technologies are changing more quickly than ever before.

The antitrust agencies' task of finding a suitable response to Google's power in the marketplace appears to be one of the most urgent and yet most difficult of the present day. The solution, after all, cannot just be googled.

BY MARTIN U. MÜLLER, CHRISTOPH PAULY, MARCEL ROSENBACH, HILMAR SCHMUNDT and CHRISTIAN STÖCKER

Translated from the German by Christopher Sultan
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