Google competes in many markets, but its most pressing threat comes not from a rival but from antitrust authorities. The Federal Trade Commission is reportedly on the verge of filing a lawsuit against Google to block its proposed $750 million acquisition of mobile advertising company AdMob. Yet antitrust fears about Google are misplaced. Government intervention would harm the very consumer interests the FTC is supposed to protect.
As the government prepares for a potential court battle against Google, the budding mobile advertising market is evolving before our very eyes. Just two weeks ago Apple launched iAd, a mobile advertising platform aimed at the world's 50 million iPhone users. And Microsoft is in talks to acquire Millenial Media, another major player in mobile advertising, according to Business Insider.
Meanwhile, smart phone use is increasing rapidly–and opportunities for entry in the mobile advertising market are increasing with it. Can Google, armed with AdMob's advertising platform, succeed in gaining the top spot in mobile advertising? Perhaps–but only if Google-AdMob manages to outcompete and out-innovate rivals that have deep pockets and brilliant engineers of their own.
What tomorrow's mobile ad market will look like if Google and AdMob join forces is anybody's guess. Trying to predict how a proposed merger or acquisition will impact consumers is difficult, if not impossible.
What we do know, however, is that voluntary decisions by companies to acquire–or be acquired–tend to benefit competition, not hinder it. That's why federal courts so rarely grant requests to block proposed mergers or acquisitions. When government steers the evolution of markets in unnatural directions, it usually gets it wrong, and consumer welfare suffers.
Antitrust intervention is especially problematic in the modern information age. According to a recent study by antitrust scholars Geoffrey Manne and Joshua Wright published in the Journal of Competition Law & Economics, conventional antitrust standards tend to underestimate the critical role that innovation plays in dynamic high-tech markets.
The case against Google is a prime example of this fallacy in action. We know consumers have benefited tremendously from Google's innovations in search and other digital markets, yet these benefits come largely in the form of qualitatively superior products, rather than incremental price reductions. Antitrust proceedings simply cannot gauge the impact of these innovations on consumer welfare.
Google's lucrative search business has enabled the firm to shake things up for the better in high-tech arenas like navigation, e-mail, office productivity and voice. Not all of Google's offerings have succeeded, but many Google innovations–including Gmail, Google Docs, Google Voice and Android–have changed the rules of the game in their respective fields, attracting massive user bases while improving the state of competition immensely.
Critics of the Google-AdMob deal, including Sen. Herb Kohl (D-Wisc.), portray Google as a big, bad monopolist yearning to extend its supposed dominance into new markets. But is Google's size and scope–a byproduct of its success–really such a bad thing for consumers?
Consider that since 2002, Google has been the leading U.S. online search provider without interruption, yet competition among search engines remains as intense as ever. While Google's rivals have failed to dethrone the leader, Microsoft continues to invest heavily in its search engine Bing in hopes of some day capturing the search crown. And a steady stream of newcomers, fueled by venture capital, aspires to displace Google much like Google displaced Yahoo! as market leader years ago.
Opponents of the Google-AdMob deal fret that the combined firm would control a treasure trove of potentially sensitive user information. That may be true, but it's no reason to fear the deal. As Google privacy guru Alma Whitten argued here last week, "the only way to stay in business is to give users what they want." Google has been a good steward of user data precisely because users expect strong privacy protection.
Firms that fail to deliver on privacy are soon chastened, including Google itself, as the recent Google Buzz fiasco demonstrated. Allowing the Googles of the world the freedom to make mistakes–and suffer the legal and reputational consequences–is crucial if online markets are to realize their full potential. The Web is only 15 years old. Most digital territories remain uncharted. They will remain so unless innovators are free to experiment with novel approaches to using and collecting information.
Rapid, unpredictable change is the hallmark of the modern digital economy. Google may be on top in many high-tech markets today, but it won't stay there for long unless it continues to innovate and take risks. That's because in the information age, success is determined by creativity, not market share. From AOL to Yahoo!, America's high-tech sector is strewn with former market leaders who were no match for the relentless forces of creative destruction.
Taking Google to court may be an easy way for FTC regulators to score political points by appearing to be "protecting" consumers. In reality, it's bad news all around. If the Google-AdMob deal succeeds, the upside is enormous. If it fails, rivals like Microsoft and Apple will happily fill the void. The FTC can best serve consumers by sitting this one out.