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Monday, May 21, 2012

Can there be a market for unpaid search results and could Google be classified as a public utility? - Comments of Eric Clemons

Search as a Regulated Public Utility

Posted by Eric Clemons (Wharton)

Should search be a public utility? I’m not sure that search needs to be a public (state owned) company, in the sense that telecommunications in the UK and indeed most of the world was a public utility, part of the national postal system in many cases. But search needs to be at least a regulated common carrier, like AT&T was between 1913 and 1984. A little less regulation would have been appropriate towards the end of AT&T’s monopoly dominance, but throughout most of AT&T’s regulated lifetime it provided the best telephone service in the world, and did so at acceptable prices.

Of course we are living in an era that distrusts government and virtually all regulation. Remember what Wall Street, Private Equity Firms, and Proprietary Strategy did to the American economy and the American capitalist system just a few years ago? That’s what power and greed, private information, and lack of regulation can achieve at their worst; this was not a failure of capitalism, but a failure of market professionals when they enjoyed the end of regulation and an enormous lack of transparency. Remember why we have a Food and Drug Administration? If not, go back and reread Upton Sinclair’s the Jungle and then think about whether eliminating all regulation and all regulatory oversight would be such a good thing. Regulations matter.

What regulations would I expect a common carrier in search to have to observe? 1. There would be no preferencing of the search engine’s own offerings. In the case of Google, Google travel services, or YouTube services, or financial data services, or ticketing services, would have to be given a quality score the same way any other firm or service is ranked and rated, and would have to show up in search in ranked and rated order.

2. The ranking algorithm would have to be fair, as established with a third party audit. There could be no manual overrides and no preferencing, either for a fee, or because of the desire to place their own offerings ahead of others, or to establish or promote an opinion favorable to the firm or the politics of its executives. These executives could support political candidates and parties the way any other executives already can but they could not continue to do so by the manipulation of search order.

3. Algorithms could be updated as needed, of course, but an archival copy of the algorithm at any point in time would need to be preserved for audit at a later date.

4. I’m not sure paid search should be permitted. Paid advertising on the right side of the page could remain, but it would have to look and feel like advertising, not like search results.

Search firms have to make money somehow, of course. Search service firms should be encouraged to compete to create a market for paid search services. These services thus would be available for a fee. A portal like Comcast could buy search services and provide them free for its users, much as some do with antivirus protection. Individuals could choose instead to buy search services, much as they already do with antivirus protection.

I know that users expect search to be free. Years ago we all expected television to be free, and virtually all of us enjoy a wide arrange of premium television services today, and all of us pay a significant monthly bill for them. We know that even today’s student users compete with each other to demonstrate the best technology, almost always including an iPad and a smart phone; these devices are not free, nor are their monthly service bills. There is every reason to expect that users who routinely pay a monthly fee for texting, and another monthly fee for data usage, would be willing to pay a small monthly fee for superior search. If not, they could always get their search free from a company that bought search, and then provides search free to users for the sort of bundled paid search results that these users saw in the past.

I’m thinking that this would involve splitting Google into three or more companies, one for search, one for Android devices, and one for ancillary services. Google would be free to maintain a fourth company, which purchases services from the others, or from Bing, or from Facebook, or from anyone else with a superior offerings.

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Comments

I agree that regulation matters. This is exactly why we want to think carefully. Regulation can help create value, but it can also destroy value. Some of the examples provided above include instances of regulation destroying or preventing value.

Given that most customers are telling us that, for them, Google's general search algorithms are the best out there, it is hard to imagine that government oversight would improve customer experience. If the remedies proposed above improve search results for customers, then Bing, Yahoo!, and a number of other general search engines can readily adopt these practices and take customers from Google. Because these rivals do not appear to be adopting these practices and taking customers, it seems to me that the remedies would destroy value.

Posted by: Mark Jamison | May 23, 2012 1:07:10 PM

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