09.22.11

Microsoft’s Google Payback

Hobbled in the 1990s by an antitrust crusade led by now-Google chairman Eric Schmidt, Microsoft has been plotting the same fate for its archrival—and Schmidt in the hot seat at a Senate hearing provided some glorious schadenfreude.

For years Microsoft has led a behind-the-scenes crusade to get the feds to investigate Google. Now all that hard work is paying off.

Google is big, rich, smart, powerful—and maybe in serious trouble. On Wednesday the company’s chairman, Eric Schmidt, testified before a Senate hearing and claimed that Google is not abusing its power in the Internet search business. Schmidt did about as well as he could and didn’t make any of the huge verbal gaffes he’s become famous for. Nevertheless the impression left by the hearings is that Google is facing some determined foes in Washington, and may be headed for the same kind of antitrust hassles that hobbled Microsoft, its archrival, more than a decade ago.

The threat is not so much that the Senate might send a bad report to the Federal Trade Commission, which is conducting its own antitrust investigation into Google in conjunction with a number of state attorneys general. It’s not even that the FTC might end up filing a lawsuit or gaining some kind of concessions from Google. It’s that spending years dealing with investigations—there is also one taking place in Europe—could become a huge distraction and cause Google to slow down, or stumble, and lose a step to its competitors.

Schmidt: Google Search Results ‘Not Cooked’

No one is loving this more than Microsoft, which suffered exactly this fate in the 1990s after its rivals successfully lobbied the government to crack down on the software giant for abusing its monopoly power. Ironically one of the leaders of the anti-Microsoft crusade was Schmidt, an executive at Sun Microsystems and then Novell, two Microsoft competitors that were among the loudest complainants.

Gripes from Schmidt and others resulted in a lawsuit brought in 1998 by the Department of Justice. Microsoft settled in 2001, but by then the damage was done. The distraction of fighting the legal battle caused Microsoft to lose momentum, and the bad publicity hurt its reputation. Worse, Microsoft had become timid, afraid to compete. Its rivals, in other words, had won.

Now Microsoft is looking for payback, hoping to use the government to hobble Google just as its rivals used the government to hobble Microsoft. Microsoft has spent years crying foul about Google and pushing the government to investigate the search giant, funding grassroots groups that complain about Google and paying lobbyists to push members of Congress to take action.

One former Microsoft executive who lived through the DOJ case and still feels the sting of those years could barely contain his glee at the sight of Schmidt, Microsoft’s old nemesis, finally being put in the hot seat himself. “Google is still in the stage where they think antitrust is just a legal issue easily resolved with clear explanation and rational analysis. The question is how long it takes their big engineering brains to realize it is really a much messier exercise in power and politics, where the deck is stacked against them,” he said.

One Google insider estimates Microsoft has been spending $15 million a year on lobbying efforts and other grassroots anti-Google campaigns. “A lot of this comes from a really emotional place for them. It’s like, ‘We were in jail, so now you should be in jail,’” the Google insider said.

Schmidt tried to tackle the Microsoft comparison in his remarks, commenting Wednesday that Google was not like Microsoft. “We get it,” he said. “We get the lessons of our corporate predecessors.” He also asked senators to “remember that not all companies are cut from the same cloth, and that one company’s past need not be another’s future.”

The problem is, the more Google claims that it’s not the same as Microsoft, the more it looks like Microsoft.

“A lot of this comes from a really emotional place for [Microsoft]. It’s like, ‘We were in jail, so now you should be in jail.”

Google likes to say that in the Internet age, competition is only a click away. In other words, even though Google delivers 65 percent of all searches, in theory that could all go away tomorrow if a better search engine came along.

Google’s critics counter that while in theory Google’s audience could go away, in practice they’re still here, and this gives Google tremendous power over what people find when they go looking for information on the Internet.

At issue Wednesday was whether Google gives preference to its own sites, such as Google Finance, Google Flight Search, Google Product Search, and Google Places, when people search for information, thereby pushing other sites down lower in the rankings.

Utah Sen. Mike Lee pulled out a chart showing that on a huge number of searches for products, Google’s search engine over and over again displayed Google’s own shopping site as the third result from the top.

“You’ve cooked it so you’re always third,” Lee charged.

Schmidt’s answer: “I can assure you we’ve not cooked anything.”

Lee shot back: “Okay, then you have an uncanny ability, an uncanny attraction to the number three then.”

Jeremy Stoppelman, CEO of Yelp, a site where people post reviews of local businesses, testified that Google has created its own service similar to Yelp and lifted Yelp’s data to use in its own service. When Yelp complained, Google said it would comply but also remove Yelp from all of its search results, a move that would be devastating to Yelp’s business.

Schmidt remained calm and soft-spoken. He was working very hard to appear humble. But at the end of the day, his defense basically boils down to saying, “We’re good guys and you should trust us.” Considering what Google is up against, from rivals both big and small, that may not be enough.