John Battelle's Searchblog

...in the NYT today.

Google has begun this public-relations offensive because it is in the midst of a treacherous rite of passage for powerful technology companies — regulators are intensely scrutinizing its every move, as they once did with AT&T, I.B.M., Intel and Microsoft. Some analysts say that government opposition, here or in Europe, could pose the biggest threat to Google’s continued success.

It's been a while since I've seen click fraud in the news, but this Times story caught my eye, in particular because it was Microsoft. Google usually gets all the headlines around this issue, but it's interesting to see Microsoft leading the charge in this arena. The story is worth reading, it sheds some light on the darker underpinnings of the search economy. From it:

Microsoft’s theory is that Mr. Lam was running or working for low-ranking sites that took potential client information for auto insurers. The complaint said that he directed traffic to competitors’ Web sites so they would pay for those clicks and exhaust their advertising budgets quickly, which let the lower-ranking sites that he sponsored move up in the paid-search results.

When people clicked through to his site, it asked them to supply contact information, which he then resold to auto insurance companies, according to Microsoft’s complaint, which estimated his profit at $250,000. In the complaint, it also said it had to credit back $1.5 million to advertisers because of the Lams’ alleged fake clicks. Microsoft is seeking $750,000 in damages from the defendants.

Although small advertisers have sued search firms, complaining the firms did not do enough to prevent fraudulent clicks, this is among the first cases where a search provider has gone after a suspected perpetrator.

Just for the record, noting this article from the NYT on Google's continued skirmishes with the DOJ, this time on the book settlement front.

...and so will legal challenges, many of which are already underway.

Google's blog post is here.

Details: Google will now allow advertisers to bid on trademark terms, even if they don't own the trademark, so, for example, a local hardware store can bid on "Buy Makita Saws here" or Best Buy could bid on "Best Prices for Sony Plasmas".

Also, Google has opened up bidding on trademarked terms - so that competitors can bid on their rival's terms. It has been allowed in just four countries - US, UK, Canada, Ireland - but now will be allowed in 190.

Both moves mean more revenue for Google. Of course, the company says it's doing this "in an effort to improve ad quality and user experience." Which in fact, is true.

But...it also can be read as a sign that the company is doing what all large companies do: fine tuning its profit machine to yield more revenue.

One analyst, Ben Schacter at Broadpoint, put it this way in an email flash note sent out to press and clients:

The bottom line is that these two changes will be positive revenue drivers when allowed and into 3Q and beyond, however, we believe trademark holders will undoubtedly, and loudly, raise legal challenges.

...seen as arrogant. Regardless of whether that charge is true, or sticks, or is fair, this is what will end up in our national "paper of record."

The Federal Trade Commission has begun an inquiry into whether the close ties between the boards of two of technology’s most prominent companies, Apple and Google, amount to a violation of antitrust laws, according to several people briefed on the inquiry.

At the end of my book, and the beginning of a new phase of this site, I suggested that Google's largest issue will be its "failure to fail." I also compared, and continue to compare, the company to Microsoft in the late 90s, when it struggled with anti-trust investigations that ultimately proved hobbling, if not in profits, at least in its quest to be the most innovative and fastest growing company in the technology sector.

If any lesson is to be drawn, perhaps prematurely, from all this, it's that no company - or two companies - can lead a culture for longer than half a generation. After that, the culture starts to distrust the companies' motives, regardless of whether they are pure or well intentioned.

Google cannot like the parallels (with Microsoft, in the late 90s). The DOJ has opened an inquiry into its book deal (one I have not, to be honest, entirely grokked. In fact, neither has my agent or my publisher, which is rather interesting....). From the NYT:

The inquiry does not necessarily mean that the department will oppose the settlement, which is subject to a court review. But it suggests that some of the concerns raised by critics, who say the settlement would unfairly give Google an exclusive license to profit from millions of books, have resonated with the Justice Department.

This is very interesting (from the NYT):

Google will begin showing ads on Wednesday to people based on their previous online activities in a form of advertising known as behavioral targeting, which has been embraced by most of its competitors but has drawn criticism from privacy advocates and some members of Congress.

Perhaps to forestall objections to its approach, Google said it planned to offer new ways for users to protect their privacy. Most notably, Google will be the first major company to give users the ability to see and edit the information that it has compiled about their interests for the purposes of behavioral targeting.

I've been writing about this for years. See my post on a "Data Bill of Rights."

Way to go, Google.

Google post on this here. And the policy post is here.

A considered guest post on TC has kicked up a conversation around whether Google is a monopolist, and whether the DOJ will take action. This of course is one thing that must keep top folks at Google awake at night - it's OK to be a monopoly, it's not OK to leverage that monopoly to the detriment of the ecosystem you control.

There is clearly and argument to be made that Google already has a monopoly, the author makes that case and concludes:

I believe the Department of Justice will be able to establish monopoly power and the abuse of that power.

As covered earlier, at least one established prior monopolist has strong opinions on this issue - Microsoft.

I've been gone a week and most likely there is a lot of chatter on this, but this article is worth keeping in mind as the new administration gets non economic emergency work started (which could be years, I suppose.)

Antitrust Pick Varney Saw Google as Next Microsoft (Update2)

By James Rowley

Feb. 17 (Bloomberg) -- Christine A. Varney, nominated by President Barack Obama to be the U.S.’s next antitrust chief, has described Google Inc. as a monopolist that will dominate online computing services the way Microsoft Corp. ruled software.

“For me, Microsoft is so last century. They are not the problem,” Varney said at a June 19 panel discussion sponsored by the American Antitrust Institute. The U.S. economy will “continually see a problem -- potentially with Google” because it already “has acquired a monopoly in Internet online advertising,” she said.

Google yesterday announced it would offer a repricing program for its options holding employees, a move that acknowledges and addresses the reality that Google's stock has sunk, like most others, well below strike prices. Google plans to take a $460 million charge for the move.

The WSJ picks up on the news and offers a perspective (the post is behind a pay wall):

...options are also meant to align interests with shareholders -- so if the price soars, both benefit. If the price drops, both suffer. If Google is going to reprice when things go wrong, it should also limit the upside to employees. It would be easier simply to pay bonuses instead, tied to corporate performance, with a portion in stock that vests over time to aid retention ... when shareholders do add up the cost of options, the answer can be shocking. Albert Meyer, president of money manager Bastiat Capital, calculates that since 1995, Cisco Systems has spent $30 billion -- or nearly half its free cash flow in that period -- buying back stock issued as a result of employee options exercises.

Update - more from Adam here. Good overview of earnings, notes only *100* new employees in the quarter, that is a major shift (on a base of 20K) and this:

Google is transferring almost half a billion dollars in wealth from shareholders to employees, and for what ….? Motivation and retention, says Google. This a well known farce, as old as the Valley, which tells itself first that it offers generous stock options as a form of incentive and then, when share prices plummet, moves the ball so its employees, whose incentives apparently didn’t work (as if the stock price were under their control) can be re-incentivized. Retention? Would someone please tell me where the average Google employee is going to go right now?

In conclusion, and as the headline says, Google is in good shape. Not fantastic. But plenty damn good. It’s also becoming more and more like other technology companies in so many ways.

I'm traveling to NY for a few days this week, and alas, will be on a plane during part of the inaugural speech. But I am very excited that a new era is dawning, and I hope we have both patience and high expectations for our new government.

For filing an amicus brief on the repeal of Prop 8. I saw Milk last week and it's a very strong reminder of how far we've come as a culture, and how far we have yet to go.

What Fred said.

Sent to me from Gary Price, a presentation on Adwords from the Berkman center: Google’s AdWords system serves ads alongside about a quarter of all web traffic. In the process of serving those ads, Google actively processes the user browsing data in order to target its advertising, making AdWords one of the world’s most extensive processors of personal data. Hal Roberts presents on how Google’s use of the AdWords data seeds a network of grey surveillance that may not have direct effects on the individual surveillance subjects but does have important effects on our modes of creating and consuming content online.

Given the comments happening down below on whether you all trust Google, Yahoo seems to be pretty nimble with this announcement:

Today, Yahoo! Inc. (NASDAQ:YHOO - News) announced a new global data retention policy that sets an industry-leading approach to user data privacy. This new policy strengthens Yahoo!’s relationship of trust with its 500 million users world-wide and enhances its longtime leadership on privacy.

Under the new policy, Yahoo! will anonymize user log data within 90 days with limited exceptions for fraud, security and legal obligations. Yahoo! will also expand the policy to apply not only to search log data but also page views, page clicks, ad views and ad clicks.

Recall my interview with Vint Cerf, the guru who Google hired to champion net neutrality, among other things? Where he said this:

Here’s what (folks like Whitacre) are saying: “Well, we built this network and we can do anything we want with it. And by the way, the FCC has now essentially released us of any common carrier obligations we ever had, thank you very much, and so we can do whatever we want to and why don’t you just buzz off.”

That sort of grates a little bit. Gee, excuse me, but we don’t get a free ride at all. We spend an awful lot of money being connected to the public Internet backbone, in addition to which we pay a lot of money for our own Internet backbone that links all of our computer centers together at substantial capacity, which is necessary to do what we do.

Moreover, the subscriber has been told (by the telcos and cable ISPs) that if you pay for broadband service, you’ll get access to everywhere on the Internet. But then they’re saying, in the same breath or same paragraph anyway, “Well actually, it’s not quite like that because the places you’ll be able to get to in this broadband mode are only the ones that we’ve done business deals with. So well we’re going to shut out Google unless they pay or, you know, shut out eBay, or Amazon.”

And so this means that the subscriber’s choice has suddenly been circumscribed by what business model the people at these broadband service-providers have been able to invent. My view of their invention is that the business model seems very 20th century and very backwards looking.

Now read this from the WSJ, and this from Om. From the Journal piece:

Google Inc. has approached major cable and phone companies that carry Internet traffic with a proposal to create a fast lane for its own content, according to documents reviewed by The Wall Street Journal. Google has traditionally been one of the loudest advocates of equal network access for all content providers.

At risk is a principle known as network neutrality: Cable and phone companies that operate the data pipelines are supposed to treat all traffic the same -- nobody is supposed to jump the line.

Oh. My.

Updated: Om says Google was not going to turn it's back on NN and the Journal was "confused."

From American Lawyer:

Google Inc. and Yahoo! Inc. called off their joint advertising agreement just three hours before the Department of Justice planned to file antitrust charges to block the pact, according to the lawyer who would have been lead counsel for the government.

That's the last line of a Times piece over the weekend on the increasing size of our digital footprints. Hmmm. But it is the basis of the American constitution. Read the Times piece, which, if you've read The Search and watched the "Web Meets World" meme (that was the theme for Web 2 this year), will not be new ground, but is a good overview of the issue right now.

From a Weisel report emailed to me just now:

On Monday (11/3) after the close, The Wall Street Journal reported that Google and Yahoo have submitted to the Department of Justice a revised version of their proposed search agreement. While we see little legal reasoning behind blocking the deal, we believe the DOJ is basically saying that Yahoo can't be trusted to do the right thing for its business over the long term.

Shortened Duration: The reported revised plan shortens the partnership from 10 years to 2 years, forcing Yahoo to avoid lowering its search monetization capability if the company can't rely on Google for a decade.

Cap on Outsourced Revenue: The revised deal would also place caps on the revenue that Yahoo can generate from the partnership to 25% of Yahoo's search revenues (or around $1bn annually based on our 2008 estimates). Given Yahoo had originally identified search revenues of $800mn that would be addressable for Google suggests again that the DOJ would want to put fail safe measures in place to limit Yahoo from getting too aggressive and outsource beyond the tail keywords which it had previously highlighted.

Here is a Reuters piece:

Yahoo Inc and Google Inc have drastically scaled back the scope of their search advertising deal, a person close to the discussions said on Monday, in a last-ditch effort to win U.S. antitrust approval.

The move comes after Google appeared to be on the verge of walking away from the partnership, which was announced in June to foil Microsoft Corp's takeover attempt of Yahoo. The deal has since drawn scrutiny from U.S. regulators amid a growing chorus of criticism from advertisers.

The two Internet companies have submitted a reworked proposal to the U.S. Department of Justice that shortens their partnership to just two years from 10 years, the source said.

Jerry and I sit down to talk on stage Weds.

Check this out from the AdSense blog:

When we notice a spike in readers who are interested in a specific topic, we like to address it as soon as we can. There's been some interest in filtering ads from publisher pages, so here's a quick refresher on the filtering tools we offer:

Competitive Ad Filter

You can restrict contextually-targeted and placement-targeted ads from appearing on your pages by adding the URL of each ad to your Competitive Ad Filter. After logging in to your account, click the AdSense Setup tab and visit the 'Competitive Ad Filter' page. You can also find full instructions and tips for entering in specific URLs in our Help Center. To determine the URL of an ad, try the AdSense Preview Tool or follow these steps. Please keep in mind that it may take several hours for the filter to take effect.

Look, I run a network of high end publishers, and many of them use Google and other remnant networks to backfill ad inventory. So I see this too. And I can give you exactly one reason why this came up. For those of you too lazy to click the link, Google came out against Proposition 8 a while back, and I applaud them for doing so. And the spike they are referring to? Most likely (I have not confirmed this) it's because the Yes on Prop 8 folks are aggressively spending on Google right now, and a ton of publishers are seeing Yes on 8 ads on their site, and they don't want to allow those ads.

For the record, I am openly against this proposition. If that means another group of readers (yeah, I am for Obama too) stop reading me because they think my views don't fit theirs, well, sorry to see you go, folks. Most likely, most of you left me already given my views on the presidential electon. Somehow, I sense, in a decade or two, this will all seem like a pretty stupid debate.

Onwards.