FTC's 2012 Google Antitrust Decision: Newly Released Memos Reveal a Lack of Tech Understanding

In 2012, the Federal Trade Commission (FTC) closed its antitrust investigation into Google, a decision that continues to shape the tech landscape today. Now, 312 pages of internal FTC memos, obtained by Politico, have shed light on the rationale behind that choice, revealing a stark contrast between the arguments presented by the Bureau of Competition (BC), which advocated for antitrust action, and the Bureau of Economics (BE), which argued against it. A close examination of these documents raises serious questions about the FTC's understanding of the tech industry at the time.

The core of the debate revolved around Google's dominance in search, particularly the burgeoning mobile search market. The BC argued that Google was leveraging its power through exclusivity agreements and manipulating revenue share, stifling competition. They cited internal Google documents indicating the rapid growth of mobile search, projecting its imminent overtake of desktop search. However, the BE downplayed the importance of mobile, claiming it represented only a small fraction of overall queries and advertising revenue. The BE also pointed to the existence of competitors like BlackBerry and Windows Mobile as evidence of robust competition. This perspective appears to have significantly underestimated the future trajectory of mobile and the network effects that would solidify Google's position.

Furthermore, the BE memo's analysis of the broader search market drew criticism. It highlighted the combined market share of Yahoo and Bing as evidence of continued competition, even claiming that Microsoft's query volume was growing faster than Google's. This argument overlooked the substantial subsidies Microsoft was pouring into Bing and the fact that Yahoo had effectively outsourced its search functionality to Bing due to the prohibitive costs of maintaining a competitive search engine. The memo selectively used Comscore data, downplaying its limitations when it reflected poorly on Microsoft's market share and uncritically embracing it when it presented a more favorable picture.

The memos from FTC directors, tasked with weighing the arguments from the BC and BE, reveal a preference for the BE's analysis. Critically, the directors' memos lacked any indication of internal debate or fact-checking to address the fundamental disagreements between the bureaus regarding the importance of mobile or the nature of competition in the search market. This suggests that the BE's potentially flawed understanding of the tech landscape significantly influenced the decision to close the investigation.

The implications of this decision are far-reaching. Google's dominance in search and related markets has only intensified in the years since the FTC's investigation. The released memos raise concerns about the ability of regulatory bodies to effectively oversee and address anticompetitive behavior in rapidly evolving industries. The documents serve as a cautionary tale about the importance of deep industry expertise and rigorous analysis when making critical regulatory decisions that can have lasting impacts on consumers and the competitive landscape.