Emperor for life?

Now that Yahoo has rebuffed Microsoft’s takeover bid, has Google (with DoubleClick) won the competition to dominate online search and advertising? Eric Schmidt, Google’s chief executive, pronounced himself happy to be crowned, before adding that “as we’ve learned in the electoral cycle, it goes back and forth”.
That implicitly raises the most important question about Google’s dominance. Elected politicians always have a limited shelf-life, whether set by the constitution or by the patience of the electorate. They are also subject to checks and balances while they are in power. Is the same true of Google?
That question cannot be answered by boggling at Google’s market share, which is perhaps half of global online advertising, and more than two-thirds of advertising placed on search engines. Other monopolies have proved transient; for example, the world of games consoles usually contains one or two dominant players, but new top dogs are installed every few years.
By contrast, mighty Microsoft continues to enjoy a reign at the top of the software industry that would be envied by most politicians, democratic or otherwise. Google will hope to emulate that achievement.
Microsoft had – and still has – one advantage that Google does not: people will buy and learn to use the Microsoft Office suite of programs partly to be compatible with the rest of the business world. Online searchers, on the other hand, can switch effortlessly to a better search engine. Indeed, it is hard to imagine a more contestable market.
Google’s dominance in search, and therefore in search-based advertising, has been based on offering the best product. That can change, and has done so in the past. Who now trembles at the mention of AltaVista, Lycos or even Yahoo?
Still, regulators must watch Google’s current practices. Even a short-lived monopoly can exploit its customers if it so chooses. Larry Page, Google’s co-founder, has been reported as claiming that the company cannot affect pricing because it sells advertising by auction. That is nonsense. Google could restrict supply, forcing auction prices up.
Yet the bigger risk is that Google parlays fleeting excellence into entrenched power. While it lacks Microsoft’s networked dominance, it has the financial clout to buy out rivals, especially fledgling competitors in online search. Google is also hoping to thrive both in advertising on mobiles and in the growing world of online video. That is a legitimate aim, but regulators must be vigilant. More importantly, Google’s rivals had better start offering a credible alternative.