An Antitrust Threat to Google?

by Tom Taulli | January 18, 2012 12:18 pm

While many extol Facebook, the company still pales in comparison to Google (Nasdaq:GOOG[1]). Even though Facebook has 800 million active users, it looks like the top line for all of 2011 was about $3.8 billion. The consensus estimate for Google’s the latest quarter is for revenues of $8.44 billion (it reports earnings tomorrow).

Then again, Google has a highly scalable business model, which allows real-time bidding to put ads on search queries. It’s something that others like Yahoo! (NASDAQ:YHOO[2]) and Microsoft (NASDAQ:MSFT[3]) have tried to replicate but to little success. No wonder Google has roughly two-thirds of the market.

And the company keeps trying to find ways to leverage its search footprint. One of the latest is Search Plus Your World, which includes content from the Google+ social network — but not from Facebook or Twitter.

However, this smart idea could prove costly. How? By not providing results from Twitter and Facebook as well, it may look to federal regulators like Google is exerting undue market power, which could be particularly troubling if its search business is seen as a monopoly (this was part of a great analysis[4] in a recent piece in CNNMoney).

True, a monopoly isn’t necessarily illegal.  But if it becomes abusive, then antitrust laws kick in.  These are  meant to  help promote competition, which should ultimately mean better services for consumers.

For the most part, antitrust enforcement is often based on politics. For example, Democrats Lyndon Johnson and Jimmy Carter were aggressive while Republicans Ronald Reagan and George W. Bush were fairly lax.

What about President Barack Obama? Well, there are signs that he wants to ramp things up. A notable case just happened with the Justice Department and Federal Communications Commission essentially blocking AT&T’s (NYSE:T[5]) merger with T-Mobile. There was also the failed deal of H&R Block’s (NYSE:HRB[6]) proposed buyout of TAXAct.

Google could say Search Plus Your World isn’t a problem because it still has a relatively small share of the social networking market. And while this is a rational argument, it still may not stand up to political pressures. Sometimes federal authorities like to use a case to set an example. And Google might be ideal for setting the framework for dealing with antitrust matters in the online world.

If so, that could be a big problem. As seen with other landmark antitrust cases — such as with IBM (NYSE:IBM[7]) and AT&T during the 1970s and Microsoft (NASDAQ:MSFT[3]) in the 1990s — these suits can be brutal. They’re not only expensive but often result in undue financial and operational burdens.

Now, if Google does get ensnared in an antitrust case, it’ll take time for things to shake out. But over the long haul, it could hamper the company’s growth potential.

Tom Taulli runs the InvestorPlace blog “IPOPlaybook[8],” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling”[9] and “All About Commodities.”[10] Follow him on Twitter at @ttaulli[11]. As of this writing, he did not own a position in any of the aforementioned stocks.

  1. GOOG:
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  10. “All About Commodities.”:
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