Satirical Preview of Google’s Senate Antitrust Testimony — Google’s Pinocchio Defense Part X
September 13, 2011
Mr. Chairman and Ranking Member, it is a real pleasure to be here today, and thank you again for not issuing that formal subpoena you had to threaten in order to compel us to testify.
Let me begin my testimony by taking this opportunity to divert the media’s attention from this hearing by making a series of Google public announcements that our news algorithms predict will bury news of today’s hearing on the second page of most search results.
- Yesterday, in a contest between the world’s fastest supercomputers, IBM’s “Watson” was defeated by Google’s “Knowitall” at Jeopardy, The Price is Right and the Wheel of Fortune.
- This week, the number of Google+ users surpassed Facebook as Google added 1.1 billion Google+ users “privately” without their permission in just the last month.
- Today, as a gesture of goodwill to the European Union, Google has agreed to buy Greece for €7.77 billion.
- Also today, Google’s “Knowitall” computer network became sentient and automatically renamed itself “Your Majesty.”
Now let me disarm the tension in this room by feigning humility and reciting some focus group-tested cliché mantras that our tracking algorithms tell us will be believed by 93.1459% of people in this relevant targeted audience: Don’t be evil; Google would never do anything to undermine the trust of users; Using Google is a choice; Competition is a click away; Not every website can come out at the top of the page; You can make money without doing evil; Google is not a monopoly; Big is not bad; We are for openness others for closedness; and We understand with success comes scrutiny.
That in a nutshell is our antitrust defense; so please move along, there is nothing to see here.
Before I go, I have been told by my Washington advisors it would be helpful if I feigned more humility and I apologized for what Google has been caught doing red-handed.
First, we are very sorry Google was forced by the DOJ to officially admit to knowingly committing criminal felonies over a period of several years in actively promoting illegal prescription drug imports into the U.S. and to having to pay a near record $500m in criminal fines to settle the matter. Honestly, we never intended to get caught.
Second, we are very very sorry that Federal Judge Chin and the DOJ opposed the Google Book Settlement because we illegally copied fifteen million books without the permission of, or payment to the copyright owners, and also attempted to corner the online market for orphan works. It never occurred to us that stealing was illegal.
Third, we are very, very, very, sorry for being forced to admit to deceptive privacy practices and to be on probation for twenty years in the FTC-Google Buzz privacy settlement. Google has always said one thing and done another, so we had no idea that misrepresentation on the Internet was considered a deceptive business practice. Who could have known that?
Fourth, we are very, very, very, very sorry, for being investigated by the FCC for effectively wiretapping tens of millions of Americans homes in the Google StreetView WiSpy scandal. We always thought that if an average person did not know how to encrypt their private information, passwords and email, they deserved to have their privacy violated.
Fifth, we are very, very, very, very, very sorry the DOJ had to threaten us with a Sherman Act monopolization case to stop us from colluding with Yahoo to corner the online advertising market in the proposed Google-Yahoo Ad Agreement in 2008. Frankly, we were surprised the DOJ could get so huffy about antitrust.
Sixth, we are very, very, very, very, very, very sorry the that discovery in the Viacom vs. Google copyright case showed Google knowingly infringed on hundreds of thousands of videos in order to corner the Internet video distribution market. At Google we call taking whatever content we want without permission “fair use” and “sharing,” not infringing or stealing.
Seventh, we are very, very, very, very, very, very, very sorry that in this difficult job market, the DOJ caught us colluding with five other companies, to restrain competition for highly-skilled employees to limit both the compensation and career opportunity of thousands of our employees. We are happy to report in this instance Google was not the only company caught breaking the law.
In conclusion, Google’s unique mission to organize the world’s information is not monopolistic. Our repeated clashes with law enforcement and the plethora of antitrust, criminal, privacy, property and other investigations of our company are just a big misunderstanding because Google’s ever-flowing innovations are so disruptive. Several years ago, Google’s founders chose a Tyrannosaurus-Rex as Google’s corporate mascot, and prominently installed a life size skeleton of a T-Rex at our Mountain View headquarters as a symbol of Google’s disruptive innovation. Every other dinosaur had to run faster and hide better because of the T-Rex’s constant disruptive innovation. Simply, where others see predation, Google sees innovation.
***
Google Antitrust Pinocchio Series:
Part IX: Google Locks-in Its One Click Away Defense
Part VIII: Google’s Deceptive One Click Away Defense
Part VII: Two fatal Flaws in Google’s Antitrust Defense
Part VI: Fact-Checking Google’s Antitrust Defense
Part V: “Google does not reap the benefits of significant network effects”
Part IV: Stress-Testing Google’s Top Ten Antitrust Defenses
Part III: ”Google-AdMob: ‘Its too new to dominate’”
Part II: Google: Antitrust’s Pinocchio?
Part I: What is “One click away?
Netflix’ Uneconomics
September 6, 2011
Netflix’ continues to exhibit serious difficulties grasping basic economics, competition and value.
First, Netflix is lowering its value to customers.
- Netflix now charges its subscribers’ 60% more in September in return for lots less premium content available for subscribers in February, as Netflix just lost Starz, its top premium content provider, which supplies 22 of Netflix’ top 100 movies.
Second, Netflix is shifting its costs to its customers.
- Netflix used its abrupt and controversial 60% price hike to force many of its core users away from the DVD model that many prefer and have the viewing technology for (but costs Netflix more), to the streaming model, (which Netflix prefers because it costs them less) even if it costs many of their DVD customers to spend lots more to upgrade their viewing technology to view the streamed content in the way they can currently view DVDs.
Third, Netflix is chasing away the premium content its subscribers demand.
- Netflix’ abrupt and careless business model pivot from a value DVD business to streaming, signaled loudly to content providers (on which Netflix depends) that Netflix took them for granted in the wake of the demise of Blockbuster’s store business model.
- It appears that Netflix imagined its perceived market power could force premium content suppliers, like Starz, into a accepting a new online business model that would profoundly devalue their premium content franchises long term.
- In effect, Netflix wants its premium content suppliers to acquiesce to its demands that they accept a permanent change from a time-limited usage content model (DVD rental), which enables premium content to extract premium value for its content, to a commoditized unlimitedaccess content model where their content reaps no benefit from being premium and being viewed repeatedly.
- Starz wisely told NetFlix: “No.”
- Starz and other premium content providers understand that Netflix will not be the only online game in town for their premium content, as Amazon, Apple, WalMart, Dish/Blockbuster, Google-YouTube, and others increasingly compete for premium content with premium content-friendly deals that can be more transaction-based and more remunerative for premium content.
- Netflix apparently does not grasp that, as essentially a cloud-based video streamer, they face lots of new entrant competition from deeper-pocketed competitors who are likely to be more willing and able to pay more for premium content to provide content differentiation to their online streaming customers — than Netflix.
- In a nutshell, Netflix has exhibited broad uneconomic hubris, and over time competitive forces will teach Netflix lessons about economics, competition and value.
Finally, Netflix is claiming entitlement to regulatory subsidies from its main suppliers.
As previous pieces in this Netflix series have documented (see links below), Netflix imagines that the FCC’s net neutrality policy, embodied in its December Open Internet order, should entitle Netflix to operate in a competitive environment where its actual or potential competitors cannot charge competitive usage-based pricing, for competitive bandwidth services.
- Netflix continues to forum shop for corporate welfare from regulators when the FCC’s December order supports usage-based pricing and both the FCC and FTCChairmen have publicly endorsed usage-based pricing for bandwidth to ensure the nation’s broadband infrastructure remains economic and sound from an operational and investment perspective.
- As the single largest bandwidth cost-causer in streaming more video than any entity, Netflix needs to become a better steward of Internet usage and invest in much more network management and content caching closer to its customers — as Google-YouTube responsibly did before them when faced with this legitimate bandwidth hogging criticism.
- Netflix’ naive uneconomic approach to its business seeks to have regulators force its suppliers to subsidize Netflix with uneconomic flat rate unlimited bandwidth, at the same time:
- Netflix’ competitors are adapting competitively by managing their networks much more efficiently; and
- Netflix is cost-shifting to its customers and trying to cost shift to its content suppliers.
Conclusion
Netflix, in myopically focusing on subscriber growth, and largely ignoring competitive economics and competitive value creation, has exposed enormous competitive weaknesses long-term.
- In their its-all-about-Netflix world, Netflix has taken most everything for granted: its customers, its value proposition, its suppliers (content & bandwidth), and its potential regulators.
As I pointed out several months ago at the beginning of this research series, Netflix’ nosebleed stock price growth would not last forever.
- Given that Netflix is 28% off it high in July, it should answer this wake up call, and stop behaving like a hubristic hot dot.com “it” stock.
- Netflix should start competing in the real world of focusing on the customer, providing differentiated content, paying competitive prices for competitive inputs, and competing in the free market that is only going to get a lot more competitive with the ramp-up of other cloud-based video-streamers: Apple, Amazon, Walmart, Dish-Blockbuster, Google-YouTube, Microsoft-Skype, etc.
At core, Netflix’ fits of uneconomic behavior are a blinking warning sign that Netflix could have much deeper business problems than the company is letting on.
***
Previous Netflix posts:
- Netflix’ Glass House Temper Tantrum over Bandwidth Usage Fees
- Fact-Checking Netflix’ Net Neutrality WSJ Op-ed;
- Netflix’ Open Internet Entitlement Hubris;
- Sinking Level 3 Seeking FCC Internet Regulation Bailout;
- Level 3-Netflix Expose their Hidden Agenda; and
- Level 3 & Net Neutrality Ignorance Unleashed.
FreePress co-founder and collectivist ideologue, Robert McChesney, wrote his latest Internet manifesto: “The Internet’s Unholy Marriage to Capitalism,” in the Monthly Review – An Independent Socialist Magazine.”
McChesney’s collectivist and elitist manifesto warrants attention because it is widely disseminated to:
- McChesney’s existing extensive FreePress spawn network: Save The Internet and dozens of local media reform organizations who bombard the press and policy makers with their radical views; and
- Also to his new FreePress spawn: The Democracy Fund, founded by FreePress co-founder Josh Silver to raise funds to “curb the undue influence of corporate lobbyists,” and RootStrikers founded by Larry Lessig, co-founder of Save the Internet, in order to organize an activist network “to fight the corrupting power of money in politics.”
- Both of these new FreePress spawn networks are being created as new indirect organizing vehicles to advance FreePress’ collectivist vision for net neutrality, Title II broadband regulation, and media reform.
The dual thrusts of McChesney’s latest laborious diatribe against capitalism and private property are:
- First, the Internet is essentially a zero sum game where “private riches grow at the expense of public wealth,” and
- Second, capitalism invariably leads to monopolization.
Some other major McChesney points:
- “Our critique… will repeatedly demonstrate the weaknesses of allowing the profit motive to dictate the development of the Internet.”
- Concerning the Internet “…it is difficult to avoid noting that what is emerging veers toward the classic definition of fascism as right-wing corporatism: the state and large corporate interests working hand-in-hand to promote corporate interests, and a state preoccupied with militarism, secrecy, and surveillance.”
- “In sum, the Internet, if left prey to capitalism — to having the hunt for profits dictate its development — has veered off in a direction that downplays and undermines, rather than exploits and accentuates, the most revolutionary and democratic aspects of its technology.”
- “… the Internet is being turned into… a new means of alienation. … The moral of the story is clear. … A global network of resistance is both necessary and feasible.“
Mr. McChesney’s screed cherry-picks and copiously documents the little bits of history that support his theory, while largely ignoring most all of economic and Internet history that does not fit with his collectivist revolutionary vision and agenda.
For example, Mr. McChesney waxes nostalgic for the early Internet days:
- “The early Internet was not only non commercial, it was also anti-commercial. … If anyone dared to sell something online, that person would likely be “flamed,” meaning that other outraged Internet users would clog the individual’s email box with contemptuous messages demanding the sales pitch be removed. This internal policing by Internet users was based on the assumption that commercialism and an honest, democratic public sphere did not mix.”
- Ironically and tellingly, Mr. McChesney is silent on the fact that it took commercialismof the Internet for:
- “The masses” to have near universal access to the Internet available to them,
- The broadband Internet to be deployed, and
- All the amazing variety of Internet applications and innovations to reach over two billion people around the world.
- Ironically and tellingly, Mr. McChesney is silent on the fact that it took commercialismof the Internet for:
Another incredible example of Mr. McChesney’s selective amnesia is that after recounting essentially how there can be no market competition only monopolization, he asserts “these firms have no particular incentive to upgrade their networks.”
- Mr. McChesney obviously ignores that the U.S. private sector has invested an estimated half trillion dollars in investment upgrades to their broadband Internet networks over the last decade alone!
Yet another glaring flaw in Mr. McChesney’s tortured and backed-into analysis to reach his factually-unsupportable conclusions about the Internet, is his assertion that: “Communication is more than an ordinary market. Indeed it is properly not a market at all. It is more like air and water — a form of public wealth, a commons.“
- This is a patently ridiculous, as air and water don’t embody ideas, thoughts, solutions, innovation, information, emotions, hopes or dreams to name just the most obvious characteristics of communication.
- Air and water are commodities. Communications are unique and ever-changing.
Finally, Mr. McChesney’s rewriting of Internet history as a non-commercialized commons totally ignores the reality that constitutional democratic processes commercialized the Internet under President Clinton, and a near unanimous Congress of constitutionally elected representatives and Senators put into law in 1996 that: “It is the policy of the United States — to preserve the vibrant and competitive free market Internet that presently exists for the Internet… unfettered by Federal or State regulation.”
In conclusion, the latest screed from FreePress co-founder Mr. Robert W. McChesney is collectivist and eilitist propaganda that is a desperate attempt to rewrite Internet history and recast their radical fringe ideology as reasonable and serious.
- What I found most remarkable about this latest collectivist manifesto was that Mr. McChesney acknowledged and thanked three current and former officials of the current Administration for reviewing and assisting him in this effort: former White House Special Assistant Susan Crawford, current State Department employee Ben Scott, and current FTC employee Tim Wu.
- Their handiwork was evident in that this latest manifesto was largely scrubbed of much of Mr. McChesney’s most outrageous, red meat, and radical fringe rhetoric that he employed in the past.
- Nevertheless, their attempt to publicly sanitize Mr. McChesney’s views were not able to soften or change the main message in his diatribe against capitalism and private property that was captured in his title: “The Internet’s Unholy Marriage to Capitalism.”
- The fact that so many people were asked to review and edit Mr. McChesney’s latest collectivist manifesto is telling.
- Either Mr. McChesney, his followers, or both realize that Mr. McChesney’s radical fringe collectivist views are way out of the mainstream, offputting, and a big liability to their ultimate revolutionary goals to reform media and impose an information commons on the Internet.
- Apparently, they get the fact that FreePress’ ideological grounding, sympathies, and views which are embodied by Mr. McChesney, are essentially an anethema to most all of American society.
Mr. McChesney’s radical fringe views are hardly non-partisan or in the American public’s interest as FreePress constantly claims.
My Forbes Op-ed on Google’s Disregard for the Law
May 13, 2011
My new Forbes’ op-ed: Google Disregards the Law, tells the sordid story behind today’s story of Google apparently agreeing to settle a criminal investigation with the Department of Justice for ~$500m for promoting and accepting advertising from illegal online pharmacies.
- The op-ed sadly chronicles that this latest law-breaking by Google is part of a well-established pattern of disregard for the rule of law.
- If one cannot trust a public Fortune 100 company to obey the law, one cannot trust them overall as I explain in much great detail in my new book “Search & Destroy Why You Can’t Trust Google Inc.“
- See: www.SearchAndDestroyBook.com for the different ways you can buy the book.
I’ve long thought there was a big untold story about Google, essentially a book all about Google, but told from a user’s perspective, rather than the well-worn path of Google books told largely from Google’s own paternal perspective.
(You can buy the book, Search & Destroy Why You Can’t Trust Google Inc. at www.SearchAndDestroyBook.com, Telescope Books, Amazon, Kindle, Kindle Apps, Barnes & Noble, The Nook, and The Nook Apps.)
Given that Google is the most ubiquitous, powerful and disruptive company in the world, it seemed logical to me that users, and people affected by Google, had a lot of important and fundamental questions about Google that no book had ever tried to answer in a straightforward and well-defended manner.
- Questions like:
- Can I trust Google with my information?
- Does Google respect my privacy?
- Does Google respect others’ property?
- Is security a priority for Google?
- Is Google as ethical as it claims to be?
- Is Google dominating what information people access?
- Does Google have a hidden political agenda?
- Where is the Google juggernaut taking us?
- Do we want to go there? and if not,
- What can be done about it?
- Search & Destroy Why You Can’t Trust Google Inc. answers these questions based on the facts.
- I believe anyone who reads the book won’t be able to look at Google Inc. the same way again.
- I also believe the book stands on its own.
- After four years of research, 726 endnotes, and over 150 quotes from Google executives, the evidence and case is overwhelming that most people’s trust in Google Inc. is seriously misplaced.
You can find out more about the book, what people are saying about it, news and interviews about the book, and all the places you can buy it, at www.SearchAndDestroyBook.com.
- My outstanding co-author and publisher is Ira Brodsky of Telescope Books.
Below is a summary of the book from the book jacket to give you a better sense of what the book is all about.
“This is the other side of the Google story—the unauthorized book that Google does not want you to read. In Search & Destroy, Google expert Scott Cleland, shows that the world’s most powerful company is not who it pretends to be.
Google pretends to be a harmless lamb, but chose a full-size model of a Tyrannosaurus Rex as its mascot. Beware the T-Rex in sheep’s clothing.
Google has acquired far more information, both public and private, and has invented more ways to use it, than anyone in history. Information is power, and in Google’s case, it’s the power to influence and control virtually everything the Internet touches. Google’s power is largely unchecked, unaccountable—and grossly underestimated. Google is the Internet’s lone superpower—the new master of the digital information universe. And Google’s power depends almost entirely on the blind trust it has gained through masterful duplicity. Google routinely says one thing and does another.
Cleland proves the world’s #1 brand untrustworthy. He exposes the unethical company hiding behind a “don’t be evil” slogan. He uncovers Google’s hidden political agenda. And he reveals how Google’s famed mission to organize the world’s information is destructive and wrong. Cleland is the first to critically examine where Google is leading us, explain why we don’t want to go there, and propose straightforward solutions.
Google’s unprecedented centralization of power over the world’s information is corrupting both Google and the Internet—a natural result of unchecked power. Google is evolving from an information servant to master—from working for users, to making users work for the Internet behemoth.
Search & Destroy conclusively demonstrates that Google’s goal is to change the world by influencing and controlling information access. Ultimately, Google’s immense unchecked power is destructive precisely because Google is so shockingly-political, unethical and untrustworthy.”
I look forward to your feedback on my new book: Search & Destroy Why you Can’t Trust Google Inc., and would greatly appreciate you sharing this link with your friends and colleagues. Thank you!