See my Forbes postGoogle 21st Century Robber Baron” which briefly tells the story of Google’s Robber Baron rap sheet, in advance of Google’s Wednesday Senate antitrust hearing.

The post is documented with 79 links to the supporting evidence.

The post also explains why Google’s Board of Directors have been AWOL while all this scofflaw behavior has been going on.

 

 

To help you picture both the enormity and unprecedented power of what Google knows about you and the world’s information: public, private and proprietary, I have organized all the world’s information types that Google collects onto a one-page chart/PDF: “Google’s ‘Total Information Awareness’ Power.”

For those who really want to understand Google and its impact on most everyone and most everything, please read and study this one-page chart/PDF, because much valuable work and insight has gone into it.

  • While the chart is visually packed with information that many may find difficult to unpack or digest, the chart itself is an apt metaphor for both how much information Google has, and also how difficult it is for all of us to get our head around all the information Google routinely collects and uses.

A short refresher on where the term “Total Information Awareness” came from and why it is aptly employed here.

  • After 9-11, Admiral John Poindexter, former U.S. National Security Advisor to President Ronald Reagan, proposed to the U.S. Governement that the U.S. intelligence apparatus apply all available surveillance and information technology assets to tracking terrorists. After a public outcry that the Total Information Awareness effort could become a de facto mass surveillance system of the American public that could invade Americans’ privacy without due process, Congress officially defunded the program in 2003.
  • Meanwhile, it is ironic and frightening that Google, a private corporation, has in ten short years, effectively already created the Total Information Awareness capability — worldwide — that some in the U.S. Government sought to create in 2001.
  • It is important to remember that all the information Google has collected and analyzed is potentially available to the U.S. Government via Patriot Act and other powers.
  • It is also important to remember that after Google complained that the Chinese broke into Google’s secure password systems, Google sought out a cyber-security partnership with the National Security Agency, that was reported on the front page of the Washington Post.

The chart is unique and highly instructive in how it shows how Google’s uniquely-pervasive invasion of privacy has given it widespread “permission-less profiling” power, and how Google’s uniquely ubiquitous and comprehensive information collection efforts afford Google “information market power.”

  • Thus Google’s “Total Information Awareness” power comes from the extraordinarily powerful synergy between permission-less profiling and information market power.

In sum, at present there are minimal checks and balances, oversight, or accountability for Google’s unprecedented and unmatched permission-less profiling power and information market power.

  • If this chart does not trouble you, at least some, you are forgetting the old adage and repetitive lessons of history — that unconstrained power corrupts, and absolute power corrupts absolutely.

 

The abrupt change, that Google’s CEO Eric Schmidt will no longer be accountable to shareholders on Google’s earnings calls, should prompt investors to ask why?

  • Google claimed that they wanted to put more focus on Google’s strong financials, but they did not disclose any more than Google’s usual barest of minimum of information to investors.
  • The most obvious reason for this abrupt change is the literal explosion of real franchise liabilities and risk overhangs to Google that reared their ugly heads this past quarter.
    • Had CEO Schmidt been available to answer investor questions, Google’s exploding liabilities could have dominated the Q&A and the investment narrative coming out of the earnings call.

What has changed, and what Google has been not been open about, is the very serious ripening of three different types of going-forward franchise risks (antitrust, privacy/security, and intellectual property) that cumulatively herald a de facto change in Google eras: from the roaring “Growth Decade” of 2000-2009, to the more unpredictable “Liability Decade” of 2010- 2019.

  • Long-postponed simmering problems are now beginning to boil over and threaten to potentially burn Google shareholders periodically going forward. The result for:
    • Opportunistic Google investors is recurring and intensifying headline risk overhang; and
    • Longer-term Google investors is the increasing need to discount for the growing and uncertain franchise liabililities/risks emerging from multiple directions.

What franchise liabilities now overhang Google?

I. Antitrust

The speed, breadth and depth of Google’s growing antitrust liability is unprecedented. And where there is this much smoke there’s fire.

  • FTC: The FTC is preparing to litigate to block Google’s acquisition of AdMob arguing that Google, the #2 mobile app advertiser with 25% share is attempting to monopolize over 70% of the relevant market by buying #1 Admob, which has 50% share.
    • If Google chooses to fight the U.S. Government in court it would put Google’s antitrust liabilities on the front page and also cause the FTC, DOJ and the EU to circle Government wagons for a broader antitrust war with Google.
    • If Google walks away, it suggests to investors that Google has acquiesced to the notion that Google has hit an antitrust wall and that Google may no longer rely on acquisitions as a source for: preemptive competitive defense against first-movers, growth or innovation.
    • The FTC appears to be making good on its promise in approving Google-DoubleClick 4-1:
      • We want to be clear, however, that we will closely watch these markets and, should Google engage in unlawful tying or other anticompetitive conduct, the Commission intends to act quickly.”
    • On a separate but related antitrust matter, the FTC has forced Google CEO Eric Schmidt to resign from Apple’s board and Google Director John Doerr to resign from Amazon’s board.
  • DOJ: According to Sandy Litvack, the DOJ’s special counsel on the Google-Yahoo ad agreement, the DOJ was literally hours away from filing a Sherman Section 1 & 2 monopolization case against Google if it did not stop attempting to collude with Yahoo to corner the search advertising and search advertising syndication markets.
    • The DOJ has now twice opposed (here and here) Google’s proposed book settlement as a violation of three different areas of law: antitrust, copyright, and class action. The most likely outcomes are Google agrees to a court decree with permanent DOJ supervsion of the settlement’s market mechanism in order to gain court approval, or the settlement is disapproved and DOJ eventually sues in a broader Google monopolization case.
    • Evidence of the building clamor in D.C. for a DOJ Section 1 & 2 monopolization case against Google is a Consumer Watchdog Google antitrust panel hosted by John Simpson at the National Press Club (at 10:00 EST 4-21-10.) The panel features:
      • Gary Reback of the Open Book Alliance and Microsoft antitrust fame;
      • Simon Buckingham, a mobile advertising entrepreneur who believes Google-AdMob is anti-competitive; and
      • Joseph Bial, the Cadwalader, Wickersham and Taft counsel representing TradeComet and MyTriggers in two different private antitrust lawsuits against Google.
  • EU: What may be the most dangerous antitrust threat to Google may come from the recently announced EU preliminary inquiry into Google. It is likely to bloom into a broader formal investigation of Google because the EU has a much lower legal and policy threshold to bring an antitrust action than the U.S, and because the EU has never been shy about using its power to bring a dominant American firm to heel.
    • Three companies, the UK’s Foundem, France’s Ejustice.FR, and Germany’s Ciao, have all alleged that Google punishes niche search competitors, by discriminating against them in Google’s search results and anti-competitively favoring Google-owned content with top search rankings.
    • Foundem’s filing to the FCC is the best source of evidence of Google’s anti-competitive behavior and it is compelling.

II. Privacy/Security

Now that it is public that Google’s vociferous indignance over China’s censorship of its search results was clever PR misdirection from the real story, that Google’s main password system was hacked and breached, Google now has an incalculable liability to all its users and business, government, and foreign government customers whose personal information and secrets have been made available to who knows who — and those users who have had no ability to protect themselves for the last few months since Google became aware of the breach.

As John Markoff of the New York Times reported:

  • “…the losses included one of Google’s crown jewels, a password system that controls access by millions of users worldwide to almost all of the company’s Web services, including e-mail and business applications.”

Google could be liable for the largest identity theft in history, and/or one of the largest corporate breaches ever. And Google does not believe it material for the CEO to disclose to shareholders in the quarterly call that covers it? This is precisely the type of new material adverse information that SEC rules mandate that shareholders be informed of so they can protect themselves. This extended lack of disclosure to people and businesses at risk is also an invitation for class action lawsuits by shareholders and users.

  • Google has particularly large liability here to its users because, as I have written extensively in my “security is Google’s Achilles heelresearch series, security has not been, and is still not a high public corporate and engineering priority for Google. Moreover, Google’s “publicacy” business model means that Google has collected much more private information on users than most any of them appreciate. (See my House testimony on Google privacy weaknesses.)
    • Simply, Google has huge potential liability now because of Google’s longstanding low priority for security and Google’s anti-privacy “publicacy” business model characterized by CEO Schmidt’s cavalier statement on CNBC: “If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place.”

Google’s CEO also ducked disclosing the new massive liability and threat to Google’s international business, which represents 53% of Google’s revenues. The Washington Post lead story that Google was working with the National Security Agency (NSA) on the China cyaber-security issue will make foreign governments and foreigners much less comfortable using Google’s products and services going forward.

  • The liability for Google’s pervasive invasion of privacy norms around the world coupled with the news that Google is working with America’s top spy agency, means that nations around the world will be cracking down on Google more, or blocking their products, services and monetization more.
  • This backlash is not hypothetical:
    • Google blogged today that: “Google products — from search and Blogger to YouTube and Google Docs — have been blocked in 25 of the 100 countries where we offer our services.”
    • Today a broad group of the data protection heads from many major countries have written an open letter to Google and other online companies asking that Google better safeguard private information. The countries included, Canada, France, Israel, Netherlands, Spain, Germany, Italy, Ireland, New Zealand, and the UK.
  • Google’s privacy-security liabilty is real, material and growing/spreading fast. It is material and should be discussed in an open investor forum so shareholders can hear from Google the extent of Google’s liabilities. It will be interesting to what extent Google discloses these new exploding liabilities and risks to the SEC in their quarterly filings. (It should be of no surprise that the forensic accounting firm Audit Integrity characterizes Google’s accounting and governance as “very aggressive” and ranked in the top 3% for most risk.)

All these new privacy-security risks/liabilities are on top of:

  • The disastrous launch and consumer privacy breach of Google Buzz that:
  • The FTC’s potential mandate of new consumer privacy safeguards for behavioral advertising that could hem in Google’s very aggressive tracking of most all Internet users web behavior. (See Google’s reply to the FTC urging they go slow.)
  • The increasing potential for bipartisan comprehensive privacy legislation in the House that for the first time would give consumers more control over what private information Google could collect on them without their meaningful consent.

III. Intellectual Property

Viacom: Now that key documents have been made public in the Viacom vs. Google-YouTube copyright infringement trial, it is clear that Google has employed a deliberate business model/strategy to infringe copyrights to dominate traffic share.

  • Anyone that reads the key Google documents in the case will come away with the concern that Google has deep legal, monetary and brand liabilities for serially infringing copyright to grow its business to dominance. Read the quote summary first here, then review the copious evidence/history in the 86 page Viacom Statement of Facts here, then review Viacom’s Summary Judgement memo of law here, and finally see the several new Google documents here.
  • Google’s copyright infringement liablities will not end with Viacom. If Viacom prevails, which is likely, it will embolden all the other IP owners to redouble their efforts to gain restitution and a changed business model from Google. Those include, but are not limited to, news wires, newspapers, publishers, authors, songrwriters, studios, programmers, photographers, etc. (See Googleopoly IV at www.googleopoly.net)

Apple’s Trade Secrets Suit against HTC (Google):

Apple’s patent infringement suit against Google Nexus One manufacturer HTC, puts Google CEO Eric Schmidt, a former long time Apple Director, in potentially very hot water with Government officials. The suit looks like a very clever “carom shot” at Google CEO Schmidt as it allows Apple to legitimately discover CEO Schmidt’s emails involving any communication that Schmidt had with his mobile team concerning the development of Google’s Android operating system and Nexus One handset, especially after Schmidt returned from Apple board meetings. It is apparent that Apple believes that Google stole its intellectual property and trade secrets involving the iPhone and iPad, especially the multi-finger screen pinch control patent.

  • This is a serious liability for Google’s CEO. Mr. Schmidt had a fiduciary duty to Apple shareholders not to harm them by lifting trade secrets for Google’s and Mr. Schmidt’s financial benefit.
  • It also creates a strategic pincer situation/problem concerning Mr. Schmidt’s email practices. The Viacom case unearthed that Mr. Schmidt has a Quatrone-esque, “clean-up-those-emails” personal practice of deleting all his personal emails. This is particularly ironic and ineffective with a company that copies and stores most everything and deletes hardly nothing that it collects on people.
  • It is also a big red flag for any investigator, because it strongly suggests that one knows they have something to hide, encouraging the investigators to examine everyone else’s emails that communicated with Mr. Schmidt at those times. At a minimum, Mr. Schmidt’s email deletion practices preventing any discovery creates a serious perception problem for Google as it goes before multiple court and policy fora.

In sum, the litany of exploding major liabilities to Google’s business model, growth and value — from the slew of real and worsening antitrust, privacy-security, and intellectual property problems — are not going away.

  • These liabilities will increasingly overhang Google’s stock and brand, especially if Google continues to “turtle” and avoid public accountability to Google shareholders.
  • Uncertainty and distrust are bad company attributes to allow to fester and grow.
  • This past quarter certainly has been a fast start to “Google’s Liability Decade.”

***

For more information on these issues, see PrecursorBlog’s sister sites: www.GoogleMonitor.com and www.Googleopoly.net.

 

 

 January 27, 2010

For Immediate Release

 

Contact: Scott Cleland

703-217-2407

Media@GoogleMonitor.com

GoogleMonitor.com Launches Today

Will spotlight Google’s lack of transparency and accountability

WASHINGTONA new web site designed to make Google more transparent and accountable launched today. GoogleMonitor.com is a crowd-sourcing site which will keep watch on the Web’s top watcher of everyone.

“Google is the most powerful company in the world, dominates the Web’s business model for information discovery and monetization, and watches most everything that happens on the Web,” Scott Cleland of Precursor LLC and GoogleMonitor.com’s publisher said. “Given all that un-checked power, Google has a dangerous dearth of transparency and accountability.”

GoogleMonitor.com is designed to be a watchdog site focused on Google, covering subjects including: competition/antitrust, privacy, security, intellectual property, transparency, neutrality, accountability, ethics, public policy and humor. Because Google’s dominance is global, the site will feature information from countries around the world.

“GoogleMonitor.com will organize the world’s information on Google and make it universally accessible and useful to those concerned about Google’s unaccountable power over the Internet,” continued Cleland. “Google has a one-way transparency policy, demanding free and open access to everyone else’s digital content and private information, while denying access to even the most basic information about its “black-box” algorithms and auctions. This powerfully reinforces Google’s rapidly expanding monopoly.”

GoogleMonitor.com features a “Got info?” button where people can contribute information to the site publicly. And if someone is afraid of retribution by Google, they can submit information confidentially.

“Google masks its unaccountability with its ‘innovation without permission’ credo, cleverly turning its vice of not asking for permission to use others’ content, property or private information, into a PR virtue,” concluded Cleland.

For more information visit www.GoogleMonitor.com

Google® is a registered trademark of Google Inc. GoogleMonitor.com is a wholly-owned subsidiary of

Precursor LLC (www.precursor.com), and is independent of, and not affiliated with Google in any way.

###

 

Google generated probably the strongest annual revenue growth, 17%, of any large U.S. company this past quarter.

  • Given that Google is exceptionally non-transparent, the minimal guidance and insight that Google is required to provide as a public company always provides a rare glimpse into what is really going on at Google.

What are the big takeaways from the earnings call?

First, Googleopoly continues to gobble revenue market share at a voracious rate because we know Google’s revenues are up 17%, and Google’s only significant competitors, Yahoo and Microsoft are continuing to lose ground, (as Yahoo is expected to report a revenue decrease on Tuesday so its search revenues can be assumed to badly lag Google’s 17%, and Microsoft Bing’s modest search share gains are not keeping up with Google’s torrid search growth in a weak economy.)

Second, Googleopoly continues to show strong evidence of its dominant market power in pricing as its revenue growth of 17% is outpacing its paid click growth of 13% — by roughly 30%. There is no stronger evidence of monopoly power than pricing power and Google clearly has pricing power aplenty.

  • Google is very good about keeping its pricing power hidden from public view by letting no relevant market information escape Google’s “Black Box” auction process.

Third, Google’s CEO Eric Schmidt reaffirmed that Google is on an acquisition spree with some “big” buys coming — and with almost $25B in cash and roughly $10B in annual free cash flow — Google can afford to buy most whatever it wants.

  • The big point that most everyone is missing here is that, as a DOJ detemined monopoly, Google’s grand acquisition ambition strategy inevitably puts Google on a collision course with the DOJ and the FTC.
  • Remember the FTC is investigating the Google-AdMob acquisition and I believe it is likely to block it. See Googleopoly V for the detailed case.

Fourth, Google is boasting that display will be the “next huge business” for Google. This is significant as this is the core strength of Google’s main search advertising competitor, Yahoo, which is expected to have down revenues this quarter. Why? Because Google is leveraging its search advertising monopoly to gobble display share from Yahoo as well.

  • What this reminds us of, is that the FTC blew its investigation of the Google-DoubleClick acquisition in approving it 4-1. The detailed case I made in my Senate Antitrust Subcommittee testimony at the time was that allowing Google to buy DoubleClick would tip Google to monopoly because it would give Google the hundreds of top global advertisers that Google did not have and allow Google to reach the 25% of the Internet audience that they did not yet reach.
  • Less than a year after the FTC saw no potential competition problems with the DoubleClick acquisition, the DOJ had to intervene and block Google’s attempt to cartelize the search advertising business in its ad agreement with… the display ad leader Yahoo. The FTC clearly failed to “connect the dots” between search and display in its Google-DoubleClick review.
  • Hopefully, the FTC will learn from its DoubleClick misjudgement and its initial lack of appreciation for Google’s growing monopoly power, and will seriously investigate and block Google’s proposed AdMob acquisition and Google’s attempt to buy dominance in mobile advertising.
  • All this also suggests that the DOJ is very likely to approve the proposed Microsoft-Yahoo search agreement in order to try and muster a competitive alternative to Googleopoly.

Lastly, the Google call sent mixed signals on Google’s plans in China. A couple of weeks ago Google told the world and the human rights community that Google “had decided” it was not going to censor search results anymore. Now on an earnings call with investors, a very different audience with very different priorities, Google CEO Eric Schmidt appeared to back pedal on whether Google would follow through on its world-announced vow to no longer censor search results for China.

  • The “open” question is whether Google is potentially flip-flopping on its China policy, or whether Google is just telling a different audience what they want to hear.

 

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