Online Service Providers Discover the Real World

I've been meaning to write about this for a while. The coverage of a number of recent legal "happenings" around online service providers has puzzled me and I wanted to weigh in on perhaps an opposite direction. 

In the connectivity space it has long been assumed that regulation was a "problem" for established legacy service providers (more commonly known as telcos) and an "opportunity" for their competitors and for online service providers. I don't necessarily subscribe to this view (I think that regulation protects the legacy service providers at least as much as it hampers them) but that's a topic for another day. 

The point I want to address here is this: as some of the online service providers grow and dominate markets they themselves have created, they are increasingly tempted to take shortcuts and use their weight to boss the market around. Google recently got slapped on the hand for doing just that in France, as described in this short article in English: Google Maps Loses Unfair Competition Lawsuit in France.

I was honestly astounded by the nature of the press coverage, both in France and elsewhere when this ruling was punlished. Essentially, most of the commentary went along those lines: 

  • who is that little shit company that thinks they can compete with Google on maps?
  • Google Maps is a great service, stop pestering them!

So, what have Google done that justifies this court ruling? They have essentially sold a service below cost in a market in which they are in a dominant position. Is that so bad? Yes, it certainly is!

For those of you who were around when the telecom market was liberalized, you probably don't remember what the main strategy was to crush competition for legacy service providers who were forced to accept the end of their monopolies: cross-subsidizing. Legacy service providers would effectively siphon margin from markets where they were dominant and had little to no competition (like the corporate market) to subsidize products in markets in which they had newly entered competition (like the residential market). That allowed them to be very aggressive on price in the high competition markets while skimming the cream off of low competition markets. In other words, forcing the competition into financially unsustainable models on the one side while overcharging on the other. 

This is exactly what Google is accused of doing: they use the revenues from a low competition market (online advertising) in which they are dominant to subsidize a once competitive market where they make little to no revenues (online commercial mapping). Furthermore, they're not just subsidizing the mapping products, they're actually selling them below cost (free or very close to free). And that's a no-no in most countries in the world. Selling below cost is the alpha of anti-competitive behaviour. 

And that perhaps is where the confusion arises: we have gotten used to free being the norm in the online world, and we know that many services operate structurally below cost (ie. they haven't found a monetization model yet). The big difference here is the dominant position. It's understandable, and the law is probably lenient on that point, that new businesses would operate below costs, but doing so when you're in a dominant position to kill competitive businesses is not acceptable. 

So the fact that the company that won the lawsuit is a small business with probably little future in this domain, and the fact that the Google Maps service is great are irrelevant. Google clearly abused its dominant position, and that's against the law. And it's a good thing. This is what offers us the guarantee that the next Google will have space enough to emerge before an extablished competitor can kill it in the nest. Welcome to the real world. 

The irony (to me) is that in the policy discourse of some of the big online service providers I increasingly here the anti-regulatory stances that I have heard in the mouths of incumbent service providers for over a decade. What is Google's response to the lawsuit?

We will appeal this decision. We remain convinced that a free high-quality mapping tool is beneficial for both Internet users and websites. There remains competition in this sector for us, both in France and internationally,”

In other words: of course we love competition, we wouldn't dream of wanting to kill it. Where have I heard that before?