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Google Set to Survive in Oz, but Far Bigger Threats Are on the Way

The signs are that the Australian Government and Google are close to a compromise. The Government’s main demands stay in place, but some of the details will be changed. This allows the Government to claim victory, while the damage to Google will be limited. See also my earlier blog on this topic: Google vs. Australia—the war is on.

Publishers will, in one way, or another be paid for news, either through a payment based on the value of the news and the value of the Google search facility. An arbiter in the middle will come up with fair arrangements.

The other option will be for publishers to use Google’s News Showcase based on a partnership between Google and publishers and get paid that way. Several Australian publishers have already signed up for this service.

It was interesting to see the tactics that used in this power play. Microsoft became involved at its highest levels, indicating to be more than willing and able to offer an alternative with its Bing search engine. If it had come to that, this obviously would be one of the few alternatives for Australia.

But let us be honest, it is not for nothing that Bing only has a 4 percent market share, while Google has a 90 percent market share. Whatever way you look at it, Google is by far the more superior product. It would not have been a good outcome if Google would no longer be available to Australian users.

Furthermore, it would be extremely destructive for tens of thousands of Australian businesses who, to a large extent, depend on Google for advertising.

While all of this is positive, at the same time, it is not taking away the broader issues of monopolies such as Facebook and Google. It has already become clear that it will not be enough to just regulate the existing giants. We need to look at the underlying elements, being their platforms.

The competition regulator in Australia, the ACCC, has already flagged the dominance of Google in the advertising market, and now we are getting more to the core of the problem. While most will look at Google as a search engine company, it is equally an advertising company. This is where it makes its money.

As we have seen in recent years, the advertising principle—that is, maximizing clicks—are often in conflict with social values. The algorithms favor fake news, conspiracy theories and criminal intent as this increases exposure for their advertising.

These algorithms also create echo chambers often used only to emphasize the fake news and conspiracies while gathering more market exposure for Google and its advertisers.

Using search, maps, YouTube and so on, they gather massive amounts of personal data from its users to make their advertising product more effective.

The current business models of the digital companies are not only undermining competition but also eroding privacy and many of the core issues of our democratic institutions.

The digital giants are predominantly American businesses. They are totally driven by profit and thus have been able to abuse their market position in relation to privacy and competition matters. By doing so, they now have market capitalizations that are totally out of any economic proportion. This might be a fleeting achievement, but in the long-term, it is unsustainable.

The power they have gained allows them now also to dictate the supply line, allowing them to extract “rent” from their suppliers, as they have little choice than to adhere to the terms and conditions of these platforms.

Amazon, Uber and Airbnb are all under investigation somewhere in the world for such practices.

Obviously, these platforms are immensely useful for our societies and economies, so we do not want to get rid of them. The importance of these platforms has become very clear during the pandemic, as they have become essential national and international infrastructure.

As the Europeans argue, the platforms eventually will have to become neutral on which a range of business models can be built independently and in competition with one another. These neutral platforms can be used by the digital giants, other businesses, as well as by governments, communities and so on.

Unraveling these complex issues and building new principles around platforms could easily take a decade or more, so we better get on with that job. We might need to look at a structural separation between the platforms and the services provided on top of them.

Social media companies are very much aware of the political pressure that is building up around the world. This is a real threat to their business models. They are working on internal systems to address these issues. However, it is unlikely that they are prepared to go deep enough to keep the regulators away.

Both in the U.S. and in Europe, serious plans are underway to curb the power of these companies. The new U.S. Government is proposing changes to section 230 of the Communications Decency Act 1996.

It classifies internet companies as telecoms companies, therefore making them exempt from content laws. The proposal is now to make changes to section 230 and render digital platforms responsible for harmful and criminal content.

Beyond that, to address the platform issues in America, this will require an overhaul of their anti-trust scheme as the current regulatory system is unfit for the current digital environment.

The OECD is another organization focusing on these companies in relation valuation of digital innovations and taxation.

While Google in Australia might be off the hook, for now, there are many more international actions planned to address these issues.

As the Australian case shows, these digital giants are now big enough to challenge and even threaten sovereign governments. The longer we wait with reigning in these powers, the more governments can be intimidated by these companies, and the more difficult it will become for governments to come up with decisive action.

On the other side, all these actions by governments and regulators should be a warning sign for those digital moguls. They are accountable to their shareholders. Those shareholders could lose significant amounts of money if these companies are put under stringent regulations.

Perhaps a better outcome for them would be to accept the social and economic responsibilities of their businesses and support them to change their business model to better reflect their role in our society and our economy.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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