Google Says Pending Search Dominance in Japan Has Not Riled Regulators. But Maybe It Should.
Please see this disclosure related to me and Google.
If at first you don’t succeed, at least according to Google…try Japan.
In what amounts to an even more aggressive move than it made in trying–and failing due to regulatory objection–to strike a search partnership deal with Yahoo in the U.S. in 2008, Google and Yahoo Japan announced yesterday that the search giant will take over both the algorithmic and paid search businesses from, well, Yahoo.
If that sound confusing, it is because the Silicon Valley-based Yahoo owns only 35 percent of Yahoo Japan, which is an independent and separately traded company.
In fact, early Yahoo investor and Japanese telecommunications giant SoftBank Corp. has a larger stake and essentially controls Yahoo Japan.
Which is now free to leave Yahoo (YHOO) and to do a deal with Google (GOOG), it seems, after Yahoo struck a wide-ranging search technology and online deal of its own with Microsoft (MSFT) last year.
Under the terms of the deal, Yahoo outsourced its search technology to Microsoft’s Bing service.
Both Yahoo and Microsoft had hoped to keep Yahoo Japan in the fold, using Bing too, but it’s clear Google decided to get very competitive in a market where it has been the No. 2 player since it debuted its Japanese-language service in 2000.
Interestingly, Google was Yahoo Japan’s search technology provider for several years soon after it arrived, but that job then went to Yahoo.
In order to compete better with Yahoo Japan, which has a 53 percent market share compared to Google’s 38 percent, Google has tried a range of efforts unusual to its standard modus operandi
Those include PR stunts, brand advertising and even mucking up its pristine white main page with text and other noisy visual elements.
Because of that, Google has made market inroads, to be sure, cutting Yahoo Japan’s share slowly.
It’s an accomplishment that might have prompted Yahoo Japan to make a lucrative deal with the search giant, while the getting was good and before it lost more share.
As for Google, it stopped playing around and went for the actual business itself by effectively hip-checking Yahoo out of its spot.
And, at least in Japan, Google said regulators have already decided that its ambitious reach was not too much, even given the overwhelming share that will result with the Google-Yahoo Japan union.
Said a Google spokesman: “The companies have consulted with the Japan Fair Trade Commission, and confirmed that the JFTC has no objection to the proposed transaction.”
Incredible. And not in a good way.
That’s because a monopoly is a monopoly is a monopoly, no matter which language you say it in.
Even with apparent Japanese government approval, Microsoft is sure to try to scotch the deal, making hay with the fact that practically all the paid and algorithmic search in Japan would be under the control of one entity, especially so if it also includes mobile elements.
A lot is at stake for Microsoft, which is now in much bigger trouble in its quest to increase global market share for Bing.
That’s because Japan has close to 100 million active and wired consumers, many of whom are on the cutting edge of digital innovation. Japan is also a huge advertising market, second only to the U.S.
Given how important global growth is, it’s a market too juicy for growth-craving Google to pass up.
It is striking then that regulators will let the company enmesh its search service as deeply as it will with the Yahoo Japan move.
As with its scotched deal with Yahoo here–which Google abandoned after it was clear the U.S. government was not going to tolerate such market power in the hands of one player. At the time, Google said there would be plenty of competition, which it is now saying again.
In an email to me, Google PR dude Adam Kovacevich made the following salient points that I render here in their entirety:
It’s actually a different situation from the 2008 deal. To wit:
* Google will only be licensing its advertising platform services to YJC, and will not be providing its ads to appear on YJC. YJC will continue to manage their own advertising system and advertiser relationships, and both companies’ advertisers and advertising data will remain entirely separate.
* YJC will continue to compete as an independent online search and advertising company, and will be able to customize Google’s search service for their users–including how they see and experience search on YJC. Users should continue to expect to have very different experiences on YJC–whose portal approach to search is very popular in Japan–versus when they are on Google.
* This kind of arrangement is commonplace in the business world, and it doesn’t foreclose robust competition. Toyota sells its hybrid technology to Ford, even though they compete against one another in selling cars. Canon provides laser printer engines for HP, despite also competing in the broader laser printer market. And this is not the first time we’ve licensed our search technology to another portal site.
* The companies have consulted with the Japan Fair Trade Commission, and confirmed that the JFTC has no objection to the proposed transaction. We believe this is the correct outcome for a number of reasons, including the fact that the license will be non-exclusive, and both parties will be free to explore better products and services and work with third parties as they see fit. Competition between Google and YJC, as well as others in the online advertising market, will remain vigorous because their advertising operations will stay independent of one another, and there is competition with other online advertising service providers. In addition, from an advertiser perspective, online advertising is just one of many options available to them—including placing advertisements in traditional media.
Yes, the thriving newspaper business is a option! Wait a minute…
In any case, you might imagine the Japanese government would be a little more concerned.
It should be.
Regarding the Yahoogle attempt, as I also noted then:
“It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.”
But Japanese regulators don’t have to take my word for it–they can listen to a 2008 quote by SoftBank head Masayoshi Son, who plays a critical role on the board of Yahoo Japan and presumably blessed this new deal:
“Google is a worthy competitor. The common threat is Google. I say that with respect.”
And, with respect, perhaps Japanese regulators need to take a little bit more time in waving any such deal on through so quickly and without public comment.