Media and antitrust scrutiny of Google’s public representations — that its search rankings are unbiased and objective — will increase greatly for two reasons:

  • First, Google’s search dominance does make Google the Internet’s content “kingmaker” and it does empower Google to de facto pick winners and losers on the Internet just by subjectively adjusting its ranking algorithm; and
  • Second, the more people look into Google’s search ranking algorithm, the more obvious it becomes that it is highly subjective, and not objective and unbiased as Google represents.

As the glare of public and investigative scrutiny focuses on Google’s “black box” search ranking algorithm, its mystery and mystique fade away, because people come to understand that a search algorithm is just mass automation of the application of subjective variables/biases, subjective judgements of “quality” content and “quality links,” subjective judgements of intent, and subjective human ratings of websites and content.

  • Simply, automation of subjectivity does not produce objectivity.
  • When a monopoly search engine automates its subjective bias, the system reflects the subjective discriminatory bias of its programmers.
  • Google’s self-assertion and self-characterization that its search processes are completely objective, only affect the perception of their objectivity not the reality of the inherent bias in their search algorithm.

Google is unabashed that it was subjectively demoting “low quality” content in its latest changes to its search algorithm that affected 12% of all searches.

  • As the eBay phenomenon conclusively proves, one person’s low quality junk is another person’s high quality treasure.
  • Quality is inherently subjective because users value things differently.
    • A big problem with Google’s subjective algorithmic changes here is that they uniformly demote the rankings of low quality content regardless of whether a specific searcher values that type of content or not.

Pejorative Subjectivity: Google pejoratively characterizes content it wants to demote in rankings as “spam,” “low quality,” or “cheaters,” and that assessment depends largely on Google’s subjective judgement. It also has the the effect of discouraging an objective assessment of the content in question.

  • In a competitive market concerns of subjectivity would not be a problem because content providers could just take their content elsewhere, but that self-healing capacity of competition and choice does not work in search because of Googleopoly.

Why questions of Google’s objectivity will continue is because Google as so much motive and opportunity to subjectively rank information to benefit Google or Google’s world view.

We’ve learned from the Google-Overstock episode that .edu links are given super rank status over commercial links. Agree with it or not, Google has subjectively decided that not-for-profit links to information should always have more “authority” and weight than for-profit brand links. (This bias for free content over paid content also massively favors Google’s free content advertising model and disfavors Google competitors’ paid subscription business models.)

  • The largest subjective bias in Google’s search engine is that it is based primarily on the prevalence of web-links, not on objective external assessments of authority like audited subscriber audience size numbers or objective surveys of brand recognition.
    • A search engine based on links has a deep embedded subjective bias for academic content, and for tech-sector/blog generated content because that community naturally links relatively much more than other communities on the web, especially more than paid content communities who don’t depend heavily on links to increase ad revenue.

Subjective Self-Dealing: We’ve learned from the various antitrust suits and outstanding detailed quantitative research by Ben Edelman, Gary Reback, and Foundem that Google:

  • Subjectively ranks themselves above everyone else with a manual hardcoding to ensure selected Google products and services always rank first on Google’s search; and
  • Subjectively blacklists potential competitors to Google search.

Subjectivity of Human Raters: What we don’t know is what the subjective rating guidance is that Google’s army of “human raters are given by Google’s leadership to subjectively determine what “quality” is.

  • Without any transparent objective framework or standard that we know of, quality is in the eye of the beholder — the Google human rater could have their own biases and subjective views about what content people should see first and most, and what content Google wants sent to the “back of the arena.”

Adding to Google’s problem of impairing or degrading certain content’s access to Google’s monopoly world-wide Internet audience is that Google is well-known as the corporate champion of net neutrality — i.e. that broadband providers would economically-discriminate against particular content unless preemptively regulated by the FCC to prevent it.

The Googleopoly itself argued that competitive broadband providers should not be able to discriminate against content, or prioritize content based on their own ownership or financial interest in the content. Google argued that only users should be able to prioritize content.

  • At a minimum, shouldn’t Google have to openly disclose that they have a financial interest in Google-affiliated content that ranks first or high in Google’s rankings?
  • Without disclosure, oversight or third-party accountability, how is the user to know whether or not Google is ranking certain information based on how much money Google makes from the information or not?
  • If this neutrality was such a serious principled concern for Google in the competitive broadband provider context, why can’t Google see the analogous problem with its own monopoly search engine?

Let me be clear, as I have long said, my problem with Google is not that in discriminates against content in its ranking process, my problem is that it has consistently and blatantly misrepresented to the public that their search results were objective and unbiased when they knew they were not objective or unbiased — all to build up trust of an unsuspecting public.

In sum, we are witnessing the Google analog of the famous scene in the Wizard of Oz when Dorothy pulled back the big green curtain and exposed that the all-powerful Wizard of Oz was just using sound and visual PR effects to appear to be an all-powerful wizard — when he really was just like everyone else.

  • The point here is Google is not this perfectly moral, no-self-interest, super-human innovative search wizard, Google has all the normal biases, self-interests, and flaws that every other person or company can have.

Once again, Google’s real serious problem is that they have publicly represented themselves for years as completely free of bias or self interest in order to get everyone to trust them, when the overwhelming evidence is piling up that Google indeed has powerful biases and self-interest to favor Google-owned/favored content, and to disfavor competitive content or content Google does not agree with.

 

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Privacy Will Burst Bubble 2.0

February 25, 2011

Expect privacy concerns to be the eventual catalyst that ultimately bursts the Internet investment Bubble 2.0. It is rare when there is a profound disconnect and suspension of reality between industry behavior/investment expectations and customer wants, needs and expectations, but that is precisely what is at work in Bubble 2.0.

  • Almost by definition, investment bubbles are unsustainable; what goes up must come down, it is only a matter of how and when — not if.
  • Simply what fuels Bubble 2.0 is the patently false core assumption that the current unfettered, widespread, and largely clandestine data mining of individuals private information in order to target specific individuals with personalized online advertising:
    • Is aligned with real user interests;
    • Is a forthright business practice consumers are aware of and have meaningfully consented to;
    • Will not be legally constrained in the future; and
    • Will become the accepted norm — meaning that the populace and governments will adapt to the wishes and desires of the online-ad- industry and not the other way around.
  • In a word, is online tracking, profiling and data mining a consumer-driven model? — or a consumer-dragged model?

This is deja vu for me. I’ve seen this movie before when I had a front row seat as the original dotcom Bubble 1.0 wiped away $4 trillion in market valuation in a few weeks.

  • In 2001 in my previous career, I was the first investment analyst to warn investors that Internet traffic was in fact growing sixteen times slower than the market assumed, protecting investors by debunking the bogus dotcom hyper-growth story months before the dotcom bubble burst in 2002.
  • Back then everybody assumed there were no real limits or constraints on the growth potential for Internet advertising dotcoms — sound familiar?

Let’s drill down on the key assumptions of my thesis to test if it is valid.

1. Is there a Bubble 2.0?

There is wide recognition we are experiencing Internet investment Bubble 2.0 given that:

  • Private markets are valuing private Internet startups at post-successful-IPO-like valuations like Groupon at $6-10b, Twitter around $10B, and Facebook at $50b; and
  • Venture money is flooding the space per the WSJ’s outstanding Scott Thurm piece: “Online Trackers Rake in Funding,” which spotlights that “since 2007, venture firms have invested $4.7 billion in 356 online-ad firms.”

2. Is the bubble predicated on data mining?

Per Jafco Ventures’ Nick Sturiale who described the online-ad game: “They’re trying to find better slices of data on individuals… Advertisers want to buy individuals. They don’t want to buy [web] pages.” [bold added]

  • The holy grail here that has everybody so excited in the online-ad industry is that they understand that the more private details they can secretly learn about an individual user, they have a vastly higher chance of influencing them to do what they want them to do.
  • That’s why “advertisers want to buy individuals,” they want to own and control that individual from a marketing standpoint.

3. Do consumers want, need, or expect privacy?

They certainly do! All the recent national polling (see here, here, here, & here) show very consistent results that are in stark contrast to the online-ad industry’s representations, model and practices, i.e.

  • Consumers want privacy online, think they have it, and believe they should be the ones that really control it; and
  • Consumers don’t like online advertising and are not clamoring for the purported “benefits” on personalized advertising.

Moreover, respect for privacy and privacy protections are bipartisan political values; for example the Precursor-Zogby poll found 3/4 of conservatives and 4/5 of independents and liberals want a Do Not Track privacy option like Do Not Call.

Online-ad industry — you have a problem. A big problem. The whole predicate on which online-ad growth is based, is at odds with what consumers need, want and expect.

  • The industry and investors are willfully suspending awareness and belief, assuming that what they have done largely secretly and without meaningful consent, they will be able to continue to do the same way when consumers and government come to realize what is being done massively, pervasively, and invasively against their interests, needs, wants and expectations.
  • This is an obvious collision we are witnessing; the only questions in my mind are when the collision occurs and what entity damages the other more when they collide.

In addition, you know the online-ad industry has a serious problem with Government on privacy when their main argument against privacy legislation or Do Not Track, is that it would put the industry out of business.

  • The obvious problem with this tactic is that the industry is essentially admitting it is currently seriously violating consumers’ expectations of privacy.
  • Moreover, that tacit confession is also like throwing themselves at the mercy of Congress by claiming the online-ad companies are the real victims of their industry’s victimization of consumers’ privacy.

In sum, privacy will burst Bubble 2.0. Investment valuations in online-ad companies are based on the fantasy of unfettered future growth in online advertising.

  • The online-ad industry and its investors imagine themselves as an irresistible force, but they are deluding themselves about the immovable object they are careening towards, the clear needs, wants, expectations, and will of the vast majority of American citizens.

Let me be clear, I am not saying the bubble will be burst by privacy concerns anytime soon, only that they eventually will.

  • From an investment perspective, the original private investors in online advertising are encouraging and pumping up a frothy market in private shares of online ad companies so they can cash out and take money off the table because they know this story and bubble is unsustainable.
    • They are taking advantage of the well-known “greater fool theory.”
  • Unfortunately it will probably take some of these Bubble 2.0 private companies to go public in an IPO in order to drive these sky-high valuations from the stratosphere into deep space.
  • Sadly it could be public shareholders who eventually will be left burned when the online-ad fantasy growth thesis eventually falls to earth; that’s the way these things too often play out.

Lastly, as privacy rights are to property rights, a couple of the current online ad companies enjoying great success based on abusing people’s privacy without their meaningful consent, eventually could turn out to be the privacy version of high-flying Napster or Grokster, if they continue to ignore the privacy needs, wants and expectations of consumers.

There were lots of important net neutrality developments worthy of comment this week:

  1. Level 3’s regulatory opportunism failed;
  2. There were threats of “revolution” if the FCC Open Internet order is overturned; and
  3. The FCC’s claimed support at the Supreme Court.

First, I would like to applaud the FCC Chairman for making it clear before Congress that the FCC’s Open Internet order “doesn’t change anything to existing peering arrangements” and that the FCC “hopes those parties settle and resolve it.”

  • The FCC order is bad enough in regulating competitive broadband providers that have done nothing wrong, without regulating the competitive Internet backbone as well.
  • What is hard to reconcile here is how the FCC can recognize a competitive Internet backbone market, but can’t seem to recognize a competitive market for broadband service.
    • A big reason for this FCC blind spot is the FCC’s stubborn unwillingness to recognize the obvious reality that users/consumers routinely substitute wireless services for wireline services all the time.
    • But if the FCC acknowledged that obvious competitive fact, and then recognized that the broadband market was fully competitive, then the FCC would not have any basis or pretext to regulate the broadband Internet, and the FCC bureaucracy could not remain fully relevant in the competitive Internet age.
    • The linchpin of the FCC’s regulatory relevance in the Internet Age depends on the FCC continuing to deny the undeniable, that wireless services compete DIRECTLY with wireline services most everywhere most all the time!

Second, it was truly remarkable this week that Silicon Valley’s representative, Congresswoman Anna Eshoo, warned that if the Congress overturned the FCC’s Open Internet order: “There will be a revolution in this country.” This apparently is a not so subtle reference to the Egyptian revolution that Silicon Valley has tried to take credit for.

This threat that “there will be a revolution in this country” if the FCC Order is overturned, is completely at odds with the constitutional and political facts of this situation.

  • How weird is it that when three unelected officials at the FCC preemptively regulate (i.e. detain indefinitely without charge) an industry that has not done anything wrong, someone claims that Congress — the people’s constitutional voice — should not become involved in any way or their will be a “revolution” by the people?

I would hope Representative Eshoo is not somehow implying that the American people support unelected FCC officials over the duly elected representatives elected only four months ago?

  • America is not Egypt, we have a functioning democracy and Representative Eshoo’s party was elected democratically to lead the Administration and the US Senate.

“Revolution” is also a weird word choice or metaphor here because it is well known in Congress that candidates that publicly professed support for net neutrality went 0-95 last November.

  • Would it then be a FreePress orchestrated “astroturf” “revolution?”
  • Or a Silicon Valley social media “revolution?”

Third, the FCC indicated in testimony before Congress that it believed that the US Supreme Court would support the FCC’s authority in Comcast vs the FCC.

  • If the FCC really believes that, why did the FCC not avail itself of its Constitutional prerogative to appeal the DC Appeals Court decision to the Supreme Court?

In sum, America’s Constitutional democracy affords opponents of net neutrality regulation many peaceful avenues to seek redress of their grievances.

  • They can and are appealing to the courts.
  • They can and are able to use existing congressional mechanisms to have the House and Senate vote on:
    • A resolution of disapproval;
    • Appropriations bill amendments;
    • Authorization bill amendments; or
    • Oversight findings.

Real democracies operate under Constitutional due process and separation of powers, and lawmaking via duly elected representatives.

  • Why does it appear that net neutrality regulation proponents are so afraid of the US Constitution and real democracy in action?

 

Mobile content producers do not have a truly competitive choice between Google’s 10% fee One Pass service and Apple’s 30% fee subscription service, as much as they have a value system choice between Google’s Internet commons model and Apple’s property-rights-driven market.

  • Google’s One Pass offering looks eerily like its Google TV offering, where major video content owners faced the platform choice between dumb content and Content is King.”
    • Given that choice, content-is-king-oriented owners broadly rejected Google’s property-hostile, dumb-content system/model.
  • As mobile content providers and carriers threatened with “dumb content” and bandwidth/spectrum commodification from Google’s “free” commons model assess their real long term strategic competitive and value-creation options, they will increasingly look toward, and forward to, the nascent Microsoft-Nokia alliance offering and RIM’s offering for content-is-king allies and true competitive choices.

As much as Google tries to fool Little Red Riding Hood content owners that their Grandma always had such big eyes and big teeth, most mobile content providers will spot the Google commons wolf in disguise.

  • Content owners are not naive, they are painfully aware of Google’s decade long consistent scofflaw pattern of disregarding the property rights of others.
  • To review, without permission, Google:
    • Has copied 13 million books (Google Book Settlement); hundreds of thousands of videos (Viacom vs. Google); and billions of news articles and headlines via Google News;
    • Has sold the trademarked brands of others to their competitors — for profit (Rosetta Stone vs. Google); and
    • Has infringed on the patents of Oracle, Apple, Microsoft, the French and others, to offer a free operating system that does not compensate key patent owners a cent (Oracle vs. Google).
  • Why Nokia rejected Google Android, and why most all major video content programmers have rejected Google TV to date, is that content owners and others don’t trust that Google is aligned with their interests in protecting and monetizing their property or their interests in being able to differentiate from their competitors.

Let’s contrast the Google commons with the Apple market to see the real “choice” between what Google Acting CEO Schmidt calls the “openness” of Google and the “closedness” of Apple.

First, from a mobile content producer’s perspective:

  • Google’s “Open” means a peer2peer share-fest, a pirate/Wikileaks-sympathetic commons, and a Google ad-dominated ecosystem, where Apple’s “closedness” means a protected, guarded, and subscription-fee monetizable marketplace.
  • Google’s open means wide open transparency and little user privacy, where Apple seeks to protect users privacy.
  • Google’s open means users are on their own in the open wild west because Google shifts most all responsibility for safety and security to others, whereas Apple appreciates that users want a sheriff in town to protect their safety and security from malware, scams, and harm — and provides security protection as an integral part of their Apple platform.

Second, Google and Apple both are control-freaks, but Google denies and hides that it is, while Apple wears its obsession with control as a badge of honor.

  • Google Android chief, Andy Rubin said about Android: “One of the reasons we’ve achieved such adoption is because we have removed all control.”
  • Savy content owners know that Google’s claim is not true.
    • Google has tried to eradicate any control by competitors or competitive complement services to commodify them, but Google still keeps iron grip control over the way users find content (search monopoly) and over the metadata of most all Internet interactions, i.e. their monopoly of market inside information of user demand signals, and advertiser and publisher supply signals.

Third, Google’s Acting CEO Schmidt misrepresents Google’s approach in calling Google’s One pass a “very publisher-friendly approach… we basically don’t make any money on this,” per the FT.

  • Given Google’s well known commons approach to free information, and their admission here that they don’t want to make money on One Pass, why should mobile content owners trust that Google wants them to make money long term when it is clear Google sees little value in content itself and sees all the value-creation on the web in brokering who wants what content?

In sum, Google’s modus operandi is to lure content owners into the Google platform in any way they can because Google wants to collect all the business-valuable metadata involved with the content: i.e. user traffic demand and private user-hot-buttons; advertiser/publisher supply of advertising including the exact user demographic they are seeking — so that Google can be the centralized and dominant infomediary on the Internet, where everyone else is dependent on Google to succeed in matching up their content with users on the Internet.

  • Little Red Riding Hood mobile content should easily spot the Google commons wolf in Grandma’s clothes here, the huge-toothy smile and drooling are dead giveaways.

 

Here are five questions that would be helpful to have the FCC answer concerning net neutrality.

  1. If the purpose of current telecom law is “to promote competition and reduce regulation,” why does the FCC’s Open Internet order do the opposite and promote regulation and reduce competition?
  2. Why did the FCC basically implement in its Open Internet order the full thrust of a former House-introduced bill, HR 5353: The Internet Freedom Preservation Act of 2008,” which never was voted on at any level of the House or Senate?
  3. Given that the word “open” has 88 definitions per Dictionary.com, why did the FCC never define what it meant by the central term “open” in its order to make clear what definition of “open” the FCC meant? (It seems a very important term to define given that an “open market” is widely known to mean — not regulated.)
  4. Was the FCC fair to the broadband industry in officially classifying their business as a “Broadband Internet Access Service” that has the pejorative acronym of “BIAS?” Does this mean that the FCC has concluded, without any evidence, that the entire broadband industry is BIAS-ed and can’t be neutral? (In other words will the burden of proof be on broadband providers to prove they are not guilty of bias or non-neutrality, rather than being assumed innocent of illegal bias until proven guilty?)
  5. If the FCC is claiming to have largely unbounded legal authority to regulate the Internet to protect consumers, why did the FCC only choose to regulate competitive companies without market power that haven’t done anything wrong, while ignoring a monopoly like Google that has a dominant position and market power per the DOJ and FTC; that is under antitrust investigation by the EU for not being neutral, and that is facing several private antitrust cases in the U.S. and Europe for not being a neutral search network?