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A sharing of interests

August 29, 2006

Where does Google end and eBay begin? It's not an easy question to answer, particularly after the announcement yesterday that Google would incorporate eBay's Skype telephone service, along with its own Google Talk service, into its "click-to-call" ads, while eBay would run Google text ads on its sites outside of the United States and offer Google Toolbar to Skype users. Google CEO Eric Schmidt, in an interview with the Financial Times, also suggested that the partnership would expand to include payment systems. "I expect we will do a PayPal integration at some point," he said. Google recently launched its own payment service, Google Checkout, which has to date been seen as a competitor to eBay's PayPal.

Further complicating, or confusing, matters is eBay's recent partnership with Google rival Yahoo. In that alliance, which was widely viewed as an attack on Google, Yahoo gained the right to supply text ads on eBay's US site in return for incorporating eBay's PayPal service into its own sites. In announcing the Yahoo deal last May, eBay CEO Meg Whitman said, "I think it plays to the complementary strengths of both companies." In announcing yesterday's deal with Google, Whitman also said it drew on the two companies' "complementary strengths." Eric Schmidt said of the two companies, "I don't think there's much overlap at all," which seems like an odd thing to say given the many apparent overlaps between their services.

The Google-eBay deal is only the latest manifestation of what the FT's Richard Waters calls "a network of grand alliances taking shape on the internet." Among the other recent alliances are ones between Google and MySpace, Google and AOL, Microsoft and Amazon.com, and Microsoft and Facebook. Yahoo and Microsoft also have a partnership for their instant messaging services, and rumars continue to swirl about a broader link between the two companies. Even Google's new services for business customers, including Google Spreadsheets and Google Apps for Your Domain, have been presented by the company as "complements" rather than competitors to Microsoft's related products and services.

There are some common threads running through many of the grand alliances among powerful internet companies. One is the insistence of top executives like Meg Whitman and Eric Schmidt that, contrary to appearances, the companies involved aren't really competitors. Another is the fact that the terms of the agreements are kept secret. The public knows that very large pools of cash are being carved up among a handful of companies, but it doesn't know exactly how they're being carved up. The structure of the commercial internet is coming to be defined by technological transparency and financial opacity.

All transport networks, of which communication networks are a subset, evolve in the same way, from incoherency to coherency, from heterogeneity to homogeneity. Railroads come to share standards for track guage and coupling design. Electric systems come to operate on the same current. Telephone systems become interoperable. E pluribus unum. The economic benefits of such standardization are enormous. It removes friction from commerce, and it makes life easier for consumers. But by opening the way to more centralized control over shared infrastructure, standardization also raises the potential for corporate abuse, in the form of monopolies, oligopolies, trusts, and various forms of collusion. It's little surprise that government regulators have played crucial roles in the development and operation of all major transport networks.

As standardization spreads throughout the web, syndication and complementarity are becoming ever more important in defining the structure of commerce, and the relatively small number of companies that control, in one way or another, a considerable portion of the flow of cash across the consumer internet are becoming ever more intertwined. Their operations and their interests are merging. Will the coordinated management of those shared interests ultimately come to be more important to these companies than competing with one another? At the moment, that appears to be the trend, and, should it continue, it seems likely that governments, and the public, will begin to take notice.

Comments

At the pace the internet economy moves I'm afraid any antitrust actions will be too little, too late. It also seems the US government has little interest in curbing corporate abuse until it becomes a very extreme problem or enough big companies voice complaints. For the foreseeable future these alliances will take any shape they want. The only limits will be from consumer reaction, which so far is mostly positive. Most people don't think about what they're missing out on by the lack of competition.

Posted by: veridicus at August 29, 2006 12:53 PM

let's see now, IBM is at 90 billion and in last month spent $ 3.6 billion in acquisitions and another $ 15 billion in acquisitions in last few years. There is ATT Bell South pending. The phone and cable companies pushing against Net Neutrality. The 40 billion Microsoft's anti-trust agreement with Feds coming up for renewal.

Anti-trust has not worked effectively against IBM, MS, Oracle - but if we are going to persist, should we not be focus on the big vendors first?

Posted by: vinnie mirchandani at August 29, 2006 01:11 PM

California. It's where all Internet technology ends and begins or seems to at least. Perhaps the concentration of Internet technology companies in one state is creating an incestuous corporate culture. They sure get more attention than companies in Chicago, New York, Boston or Pittsburgh. The same thing happened here with the steel industry and it broke apart. It all disintegrated quickly after decades of integration. The lesson was that competition trumps concentration. Local economies need fresh ideas and a broad industrial base to stay alive and keep prospering.

Posted by: Jim Dermitt at August 30, 2006 09:22 AM

Maybe Google can get together with craigslist and figure out how to deliver free ads over the Internet and start selling software and destroy Microsoft with free ads. Then again maybe Microsoft will just include craigslist as part of their new Vista operating system and sell software without paying for ads. Maybe you'll just borrow the software like at the library. I really don't know. I hope it all works out for you, whatever happens.

Posted by: Jim Dermitt at August 30, 2006 11:41 AM

"At the moment, that appears to be the trend, and, should it continue, it seems likely that governments, and the public, will begin to take notice."

Take notice and do what ?? Create a class action suit because these companies are robbing us or creating the walled gardens which users can't opt out, once they enter in ?


Posted by: /pd at August 30, 2006 11:53 AM

Take notice and reconnect with yourself I guess.

Posted by: Jim Dermitt at August 30, 2006 08:10 PM

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