Google’s acquisition of DoubleClick has been given the green light by the FTC, the US competition watchdog. I haven’t followed the case closely, but the FTC’s statement (pdf) is quite interesting reading because it provides a lot of insight into how the online advertising market works.

Overall, the FTC’s investigation seems to have been thorough (2 million pages of documents reviewed!) and pretty standard for this sort of thing. They followed the usual process of (i) defining the relevant market(s), and (ii) assessing whether the acquisition would result in a ’substantial lessening of competition’ in the market(s) defined. One non-traditional thing that was raised in this case was the privacy issue. Google has a lot of data about consumers, and some people were worried about how this would be used to sell advertising. The FTC acknowledged this, but quite rightly (in my opinion) concluded that antitrust investigations are not the place to make privacy policy. In other words, it’s not the FTC’s job to decide what is or is not acceptable from a privacy point of view. Their job is just to protect consumers from reduced competition.

There were a couple of other interesting points in the report. The FTC decided that ads sold by search engines are not substitutes for banner ads sold by websites. Although both are a form of advertising, the FTC reckoned that the evidence shows that these two things are not in the same market, so raising the price of one would not significantly affect the demand for the other. This is kind of like saying that champagne and milk are both drinks, but they’re very poor substitutes, which is entirely plausible depending on the preferences of consumers. In the Google case the consumers are advertisers, and according to the evidence that the FTC saw, advertisers do not regard advertising on search engines and banner ads on websites to be substitutes to any significant degree.

Another interesting thing was how sophisticated online advertising markets are becoming (see eg point D on page 6 of the FTC’s report). A number of third-parties, like DoubleClick, intermediate between websites (’publishers’) and advertisers. These third parties operate servers that serve up advertising based on various algorithms, and publishers monitor the ads that get served up and the revenues generated very closely. Data is also fed back to advertisers to track the success of their campaigns.  Marketing really does seem to be changing from a hit-and-miss affair to something more precise.

Finally, the FTC did finish with a warning to Google not to use bundling or tying to try to reduce competition. An example of this would be where Google forces advertisers to buy bundles of both Adsense ads on its search results, and banner ads on websites. Basically, Google has a lot of market share in search engine ads, but the website ads market is much more fragmented. In theory it could be profitable for Google after acquiring DoubleClick to leverage its position in the search engine ads market to improve its profits from website ads. This kind of behaviour is usually anti-competitive, and the FTC stated that they will be watching out for it in future.

A video of a talk by Paul Krugman at Google has been making the rounds of the blogosphere. He was supposed to talk about his new book but decided to talk about the subprime crisis instead. I watched the video, and I have to say that Krugman is outstanding (and funny) when he talks about economics. I remember about 7 or 8 years ago, he came to my university to give a series of public lectures. The university’s biggest lecture theatre was packed every night, and because it was ‘free’ it was necessary to show up an hour early to get a seat. It was right after the Asian financial crisis, and rather than indulge in meaningless technowaffle, I remember that Krugman tackled the topic head-on, and did an outstanding job of explaining it to a non-specialist audience. For example, he explained the idea of a liquidity trap in terms that almost anybody could understand.

Just in case you’ve missed it, here’s the video:

Aside from bad customer service, I think eBay should also be worried about coming under scrutiny from competition authorities. I don’t think eBay has been doing anything illegal, but it does seem that it’s hard for other online auction sites to get established. Of course eBay still faces competition from other non-auction marketplaces, and this might be sufficient to constrain eBay’s market power, I don’t know. Anyway, one of the things that probably makes it hard to compete with eBay is that eBay ‘owns’ the reputations of its users. If you want to switch to an alternative site, you have to start from scratch with a blank reputation. As various studies have shown, having a good reputation is beneficial to some extent, at least for sellers. However, eBay has resisted attempts to let people either export their reputations to alternative auction sites, or use third-party reputation systems to manage their reputation on eBay (see here, for example).

So I can quite easily see some competition authority making the argument that eBay’s control of these reputations restricts competition among online auction sites. I don’t know whether this argument would hold water when subject to close analysis, but there’s clearly a risk to eBay that it could come under pressure to allow ‘reputation portability’, much as telecommunications firms are subject to ‘number portability’ to promote competition.

I mainly read economics journals, but I’ve just discovered the nerdy-sounding Journal of Computer-Mediated Communication. It’s an open-access online journal and the latest issue has some papers that look very interesting, for example:

Every Blog Has Its Day: Politically Interested Internet Users’ Perceptions of Blog Credibility: This study employs an online survey to examine U.S. politically-interested Internet users’ perceptions of the credibility of blogs. The article focuses on the influence of blog reliance compared to motivations for visiting blogs in determining blog credibility. The study found that blogs were judged as moderately credible, but as more credible than any mainstream media or online source. Both reliance and motivations predicted blog credibility after controlling for demographics and political variables. Reliance proved a consistently stronger predictor than blog motivations. Also, information-seeking motives predicted credibility better than entertainment ones.

The Creative Commons and Copyright Protection in the Digital Era: Uses of Creative Commons Licenses: As digital technology thrusts complexity upon copyright law, conflict has escalated between copyright holders desperate to institute a vigorous enforcement mechanism against copying in order to protect their ownership and others who underscore the importance of public interests in accessing and using copyrighted works. This study explores whether Creative Commons (CC) licenses are a viable solution for copyright protection in the digital era. Through a mixed-methods approach involving a web-based survey of CC licensors, a content analysis of CC-licensed works, and interviews, the study characterizes CC licensors, the ways that CC licensors produce creative works, the private interests that CC licenses serve, and the public interests that CC licenses serve. The findings suggest that the Creative Commons can alleviate some of the problems caused by the copyright conflict.

Social Network Profiles as Taste Performances: This study examines how a social network profile’s lists of interests—music, books, movies, television shows, etc.—can function as an expressive arena for taste performance. By composing interest tokens around a theme, profile users craft their “taste statements.” First, socioeconomic and aesthetic influences on taste are considered, and the expressivity of interest tokens is analyzed using a semiotic framework. Then, a grounded theory approach is taken to identify four types of taste statements—those that convey prestige, differentiation, authenticity, and theatrical persona. The semantics of taste and taste statements are further investigated through a statistical analysis of 127,477 profiles collected from the MySpace social network site between November 2006 and January 2007. The major findings of the analysis include statistical evidence for prestige and differentiation taste statements and an interpretation of the taste semantics underlying the MySpace community—its motifs, paradigms, and demographic structures.

There’s been an outpouring of anger towards eBay in the comments over on the NY Times Bits blog (see here, here and here). Both buyers and sellers complain about poor customer service from eBay, and sellers complain about high prices. I think the issues about customer service are somewhat understandable. When your business is growing at 30% a year, customer service is probably the last thing on your mind. But 30% growth doesn’t last forever, and even eBay will one day have to live with single-digit growth and will have to care about more mundane things like customer service. It’s funny that in the long run, even a high-tech business depends on low-tech things like dealing with complaints and treating customers nicely.

I think such problems are not confined to eBay. I’ve also heard some complaints about Google’s customer service, in particular from advertisers and websites who use its Adsense/Adwords programme. Again I think it can be understood — from what I’ve read about Google’s corporate culture, innovation is everything, which is fine, but ultimately sufficient resources will have to be allocated to the boring task of taking care of customers.

I have a personal gripe about the customer service of another tech company, Technorati. I use the data that they make available to generate my econ blogs ranking. Following a suggestion by Felix Salmon, I want to report the Technorati authority score for each blog as well as its Technorati ranking. However, the automated Technorati service that I use to retrieve their data sometimes fails to return the authority score for some blogs. It seems like a bug to me. So I contacted them about this a few weeks ago, and since then I’ve heard nothing except an automated reply that gave no useful information. It seems like customer service isn’t a priority at Technorati either.