Google Antitrust Violations

A recent truemor about Google's antitrust risk under the Obama administration raises what could become the most important technology topic of Obama's administration.  That may sound melodramatic, but as all citizens and businesses grow more dependent upon the internet so too does Google's power grow to impact the lives and livelihoods of the world. It doesn't hurt that Obama's pick to head antitrust, Christine Varney, considers Microsoft "so last century" and Google a monopoly.

Just today, B2B search engine TradeComet.com has filed suit against Google, accusing them of violating antitrust laws.  I'm not sure this is the suit that seals the deal, but TradeComet claims:

"With no notice, Google changed from cheerleader to tyrant when it realized we were a competitive threat," said TradeComet founder and chief executive 

"For example, Google raised my prices by 10,000 percent, which strangled our business, virtually overnight," he said. "As a result of Google flexing its monopolistic muscle, SourceTool.com currently averages about one percent of the traffic it previously had and is no longer a competitively viable business."

Google responded with a now-familiar claim:

"the advertising market in which Google operates is highly competitive, and advertisers have a huge range of choice"

That response has worked before, but won't for much longer.  You see, by pointing at the broad advertising market, Google tries to hide the fact that it also operates in the search and search advertising markets; both markets in which Google's monopoly power grows daily.  That's analogous to 1990s Microsoft claiming they operated in the highly competitive "software" market, to distract from their monopoly in the "operating system" market which they used to stifle competition in browsers and other related markets.

The real competition is for searchers and search advertisers -- two areas where Google wields monopoly power.  Google has taken multiple actions against companies, webmasters and individuals trying to reach searchers and search advertisers that Google controls.  Often Google claims such actions are necessary to maintain "search quality", just as 1990s Microsoft claimed that bundling software delivered a better quality end-user experience -- the government didn't buy it.  Those claims will also break down for Google -- particularly because much of the targeted competition delivers exactly what searchers are looking for, relevant sites, undermining "search quality" as an excuse.  It also doesn't help Google's case that their actions are taken in such secrecy, with many competitors left wondering what happened and why and searchers often oblivious to their loss of choices.

I can't predict when the antitrust charges will stick or what the remedy will be (breakup, new biz practices, mandated transparency), but they will.  I'm not a big fan of antitrust rules generally, but I do believe everyone should play by the same rules -- even if they are major donors to Obama.  It's only fitting that Google play by the same rules that allowed them to reach their dominance -- if Microsoft had been allowed to dictate browsers and search destinations instead of fighting antitrust regulators, Google would just be another funny word today...

CEO Patriot Pledge: Interesting Idea, Bad Math

Bob Rosner over at CNBC has suggested the following CEO Patriot Pledge:

As an executive my primary motivation is to act for the good of my company, not just my own financial gain. No one at our company will earn a guaranteed base salary more than 40 times of our lowest paid worker and we will offer the same health care and 401(K) matches to employees as we do for executives. We support pay for performance, so when our company’s performance serves investors and employees, we’ll share in the gains. When our company’s performance does not adequately serve our investors and employees, we’ll share in the sacrifice.

Bob claims that inappropriately high executive compensation is a ripe source of capital for employing more people.  The general idea of CEOs aligning their comp with company performance is great, but Bob's supporting examples, conclusions and resulting pledge are seriously flawed.

The prime examples Bob uses for CEOs doing it right and wrong are Tom James of Raymond James Financial and Robert Iger of Disney.  I'll start by saying I've had the opportunity to meet Tom James and I'm a big fan of his, as an entrepreneur and a manager.  I've never met Robert Iger, but I also know you don't get to his level without creating value on many levels.

Bob quotes James's $325K base salary, less than 20 times the salary of RJF's lowest paid employee.  He then quotes Iger at $51 million, but that looks like total comp -- various sources quote Iger's base salary as $2,000,000.  That exaggeration, however, is just a small piece of the bad math at play here.

James owns over 13 million shares of Raymond James, or about 11% of the company -- not including any additional shares he may have in various family trusts.  That 11% is worth north of $250 million!  This is a high % for a CEO of a multi-billion dollar enterprise; but that's what you get when a CEO was also the founder. 

Iger, on the other hand, was not the founder of Disney and his total package reflects this.  He owns just 576K shares of Disney, or about .03%.  That's worth about $10 million.  

Given the huge disparity between their ownership positions, 11% vs. .03% (a 300X disparity), let's consider what happens when they create shareholder value.  When James creates 10% of shareholder value, he creates about $230 million of total shareholder value, and his personal shareholder value grows by $27M.  When Iger creates 10% of shareholder value, he creates about $3.9 billion of total shareholder value, but his shareholder value grows by just $1 million!  No wonder non-stock compensation is so different for those two CEOs, demonstrating why base salary is a terrible measure for comparing CEO comp packages and as a litmus test for CEO/company "patriotism".

It's also worth noting that the arbitrary 40X ratio (CEO base salary vs. lowest employee base salary) is equally wrong-headed.  If the goal is aligning interests of employees and shareholders, then pay should relate to the employee's potential to impact shareholder value.  The idea that the least-paid employee at Disney is responsible for 1/40th the shareholder value as the CEO strains reason.  I'm a big believer in employee empowerment up and down an organization, but the reality is that CEOs of large corporations impact shareholder value at a scale orders of magnitude larger than the least paid employee.  I like to think I was a talented, underpaid young engineer when I started at IBM, but I didn't come close to creating the $180 billion of shareholder value Lou Gerstner did over his tenure.  Understandably, comp packages mirror that real-world responsibility and disparity of impact.

(Pre-emptive comment: Remember, I like Tom James and I don't know enough about Robert Iger to form an opinion of his skills.  They were the examples Bob used and my math relates to the shareholder value at stake for their positions and relative ownership.  I'm also a strong believer in performance-based compensation, just not when it's driven by arbitrary comparisons to other employee salaries rather than driven by shareholder value responsibility.  If people create value, they should earn more and if they destroy value, they should earn less -- the magnitudes are all relative to the responsibility they hold and the market price for their skills.)

Twisten: Listen to Twitter

Did you know you can listen to Twitter?  Yes, listen -- or better yet, twisten.  Thanks to yet another innovation from the script kiddies over at free music monster Grooveshark, you now can.  The idea reminds me of Coke's old commercial "teach the world to sing in perfect harmony," with Twitter as the grand stage.

All the songs good enough to tweet

Twisten.fm allows you to easily share songs and constantly scans the twitter stream, looking for songs people have shared via tinysong or other tweet tools -- those song-sharing tweets are counted as "twistens".  Those twistens are then listed at twisten.fm, organized as tweets by yourself, friends or everyone.  As usual for anything Grooveshark, the site has a nice, clean design.

Play on-the-fly

However, twisten.fm isn't just a list of songs you should go find.  You can actually click a PLAY arrow on every twisten to listen on-the-fly.  You can also click the tinysong link, to play it via listen.grooveshark.com.  That's what I do when I find something I like, because I can then click "Autoplay" to get an ongoing stream of similar music.

Additions I'd like

The service has barely even launched, but I've already got requests that I either missed or I'd like to see added.  First, I'd like to see some popular lists, built from twisten votes.  Similarly, I think a leaderboard of twisteners could encourage sharing and explode Grooveshark's growth.  I'd also like Autoplay built-in to twisten.fm so I could listen to a continuous stream of shared songs, maybe prioritized by twisten votes.

Even without these additions, twisten.fm is a compelling, new service creating value from the intersection of Twitter and Grooveshark.  Twisten should accelerate Grooveshark's already impressive growth, but could be a powerful service in it's own right: twitter, for music.  Great work, G-crew!

Oh, and when you share your first twisten, don't forget to thank @danrua for the heads-up ;-)

Oh, oh...and here's that Coke commercial, just in case I lost you from the start...