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Govts should police... Google's algorithms, says News Corp chief

Is this how you tame the beast, though?

News Corp publications and networks traditionally rail against government intervention, but the media giant's boss Robert Thomson has urged governments to establish "algorithm review boards" to help police Google and Facebook.

"If properly conceived," said Thomson on Friday's quarterly investor relations call, such boards "would provide the necessary transparency for individuals, clients and competitors concerned about algorithmic abuse."

Thomson said he was issuing the call because he expected Facebook and Google to become even more dominant than they are today.

Facebook's stock price has already recovered its entire loss incurred during the fallout from the Cambridge Analytica data privacy and consent scandal.

Thomson said the ability of the Silicon Valley giants to move into vertical niches illustrated their market power. Facebook has announced a move into dating, he noted, and Amazon into audiobooks.

"Challenging these dominant digital platforms is important for our businesses but also meaningful for the societies in which we operate."

Thomson did have a word of praise for Google for amending its First Click Free scheme for publishers to downplay the punishment for opt-outs. As the name suggests, First Click Free (FCF) rewarded publishers willing to give away content with a prominence on Google's search results for the content. Publishers had to promise to return the full text of the page to the user.

In essence, Google was boosting the value of its product with free stuff. FCF was introduced in October 2008, and to comply, publishers also had to open their full sites to the Googlebot crawler. If publishers opted out, then they would fall from prominence in Google's results. News Corp reportedly saw a 38 per cent fall in traffic to the Wall Street Journal from Google Search, and an 89 per cent fall from Google News, when it opted out last year.

What Thomson is really calling for is classic competition policy which involves market-testing, to which the giant networks would appear to be vulnerable. Back in January, veteran critic Scott Cleland argued that existing antitrust policy has failed.

"America has three Standard Oil-like, end-to-end, monopoly distribution networks in the latter stages of the process of monopolizing core functional sectors of the 21st century economy – Google [is] Standard Data, Amazon [is] Standard Commerce, and Facebook [is] Standard Social."

If a monopoly is dominant in one market, and uses that power to leverage it to its advantage in another market, than that was considered an abuse of monopoly. In Europe, it still is. But the giants argued that the consumer harm - and since they give away free stuff (often other people's stuff) for free - then the consumer always wins.

Switching costs

Professors Hal Varian and Carl Shapiro warned of such issues in their 1998 business bestseller Information Rules. Shapiro, who had a stint in the antitrust department, coined the concept "network effect" (and "essential patent"). Successful networks generated high switching costs for users, who were likely to stay put, even though the competition might be superior.

"The key for companies trying to build markets, or government entities establishing policies, is to 'look at the industry and gauge the extent to which there are network effects and the extent of switching costs, and build your strategy around this', Prof Varian advises," the FT's Louise Kehoe reported.

Something seems to have changed Hal Varian's thinking, though. In 2014 he wrote to the same newspaper.

Your briefing on internet monopolies reckoned that "the internet giants rarely compete strenuously on each other’s home turf". On the contrary, there is intense competition among these companies with respect to devices, digital content, advertising, cloud services, operating systems, productivity software, app stores, search services, digital assistants, maps and browsers, to give just a few examples.

You also referred to Google's "switching costs". It is easy for people to switch to another search engine, which you recognised. For services involving stored data such as e-mail or photos, Google Takeout enables users to download their content easily.

So switching costs were nothing to worry about. Hal Varian is chief economist at Google. ®

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