Hazlett in Financial Times: Googling Innovation

In a Financial Times op-ed, Professor Thomas Hazlett offers the Obama administration this warning: "If you want to promote innovation, stop prosecuting it."

With the Federal Trade Commission's launch of an antitrust investigation of search engine giant Google, the company finds itself in legal trouble because of complaints from rivals, most notably Microsoft.

Hazlett points out that Google's domination of the search market, with approximately two-thirds of the search share, has occurred because Google is competitively superior. And in order to maintain its superiority, he says, its product must continually undergo upgrades.

"Here's the nut: consumers gain when Google innovates, and rivals lose," Hazlett explains. "The clucking of disgruntled companies is the soundtrack of creative destruction."

Googling 'Innovation', Financial Times, June 30, 2011. By Thomas W. Hazlett.

"Google disrupted real markets by overcoming the gaming of 'keyword' matches. Through superior cataloguing of world wide web content and vastly improved algorithms for evaluating keyword matches, the upstart supplies vastly improved search results. When it learned how to monetise its utility through 'intention-based advertising', it rocketed to the frontiers of internet space.

"To stay there, Google must continually upgrade its product. In 2010, Google tested some 6,000 tweaks to Google Search; about 500 were adopted. These changes – Google’s 'secret sauce' – serve to maintain search quality, serving customers. Were they not, Microsoft and its rival search engine, Bing, would benefit. Their complaint makes it a safe bet that consumers are better off."