European regulators are tackling a puzzle that could shift the balance of power on the Internet: Is Google stifling competition by juicing its search results to favour its services over its rivals?
Hoping to find an answer, regulators announced an investigation that will take the first major look into the heart of Google Inc, focusing on the very thing that corporations from Coca-Cola to KFC go to enormous lengths to keep secret.
In Google's case, the mathematical formulas that determine its search engine's prized recommendations.
The rankings of Google's results can make or break a business these days, whether it is a blogger or a multibillion dollar company. Knowing how Google makes its decisions, or persuading regulators to dictate changes, could be of enormous value to competitors.
Word of the investigation caused Google's stock to tumble $26.40, or 4.5 per cent, to close at $555.71. It was the largest one-day drop in the company's shares since mid-July. The company is also dealing with national anti-trust probes in Germany, Italy and France.
The inquiry's timing also threatens to complicate Google's efforts to expand an empire that will bring in nearly $30 billion in revenue this year. US officials are reviewing its $700 million acquisition of a leading travel technology provider, ITA Software.
Perhaps most troubling to Google, the European Commission conceivably could require it to divulge information about the algorithms that decide the links listed at the top of its search results.
The Mountain View, has zealously guarded those formulas in much the same manner as Coca-Cola protects the recipe for its signature drink or KFC guards the ingredient mix for its chicken.
Although any confidential information that Google shares with regulators probably would remain under seal, the company's executives may not want to run the risk of opening its trade secrets to outsiders, Boston University anti-trust law professor Keith Hylton said.
"They are probably going to think long and hard about what to do in Mountain View and they may end up saying, 'Let's just cut a deal,'" Hylton said. "And that decision may not have anything to do with whether Google is in the right or in the wrong on this issue."
