[Senate Hearing 112-168]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 112-168
 
   THE POWER OF GOOGLE: SERVING CONSUMERS OR THREATENING COMPETITION?

=======================================================================


                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,

                 COMPETITION POLICY AND CONSUMER RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 21, 2011

                               __________

                          Serial No. J-112-43

                               __________

         Printed for the use of the Committee on the Judiciary




                  U.S. GOVERNMENT PRINTING OFFICE
71-471                    WASHINGTON : 2011
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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York              JON KYL, Arizona
DICK DURBIN, Illinois                JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island     LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
AL FRANKEN, Minnesota                MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware       TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
            Bruce A. Cohen, Chief Counsel and Staff Director
        Kolan Davis, Republican Chief Counsel and Staff Director
                                 ------                                

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                     HERB KOHL, Wisconsin, Chairman
CHUCK SCHUMER, New York              MICHAEL S. LEE, Utah
AMY KLOBUCHAR, Minnesota             CHUCK GRASSLEY, Iowa
AL FRANKEN, Minnesota                JOHN CORNYN, Texas
RICHARD BLUMENTHAL, Connecticut
       Caroline Holland, Democratic Chief Counsel/Staff Director
                David Barlow, Republican General Counsel



                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Feinstein, Hon. Dianne, a U.S. Senator from the State of 
  California.....................................................     5
Grassley, Hon. Charles, a U.S. Senator from the State of Iowa, 
  prepared statement.............................................    20
Kohl, Herb, a U.S. Senator from the State of Wisconsin...........     1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................   217
Lee, Hon. Michael S., a U.S. Senator from the State of Utah......     3
    charts.......................................................   219

                               WITNESSES

Barnett, Thomas O., Partner, Covington & Burling, LLP, 
  Washington, DC.................................................    33
Creighton, Susan A., Partner, Wilson Sonsini Goodrich & Rosati, 
  PC, Washington, DC.............................................    38
Katz, Jeff, Chief Executive Officer, Nextag, Inc., San Mateo, 
  California.....................................................    35
Schmidt, Eric, Executive Chairman, Google Inc., Mountain View, 
  California.....................................................     6
Stoppelman, Jeremy, Co-founder and Chief Executive Officer, Yelp, 
  Inc., San Francisco, California................................    36

                         QUESTIONS AND ANSWERS

Responses of Thomas O. Barnett to questions submitted by Senators 
  Grassley, Kohl and Lee.........................................    53
Responses of Susan A. Creighton to questions submitted by 
  Senators Grassley and Kohl.....................................    65
Responses of Jeff Katz to questions submitted by Senators 
  Grassley, Kohl and Lee.........................................    84
Responses of Eric Schmidt to questions submitted by Senators 
  Blumenthal, Cornyn, Franken, Grassley, Kohl and Lee............   102
Responses of Jeremy Stoppelman to questions submitted by Senators 
  Kohl, Grassley and Lee.........................................   170

                       SUBMISSIONS FOR THE RECORD

Alschuler, John, Chair, Friends of the High Line, New York, New 
  York, September 14, 2011, letter...............................   178
Barnett, Thomas O., Partner, Covington & Burling, LLP, 
  Washington, DC, statement......................................   180
Camara, Karim, New York State Assembly, 43rd District, Kings 
  County, Albany, New York, July 26, 2011, letter................   195
Chiames, Chris, Vice President, Corporate Affairs, Orbitz 
  Worldwide, Chicago, Illinois, statement........................   196
Creighton, Susan A., Partner, Wilson Sonsini Goodrich & Rosati, 
  PC, Washington, DC, statement..................................   198
Cumbo, Laurie A., MoCADA Founder & Executive Director, Brooklyn, 
  New York, September 8, 2011, letter............................   209
Heastie, Carl, New York State Assembly, 83rd District, Bronx 
  County, Albany, New York, August 15, 2011, letter..............   213
Katz, Jeff, Chief Executive Officer, Nextag, Inc., San Mateo, 
  California, statement..........................................   214
New York Post, Garett Sloane, New York, New York, February 25, 
  2011, article..................................................   223
New York Times, Jonathan Vatner, New York, New York, April 19, 
  2011, article..................................................   225
Rice, Arva R., President & CEO, New York Urban League, New York, 
  New York, August 16, 2011, letter..............................   228
Rudin, William C., Chairman, Abny, New York, New York, July 26, 
  2011, letter...................................................   230
Sampson, John, New York State Senate, Albany, New York, July 27, 
  2011, letter...................................................   231
Schmidt, Eric, Executive Chairman, Google Inc., Mountain View, 
  California, statement..........................................   232
Simpson, John M., Consumer Advocate, Consumer Watchdog, Santa 
  Monica, California, statement..................................   240
Stoppelman, Jeremy, Co-founder and Chief Executive Officer, Yelp, 
  Inc., San Francisco, California, statement.....................   247
Terry, Angela, Therapy Wine Bar, Brooklyn, New York, August 5, 
  2011, letter...................................................   274
Titus, Michele, New York State Assembly 31st District, Queens 
  County, Albany, New York, July 20, 2011, letter................   276
Tosney, Jason, Vice President, Centro, Chicago, Illinois, letter.   278
Wilshire, Albert, President Board Trustees, Brooklyn Music 
  School, Brooklyn, New York, August 20, 2011, letter............   280
Wright, Keith L.T., New York State Assembly 70th District, New 
  York County, New York, New York, July 21, 2011, letter.........   281
Zaccaria, Gary, Salt Lake City, Utah, September 13, 2011, letter.   283
Zuckerman, Bob, Executive Director, New York, New York, August 
  18, 2011, letter...............................................   295


   THE POWER OF GOOGLE: SERVING CONSUMERS OR THREATENING COMPETITION?

                              ----------                              


                     WEDNESDAY, SEPTEMBER 21, 2011

                                       U.S. Senate,
              Subcommittee on Antitrust, Competition Policy
                                       and Consumer Rights,
                                Committee on the Judiciary,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 2 p.m., Room SD-
226, Dirksen Senate Office Building, Hon. Herb Kohl, Chairman 
of the subcommittee, presiding.
    Present: Senators Feinstein, Schumer, Klobuchar, Franken, 
Blumenthal, Grassley, Cornyn, and Lee.

 OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 
                       STATE OF WISCONSIN

    Senator Kohl. Good afternoon. Today this Subcommittee meets 
to consider an issue that affects everyone who searches or does 
business over the internet--in other words, almost everybody. 
We will examine how the world's dominant internet search 
engine, namely Google, presents its search results to consumers 
and treats the businesses it competes with.
    Our inquiry centers on whether Google biases these results 
in its favor, as its critics charge, or whether Google simply 
does its best to present results in a manner which best serves 
its consumers, as it claims.
    At the outset, I wish to stress that I come to this hearing 
with an entirely open mind, without any prejudgment of these 
issues. My goal is to provide both Google and its critics with 
a forum to air their views. In examining these issues, we 
recognize the incredible technological achievements of Google 
and the need to avoid stifling its creative energy.
    At the same time, we need to be mindful of the hundreds of 
thousands of businesses that depend on Google to grow and 
prosper. We also need to recognize that as a dominant firm in 
internet search, Google has special obligations under antitrust 
law not to deploy its market power to squelch competition.
    There can be no question of the astounding achievements of 
Google's search engine. Through the magic of its search 
technology, Google, a company literally started in a garage by 
two Stanford students less than 15 years ago, has done nothing 
less than organize all the billions of internet web pages into 
an easily accessible listing on the computer screen.
    Sixty-five to 70 percent of all U.S. internet searches on 
computers and 95 percent on mobile devices are done on Google's 
search engine. Millions of people every day run Google searches 
to find out the answer to nearly every question imaginable, 
including for the best and cheapest products and services, from 
electronics, to clothing, to hotels, to restaurants, to give 
just a few examples.
    And businesses equally rely on Google to find customers. 
The search premise of Google at its founding was that it would 
build an unbiased search engine that consumers would see the 
most relevant search result first, and that the search results 
would not be influenced by the web page's commercial 
relationship with Google.
    Its goal was to get the user off Google's home page and 
onto the website it lists as soon as possible. As Google's co-
founder and current CEO Larry Page said in 2004, ``We want you 
to come to Google and quickly find what you want, then we're 
happy to send you to the other sites. In fact, that's the 
point.'' However, as internet searches become a major channel 
of e-commerce, Google has grown ever more dominant and powerful 
and it appears its mission may have changed.
    In the last 5 years or so, Google has been on an 
acquisition binge, acquiring dozens of internet-related 
businesses, culminating most recently with its proposed 
acquisitions of Motorola Mobility and Zagat's. It now owns 
numerous internet businesses, including in health, finance, 
travel, and product comparison.
    This has transformed Google from a mere search engine into 
a major internet conglomerate, and these acquisitions raise a 
very fundamental question: is it possible for Google to be both 
an unbiased search engine and at the same time own a vast 
portfolio of web-based products and services? Does Google's 
transformation create an inherent conflict of interest which 
threatens to stifle competition?
    In the last few years, internet businesses that compete 
with Google's new products and services have complained that 
Google is now behaving in a way contrary to free and fair 
competition. They allege that Google is trying to leverage its 
dominance in internet search into key areas of internet 
commerce, where it stands to capture from its competitors 
billions of dollars in advertising revenue.
    Rather than fairly presenting search results, these critics 
claim that Google has begun to suddenly bias its search results 
in favor of its own services. This conduct has the potential to 
substantially harm competition for commerce on the internet and 
retard innovation by companies that fear the market power of 
Google.
    Antitrust scrutiny is not about picking winners and losers, 
but it is about fostering a fully competitive environment so 
that consumers can fairly pick winners and losers. As more and 
more of our commerce moves to the internet, it should be the 
highest priority of antitrust policymakers that the internet 
remain a bastion of open and free competition, as it has been 
since its founding.
    We need to protect the ability of the next Google to 
emerge, the next great website or application being developed 
in a garage in Silicon Valley or in Madison, Wisconsin.
    Senator Lee, we would like to hear what you have to say.

 STATEMENT OF HON. MIKE LEE, A U.S. SENATOR FROM THE STATE OF 
                              UTAH

    Senator Lee. Thank you, Mr. Chairman.
    Internet search is critical to economic growth in the 
United States and Google has long been a dominant force in this 
arena. Indeed, Americans Google so frequently and ubiquitously 
that the company's name has become a generic verb that means 
``to search the internet.'' In the United States, Google 
controls somewhere between 65 and 70 percent of the general 
internet search arena and more than 75 percent of paid search 
advertising, and 95 percent of mobile search.
    Given its dominant position, most internet-based businesses 
rely on Google for a substantial share of their traffic in 
revenues. As a result, last year Google generated nearly $30 
billion in search advertising revenues. Studies show what most 
of us know from experience, that the first few Google search 
results attract nearly 90 percent of all user clicks. Google's 
search ranking, therefore, has enormous power over the 
information users find, which websites receive traffic, and the 
amount businesses must pay to be found on the internet.
    A former Reagan administration antitrust chief recently 
suggested that this market power has essentially made Google 
``a monopoly gatekeeper to the internet.'' Whether or not 
Google formally qualifies as a monopoly under our antitrust 
laws, one thing is clear: given its significant ability to 
steer e-commerce and the flow of online information, Google is 
in a position to help determine who will succeed and who will 
fail on the internet. In the words of the head of Google's 
Search Ranking team, Google is ``the biggest king-maker on 
earth.''
    Google has used its substantial advertising revenues to 
branch out into a multitude of secondary internet businesses, 
largely by acquiring more than 100 different companies. Google 
now offers YouTube video, Gmail, Chrome internet browser, 
Google-Plus social networking, the Android mobile Smart Phone 
operating system, and a host of services, including Google 
Maps, News, Books, Shopping, Places, and Flight Search.
    With its recent purchase of Motorola Mobility, Google is 
now poised to get into the business of mobile handset 
manufacturing. With Google's expansion into so many areas, a 
large number of businesses, advertisers, and consumer groups 
have raised concerns regarding Google's activities, suggesting 
the company may be acting in deceptive and anti-competitive 
ways. As a result, Google is under investigation by antitrust 
authorities, both in the United States and abroad. This 
Subcommittee has oversight of antitrust enforcement and 
competition policy, and I appreciate Chairman Kohl's leadership 
in calling a hearing to address this important topic.
    From its inception, Google's stated goal was to have users 
leave its website as quickly as possible, but over time the 
company appears to have changed its approach, to steer users 
not to other businesses and sources of information, but to its 
own complement of competing services.
    Google has worked hard to cultivate the public perception 
that its searches are comprehensive and unbiased, but there is 
growing concern that Google employs different search ranking 
algorithms and more attractive visual displays to advantage its 
own secondary sites and products, to the detriment of competing 
specialized search sites and to other disadvantaged businesses.
    There is also evidence that Google has taken information 
and reviews from competing specialized search sites like Yelp 
and Trip Advisor, used that data as part of its own services, 
and in the process demoted the search result rankings of the 
sites from which Google acquired that information.
    In addition, some reports suggest that Google has taken 
steps to impede competing search engines from crawling, 
indexing, and returning search results to its YouTube content 
and book scans. Access to these popular stores of content is 
crucial and critical to enabling other search engines to 
compete.
    There are also allegations that Google has achieved and 
sought to maintain its dominance in search by imposing 
exclusivity restrictions and dealings with advertising 
partners, perhaps in an effort to block competing search tools. 
This includes a broad array and a broad network of exclusive 
search syndication deals with websites like AOL and Ebay, 
exclusive arrangements for Google's search box to appear on 
browsers like Mozilla Firefox and Safari, and agreements that 
Google be the exclusive default search provider on the I-Phone 
and on many Android models.
    Similarly, Google's contracts with advertisers apparently 
impose limits on the advertiser's ability to transfer data 
associated with Google's advertising platform to any other 
advertising platform using third party tools that would make 
the process simple, or even automatic.
    Studies by a Harvard Business School professor concluded 
that the net effect of these restrictions is to reinforce the 
tendency of small-to medium-sized advertisers to use only 
Google Ad Words to the exclusion of competing platforms. Many 
observers are also concerned that Google may be seeking to 
prevent Smart Phone manufacturers and customers who wish to use 
the Android platform from using competitors' services, for 
example, by tying Android to Google's location program in order 
to exclude competing geo-location services.
    In assessing each of these concerns, the primary focus of 
our antitrust analysis should be consumer welfare. Growing 
complaints that Google is using its search dominance to favor 
its own offerings at the expense of competition deserves 
serious attention, especially if consumers are misled by 
Google's self-rankings and preferential display.
    Such bias would deny user traffic and revenue to competing 
sites, depriving those sites of resources needed to develop 
more innovative content and offer better services to customers. 
When competing websites lose traffic, they are forced to 
increase their paid search advertising on Google, ultimately 
leading to increased prices for consumers.
    As a conservative Republican who favors free markets, I 
believe that ensuring robust competition in this critical area 
of our Nation's economy will benefit consumers, it will spur 
innovation, and it will lead to job creation. In this instance 
I believe that preserving competitive markets through antitrust 
principles can help forestall the imposition of burdensome 
government regulation.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Lee.
    I would like, now, to introduce our first witness who will 
be Mr. Eric Schmidt. Mr. Schmidt has served as the executive 
Chairman of Google since April of this year, and from 2001 to 
2011 was the chief executive officer of the company.
    We will introduce our second panel before they testify, but 
I would now turn to Senator Feinstein who would like to make 
remarks in order to introduce our witnesses from California.
    Senator Feinstein.

  STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE 
                      STATE OF CALIFORNIA

    Senator Feinstein. Thank you very much, Mr. Chairman. I 
really appreciate this very special privilege.
    The three gentlemen you are going to hear from today come 
right from the heart of the San Francisco Bay area. I have 
known the Chairman of Google for many years. I have always 
known him as a forthright man, filled with integrity. He has a 
long history in Silicon Valley, and at the helm of a number of 
America's most innovative companies. He has been with Google 
since 2001.
    He has helped Google grow from less than 1,000 employees to 
28,000, 13,000 of whom are in California. That is a 45 percent 
growth in employment, even in the most difficult times of the 
past 2 years, with 5,000 new hires in California in about that 
same time. Under his leadership, Google has been helping 
business throughout the Golden State, last year alone providing 
$15 billion in economic activity to nearly 300,000 small 
businesses, publishers, and nonprofits.
    Mr. Jeff Katz, the CEO of Nextag, is from San Francisco. 
This is a price comparison website company in San Mateo that 
allows people to search for products and see lists of available 
online prices for those products. Mr. Katz has extensive 
experience in the internet and travel industries, having held a 
variety of positions at American Airlines, serving as president 
and CEO of Swiss Air, being the Chairman and founding CEO of 
the well-known travel website Orbitz, and serving as president 
and CEO of Leapfrog Enterprises, a maker of technology-based 
learning products, among other endeavors. He holds a master of 
Science degree from my alma mater, Stanford, among other 
degrees.
    Finally, Jeremy Stoppelman, co-founder and chief executive 
officer of Yelp. Joining Mr. Katz on the second panel will be 
Jeremy Stoppelman. He is co-founder and CEO of a small, 
innovative company from San Francisco whose website allows 
people to search for local businesses or types of businesses 
and find profiles of the businesses in its results, including 
customer reviews and rankings, photographs, and other similar 
businesses. He worked as the vice president of engineering at 
PayPal before dropping out of Harvard Business School to co-
found Yelp with Russell Simmons.
    As you can see, Mr. Chairman, you have three very well-
qualified Bay area citizens. I hope they tango rather than 
tangle. Thank you very much for this.
    Senator Kohl. Thank you very much, Senator Feinstein.
    We again thank all witnesses who are appearing here today. 
I would like you all now to rise and step forward and raise 
your right hand and take the oath as I administer it.
    [Whereupon, the witnesses were duly sworn.]
    Senator Kohl. Thank you all.
    Mr. Schmidt, we would love to hear what you have to say.

 STATEMENT OF ERIC SCHMIDT, EXECUTIVE CHAIRMAN, GOOGLE, INC., 
                   MOUNTAIN VIEW, CALIFORNIA

    Mr. Schmidt. Well, good afternoon, Chairman Kohl, Ranking 
Member Lee, and members of the subcommittee. Thank you for 
inviting me here today.
    I want to start, first, by taking a step back. Twenty years 
ago, a large technology firm was setting the world on fire. Its 
software was on nearly every computer, and its name was 
synonymous with innovation, but that company lost sight of what 
mattered and Washington stepped in. I was an executive at Sun, 
and later at Novell, at the time.
    In the years since, many of us in Silicon Valley have 
absorbed the lessons of that era. So I am here today carrying a 
long history in the technology business--thank you, Senator--
and a very short message about our company: we get it. By that 
I mean we get the lessons of our corporate predecessors. We 
also get that it's natural for you to have questions about our 
business, and that's certainly fine.
    What we ask is that you help us ensure that the Federal 
Trade Commission's inquiry remains a focused and fair process, 
which I'm sure you'll do, and that we can continue to create 
jobs and building products that delight our users.
    So before I talk about our perspective on the state of 
technology in general, I would like to start by explaining how 
we think about our own business and a few of the principles 
that guide the decisions, which I am sure you will want to talk 
about.
    First, always put consumers first. Last year alone we made 
more than 500 changes to improve search. It is not an easy 
task. Our challenge is to return the most relevant answers 
first. This means that not every website can come on top, it is 
a ranking problem. And there are definitely complaints from 
businesses who want to be first in rankings even when they are 
not the best match, as best we can tell for a user search.
    Second, focus on loyalty, not lock-in. We do not trap our 
users. If you do not like the answer that Google search 
provides you can switch to another engine with literally one 
click, and we have lots of evidence that people do this. If you 
want to leave other Google services, we make it easy for you to 
do so. You can even take your data with you without any hassle. 
We want consumers to stay with us because we are innovating and 
making our products better, not because they are locked in.
    Third, be open, not closed. Open technology includes both 
open source, meaning that we release and actively support code 
that helps grow the internet, and open standards, meaning that 
we adhere to accepted standards and, if none exist, we work to 
create the standards that can improve the entire internet.
    Fourth, be transparent. We share more information about how 
our search engine and other products work than any of our 
competitors and we give advertisers detailed information about 
their performance and return on investment.
    Finally, the only constant is change. Ten years ago, no one 
would have guessed--certainly I, and I do not think anybody 
else--that the vocabulary in economics would look like it does 
today. No one knows what it will look like in 1 year, or 5 
years. So despite what others say about the American economy, I 
think our future in America is very bright. There is no doubt 
that we're facing difficult times. There has never been a more 
exciting time to be part of a technology business, as I think 
you will see from all of the companies represented this 
afternoon.
    While others have given up on the American economy, Google 
is certainly doubling down. We are investing in people. In 2002 
we had fewer than 1,000 employees, and again, now we have more 
than 24,000 and we are hiring. Earlier this year we announced 
that 2011 would be our biggest hiring year yet, and we are 
clearly on target to meet, or even beat, that.
    We are investing in mobile, as was earlier suggested. Just 
look at our plans to acquire a great American company, Motorola 
Mobility. We believe that our proposed acquisition of Motorola, 
like many previous moves that we have made, is good for 
competition, innovation, and the American economy. It is a big 
bet, but we are confident that this acquisition will lead to 
growth and innovation in mobile technology, which is what we 
care about.
    We are also investing in local. Ninety-seven percent of the 
people look online for local goods and services, but only 63 
percent of--actually, 63 percent of America's small businesses 
do not have a website at all. This is a missed opportunity, in 
my view. So we started an initiative to help small businesses 
get online. We've partnered with Intuit and others to offer 
local businesses, et cetera.
    Last year alone, Google search and advertising tools 
provided $64 billion in economic activity to other companies, 
publishers, and nonprofits in the United States, and we are 
very, very proud of this. Of course, this year will be even 
greater.
    So without exaggeration, high-tech is the most dynamic part 
of the U.S. economy. Advertising-supported internet alone is 
3.1 million jobs, according to the study I just read, and 
according to McKenzie, the internet was responsible for 15 
percent of America's GDP growth in the last 5 years.
    The internet is also home to some of America's most 
successful companies--Amazon, Apple, Facebook, and Google. We 
compete hard against each other and we welcome that 
competition. It makes us better and it makes our competitors 
better, too. But most importantly it means better products for 
our users.
    So today it's Google's turn in the spotlight and we respect 
the rule that you all have, and the agency, of course, in this 
process. I do ask you to remember that not all companies are 
cut from the same cloth and that one company's past need not be 
another's future. We live in a different world today and the 
open internet is the ultimate level playing field.
    So if you keep that in mind, then we believe that the 
Federal Trade Commission's inquiry will reveal an enthusiastic 
company filled with people who believe that we have only 
scratched the surface of what's possible. That passion to do 
better will not only serve our users well, but it will serve 
our Nation well by helping create new jobs and economic growth 
that our wonderful country needs.
    So, thank you very much for your time and for this hearing.
    [The prepared statement of Mr. Schmidt appears as a 
submission for the record.]
    Senator Kohl. Thank you very much, Mr. Schmidt. We 
appreciate what you just had to say. Now we will begin our 
inquiries of you individually. We will ask questions for a 
maximum of 7 minutes.
    Mr. Schmidt, many industry experts believe that the central 
mission of Google has fundamentally changed since its founding. 
At the outset, Google's goal, according to CEO Larry Page, in 
2004, was to get consumers off Google's page ``and send you to 
the other sites.'' Since that time Google has acquired or 
expanded into internet businesses in many diverse areas, 
including travel, videos, and shopping. Now we hear you say you 
want to provide consumers answers to questions, not merely 
links to websites that provide those answers.
    What do you say to those who argue that there is a 
fundamental conflict of interest between only providing 
unbiased web links and now providing answers, when you own many 
of the services providing the answers? As a rational business 
trying to make the most profit, would we not expect Google to 
favor its products and services in providing these answers?
    Mr. Schmidt. I am not sure Google is a rational business 
trying to maximize its own profits, Senator. As we addressed in 
our founding of our--the IPO letter, in the founder's letter. 
Google is run under a set of principles that are really quite 
profound within the company. One of the most important 
principles is, solve the problem that the consumer has. So 10 
years ago, the best answer may have been the 10 links that we 
saw, but the best answer today may be that we can 
algorithmically compute an answer and do it quicker. Think of 
it as if you are looking for an answer, you want the answer 
quickly, and speed matters, especially at the scale that we are 
at. So if we can calculate an answer more quickly, that's an 
improvement for the end user.
    Senator Kohl. I appreciate your response, but in a large--
in measure, it's another way of saying, trust us, that we are 
going to do, and we do do, and we will do ``the right thing.'' 
Is merely trusting Google to do the right thing really 
sufficient, given your clear business incentives to maximize 
the value of your company? Shouldn't we be guided by the words 
of a great president, Ronald Reagan, who said, ``Trust yes, but 
verify'' ?
    Mr. Schmidt. Well, in fact, I completely agree with ``trust 
but verify'' and I hope that this is in the process that we're 
going through right now. The ultimate correction against any 
mistakes that Google makes is how consumers behave. We live in 
great fear every day that consumers will switch extraordinarily 
quickly to other services. One of the consequences of the open 
internet is that people have choices that they did not have in 
previous generations.
    In every case, the site that was--is now lower ranked is 
still available if you just type their name into your browser 
and off you go. In all cases, what we're trying to do is, we're 
saying that our customers want quick and accurate answers and, 
if you will, the guide or the way we correct ourselves is if 
they switch. We know that people like what we do because we 
have an extraordinarily extensive testing regime.
    It may be worth just describing briefly that we have some 
number of thousands of engineers who work on search. We think 
they're the best in the world and we're very proud of them, and 
they mathematically compute, with more than 200 signals, a 
whole bunch of insights of how to rank things. It's one of the 
hardest problems known in science because of the scale of the 
internet.
    And because we do it so well, we think we have earned that 
position that you were describing, but nevertheless, what 
happens is that when we do that we actually get down to doing 1 
percent testing, so that what happens is we actually know, we 
do side-by-side tests to know that our--that we are producing 
what customers want.
    Senator Kohl. During a conference in 2007, Marissa Meyer, 
one of Google's top executives, discussed how Google placed its 
own products and services on its search results page. Speaking 
of the Google Finance service, she said that in the past Google 
ranked links ``based on popularity. But when we rolled out 
Google Finance, we did put the Google link first. It seems only 
fair, isn't that right? We do all the work for the research 
page and all these other things, so we do it--put it first. 
That has actually been our policy since then.''
    This is your employee. ``So for Google Maps, again, it is 
the first link, so on and so forth. After that it's ranked 
usually by popularity.'' So when she made that comment back in 
2007 she was speaking, in her mind, accurately. How do you 
measure what she said then and what you are telling us now?
    Mr. Schmidt. Well, again, I was not there, so maybe I 
should use my own voice on this question. There's a category of 
queries which are not well-served by the 10 links answer. You 
mentioned in Marissa's quote Maps. When people want a map, they 
actually want a map right then and there. So over a 6- or 7-
year period, we not only acquired a set of companies but have 
also invested hundreds and hundreds of millions of dollars in 
producing what we think are technologically and, from an 
experience perspective, the best mapping products around.
    We surfaced those because all of our testing, plus our own 
intuition, is that when somebody types in an address they 
actually want to have a map and we show it to them very 
quickly. It would be very difficult to do that with the 10 
links model. So again, if we were forced to stay within the 10 
links model, we would not be able to do that kind of 
innovation. Furthermore, I should mention that all of our 
competitors have similar approaches and similar products to the 
Maps places, and other things.
    Senator Kohl. Let me just say once again, she said, ``When 
we rolled out Google Finance we did put the Google link first. 
It seems only fair. We do all the work for the search page and 
all the other things, so we do put it first.'' Now, you 
recognize, of course, if that's company policy, that's very 
contrary to what you're telling us here today.
    Mr. Schmidt. Well, again, I can speak for the policy of the 
company during my tenure, and I represent it as I implemented 
it and understood it. In our case we implemented it the way I 
described it. I'll let Marissa speak for herself on her quote.
    If you take a look at Google Finance, we started off by 
presenting Google links, as you described, and then we decided 
that it would be better to have a simple, quick ``stock 
quote,'' if you will, tool and we licensed that technology from 
the Nasdaq, the NYSE, and others, and that's the source of her 
answer. So again, we moved from the standard 10 links answer to 
this, what we call a simple answer.
    And then what happened after that, of course, is right 
below it you see all of the top engines. If you do the query 
today, not only will you see that we show all of the other 
competitors, and ideas, and great sources of information--about 
information, but we also have hot links, as they're called, 
right below our answers, including, for example, Yahoo Finance, 
which is probably the most popular of them.
    Senator Kohl. But to be listed first is an advantage, isn't 
it?
    Mr. Schmidt. In this particular we don't actually list 
anybody first. We have an insertion which summarizes the 
answer, and typically the Yahoo answer comes right after our 
answer. It's easier if I describe it. If you want a stock 
quote, we'll just give you the stock quote, and then right 
after that we'll show you links to, for example, Yahoo Finance 
and the others--the others right there. So I disagree with the 
characterization that somehow we were discriminating against 
the others.
    Senator Kohl. Thank you very much.
    Mr. Lee.
    Senator Lee. Thank you, Mr. Chairman. And thank you, Mr. 
Schmidt, for being with us.
    Let me get right to the point of one of my concerns. Are 
Google products and services offered by Google subject to the 
same search ranking algorithmic process as all other organic 
search results?
    Mr. Schmidt. They are--they are when they're actually in 
ranking in the answers that you're describing, but I think the 
core question that both of you addressed in your opening 
statements was this question of where we synthesize or we come 
up with an answer to a question. So again, I want to just 
repeat that if we know the answer, it is better for the 
consumer for us to answer that question so that they don't have 
to click anywhere, and in that sense we tend to use data 
sources that are our own because we can't engineer it any other 
way.
    Senator Lee. OK. OK.
    But I'm really not asking whether you're giving the right 
information, whether you're giving information that is--you 
know, that you regard as most helpful to the customer. I'm 
asking whether your own secondary services, services that 
Google itself offers, are they subject to the same test, to the 
same standard as all the other results of an organic 
algorithmic search?
    Mr. Schmidt. I believe so. As I understand your question, I 
believe the answer is yes. I'm not aware of any unnecessary or 
strange boosts or biases. So, for example, you'll see 
everything is intermixed in a way that often competitors' links 
are in along with, for example, YouTube.
    Senator Lee. OK.
    I'd like to show a visual aid. Let's bring up the first 
slide if we can, Mike. This is a chart that reflects the 
results of a study comparing the search rankings of three 
popular price comparison sites and those of Google Shopping. 
Now, the three popular price comparison sites' results are 
depicted in various shades of green, and the Google results are 
depicted in red.
    These particular data points were gathered in April of this 
year and they represent the ranking results from 650 shopping-
related key word searches. While Nextag, Price Grabber, and 
Shopper all show significant variation, ranking first for some 
and near 50th for others, Google has a very consistent rate of 
success. Google Shopping ranked 3rd in virtually every single 
instance.
    So to be clear, your testimony a moment ago was that these 
Google Shopping rankings almost exclusively in the third spot 
are in fact the result of the same algorithm as the rankings 
for the other comparison sites?
    Mr. Schmidt. There's a conflation of two different things 
going on in this study, which I've not seen so I shouldn't 
comment beyond that. There's a difference between sites that do 
product comparison and sites that offer products themselves.
    Google Products search is about getting you to a product, 
and so we tend to look for the product as opposed to the 
product comparison in this particular case, which is why the 
product is more highly ranked than the result of a product 
comparison site. If you did the same study with all of the 
other product sites, you would find a very different result.
    Senator Lee. OK. OK.
    So if we called this a product search, if we called the 
result a Google product result, that is not subject to the same 
algorithmic search input that brings about the other organic 
algorithmic search results?
    Mr. Schmidt. Again, I'm--I'm--I'm sorry I may have confused 
you, and I apologize. We do product search ranking. Things 
like--the companies that are mentioned that are price 
comparison shopping. They're different animals, if you will. 
They do different--they're important, they do different things. 
Google Products search is about searching for specific 
products. In that sense, products search does something similar 
to what Price Grabber, Nextag, and Shopper do, which is why the 
confusion exists. It's not a--it's not a--it's an apples-to-
oranges comparison.
    Senator Lee. Why is it that they're always 3rd? I mean, it 
seems to me that this is an uncanny----
    Mr. Schmidt. Well, again, I----
    Senator Lee [continuing]. Statistical coincidence, if we 
can call it that. Third every single time. I mean, there are a 
few outliers where you're 1st, or you're 3rd, or where you're 
4th. You're also, interestingly enough, occasionally 11th. 
You're never 12th. You're certainly never 50th or anything 
close to it. And yet, every one of those others will find 
themselves everywhere along this spectrum, everywhere. You're 
always 3rd--almost every time. How do you explain that?
    Mr. Schmidt. Well, again, I'd have to look at--at the 
specific results because we ranked----
    Senator Lee. Well, we've got the results right here. Just 
look at----
    Mr. Schmidt. No, I'd need to see--I'd actually need to see 
the technical details to give you a direct answer. But in 
general, what's happening here is you're having product 
coparison sites and their results are being compared against 
Google answers, which are products, and the two cannot be 
properly compared. That's why I think you're seeing such a 
strange result.
    Senator Lee. OK. OK.
    It seems to me, for whatever it's worth, when I see this, 
when I see you magically coming up 3rd every time, that seems 
to me that--I don't know whether you call this a separate 
algorithm or whether you have reverse-engineered one algorithm, 
but either way you've cooked it so that you're always 3rd.
    Mr. Schmidt. Senator----
    Senator Lee. Let's move on to the next slide.
    Mr. Schmidt. Senator, may I--may I simply say that I can 
assure you we've not cooked anything.
    Senator Lee. Well, OK. You have an uncanny ability and an 
uncanny natural attraction to the No. 3 in that instance.
    [Laughter.]
    Senator Lee. Let's look at this search result. This one is 
the product of a search query. Here it's a search query for a 
particular camera model when we bring up a Google Product 
listing. Now, it's near the middle of the search screen result. 
You know from your research that the middle of the first screen 
is the area where users are most likely to focus. That's the 
prime real estate online, correct?
    Mr. Schmidt. Actually, clicks go from the top to the 
bottom.
    Senator Lee. OK.
    Mr. Schmidt. So----
    Senator Lee. But you want to be at or near the top of the 
list. That's----
    Mr. Schmidt. In general you want to be on the first page 
and among the first entries.
    Senator Lee. OK.
    Mr. Schmidt. Yes, that's correct.
    Senator Lee. Now, among the natural search results the 
Google listing, the Google Products listing is the only result 
that includes the photo. We've highlighted it here in blue just 
to demonstrate here that it's different, but there's nothing 
online that actually differentiates it as necessarily a Google 
listing. There's nothing that indicates that this is an 
advertisement, that it's even Google, and it's also the most 
prominent given its placement.
    Mr. Schmidt. So--so again, that's not an ad. That is an 
organic search result which is triggered by a product search 
data base which we have gathered by searching and ranking 
offerings from many different vendors. If you actually click 
within that, you'll see that you'll actually go to the vendor 
that will then sell you the product.
    Senator Lee. OK. I'm going to want to follow up on that, 
but I see my time's expired.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Lee.
    Senator Schumer.
    Senator Schumer. Thank you, Mr. Chairman. I want to thank 
you for holding this hearing. I want to thank Mr. Schmidt and 
the other witnesses for being here to testify.
    First, I share my colleague's passion for maintaining free 
and fair competition in the marketplace, especially in the 
high-tech sector. Google and its competitors are building the 
infrastructure of the future economy and it's critical that 
technological growth not be unfairly constrained. That's how 
all markets work, but particularly in this area where 
innovation really matters and things change quickly.
    So I think that the FTC investigation will help get to the 
heart of the facts behind the kinds of allegations we're 
hearing today, and that's a good thing. So it is important we 
examine market dominance with a critical eye, especially in an 
industry that's a foundation of our economic future.
    Now, I've been particularly passionate about the growth of 
the high-tech sector because it has been, and will be, critical 
to the future growth of New York. I realize that when most 
people hear about high-tech sectors in the United States they 
don't necessarily think of New York, yet by many measures New 
York is No. 1 or two when it comes to employment or investment 
in the entire sector. We're now the second-largest recipient of 
high-tech venture capital in the country. We've passed Boston 
this year and only trail Silicon Valley in the amount of high-
tech venture capital invested. This is the statistic that is 
most amazing to me.
    By some measures the New York metropolitan area actually 
has more workers in the high-tech industry than any other 
region of the country: over 300,000 men and women, 22,000 firms 
that are classified as high-tech companies. That's right, we 
have more than Silicon Valley, more than Boston, more than 
Washington. It's sort of hidden by some of the other 
industries. J.P. Morgan, I've been told, has more computer 
programmers than companies like Google or Microsoft. So it's 
very important to New York.
    Google, frankly, has been a very important part of that 
equation in New York. Last year Google bought the largest 
office building in Manhattan. Google employs around 3,000 
people in New York, that's double its employment rate from 
2010, and in 2010 it provided $8.5 billion of economic activity 
for New York businesses, websites, publishers, and nonprofits, 
and I'd like to ask unanimous consent, Mr. Chairman, a number 
of letters I've received from members of the New York 
legislature, New York businesses, describing the significant 
role Google plays in New York's economic development.
    Senator Kohl. Without objection.
    [The letters appear as a submission for the record.]
    Senator Schumer. But obviously with that great power Google 
has, as my previous colleagues have mentioned, great 
responsibility. So I wanted to get a sort of fix on this. 
Frankly, the future of New York's high-tech is lots of little 
companies. There are hundreds of them that are burgeoning, one 
or two of whom might grow into a Google or a Facebook or one of 
the others. So if Google were being rapacious and were shutting 
down the ability of these small companies to function, it would 
hurt New York.
    Every 6 months or so, I meet with some of the leading--the 
heads--the CEOs of the high-tech companies in New York, the 
growing--the little ones, and we talk about problems they face. 
We don't have a good--you know, we don't have enough engineers 
in New York, we're trying to build an engineering school. 
Immigration is a huge problem to them. We need reform of H1-B 
visas, things like that, which we're working on in the 
Immigration Committee.
    But without even prompting them--and I think this is 
important for my colleagues to hear--there are over a dozen 
companies at the table of different types, each of whom had 
100, 200, 300 employees, and most of whom hadn't existed a 
couple of years ago. And I asked them, what do you think of 
Google? It was off the record. Is Google rapacious? Are they 
competing with you, trying to steal what you do? I've been 
through this before in previous hearings where one of New 
York's companies, Kodak, I thought was being very unfairly 
taken advantage of by another large high-tech company.
    Or are they--generally do they have a more positive 
attitude of being open, of encouraging, et cetera? Frankly, I 
expected them to attack Google. That would be the natural 
thing, you'd think. But they didn't. Four-fifths of them said 
Google is a positive force, much more positive than most of the 
other large companies they deal with. They said ``it helps us 
more than it hurts us'', their words. The consensus was among 
them, Google is actually pretty good. We don't see them as 
rapacious. It surprised me and it's influenced me.
    And so I think my colleagues ought to hear that, that while 
it's important of course that we pay attention to competition 
in the high-tech sector--I agree with you, Senator Lee, that 
that's the best way to get growth--it's also important we focus 
on growth and investment and jobs. And so I thought I'd just 
share that with my colleagues because I think it's interesting 
to hear and it was not--you know, there was no--they had no 
idea I was going to ask about Google, it was off the record. 
They are very frank with me about a lot of things, including 
people's politics and things like that. OK.
    Now, I have a question for you that's specific for New 
York, and then a couple of general questions. Well, I don't 
have too much timing remaining. But last year Google selected 
Kansas City as a site for your new ultra-high speed internet 
service. That really helped Kansas City. The Hudson Valley is 
very eager to be another test place for your network. We have 
IMB there, we have a lot of high-tech industry. It's growing, 
but it's being hindered by a lack of internet capacity. Would 
you agree to consider the Hudson Valley as a future test site 
for your broad-band project?
    Mr. Schmidt. I think the answer is absolutely. I've been 
there and it's both a great technology place and also a 
wonderful natural resource. What we're doing in Kansas City is 
we're actually experimenting with a new model for broad-band, 
different pricing, different speed, and so forth, and if it 
works I think it has an opportunity to really change the 
discussion of broad-band in this country. We want it to succeed 
first in Kansas City, so absolutely.
    Senator Schumer. And last question: we've heard your 
answers here, but I'm sure you have to think about this because 
you're always a growing and evolving company. What do you think 
Google could be doing better to foster competition that you're 
not doing now that you could do to help all those little 
companies grow into big, successful companies?
    Mr. Schmidt. I'm always interested in creating greater 
platforms for innovation. If you take a look at Android today, 
550,000 phones--perhaps others will ask about this--the number 
of new platform opportunities for new companies to build mobile 
apps on Android is very exciting. We could invest a lot more 
money in developer support and platform support for the 
industry that will be built around the platforms that Google is 
building. I've always felt that that's something we could 
invest even more in.
    Senator Schumer. My time's up, Mr. Chairman. Thank you.
    Senator Kohl. Thank you very much, Senator Schumer.
    Senator Cornyn.
    Senator Cornyn. Thank you, Mr. Chairman.
    Welcome, Mr. Schmidt.
    Mr. Schmidt. Yes. Thanks, Senator.
    Senator Cornyn. Mr. Schmidt, I'm a frequent user of your 
product and I've had--learned a lot when I've had a chance to 
visit your facilities in California. It is a marvel of modern 
technology. I have to confess that when I read the non-
prosecution agreement between Google and the U.S. Justice 
Department, it gave me some concerns and I just want to give 
you an opportunity to comment on that because, since the 
Chairman talked about trust, we quoted Ronald Reagan, talked 
about ``trust and verify'', I just want to know how you put 
this into the context of what I would regard generally as a 
very positive contribution to productivity and technology.
    But the non-prosecution agreement between Google and the 
Department of Justice, dated August the 19th, basically Google 
admits to helping online pharmacies illegally sell hundreds of 
millions of dollars of potentially counterfeit and tainted 
prescription drugs to U.S. consumers. And as a result, as you 
know, Google paid a--what is reported to be one of the largest 
criminal penalties levied in cooperation in U.S. history, $500 
million.
    And just quoting: ``As early as 2003, Google was on notice 
that online Canadian pharmacies were advertising prescription 
drugs to Google users in the United States through Google's Ad 
Words advertising program. Although Google took steps to block 
pharmacies in countries other than Canada from advertising in 
the United States through Ad Words, Google continued to allow 
Canadian pharmacy advertisers to geo-target the United States 
in their Ad Words advertising campaigns. Google knew that U.S. 
consumers were making online purchases of prescription drugs 
from these Canadian online pharmacies.''
    In this document, Google admitted to knowing at the time 
that many of these Canadian online pharmacy advertisers 
distributed prescription drugs, including controlled 
substances, based on an online consultation rather than a valid 
prescription from a treating medical practitioner. And it was 
not until 2009 when Google became aware of the DOJ's 
investigation of its advertising practices in the online 
pharmacy area that Google took a number of significant steps to 
prevent the unlawful sale of prescription drugs by online 
pharmacies to U.S. consumers.
    So I want to give you the opportunity, Mr. Schmidt, to put 
that in context so we can get a complete and accurate picture 
of Google as a corporate citizen, and I think it also speaks 
directly to the issue of trust.
    Mr. Schmidt. Well, Senator, thank you. And again, all of 
that is generally quite correct. We regret what happened and we 
entered into the agreement that you named and cited from. 
Unfortunately, as part of that agreement--and I've been advised 
very clearly by our lawyers--that we have an agreement with the 
Department of Justice, that we are not to speak about any of 
the details of it, so I'd have to ask you to speak to the 
Department of Justice for more of that.
    All I can----
    Senator Cornyn. Is that--is that in the 15-page agreement?
    Mr. Schmidt. It's in there somewhere. Yes, sir. And so in 
any case the important thing for me to say is that the conduct 
that was covered is not--has nothing to do with any of our 
current advertising practices or policies. In other words, it 
was a historical event.
    Senator Cornyn. Well, was it the result of oversight or 
inadvertence, or were there some employees in the company that 
were doing this without your knowledge or the----
    Mr. Schmidt. Well, certainly not without my knowledge. 
Again, I've been advised--unfortunately I'm not allowed to go 
into any of the details, and I apologize, Senator, except to 
say that we're very regretful and it was clearly a mistake.
    Senator Cornyn. My counsel advises me that, under the 
agreement, you're not allowed to contradict the agreement, 
although you can comment on it. Is your understanding 
different?
    Mr. Schmidt. Let me ask my counsel. Again, I'm not allowed 
to go into the details or characterize it beyond the--beyond 
what has been cited in the agreement. We absolutely regret what 
happened. It was a mistake and we certainly apologize.
    Senator Cornyn. Well, do you disagree with the 
characterization that I gave, or the words----
    Mr. Schmidt. I agree with you, Senator. Yeah.
    Senator Cornyn. And you've taken steps to make sure that 
that sort of thing never happens again?
    Mr. Schmidt. Absolutely. And again, I say that with great 
regret.
    Senator Cornyn. Mr. Schmidt, of course this is the 
Antitrust Subcommittee. Would you agree with me that at some 
point it becomes illegal under the antitrust laws to insist 
that customers of one product buy another separate product, 
generally called tying?
    Mr. Schmidt. Yes. I'm not an attorney, but my general 
understanding is that that's correct.
    Senator Cornyn. Do you believe that your mobile Android 
operating system--your mobile operating system, Android, has 
reached that point? It's about 40 percent of the market and 
growing fast, correct?
    Mr. Schmidt. As a bit of background, as I mentioned 
earlier, Android is on its way to becoming the most successful 
mobile platform. We're extraordinarily proud of this. As I say, 
we have 550,000 activations and the Android operating system 
is, first and foremost, freely licensed. That is, there's no 
fee whatsoever to use it. Speculating on the basis of your 
question, it turns out that it's possible to use Google search 
along with Android, but it's expressly also possible to not use 
Google search. So the answer is, that's not an example of--of 
the--of the case you were describing.
    Senator Cornyn. Can Google design Android so that other 
applications cannot work as well as Google applications? For 
example, the Gmail application will always be faster than the 
Yahoo mail application. Is that possible?
    Mr. Schmidt. I'm sure that's not true in general because 
under the rules of open source it's possible for anyone to take 
open source and modify it in any way possible. So anything that 
we did, which we wouldn't do, that would advantage our own apps 
would be reversible by somebody because we give them the source 
code.
    In other words, the--historically the problem in this case 
was that there was some hidden feature that a previous company 
would do that wasn't visible. Because Android source is made 
available to everyone, you can see it and we can't--we couldn't 
choose that if we wanted to.
    Senator Cornyn. Thank you. My time's up.
    Senator Kohl. Thank you very much, Senator Cornyn.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chairman, and 
thank you for holding this important hearing. We all know that 
Google is a big component of the internet. I was going my own 
research as people were talking here, comparing--Googling my 
name--which I'm sure no one on this panel, no Senator, has ever 
Googled their own name. But I Googled my name on Google and 
then I used Bing as well.
    I will note that Google, for a fourth entry, beating out my 
own Facebook page, featured a column that my dad wrote for an 
online newspaper on Sunday about the Viking game, in which he 
says, ``The laws of chance are basically silent on the odds of 
another football team matching the mind-bending performance of 
the Minnesota Vikings on Sunday.''
    [Laughter.]
    Senator Klobuchar. So Bing, luckily, does not feature that 
article at all for the Vikings. But it was making me think 
about how you do these rankings. According to some remarks 
attributable to Google in the recent Minneapolis Star Tribune 
article, Google uses nearly 200 different factors to determine 
rankings. I know Senator Lee went through some of this with 
you, and Google changed its ranking formula, according to this 
article, about 500 times in 2010.
    Obviously these change have a big impact. For example, the 
difference between being ranked first and being ranked second 
is that the first-ranked result gets about 35 percent of the 
clicks, the second result I believe only gets about 11 percent, 
and when Google changes its formula, companies that were once 
first might end up being on the second page, or even further 
down the line.
    Businesses are constantly telling me how they want 
certainty, and I know the same time Google is innovating and 
changing its algorithm to improve its product. But do you think 
companies should have a right to expect more certainty in how 
they're being ranked?
    Mr. Schmidt. In the situation that you're describing, I 
have a lot of sympathy for the business whose ranking has gone 
down. There's no question that natural search results do drive 
revenue, traffic, popularity, and so forth, so when we make a 
change, there are ancillary or unintended consequences such as 
that. It's important to know that at the same time company A is 
pushed down, another company goes to the top. And we are the 
business of ranking, and by definition those ranking decisions 
are not perfect. They could be--you could argue them one way or 
the other.
    Our algorithms are not specific to a specific company, so 
you can have a situation where the ranking has changed for no 
particularly good reason and the business feels upset. On the 
other hand, there's another business that got, from their 
perspective, a surprising boost and they're not the ones that 
are complaining. So from my perspective, I--we don't know how 
to be more--more precise with respect to the rankings because, 
as our algorithms improve, we have to touch a billion people. 
We make a change roughly every 12 hours in our ranking. Most of 
them are relatively minor. In the article I think that you're 
referring to----
    Senator Klobuchar. Yes. Actually there's a small business 
that makes above-ground pools in Browns Valley and they had 
to--they said that they paid over $40,000 for an online 
advertisement to make up for the fact that they had been put 
down in the rankings. I think they freely admitted how 
important Google was to their business----
    Mr. Schmidt. Yeah. And again----
    Senator Klobuchar [continuing]. But you could see the cost 
it was for them.
    Mr. Schmidt. No. There's--there's absolutely no question 
that it's a cost. And again, we don't know how to do it with 
more certainty, given that we're always focused on improving 
our algorithms based on competition and the principles that I 
described earlier about user testing. We did make a large 
change approximately 6 months ago which touched a lot of firms 
which had to do with low-quality content farms, which this 
particular example is not, but that's relatively rare when we 
make such a change.
    Senator Klobuchar. One other issue that's come up to my 
attention is there's reports that Google and the associated 
websites participate as bidders in the auctions that Google 
holds for search advertisements. Does Google or its associated 
companies participate in those auctions?
    Mr. Schmidt. You're referring to the auctions that Google 
runs?
    Senator Klobuchar. Uh-huh.
    Mr. Schmidt. So we run an auction around advertising. We do 
occasionally show what are called house ads, and--but we--so in 
that sense we participate in the auctions but we try to limit 
that for obvious--for obvious reasons. It's a very tiny number.
    Senator Klobuchar. OK.
    One thing that I've been focused on is the stealing of 
intellectual property, books, movies, music, just the money 
that's been going out of our country because of that. And, you 
know, what happens sometimes, if you type in a legitimate song 
or you type in a legitimate movie, you might be steered in some 
of the top rankings to an illegitimate site. And is there 
anything more that Google can be doing to take responsibility 
for this? This is obviously a different issue than some of the 
antitrust things, but I'm very curious about it. It's a very 
important issue.
    And again, we agree with--that there is a real problem 
here. We have taken the position that we have to represent the 
web as it is as opposed to the way we wish it to be. We try to 
avoid censoring or deleting things unless by color of law, if 
you will. In those particular cases--and I know this is before 
the Senate--we favor positions which involve following the 
money, people who really are stealing content to the degree 
that the money that they're taking can be revoked from them, 
and so forth. We think that's the best legislative approach.
    Senator Klobuchar. So you follow the money. But still, 
there must be some way to figure out if these sites are 
illegitimate, if they still keep coming up.
    Mr. Schmidt. It's difficult, and the reason is, assume that 
the site--let's say, you know, I'm a stealing site.com. We can 
identify that because we can do some kind of a test for 
trademark violation. That company can then surface as another 
site--test, and then they surface as another site. So it's a 
whack-a-mole problem.
    The other problem we have with copyright is it's hard to 
know who owns the copyright. We have a very successful program 
on YouTube where content owners register their videos, if you 
will, and then if an illegally uploaded copy comes up we can 
actually do the comparison. We can't do that in general because 
of the nature--broad nature of the web.
    Senator Klobuchar. And are you continuing to work on this 
issue? Because I think it's----
    Mr. Schmidt. Oh, it has a huge issue and it has affected 
our business with the content companies on whom we critically 
depend. So we're under great pressure to resolve this with a 
good technological solution.
    If I might add, the core problem is that you can look at a 
website and you can tell that's copyright infringement just 
like that, absolutely. The problem is, a computer can't. To do 
it systematically is a very hard computer science problem.
    Senator Klobuchar. OK.
    Just two other things I wanted to add here. One is, Google 
did a very good event in Minnesota. They reached out to some of 
our small businesses and helped them to set up websites, which 
was helpful. So I know that there's legitimate work being done 
with the small businesses, but again, I share their concerns 
about some of this ordering and how it affects them.
    Second, since Senator Schumer mentioned having the Google 
site in New York when it went to Kansas City, Senator Franken 
and I are still focused on Duluth and I don't want you to 
forget that.
    Mr. Schmidt. Yes. Absolutely.
    Senator Klobuchar. Thank you very much.
    Mr. Schmidt. And if I could--if I could add, I know there's 
a concern about small businesses. One of the great things about 
Google is that small businesses can in fact be ranked higher 
than they would otherwise be because they can be very specific, 
and if we do anything we probably show small businesses better 
than they would be in other approaches.
    Senator Kohl. Thank you, Senator Klobuchar.
    Senator Grassley.
    Senator Grassley. Yes. Mr. Schmidt, I want to make a 
statement, but before I do Senator Klobuchar reminded me that 
one of those workshops is going to be held in Pella, Iowa next 
week. If we maintain our week-long recess from Washington, I'm 
going to go to that.
    Mr. Schmidt. OK. Thank you.
    Senator Grassley. I'm going to have a short statement, and 
then I want to put a longer statement in the record, Mr. 
Chairman.

STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM THE 
                         STATE OF IOWA

    Senator Grassley. I've heard both good and bad about Google 
from Iowans. Some are concerned that Google is unfairly using 
its market power to manipulate search and drive web traffic to 
its own sites to the detriment of small business and consumers. 
They're frustrated by business practices that are not 
transparent. They believe Google is engaging in anti-
competitive behavior, thwarting a competitive marketplace.
    Now, others are extremely supportive of Google's products 
and services. They're concerned that the Federal Government is 
being overly aggressive and will place burdensome regulations 
on a company that is creating good jobs and innovative consumer 
tools. We should not be penalizing successful companies that 
are innovating, providing cost-effective and productive 
services and creating jobs.
    But I also believe that companies should not take unfair 
advantage of their market power, engage in deceptive business 
practices that negatively impact the marketplace. The 
government should not be picking winners and losers. The 
antitrust laws have a role to play in ensuring that there's a 
level playing field. All companies must play by the rules. 
Companies should employ open, fair, and transparent business 
practices that do not harm competition and impede consumer 
choice.
    [The prepared statement of Senator Grassley appears as a 
submission for the record.]
    Senator Grassley. I go to my questions now, Mr. Schmidt, 
and I'm going to quote without attribution several 
communications I've had with Iowans on both sides. I'll start 
out with, what do you say to Iowans who are concerned that 
Google ``uses its power to manipulate consumers and drive 
traffic to itself and away from potential competitors for 
traffic and ad revenue? '' So kind of, how do you respond to 
that? An additional quote is, are you concerned that your 
company has been ``exerting enormous power to direct internet 
traffic in ways that hurt many small rural businesses? ''
    Mr. Schmidt. So I'd like to return to the philosophy that 
we've had for some years, which is to focus on getting to the 
right answer. And we have a lot of systems inside the company--
internal testing, external testing, 1 percent tests as they're 
called--to really make sure that we're producing the results. 
And that is the guide that we use. It's really about consumers. 
As we discussed earlier, it's perfectly possible that in the 
course of that, extremely good and well-meaning small 
businesses move up and down in the rankings. But we are in the 
rankings business, and so for every loser there's a winner, and 
so forth.
    I am satisfied that the vast majority of small businesses 
are extremely well-served by our approach, and as I said 
earlier to Senator Klobuchar, I do believe that, if anything, 
our system promotes and enhances small business over larger 
businesses because it gives them a hearing and a role that they 
would not otherwise have because of the nature of the way the 
algorithms work.
    Senator Grassley. Here's a quote from somebody that 
supports Google. How would you respond to the Iowan who wrote 
that, ``Further restrictions on successful businesses like 
Google are the surest way to impede innovation, 
entrepreneurship, ultimately threatening any sustainable 
economic recovery? ''
    Mr. Schmidt. Well, again, we would like to be judged, and 
we're happy to be reviewed and judged by you all and by all the 
other appropriate legal processes, based on the principles that 
we've set out, which are to focus on consumers and consumer 
choices. We are always worried about consumers being able to 
move from ourselves to our current largest competitor, which is 
Bing, and then the many new competitors that have emerged over 
the last few years. So we argue that we're in a highly 
competitive market. We welcome the oversight, but we would ask 
that you understand the way we're making the decisions is based 
on the principles.
    Senator Grassley. You may want to say how you help small 
business beyond what we talked about here, these workshops that 
you have. But in addition to anything you want to say along 
that line, how can small businesses' websites compete with 
large retailers and big box stores on Google?
    Mr. Schmidt. The historic--it's interesting that Google 
was, first and foremost, a success in small businesses because 
small businesses were more nimble than the big businesses when 
it came to the internet. So we have a long history of promoting 
and helping small businesses, and we love this. Small 
businesses succeed precisely where the larger ones don't. Small 
businesses succeed because of specialization.
    So what we try to do when we try to get companies online, 
is we try to get them to articulate the unique way in which 
they're different. So in your case with your constituents, 
there's something unique or special about the citizens and the 
view and the culture of your State. And if they can show off 
that, they're going to, on the margin, both be ranked higher 
and also appeal to a broader audience. What's great about it is 
that we can have local flavor with global impact, the local 
flavor seen on the website and global impact in terms of the 
market that you're serving.
    Senator Grassley. A question that would come from somebody 
who is not an admirer, complaints along the line that Google is 
directing internet users to Google-operated websites regardless 
of whether the organic results of the search would direct users 
to competing sites. Specifically, some of my constituents are 
concerned that small, local Iowa businesses are not treated in 
a fair and competitive manner and that the top search results 
to a query are often given to large national companies, even 
when a search designates a specific Iowa location in the query. 
So he obviously feels small businesses are being cheated and 
consumers are being misled. Your response?
    Mr. Schmidt. It's perfectly possible that you're describing 
failures of our algorithm. A large company can masquerade as a 
small business in Iowa, and it may be difficult for us to 
detect it. We're constantly making changes in testing to try to 
improve it.
    In the case that you are describing, part of the answer we 
would give is that hopefully you will have a mixture of larger 
companies and smaller businesses that reflect the best of Iowa 
in that particular scenario. But the precise ranking algorithms 
are so difficult to characterize, why am I first and another 
second, because there are so many different signals and it's 
applied so broadly that it's hard to reason from a specific 
case out to the general case.
    Senator Grassley. Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Grassley.
    Senator Franken.
    Senator Franken. Thank you, Mr. Chairman, for this 
extremely important hearing.
    First, I want to start out by saying that I love Google, 
and I said that the last time Google was here in front of my 
Subcommittee but I think it bears repeating. Google has utterly 
transformed the way we locate and use information. I have a 
feeling that Google is going to continue to be among those 
setting the standard for innovation in this country for decades 
to come. But in many ways Google's unprecedented growth and 
success is also one of the reasons we need to pay attention to 
what you're doing.
    As you get bigger and bigger and bigger, I worry about what 
that means for the next Larry Page or Serge Brin, who are 
struggling to build the next innovative product in a garage. I 
am admittedly skeptical of big companies that simultaneously 
control both information and the distribution channels to that 
information. For me, that is at the heart of the problem here.
    When you completely dominate how people search for 
information and you own separate products and services that you 
want to succeed, your incentives shift, your fiduciary duties 
to your shareholders shift, and people have reason to worry 
that you aren't going to play fair.
    I was a little taken aback by an answer you gave when the 
Chairman brought up Marissa Mayer's quote that, ``When we 
rolled out Google Finance we did put the Google link first. It 
seems only fair, right? We do all the work for the search page, 
and all these other things, so we do put it first.'' You 
answered that by saying that, well, you put a map out there. 
When someone wants a map to someplace, you just put a map out 
there and that's what they want. I sort of understand that. Or 
a financial answer of stock price. But then the Ranking Member 
asked you, well, when that's not the case----
    Mr. Schmidt. Right.
    Senator Franken [continuing]. When you're not putting out 
the answer that people want, when you're not doing that, do all 
your rankings reflect an unbiased algorithm? And you said, 
after a little hesitation, ``I believe so.'' That seemed like a 
pretty fuzzy answer to me, coming from the Chairman. If you 
don't know, who does? That really bothers me because that's the 
crux of this, isn't it? And you don't know. So we're trying to 
have a hearing here about whether you favor your own stuff and 
you're asked that question, and you admittedly don't know the 
answer.
    I want to talk about Yelp a little bit. I read through the 
testimony of Mr. Stoppelman, the co-founder and CEO of Yelp 
last night, and I have to say that I found his story to be 
quite compelling. It sounds to me that Google, first tried to 
license Yelp's content and did, and then when Yelp terminated 
that contract, Google tried to buy Yelp.
    When Yelp refused, Google started taking Yelp's reviews and 
showed them on Google's page. We're going to hear from Mr. 
Stoppelman soon, but I wanted to give you a chance to respond 
to some of the points in his testimony. Did you get a chance to 
read it and did you get a chance to look at the exhibits?
    Mr. Schmidt. In general terms, yes, not in specific. But 
I'm generally familiar with Yelp, so----
    Senator Franken. OK.
    First of all, Yelp contends that even now consumers cannot 
find links to Yelp in Google's merged results. Mr. Stoppelman 
goes on to say that ``it is impossible for any of Google's 
competitors to be displayed as prominently as Google itself, 
even if Google's own algorithm rates them higher.'' Do you 
think that's a fair characterization?
    Mr. Schmidt. I generally disagree with----
    Senator Franken. Generally?
    Mr. Schmidt. Again, with Mr. Stoppelman's comments, and 
he'll have an opportunity to say what he'd like in a minute. 
The background on Yelp is that they've been a partner and an 
important site on the web for many years, and they've been 
always relatively highly ranked in our search results.
    We've always had them part of our index. Some years ago we 
decided to start working on a project built around location, 
and the idea was to create, if you will, a hub of information 
around a place, so that would be a map and information about 
the things that are at that map, so a restaurant, a store, or 
what have you.
    And given that we search this information, we also took 
snippets of the results from Yelp, along with many others, and 
put those into those web results. Those became what are known 
as place pages today. I should say, by the way, that our 
competitors also have a similar offering. And if it's--if 
there's confusion as to why we need a place page, think about a 
mobile device. If you have a phone--so you have your phone 
here, it's going to be very difficult for you to go through the 
10 links, whereas if you have a map and you can sort of thumb 
around and move around, that all makes sense.
    So in the particular case of Yelp, I felt that Yelp would 
be very happy with us pointing to their site and then using a 
little bit of their reviews, because we had gotten those in the 
index, and then sending traffic to them. They were not happy 
with that. They sent us a letter to that effect and we took 
them out of the place pages.
    So if you look today you'll see that they're not in there. 
You have the Google reviews and a bunch of other stuff like 
that, and ultimately we bought a company called Zagat to try to 
do something similar. So this is not a case of generic ranking 
and so forth, it's about us trying to create these place pages 
and get information to solve a different problem.
    Senator Franken. I'm out of time. I'd just like to ask one 
short question and then hopefully go to a second round if we 
can. Is Google still using Yelp's content to drive business to 
Google Places?
    Mr. Schmidt. As far as I know, not.
    Senator Franken. As far as you know?
    Mr. Schmidt. Well, again, I'll have to look, but I'm not 
aware of any.
    Senator Franken. OK. Maybe Mr. Stoppelman will help us on 
that. Thank you.
    Senator Kohl. Thank you very much.
    Senator Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman. And thank you 
to you and the Ranking Member for having this hearing which I 
think is very important. Thank you for being here, Mr. Schmidt. 
We welcome you here and I want to join my colleagues who have 
remarked on what a tremendous success story Google is, a great 
American success story, a great consumer success story.
    And I certainly have formed no conclusions whatsoever as to 
any of the questions you've been asked, or others that may 
relate to the concerns that have been expressed, those concerns 
focusing on the size and market power of Google and whether it 
is of a scope and scale that it invokes certain 
responsibilities under our law, and whether or not Google has 
complied with those responsibilities.
    But there's no question about the fact that Google is 
really the behemoth in the search market these days and that it 
far outsizes its nearest competitor, which has less than 30 
percent of the market as compared to Google's 65 or 70 percent 
more in searches, and an even higher share in advertising 
revenue, and that the trend will be toward perhaps an even more 
sizable share on the part of Google in the search market. The 
reason I say it is your nearest competitor is losing $2 billion 
a year, and Google made $29 billion in 2010.
    I think that the dynamic here is best summarized by 
Jonathan Rosenberg, who is your own vice president of Product 
Management, who said--and I'm quoting. He said it in 2008. It's 
not your voice, but I think it does speak to the dynamic in the 
market: ``So more users, more information, more information, 
more users, more advertisers, more users, it's a beautiful 
thing: lather, rinse, repeat. That's what I do for a living. So 
that's the engine that can't be stopped.''
    The hearing and the testimony here, and a lot of what's 
been written and said, has many allegations. They are only 
allegations--they haven't been proven--about scraping content 
and co-opting that content. My colleague, Senator Franken, just 
raised Yelp's allegations, the other kinds of claims about 
anti-competitive conduct.
    So my question to you is, drawing on the lessons that 
presumably you have learned as you very forthrightly 
acknowledge, can Google suggest measures to be taken 
voluntarily at this point to promote competition, to dispel 
those allegations, and perhaps dissipate some of the momentum 
toward government intervention? And I ask this question in the 
spirit of trying to avoid government regulation and 
intervention.
    In my view, some of the companies who have occupied your 
chair before you have been their own worst enemy in that 
regard, and your very frank acknowledgement about Google's 
responsibilities and its approach, I think, speaks an approach 
to, in effect, try to do voluntarily what's in consumers' best 
interest, because competition is in consumers' best interests 
before there is intervention either by a government agency or 
by a court.
    Mr. Schmidt. My general answer would be that making the 
internet win guarantees very strong competition for all of us. 
I understand you were asking a more narrow question, but the 
fact of the matter is there are many, many new startups that 
are potential future competitors of Google and of others. For 
examples, there are sites now that are seeing more than half of 
their traffic coming from Facebook, and Google is a very small 
component of the traffic that they get.
    So there is every reason to believe that a broad strategy 
to promote the internet and promote competition and investment 
in companies, the IPO market is one of the hottest markets ever 
done, so I would argue that the levers are necessary--are 
necessary to guarantee the outcome you're looking for are 
largely already in place.
    Senator Blumenthal. Well, let me be more narrow in my 
question. Right now, as I understand it, certain Google 
properties--Maps, for example----
    Mr. Schmidt. Sure.
    Senator Blumenthal [continuing]. Are at the top of the 
search results----
    Mr. Schmidt. Right. Sure.
    Senator Blumenthal [continuing]. Regardless of the 
algorithm or the formula or the methodology.
    Mr. Schmidt. Sure.
    Senator Blumenthal. They are at the top. Would, for 
example, eliminating that preference be a step in the right 
direction?
    Mr. Schmidt. Well, I would disagree for two reasons. First, 
I think it would be bad for consumers because consumers 
actually wanted a map, and now you're--by virtue of such a rule 
you're forcing people to do steps. The second, of course, is 
that it would allow the competitors to offer such that--but 
without Google being able to do it because competitors all have 
that as well. So what I'm worried about is, such a restriction 
would--would essentially prevent us from meeting our primary 
mission.
    Senator Blumenthal. Are there other specific steps that you 
would suggest? I mean, if we were a court and liability were 
found and the question were remedied, what would you suggest?
    Mr. Schmidt. Well, again, I----
    Senator Blumenthal. And I don't mean to put you in an 
unfair position.
    Mr. Schmidt. No, no. I----
    Senator Blumenthal. It's a very, very, very hypothetical 
question.
    Mr. Schmidt. I've actually spent a lot of time thinking 
about this. We had a long conversation some years ago about how 
Google would behave to avoid being evil when we were big. And 
we actually believe that we've made those changes, steps and so 
forth. A classic example is, we created the Data Liberation 
Front so that we cannot capture or, if you will, hold your 
data.
    If you wish to flee Google to a competitor, Bing for 
example, or another one, we make it very easy for you to do 
that both for your personal data, as well as your advertising 
data. So we think we've done the things that would be 
appropriate to make sure we stay within an appropriate 
competitive box. We're certainly open to suggestions as to 
additional steps.
    In a competitive market like we're seeing with the 
extraordinary expansion of choices on the internet, ultimately 
the internet--the global playing field that is the internet is 
the real protection because of the combination of the one-
click-away and the huge amounts of money that have been 
previously described going into these spaces.
    Senator Blumenthal. My time has expired. I thank you for 
your responses, and I hope there will be a second round.
    Mr. Schmidt. Thank you, Senator.
    Senator Blumenthal. But that's up to the Chairman.
    Senator Kohl. All right. We'll work on a second round of 3 
minutes, then we'll see if we want a third round.
    Mr. Schmidt, industry stats show that Google runs between 
65 and 70 percent of all internet searches in the U.S. done on 
computers and about 95 percent on mobile devices, and has over 
75 percent of all search advertising revenue in the United 
States.
    Under common antitrust standards, this kind of a market 
share is considered to constitute monopoly power. Does Google 
recognize that as a monopolist or a dominant power? Special 
rules apply that there is conduct that must be taken and 
conduct that must be refrained from.
    Mr. Schmidt. We certainly understand the role that we play 
in information and we also understand the proper role of 
government and your role and so forth to inspect what we're 
doing. We're satisfied today that the things that we're doing 
are well within the both legal and philosophical bounds of what 
we're trying to do because we answer the question based on--in 
a competitive market, we're very focused on consumers. So the 
answer, Senator, is we very much understand the role that we 
have to play and we're kept honest all the time, and not just 
by your good graces but also that of the press and the many 
other people who look at what we do.
    Senator Kohl. But you do recognize that in the words that 
are used in antitrust kind of oversight, your market share 
constitutes monopoly, dominant--special power, dominant firm, 
monopoly firm? Do you recognize you're in that area?
    Mr. Schmidt. I would agree, Senator, that we're in that 
area. Again, with apologies because I'm not a lawyer, my 
understanding of monopoly findings is it's actually a judicial 
process, so I'd have to let the judges and so forth actually do 
such a finding. From our perspective we see ourselves as having 
a special responsibility to debate all the issues that you're 
describing with us. Now we do understand it.
    Senator Kohl. Thank you.
    Our hearing so far has focused on issues of commerce and 
business competition, but even more importantly perhaps is the 
potential influence on news and information the American people 
receive. This issue points out how important it is that we 
preserve competition. In the internet search market, right now 
Google is the primary way Americans search for news and 
information on the internet. If your only search engine 
competitor, which is Bing, were to go away, for example, Google 
would then be the only search engine citizens could use to find 
this kind of information.
    Given its dominant share of internet searches, Google is 
essentially a gatekeeper with enormous power to influence 
information and news coverage citizens find on the internet. 
For example, those searching the internet for information on 
today's hearing could get links to my opening statement, or a 
testimony of your critics on the next panel as the first search 
result. More people searching for information on President 
Obama could get links to the White House office website or a 
critical column on the President, or in a weekly standard.
    You would argue, I suppose, that Google simply returns the 
most relevant results first for any news or information query 
free of any political bias, but is this really possible? There 
must be some decision as to whether my opening statement or 
your testimony at this hearing is at the top of the information 
results. Is it really possible to have truly unbiased search 
results for news and information queries? Should we be troubled 
by any one company, however well-intended like yours, having 
huge, huge influence over news and information citizens find on 
the internet? And doesn't this demonstrate the absolute need 
for competition, and real competition, in this area?
    Mr. Schmidt. Well, as I said earlier, we're very strongly 
in favor of competition. There's a lot of evidence that much of 
the online news is now being consumed and generated within the 
social networks, and so we would want to add that into the 
framework, Senator, that you proposed.
    With respect to the question of ranking algorithms and 
bias, it's--it's ultimately a judgment, what comes first or 
second. And in our case, because we have so many things to 
rank, it would not be possible for me to explain to your 
satisfaction or to my own why one link about this testimony was 
one higher or lower. It's a complex formula involving 
influence, and who points to whom, and the way in which it's 
expressed and so forth using a proprietary algorithm that 
Google has developed, which we're very, very proud of. It's the 
best that we can do, and I want to say right up front that we 
do occasionally make mistakes.
    Senator Kohl. All right.
    Now we turn to Senator Lee.
    Senator Lee. Mr. Schmidt, I just want to make clear and get 
a statement on the record under oath: does Google give any 
preference to its own listings--places, or shopping results, et 
cetera, in its own natural search ranking results?
    Mr. Schmidt. Again, the reason I was a little confused by 
your earlier question is the word ``preference.'' We have a 
product called Universal Search. Universal Search chooses how 
to organize the page and so that decision includes many 
components in the natural search. It will, for example, when we 
think you're looking for a product, we will pop out this 
product search, essentially insert, that you showed earlier.
    If you go through that product one--that product search 
thing that we put out, it actually, as I pointed out, takes you 
to other sites that actually then want to sell products. So the 
answer is, we give preference but we give preference in the 
context of our best judgment as to the sum of what the person 
wants to do. Did I help answer your question? I apologize for 
not answering it earlier.
    Senator Lee. Yes. Yes. I think that helps answer the 
question. So it does give preference to those lead--perhaps in 
the case of the camera, not to your own camera sales port, but 
to another page where you're maybe not selling cameras, but 
you're selling advertisements, and if anyone clicks on that you 
get advertising.
    Mr. Schmidt. In that case I don't actually think there's 
any advertising component into that decision, but I take your 
point.
    Senator Lee. OK.
    In preparing for this hearing I was uncertain as to what 
might be the full extent of my concerns regarding Google's 
current practices, but some of my fears, I have to say, have 
been confirmed as a result of our conversation. I'd just like 
to summarize, Mr. Schmidt, what some of those concerns are. I 
am troubled by some of Google's practices, its practice of 
inserting its own offerings, in the midst of natural 
algorithmic search results, usually in the most prominent 
position of the page and with the most eye-catching display.
    My concerns related to this are really three-fold. First, 
this practice seems to me to leverage Google's primary search 
dominance to give its own secondary services and listings an 
unnatural and an extraordinary advantage. No other specialized 
business or search site can hope to compete on anything close 
to a level playing field when Google uses its significant 
market power to disadvantage online competitors.
    Second, this same practice that I described presents a 
clear and inherent conflict of interest. Rather than acting as 
an honest broker of information, Google now has a strong 
financial incentive to channel users through its own listings, 
regardless of their quality. As Google vice president Marissa 
Mayer noted, ``To the degree that we'', meaning Google, ``host 
content we ultimately have a monetary incentive to drive people 
to those pages, if those pages have ads on them.''
    Finally, I worry that this practice harms consumers. 
Manipulating algorithmic search results violates consumers' 
legitimate expectations, and by unfairly disadvantaging 
competing services it may ultimately reduce consumer choice and 
stifle innovation.
    Again, Mr. Schmidt, I am troubled by what we've learned 
today about Google's practices and I hope that you will take 
swift action necessary to resolve these concerns. Thank you 
very much.
    Thank you, Mr. Chairman.
    Senator Kohl. Mr. Franken.
    Senator Franken. Thank you. I think I'm the Chairman now 
for a while.
    [Laughter.]
    Senator Franken. Then the Chairman will be back.
    Mr. Schmidt, let's shift to talk about mobile search 
because clearly the direction of growth of the Internet is 
going to mobile, and searches will be going to mobile. I 
understand you control about 97 percent of mobile search. You 
are the default search engine on all Apple phones. Is that 
true?
    Mr. Schmidt. That is correct.
    Senator Franken. OK.
    And you also own Android, which is the largest mobile 
operating system. This type of dominance ultimately means that 
you control what consumers use when they purchase an Android 
phone. Nielsen released a study last week that stated that five 
of the six dominant apps on the Android device are owned by 
Google. Only Facebook made it into the top six. I have no doubt 
that part of the reason for that is that Google often creates 
superior products.
    But that isn't the only reason. What comes pre-loaded on a 
phone impacts what apps win--which ones win or lose in the 
battle for consumers' attention. Do all Android devices come 
pre-loaded with apps for Google Maps, Google Places, Gmail, and 
now Google Plus?
    Mr. Schmidt. They do not.
    Senator Franken. They do not. Do many of them? Do a large--
--
    Mr. Schmidt. My--my----
    Senator Franken [continuing]. Majority of them?
    Mr. Schmidt. My not-too-precise estimate is that a slight 
majority come with it. I would estimate on the order of two-
thirds come with it, pre-loaded.
    Senator Franken. So if an equipment manufacturer that makes 
Android phones for you doesn't want to pre-load Google apps on 
its devices, can they do that?
    Mr. Schmidt. Absolutely.
    Senator Franken. OK.
    If I am a customer and want to use Yelp instead of Google 
Places, is it easy for me to delete Google Places on my phone 
and upload Yelp?
    Mr. Schmidt. Well, Google Places is essentially a result 
from search results, so if you simply used--if you didn't use 
Google search you wouldn't have Google Places at all and Yelp 
is available through all the browsers that are available on 
Android, so Yelp is always available independent of that.
    Senator Franken. I'm talking about as an app.
    Mr. Schmidt. It's not an app. Google Places is not an 
application on Android, it's a result from a search.
    Senator Franken. OK.
    Mr. Schmidt. OK.
    Senator Franken. So what apps--what Google apps are there?
    Mr. Schmidt. Gmail, chat applications, those sorts of 
things.
    Senator Franken. OK.
    Mr. Schmidt. And again, to help, I think what you're--if I 
may, I think what you're getting at is----
    Senator Franken. Sure.
    Mr. Schmidt. I think what you're getting at is----
    Senator Franken. Tell me what I'm thinking.
    [Laughter.]
    Mr. Schmidt. No, I was just trying to be helpful.
    Senator Franken. Yes, I know. Thank you.
    Mr. Schmidt. Many Android partners combine Google search, 
Gmail, chat, and a few other apps into a package. And I believe 
what you are referring to is the fact that in that case we do a 
revenue share with them on the Google search.
    Senator Franken. Well, thank you. My time is up.
    Senator Blumenthal.
    Senator Blumenthal. Thank you. Again, I want to emphasize 
to you, I've reached no conclusions and I will be submitting 
other questions in writing because----
    Mr. Schmidt. Sure. Yes.
    Senator Blumenthal [continuing]. We may not have time for a 
third round, and I'm sure that you will be happy to be relieved 
of that spot.
    [The questions appear under questions and answers.]
    Senator Blumenthal. But, you know, I've been trying to 
think of the analogy here to what the ordinary consumer can 
understand as what Google does, and as I sat here, you know, 
the racetrack analogy. You run the racetrack, you own the 
racetrack. For a long time you had no horses. Now you have 
horses and you have control over where those horses are placed, 
and your horses seem to be winning.
    And, you know, I think what a lot of these questions raise 
is the potential conflict of interest, to use a sort of 
pejorative, but not necessarily to be critical, because you may 
have great products and you put them first and you may regard 
that placement as a service to consumers, but inevitably that 
will stimulate the kind of criticism that has brought you here 
today.
    Mr. Schmidt. So it won't surprise you, Senator, to say that 
I disagree with your analogy completely.
    Senator Blumenthal. And I invite your disagreement.
    Mr. Schmidt. So--OK. So I prefer to think of the internet 
as the platform. You can think of Google as a GPS, right? It's 
a way of getting there. One of the most important things to say 
here is--again, with respect to all the complaints, and 
comments, and so forth, Google does nothing to block access to 
any of the competitors and other sources of information, we 
encourage it. Indeed, in all the cases that have been used 
where we come to an answer, we also show all the other possible 
answers. We try to be as inclusive as possible.
    So from my perspective, when I net it out, we need to be 
able to--to be free to get to what we think algorithmically is 
the best answer to the query that the person has done, and if 
we can do that with no clicks, zero--literally zero click and 
we can compute it algorithmically, that's better for the 
consumer. I really genuinely believe that.
    Senator Blumenthal. But to return to my analogy, there's no 
allegation that you necessarily exclude those other horses. To 
use your analogy, there's no allegation that you would 
necessarily misguide a consumer to go in the wrong direction on 
the Internet, but there is something different when you own a 
place and the directions happen to put the consumer at the 
place you own as opposed to some other place that, in 
appearance, objectively, might result in that consumer going to 
another place. You know, I realize that we're over simplifying 
a very difficult and complex area, but again, I invite your 
comments and disagreement.
    Mr. Schmidt. Again, I think that the most important thing 
for us to do is to come up with the quickest answer the best, 
and this is the best we know of how to do that. We do, in fact, 
have the concerns that you're describing in our minds as we 
make these decisions, but we are--and we've said this for 
years--we really, really do test this stuff and we really do 
believe that this is the best choice for consumers and we run 
the company for the benefit of the consumers, frankly not for 
the other websites.
    Senator Blumenthal. My time has expired, but I thank the 
acting Chairman.
    Senator Franken. Thank you. And to carry your analogy just 
one step further, you might have been saying that you think 
Google might be doping the horses.
    [Laughter.]
    Senator Franken. Is that what you're saying?
    Mr. Schmidt. I didn't say that.
    Senator Franken. Oh, OK.
    [Laughter.]
    Senator Franken. I guess I misunderstood.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much.
    I was thinking of--what a lot of the questions have been 
focused on is just this--how the searches work and how you end 
up at one or how you end up on the next page suddenly in 1 day. 
Have you thought about how more transparency--and if there's 
other things that you could do to explain to people why this 
happening and when there's going to be a change?
    Mr. Schmidt. I think this is, again, an excellent point. We 
do a lot of tools for websites so that they can understand how 
they're ranked and the changes that we have made. We don't, in 
my view, do enough, so I agree with your question there. 
There's a limit to how much transparency we can provide, for 
two reasons. One is that our algorithms, the actual ranking 
algorithms, are viewed as quite proprietary. They're viewed as 
our innovation, if you will, by our great scientists at Google.
    The second is that if we're completely transparent as to 
how the algorithms work, they will be heavily gamed by sites 
that try to spam us. We've had experiences where people will 
latch onto some behavior and then essentially manipulate the 
index to produce a really false answer, which often is the butt 
of jokes, and so forth and so on. So there's a limit to how 
transparent we wish to be with respect to our actual ranking 
algorithm. I do agree with you that we can do a better job of 
describing the change and so forth. I think that's exactly 
right.
    Senator Klobuchar. OK.
    Just one last question here. You know, you--online users 
are in many ways your customers, but then also the businesses 
that advertise are your customers. So does Google need to be 
careful that the privacy and protection of the web users 
doesn't come into conflict with the business interests of those 
that are advertising on the web, and how do you resolve that 
conflict?
    Mr. Schmidt. We debate this quite a bit. We have a very 
detailed privacy policy about how we behave with users' data, 
and there have been a number of businesses suggested to us over 
the years that would use--that would, in our view, misuse 
people's private data, search histories, and so forth, and 
we've said no to those. It's very, very important that the 
history of people's searches, where they are, what they do is 
not used without their permission in these advertising 
products. I think you'll find that Google will be one of the 
exemplars of that principle. And as this becomes a bigger thing 
for many, many companies, a lot of people will face this 
question.
    Senator Klobuchar. Thank you very much.
    Senator Franken. Well, we are now going to transition to 
the second panel. We thank you, Mr. Schmidt, for being here and 
for your testimony. I'm glad that my colleague from Minnesota 
brought up privacy. I am the Chairman of the Subcommittee on 
Privacy, Technology and the Law, and I would probably like to--
we'll be keeping the record open for 10 days.
    Senator Klobuchar. One day.
    Senator Franken. Twenty days?
    Senator Klobuchar. One day.
    Senator Franken. Oh, one day.
    [Laughter.]
    Senator Franken. One week. OK. It's either 10 days, one 
week, or 20 days.
    [Laughter.]
    Senator Klobuchar. One week.
    Senator Franken. I'm the Chairman right now and----
    [Laughter.]
    Senator Franken [continuing]. And I think we'll do 1 week, 
which I think is actually the proper answer.
    Chairman Kohl apologizes for not being here for the 
conclusion of your testimony, but was needed for votes in the 
Appropriations Committee.
    So we thank you. Since we're open for I think a week, I 
also plan to submit a few questions on privacy and intellectual 
property theft. But I really thank you, and I'd like to call 
the second panel now.
    Mr. Schmidt. And Senator, thank you. Thank you for giving 
me the opportunity to appear before your--your panel here. We 
will be happy to answer any other questions, Senator, and so 
forth, and clarify any of--any of the questions that require 
further clarification. So, thank you very much.
    Senator Franken. You're very welcome. You'll have that 
opportunity because the record will be open for a week.
    We now call the second panel. You know what? We're going to 
take a brief recess. So if you want to sit there, get used to 
that place, you can do that, or if you want to just mill around 
and chat idly, you can do that as well. We're going to take a 
brief recess, and I believe the Chairman--the real Chairman--
will be back any moment. So, recess.
    [Whereupon, at 3:41 p.m. the hearing was recessed.]
    AFTER RECESS [3:44 p.m.]
    Senator Kohl. We'll now be--the hearing is resumed. We'll 
now be moving to our second panel.
    First on this panel will be Mr. Thomas Barnett. Mr. Barnett 
is a partner at Covington & Burling and co-chair of the firm's 
Antitrust and Consumer Law Practice Group. Mr. Barnett served 
as the Assistant Attorney General for Antitrust in the U.S. 
Justice Department from 2005 to 2008, and he represents 
Expedia, a member of the Fair Search Coalition.
    Next, we'll be hearing from Jeff Katz, CEO of Nextag. Mr. 
Katz joined Nextag in March of 2010 after serving as president 
and CEO of Leapfrog Enterprises, and was the Chairman and 
founding CEO of Orbitz from 2000 to 2004.
    Next, we'll be hearing from Jeremy Stoppelman. Mr. 
Stoppelman is the co-founder and CEO of Yelp, a position he has 
held since 2004.
    Finally, we'll be hearing from Susan Creighton. Ms. 
Creighton is a partner at Wilson Sonsini Goodrich & Rosati, 
where she does serve as co-chair of the firm's Antitrust 
Practice. She served as Director of the FTC Bureau of 
Competition from 2003 to 2005, and she represents Google on 
antitrust matters.
    We're happy to have you all here today. Mr. Barnett, we'll 
start with you, for 5 minutes.

 STATEMENT OF THOMAS O. BARNETT, PARTNER, COVINGTON & BURLING, 
                      LLP, WASHINGTON, DC

    Mr. Barnett. Thank you, Chairman Kohl. It's good to see you 
again. And thank you, Ranking Member Lee and Senators, for 
holding this important hearing.
    I would like to start with a general observation. I was 
heartened initially by the statement that--from Chairman 
Schmidt that Google ``gets it.'' But to be frank with you, 
based on my experience both in the private sector and the 
government, Google doesn't get it. Companies that get it will 
step up to the plate, admit to reality, and focus on what are 
the real issues. Google won't even admit to reality.
    Let me tell you what I'm talking about. The first element 
of a Section 2 monopolization claim is, is Google a dominant 
company? Do they have monopoly power? I think as this Committee 
recognizes, undoubtedly Google has monopoly power in search and 
paid search advertising.
    You don't have to take my word for it, you all heard it. 
Both the Department of Justice and the Federal Trade Commission 
have conducted extensive investigations in this area, and both 
of them, the expert agencies, reached factual determinations 
that show that Google has monopoly power. There's a Federal 
judge who believes that they are dominant.
    But don't take my word for it or their word for it, take 
the word of Chairman Schmidt. If Kelly could put up the first 
chart. In 2003, in a moment of candor, Chairman Schmidt 
acknowledged that ``managing search at our scale is a very 
serious barrier to entry.'' If you have an 80 percent share of 
the market with barriers to entry, you have monopoly power.
    Those barriers don't come from the supposed cost of 
switching or clicking to another site. The barriers come from 
building an effective search engine. You need the scale, the 
volume of traffic that Google has to tune the engine, and it's 
an ongoing process. Nobody else is going to catch Google, even 
if you had access to their algorithm today. They have market 
power.
    Second, is that market power expanding? Absolutely, their 
dominance is expanding into maps, into video, and finance, and 
product. Mobile is an important area where they're expanding. I 
think Senator Franken pointed out, 97 percent of searches on a 
mobile device and 98 percent of paid search advertising served 
to a mobile device is from Google. Moreover, their Android 
operating system, which is on more than 50 percent of every 
Smart Phone shipped in the United States today, is rapidly 
becoming the dominant mobile operating system.
    So from a Sherman Act monopolization/monopoly maintenance 
perspective, is there a problem? Yes, there is a problem if 
Google is engaging in any improper conduct to maintain or to 
expand its dominance. And the question is not, does Google do 
anything that is good. Google does lots of things that are good 
and they want to point you to that. But what they don't do is 
step up to the plate and acknowledge there are some things that 
are highly problematic.
    If Kelly could put up the second chart, similar to the 
screen shot that Senator Lee put up there. Marissa Mayer, in 
her quote that we've talked about, acknowledged that Google 
places links above the natural search results. The blue are the 
natural search results. The other, the orange, are the paid 
search ads that are labeled as ads because they have an 
economic interest in that.
    What's in the middle? Well, what's in the middle is not 
algorithmic. Does Google ever tell the user it's not 
algorithmic? Absolutely not. There are multiple links on this 
page that, when you click on it, will take you to a Google 
Places page. And on that Google Places page, Google will 
advertise and they will earn money. Google has a direct 
financial interest in placing that link above the natural 
search results. By failing to disclose what they're doing to 
users, they can mislead them into going to a site that they 
think, because we're all conditioned to think, well, what's at 
the top of the page, the algorithm has told us, is the most 
relevant to our queries. It's not an algorithmic result and 
they haven't disclosed that fact.
    In the Android operating system there's already indication 
that they're using compatibility as a club to force handset 
manufacturers to do things to help Google and harm competitors. 
You will hear further, from Yelp and from Nextag, about some of 
the other conduct that Google has engaged in that I would 
suggest to you is improper and, to the extent that it has 
advanced Google's position in the marketplace, a problem.
    Antitrust enforcement can and should play a role. It is, in 
fact, I agree with Senator Lee, very important that it play a 
role because, if Google continues to expand and control more 
and more of the internet, there will be increasing pressure for 
more direct government regulation that may be more burdensome, 
more difficult. The right answer is appropriate antitrust 
enforcement.
    Thank you.
    Senator Kohl. Thank you, Mr. Barnett.
    [The prepared statement of Mr. Barnett appears as a 
submission for the record.]
    Senator Kohl. Mr. Katz.

STATEMENT OF JEFF KATZ, CHIEF EXECUTIVE OFFICER, NEXTAG, INC., 
                     SAN MATEO, CALIFORNIA

    Mr. Katz. Mr. Chairman and Committee members, thank you for 
the opportunity to be here today to discuss what I think are 
very important issues to the future of our e-commerce industry.
    First, a note about us. Nextag is an internet comparison 
shopping company. Tens of thousands of merchants list their 
products on our site and our visitors use our content and 
features to find the right products and to compare prices and 
services for many merchants. About 70 percent of our partners 
are small merchants who you've never heard of, like Crafty 
Corner in Oshkosh, Wisconsin.
    About 30 million shoppers a month in the U.S. use our site, 
and we send over $1 billion of sales to our merchant partners 
every year. Google has been a principle partner and an 
outstanding partner to us for many years, but I am here today 
what must be said about the Google of today to ensure that e-
commerce remains competitive and vibrant.
    It was 10 years or so ago when I first worked with a small 
company that no one had heard of with a funny name from the 
world of mathematics: Google. At that time they were the only 
company who would let me, as founding CEO of another small 
company called Orbitz, advertise. Google's approach to letting 
the small thrive through an innovative bidding process that 
enabled all to get access to ads and a ranking process that let 
all websites be visible based on their relevance to consumers 
was brilliant and it was open. It created massive growth in our 
digital economy for all.
    Back in 2002, this openness and competitive aspect of the 
internet was also available to the founders of my company, 
Nextag. They began to invest around Google's ideas and 
technology and words. They believed when--they believed it when 
Google said it would treat others fairly, that natural results 
would be unbiased, and that advertisers could not get locked 
out of top advertising spots. These approaches let Google stand 
out from other search engines back when search was actually 
competitive, and Nextag and others built around those ideas. 
They believed that Google would live up to its end of the 
bargain.
    But Google abandoned those core principles when they 
started interfering with profit growth. Today, Google doesn't 
play fair. Google rigs its results, biasing in favor of Google 
Shopping and against competitors like us. Google says that 
competition is just one click away, but that's not even the 
question. The question is, should Google be able to use its 
market power to make it difficult for users to find us? We 
believed them when they'd said they'd treat all sites fairly 
and we built our business around that, but that is not what 
they do.
    Our technology means we can help little companies who 
cannot possibly invest in the tools or the head-numbing 
statistical methods required to be profitably successful with 
Google to sell their products, from cameras, to apparel, to 
home and garden goods, to jewelry. Try it out sometime. Nextag 
will surprise you with what a good site it is.
    Consider, for example, a merchant in Hastings, Minnesota, 
Boatingstore.com. For about 50 cents, this merchant gets a 
customer from Nextag directly to their store's website that is 
highly likely to buy the trailer jack that customer was 
searching for. For that same price, there is virtually no way 
for that merchant to put an ad in a local newspaper or to get 
that customer, nor to get that same customer from Google on 
their own. It's a good deal for the merchant.
    We are pleased to have helped Google grow their business 
and we are appreciative they helped us grow ours. Now, however, 
they are not innovating. They helped us grow our business, but 
they are copping our business after we invested hundreds of 
millions of dollars to perfect it, and they are very politely, 
deftly, and assuredly moving us aside.
    Today, honorable Committee members, when you search for a 
product like running shoes or washing machines, Google is not a 
search engine anymore. A search engine organizes and presents 
information that is hard to find in an unbiased way. But Google 
of today doesn't present the information that users want, it 
presents the information that Google wants you to see based on 
its commercial interests.
    The company that dominates the information highway controls 
all of the digital billboards and off-ramps, doesn't even tell 
the consumer this search favors Google's preferred vendors, 
preferred advertisers, and some beneficial results may be 
excluded or obscured.
    A company that dominates a marketplace at least has the 
responsibility to provide fair access. I hope this Committee, 
and Google itself, will act to balance the forces that enable 
competition to persist. This is a very big deal. We should get 
it right and we should make it right.
    Mr. Chairman and members of the Committee, thank you very 
much for your time and attention.
    Senator Kohl. Thank you, Mr. Katz.
    [The prepared statement of Mr. Katz appears as a submission 
for the record.]
    Senator Kohl. Now we'll hear from Mr. Stoppelman.

STATEMENT OF JEREMY STOPPELMAN, CO-FOUNDER AND CHIEF EXECUTIVE 
         OFFICER, YELP, INC., SAN FRANCISCO, CALIFORNIA

    Mr. Stoppelman. Thank you, Mr. Chairman and distinguished 
members of the Committee. I appreciate your interest and 
invitation to appear today. My name is Jeremy Stoppelman and 
I'm the CEO of Yelp, a company I co-founded in 2004 with my 
former colleague from PayPal, Russell Simmons.
    At Yelp our mission is to connect people with great local 
businesses. The site allows people throughout the country to 
share detailed and passionate reviews about businesses in their 
neighborhood. In turn, businesses that provide great value and 
good service are able to establish and promote themselves 
online.
    Today, Yelp employs more than 800 people throughout the 
country. More than 60 million consumers use Yelp every month to 
decide how and where to spend their hard-earned money. And on 
the flip side, job growth in this country relies on small, but 
fast-growing and successful businesses. Yelp helps them reach 
new customers by amplifying their positive word-of-mouth 
online.
    This hearing is important because it examines issues that 
go to the heart of innovation: whether new ideas can compete 
fairly against expanding monopolies. In our case, I wonder if 
we would have been able to start Yelp today given Google's 
recent actions.
    Let's be clear. Google is no longer in the business of 
sending people to the best sources of information on the web. 
It now hopes to be a destination site itself for one vertical 
market after another, including news, shopping, travel, and now 
local business reviews.
    It would be one thing if these efforts were conducted on a 
level playing field, but the reality is they're not. The 
experience in my industry is telling. Google forces review 
websites to provide their content for free to benefit Google's 
own competing product, not consumers. Google then gives its own 
product preferential treatment in Google search results.
    Google first began taking our content without permission a 
year ago. Despite public and private protests, Google gave the 
ultimatum that only a monopolist can give: in order to appear 
in web search you must allow us to use your content to compete 
against you. As everyone in this room knows, not being in 
Google is equivalent to not existing on the internet. We had no 
choice.
    Recently, Google has inexplicably softened its stance. What 
changed? Well, the FTC announced an antitrust investigation, 
the State Attorneys General took notice, and this Committee 
proposed this hearing. Was this an admission of anti-
competitive conduct? Perhaps, but questionable practices 
remain. Websites and Google search results now take a backseat 
to Google's own competing products. This is typically 
accomplished by calling special attention to Google-owned 
properties through larger text, bright graphics, isolated 
placement, and pushing objectively ranked websites down the 
page.
    What we're most concerned about is that Google is no longer 
satisfied with pointing users at the best content anywhere on 
the web it can be found. Instead, it seems they prefer to send 
users to the most profitable content on the web, which is 
naturally their own.
    Is a consumer--or a small business, for that matter--well 
served when Google artificially promotes its own properties, 
regardless of merit? This has little to do with helping 
consumers get to the best information. It has everything to do 
with generating more revenue.
    So where is the harm? I live and work in San Francisco, 
which sits on the border of Silicon Valley, a place that has 
participated in the development of some of the most amazing 
products and services over the last few decades, including 
Google. Today represents a rare opportunity for the government 
to protect innovation. Allowing a search engine with monopoly 
market share to exploit and extend its dominance hampers 
entrepreneurial activity.
    Ensuring open and equal competition will sustain and foster 
innovation and job growth. It will also ensure that the price 
of internet advertising paid by small businesses will not--will 
be set by the market and not solely by a monopolist. When one 
company controls the market it ultimately controls consumer 
choice.
    If competition really were just a click away as Google 
suggests, why have they invested so heavily to be the default 
choice in web browsers and mobile phones? Clearly they're not 
taking any chances. So again, I thank the Committee for its 
time and interest, and I look forward to assisting in any way 
that I can. Thank you.
    Senator Kohl. Thank you, Mr. Stoppelman.
    [The prepared statement of Mr. Stoppelman appears as a 
submission for the record.]
    Senator Kohl. Ms. Creighton.

   STATEMENT OF SUSAN A. CREIGHTON, PARTNER, WILSON SONSINI 
             GOODRICH & ROSATI, PC, WASHINGTON, DC

    Ms. Creighton. Thank you, Senator. Before I begin my 
remarks, Mr. Schmidt asked me to clarify for the record that 
Google Places and Yelp are both applications, or apps--mobile 
apps.
    Senator Kohl. I'm sorry?
    Ms. Creighton. Mr. Schmidt asked me to clarify that both 
Places--Google Places and Yelp are mobile apps.
    Senator Kohl. Oh. In response to my question?
    Ms. Creighton. In response to--that's correct.
    Senator Kohl. All right. Thank you.
    Ms. Creighton. Thank you, Chairman Kohl, Ranking Member 
Lee, and members of the subcommittee.
    From 2001 through 2005, I had the privilege of serving as 
the Deputy Director, and then Director of the Bureau of 
Competition at the Federal Trade Commission, serving as the 
chief antitrust enforcer at the FTC. During my tenure we 
brought more monopolization cases to put a stop to anti-
consumer conduct than during any comparable period at the FTC, 
going back to the late 1970s.
    As this strong enforcement record reflects, I firmly 
believe there is an important role for government in enforcing 
our antitrust laws. The same experience, however, underscored 
for me the need for the government to exercise extreme caution 
before acting against a company for its day-to-day business 
decisions.
    These unilateral business decisions are the heart of the 
competition and innovation underlying our free market system. 
Because of the very real risk of deterring innovation and other 
beneficial activities, extraordinary care must be taken to 
ensure that government intervention in the market is truly 
essential, otherwise, such action is much more likely to harm 
consumers than to help them.
    As an attorney based in Silicon Valley who has worked with 
high-tech companies for more than 20 years, I believe that the 
danger of harmful intervention is especially acute in the high-
tech sector. In Silicon Valley, disruptive innovations are the 
rule and not the exception, and companies can watch their 
market positions disappear overnight.
    For example, just 4 years ago My Space had a 72 percent 
share in social networking; today it is a fraction of 1 
percent. We all know what happened. In the same length of time, 
Facebook grew to become the most popular destination on the 
internet, with 750 million registered users.
    In this sector the only constant has been changed. The pace 
of technological innovation has been extraordinary, competition 
is robust, and the competitive landscape is constantly 
evolving. We have seen the incredible benefits to consumers 
that this vibrant competition has delivered, developments that 
were nearly unimaginable when I started in Silicon Valley 20 
years ago.
    Search technologies have been an important part of this 
American success story. Indeed, Google's founders changed the 
nature of search when they invented the page rank system 13 
years ago. Rather than count how many times a key word appears 
on a page, page rank is based on the idea that the best way to 
rank information is based on consumers' assessment of its 
relevance. So, really the core of Google's success has been 
that the best search results are the ones that give consumers 
what they want.
    Today Google continues to innovate to better satisfy those 
same users, competing against ever-growing competition, not 
just from other general search engines but also from social 
networks like Facebook, specialized search engines like Amazon, 
Expedia and Yelp, mobile apps for Smart Phones and tablets, and 
a host of others. Because it is free and easy to try different 
alternatives, users are quick to switch to the sources of 
information on the internet that they find most accurate, the 
easiest to use, and the most responsive.
    Importantly, there is no single right answer to what 
information is most responsive to a consumer's question. 
Indeed, the essence of the competition among search services is 
to make judgments about how best to answer the billions of 
queries that they receive every day.
    For the government to dictate how Google should make those 
judgments, whether to rank the New York Post above the New York 
Times or the Washington Post above the Washington Times would 
be to turn Google's search service into a regulated utility. 
This would inevitably make Google less responsive to its users 
and put the company at a disadvantage as it competes every day 
to provide the best, fastest, and most responsive answers to 
users' requests for information.
    It has often been the case in the high-tech industry that 
competitors have sought to invoke the antitrust laws to freeze 
technology in place to prevent what they believe to be unfair 
competition. In the late 1970s, several independent disk drive 
manufacturers brought antitrust suits against IBM, arguing that 
IBM's physical integration of hard drives with CPUs, a major 
innovation, would cut into their sales of disk drives. Courts 
recognize that even if IBM's innovations seemed hard on 
competitors, it was good for consumers, and in fact this paved 
the way for lower costs, better products for consumers, and 
ultimately the IBM PC.
    The core premise of our antitrust laws for more than 100 
years has been that, whereas here there are no artificial 
restraints that prevent consumers from being able to make 
choices in the marketplace, the best way to benefit and protect 
consumers is to allow competition to flourish. If consumers are 
free to choose, acting to protect competitors actually has the 
effect of short-circuiting competition and innovation and 
harming the individuals the law was designed to protect. As the 
courts have repeatedly emphasized, the antitrust laws are meant 
to protect the competitive process, not competitors. We would 
be wise to remember that lesson.
    Thank you very much, Chairman.
    Senator Kohl. Thank you, Ms. Creighton.
    [The prepared statement of Ms. Creighton appears as a 
submission for the record.]
    Senator Kohl. We'll have a 5-minute round.
    Mr. Barnett, do you consider Google a monopoly, or at least 
a dominant firm in internet search under antitrust standards as 
you know them? Why, if so, and why not, if so?
    Mr. Barnett. Thank you, Mr. Chairman. Yes, I consider 
Google to be a dominant company with monopoly power, at least 
in search and search advertising, likely in other markets, its 
mobile search, mobile advertising, mobile operating systems, 
it's quickly moving in that direction, maps, and a number of 
other areas. And I think that they are--have monopoly power 
both because there are expert agencies who have looked into 
this and concluded that, but I take the words of Mr. Schmidt: 
there are huge barriers to entry to getting into search. They 
are a dominant company there because they got there first, they 
have a great algorithm, and it is very difficult, if not 
impossible, for anybody else to catch up with them.
    Senator Kohl. If Google, Mr. Barnett, is a monopoly or 
dominant, what are the consequences, in your opinion? Is there 
conduct that it may not engage in in order to maintain its 
market dominance?
    Mr. Barnett. There is no doubt that a dominant company with 
monopoly power can harm competition in a way that a company 
without that monopoly power cannot. That puts a special 
responsibility on the company to engage in fair competition on 
the merits and not to exclude competitors. I'll give you a 
specific example, because I was, frankly, somewhat offended by 
one of the things that Chairman Schmidt said. He talked about 
the issue of scraping content from Yelp and putting it on a 
Places page. The way he described it was, well, we did that, we 
thought it would be good, and then we got a letter and we took 
it down. That is not what happened.
    My client, Trip Advisor, which has 45 million reviews on 
it, had a very similar problem where its content, its user 
reviews were being placed on Places and the CEO of Trip Advisor 
went to Google last year and said we don't want to appear, just 
take our content off Places and Google said no. The only way we 
will take that down is if you will never appear anywhere in our 
dominant search engine results.
    That was a coercive tactic that was designed to enable 
Google to take their content, use it against them. I think that 
is exactly the type of behavior that a dominant company should 
not be able to engage in, and I completely agree with Mr. 
Stoppelman. The only reason that changed at all, because they 
said no last year, was this year, after the FTC opened up an 
investigation, there were presentations made to the National 
State Attorneys General, and within weeks if not days, Google 
started to back down.
    Senator Kohl. Ms. Creighton, what's your view? If Google is 
considered to be a monopoly or a dominant firm in internet 
search, is there conduct that it may not engage in in order to 
maintain its market dominance?
    Ms. Creighton. Senator, respectfully, I do not believe that 
Google has monopoly power, and I'd like to explain why. So what 
we're looking for in the antitrust laws in terms of whether or 
not a company is a monopoly is really whether it has monopoly 
power.
    The way we look at that is whether or not the company, if 
it were to raise price or exclude competitors, is there 
something that would cause consumers to be unable to switch and 
so the company basically can get away with that? We sometimes 
can use market shares as an indicia of whether or not there's 
monopoly power, but the real question is, is there this ability 
to foreclose competition or to raise prices?
    When I was at the FTC, what I would be looking for was not 
only very high market share as sustained over a very long 
period of time, usually in the 80s, high 80s, I'd also be 
looking for it to have been over many years and I'd be looking 
for indication the consumers--there's some structural problem 
that causes consumers to be unable to switch.
    Here, instead, what we actually see--and I thought Senator 
Klobuchar--I'm sorry she's not here, but she--her sort of 
testing of how Google and Bing ranked her name while she did 
the quick search just while we were here is really the key to 
why, in my view, Google does not have monopoly power. Each of 
you right now can test whether or not you like Google's 
results, and if you don't like them it's free and instantaneous 
to try someone else's results.
    So if you were to enter Yelp and Google didn't return Yelp 
at the top of the search results, I doubt you'd ever come back 
to Google again, you'd be so mad. So it's--when we're--when 
we're looking for whether or not a company has monopoly power, 
I--you know, respectfully, as an antitrust enforcer, and I'm 
sort of wearing an antitrust enforcer has as opposed to my sort 
of, you know, representing Google hat, I wouldn't say that you 
should trust Google. I think the question is whether you can 
trust the market or whether there are some kinds of impediments 
to the way that the market is working that cause consumers to 
be unable to switch.
    Senator Kohl. Thank you.
    Senator Lee.
    Senator Lee. Thank you, Mr. Chairman.
    I have a couple of questions for Mr. Barnett. Sir, in your 
written testimony you make a statement that I find compelling. 
You say, ``Google already possesses unprecedented power to 
steer users and to stifle competition. If for some reason 
antitrust enforcement is not able to address these concerns, 
there will be pressure to reign in Google's power through more 
direct government regulation that is likely to be more rigid 
and burdensome and that itself would pose a threat to 
innovation and economic growth on the internet.''
    Can you tell us more about what you see as a threat, that 
without Google taking action to resolve these antitrust issues 
may cause significant elements of the internet to become 
subject to intrusive regulation by government?
    Mr. Barnett. Thank you, Senator. You know, one of the 
experiences I had when I was the Assistant Attorney General was 
talking with a number of other jurisdictions, such as former 
Eastern bloc countries, countries in Asia, China in particular, 
about moving from a centrally planned economy to a market-based 
economy.
    One of the tools for doing that was to introduce an 
antitrust regime. You don't need the government to dictate 
everything that happens. You can let the market work subject to 
the antitrust rules. That's part of the way we got to 
deregulation of airlines, deregulation of trucking, a lot of 
deregulation in the country which has produced enormous 
benefits.
    It works the other way, too. If Google continues to expand 
and is dominant not only in search and search advertising but 
in all these other areas and continues to control more and more 
of these search-dependent products and services, you will see 
pressure--there is already pressure to give the FCC authority 
to regulate the internet. Then you could have people, not 
market participants but bureaucrats, with respect, making 
decisions that I think can be harmful.
    Senator Lee. So it sounds like you see that pressure 
building rather than abating, unless there's some voluntary 
change in action. It's significant to me because my real 
interest as a free market conservative Republican is in seeing 
that actors like Google take voluntary action so that there's 
no need for antitrust enforcement in the first place, and 
certainly so that there's no place for, or cause for, or push 
for intrusive government regulation on the internet, which up 
to this point has remained a relatively government-free trade 
zone.
    What can Google do, in your opinion, on a voluntary basis 
to resolve these concerns so as to forestall that kind of 
unfortunate result?
    Mr. Barnett. Well, the first thing they can do is live up 
to Chairman Schmidt's words and ``get it.'' I mean, they can 
acknowledge that they are a dominant company and they have a 
special responsibility. The second thing they can do, is they 
can act on that. They can ensure that the way that they display 
the search results, particularly non-algorithmic search 
results, are clearly labeled and not misleading or deceptive to 
consumers. They can avoid and refrain from using content from 
other sites without their permission or authorization.
    They can ensure that their algorithm really is based on 
objective criteria and not penalizing sites because they're 
competitors. If they take steps like that, I think they would 
go a long ways toward gaining credibility and, as you all were 
discussing, give people who were trusting, but verifying, 
comfort that they should be trusted.
    Senator Lee. And some basis for verification.
    Mr. Barnett. Yes.
    Senator Lee. We learned from Robert Bork that the animating 
principle of antitrust justice ought to be consumer welfare. My 
principal concern with Google's current practices is that they 
may not, and may not in the future, result in harm to the 
consumer. They may not in the future take those actions that 
will forestall this harm to the consumer.
    Can you explain to the Committee the particular ways in 
which you think that Google's actions may cause harm to the 
consumer?
    Mr. Barnett. Two examples. First of all, remember, they are 
an advertising company. They made $30 billion last year in 
advertising. Given that they're dominant in advertising, a good 
portion of that is already monopoly rents. To the extent that 
they're maintaining or enhancing that power, that's money that 
advertisers have to spend that ultimately consumers pay for 
because it's going to flow through in the cost of the goods and 
services you buy.
    The more fundamental problem is, if Google is the only 
company that is innovating in these important areas, we lose 
the benefit of competition in innovation, and that's really 
what's going to drive and promote consumer welfare in the 
longer run. That's why preserving competition here is so 
critical, so that companies like Nextag and Yelp have the 
environment and the circumstances where they're willing to make 
the investment, take the risk, and develop the next great 
application.
    Senator Lee. Thank you, Mr. Barnett.
    Mr. Chairman?
    Senator Kohl. Mr. Franken.
    Senator Franken. Thank you, Mr. Chairman.
    Mr. Stoppelman, I'd like to ask you and Mr. Katz a 
question, a hypothetical. Let's assume Nextag and Yelp were not 
in existence today. Would either of you attempt a launch of 
your company in today's market, given the competition in local 
search and product search?
    Mr. Stoppelman. As I laid out, I personally wouldn't. I 
wouldn't. I would find something else to do. When we began, 
there was really actually a level playing field in our space, 
in the local business review space. I mean, I started the 
company because I actually that summer had done a search 
looking for a doctor in San Francisco, and in fact found no 
relevant information. I wanted to know, who's a great doctor, 
not just, you know, what's the nearest one, which one, you 
know, accepts my insurance.
    So that's why we started the business. And as it got going, 
we found that traffic was coming in and it was bringing more 
users to write more reviews. Now with Google taking up so much 
of the real estate, there's no way I would start fresh. I mean, 
fortunately we've been working for 7 years and we've got a 
brand and a lot of traction and so we're not going anywhere, 
but absolutely I wouldn't even consider it these days.
    Senator Franken. Mr. Katz.
    Mr. Katz. I don't think we could do it. Our business 
requires merchants to want to participate in Nextag because we 
have a lot of shoppers on our site. Sixty-five percent of our 
shoppers come to us from Google today either through natural 
search or paid search, so we simply couldn't do it with the 
Google that exists today, where roughly the top half of the 
page is dominated by Google-related product interests and the 
right half of the page where paid advertisers compete is 
beginning to be dominated by unique ad placements which 
competitors such as ourselves can't even purchase. It would be 
very difficult. I think it would be impossible to get the 
merchants to participate in Nextag today.
    Senator Franken. Thank you.
    Mr. Stoppelman, I was a little confused by Mr. Schmidt's 
testimony regarding the history between your two companies. Was 
his depiction correct?
    Mr. Stoppelman. No. I'd be happy to share the time line 
quickly, if that would be helpful.
    Senator Franken. Yes, sure, if you could do it quick.
    Mr. Stoppelman. Sure. So in 2005, Google came to us 
looking--looking at our content and saying they wanted to 
include it in a page, as Chairman Schmidt mentioned, and we 
initially said, OK, we'll try it out, maybe we'll get traffic 
from it. And very quickly we realized that it wasn't helping, 
it wasn't sending us a lot of traffic, and in fact it was 
creating a potential competitor, and so we dropped out of that.
    From 2007 to 2009, we sort of lived on our own and we did 
our thing and Google tried to do theirs. Then there was rumors 
of a potential attempted acquisition. We decided to stay 
independent, and immediately after that our content, which had 
been out of Google's Places property, or local property, 
whatever you wanted to call it, suddenly found its way back in 
without permission.
    So before there was actually a written, signed license for 
that content, and then in 2010 it was just there. We 
immediately registered our complaint and, you know, there was a 
lot of back-and-forth dialog--we understand your concerns, we 
understand your concerns--but in the end nothing happened until 
finally there was some interest on it from the government side 
and Google----
    Senator Franken. OK. So this is scraping, right? Is that 
the definition of scraping?
    Mr. Stoppelman. Yes. In 2010 they essentially took our 
information that they were using for web search----
    Senator Franken. Right.
    Mr. Stoppelman [continuing]. And they go out and they 
pulled in all the web pages from the internet, including ours. 
They took that information from that core business, their 
dominant web search business, and used it in a totally separate 
property, Google Places.
    Senator Franken. Right.
    And speaking of Google Places, Ms. Creighton, when I asked 
Mr. Schmidt whether it was an app he said it wasn't, now he's 
corrected himself.
    Ms. Creighton. That's correct.
    Senator Franken. You said a monopoly is something that is 
over 80 percent. But on mobile, isn't the concentration 97 
percent for Google?
    Ms. Creighton. Senator, with that number--there's a couple 
of big problems with that number.
    Senator Franken. You brought up the number.
    Ms. Creighton. I don't remember talking about mobile, but I 
think----
    Senator Franken. No, you didn't bring--say--no, the number 
was 80 percent.
    Ms. Creighton. Oh, I'm sorry. What that excludes is that 
most consumers today, and if you have Smart Phones you may find 
this is your own experience, that number completely excludes 
apps, which is how most people find information on their phones 
today. So if--so first you have to----
    Senator Franken. But did Google spend money to be the 
default search engine on Apple. Did it spend money on that?
    Ms. Creighton. So Google and Bing, and I'm not sure whether 
or not Yahoo, all competed with Apple to be the--to be the 
search provider on the I-Phone and the I-Pad. In fact, about 
two-thirds of that number that you cited actually comes from 
the fact that Google prevailed in that contract. But Senator, 
if we step back and think about----
    Senator Franken. Could you answer my question?
    Ms. Creighton. Did Google pay? The answer is----
    Senator Franken. Did Google pay Apple to be the default 
search engine on mobile?
    Ms. Creighton. Google certainly entered into--Google 
certainly entered into a deal with Apple and prevailed against 
Bing. But the question is, the----
    Senator Franken. Did they pay money in that deal?
    Ms. Creighton. I--I don't know.
    Senator Franken. You don't know. Would it surprise you if 
they did?
    Ms. Creighton. It would not surprise me if there was a 
revenue----
    Senator Franken. And why do you think they would pay money 
for something that wasn't worth that much, or worth anything?
    Ms. Creighton. Senator, what I was--first, it was a 
default, not an exclusive. So if you go on your I-Phone, I 
think it'll probably take you about 20 seconds to download 
another app or a different search engine. But the real question 
I think from a competition perspective is----
    Senator Franken. OK. Keep going. I'm out of my time, but 
you continue as long as you would like. I'm sorry. Forgive me.
    Ms. Creighton. Is--is whether--is--we actually want Apple 
to be able to have companies like Bing and Google competing to 
be the best search engine. There's no reason to think that 
Apple didn't pick that based on what they thought was the best 
product. Now, having picked Google, Bing and Yahoo are going to 
compete that much harder the next time. So when you have that 
kind of a contestable market, that you have someone who's a 
stand-in for consumers, because Apple is not going to take the 
worst search engine.
    Senator Franken. Thank you.
    Ms. Creighton. Thank you, Senator.
    Senator Franken. Thank you. And I apologize for 
interrupting.
    Mr. Chairman?
    Senator Kohl. Senator Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman.
    Has Google ever scraped or co-opted content?
    Ms. Creighton. Senator, Google has--if we--I don't know if 
it shows on--on the--Mr. Barnett's chart or not, but what--if 
you run a Google search what you'll typically see is there will 
be a line or two that--that tells you something about the site. 
The purpose of run--of having that line----
    Senator Blumenthal. Well, you know what I mean when I say 
co-opted or scraped content.
    Ms. Creighton. Respectfully, Senator, what I was trying to 
get to is the purpose of that is to enable you as a consumer to 
tell whether that's a site you want to click through. So Google 
has not ever unlawfully taken content that is not permitted. It 
has----
    Senator Blumenthal. Well, let's leave out the unlawfully 
part. Has it ever scraped or co-opted content?
    Ms. Creighton. It----
    Senator Blumenthal. You've just heard Mr. Stoppelman's 
testimony here, it's under oath, and it's really a question of 
whether you deny his testimony.
    Ms. Creighton. Senator, to the best of my knowledge, what 
Google has done and what Mr. Stoppelman is describing is, he 
did not--he wanted to have--Google's experience has been that 
people like having a line or two written about them because 
that's what drives traffic to their sites. What Mr. Stoppelman 
was talking about is micromanaging whether or not Google shows 
those results, the natural search results, but not in other 
parts of its site, and was asking for Google to engage in some 
extra engineering to be able to make that possible.
    Senator Blumenthal. Let me move on to your contention, as I 
understand it, that Google is not dominant to the point that it 
has a responsibility under the Sherman Act or other antitrust 
laws, is that correct?
    Ms. Creighton. What I--I think what Mr. Schmidt said was--
I'm not trying to address the question of what Google thinks or 
its responsibilities. I was just addressing the question of 
whether or not, under the antitrust laws, I believe that it has 
monopoly power, and the answer is that I do not believe that it 
has monopoly power.
    Senator Blumenthal. Because its share of internet searches 
and advertising is not in excess of 80 percent?
    Ms. Creighton. To begin with, Senator, because I don't 
believe that the market is properly limited to general search--
to general search engines, so----
    Senator Blumenthal. You think that the market definition--
--
    Ms. Creighton. Is too narrow.
    Senator Blumenthal [continuing]. Should be beyond search.
    Ms. Creighton. I believe that it should be beyond general 
search. So, for example, when I was at the----
    Senator Blumenthal. So let's say a court were to disagree 
with you and found liability and also found co-opting, 
scraping, whatever other anti-competitive allegations have been 
made. What would your remedy be? What would you recommend to 
the court?
    Ms. Creighton. So I think it would depend on what the 
alleged wrongdoing was that the court found, Senator.
    Senator Blumenthal. Well, anti-competitive conduct, such as 
excluding competing sites or placing them lower on the search 
analysis, or co-opting, or scraping, whatever term you want to 
use. Would it be injunctive relief against those practices or 
would you advise some kind of structural remedy?
    Ms. Creighton. Senator, I'm afraid that that probably has 
so many hypotheticals in it, I wouldn't be able to answer.
    Senator Blumenthal. Well, let me ask you this.
    Ms. Creighton. But let me give you--let me give you----
    Senator Blumenthal. In order to avoid a continuing 
potential series of government interventions, which none of us 
really would favor as a first choice, and again I in no way 
prejudge whether there should be, but what would you suggest in 
the way of voluntary action by Google, or would you simply say 
that Google should proceed with its current course of action 
and change it in no way?
    Ms. Creighton. So, Senator, I think--so for example, I 
represented Netscape back many years ago when it was 
challenging some of Microsoft's conduct, some of the conduct 
that was at issue there. And this really gets to the question 
of, are there impediments to the ability of consumers to 
choose. So if someone found, for example, that as Microsoft did 
there, that Microsoft was intimidating OEMs from being able to 
offer rival product so that it never got to market, then I 
would want to have relief that went to those provisions that 
were preventing consumer choice.
    Senator Blumenthal. And so far as monopoly power is 
concerned, you don't think it's relevant that its nearest 
competitor has less than 30 percent, is losing money and 
consumers--I understand the contention that competition is only 
a click away, but there are very strong barriers to entry, are 
there not?
    Ms. Creighton. Senator, I think, first--so Google's--I 
think if you just limited it to the most narrow market you'd 
say it's at 65 percent and declining. The fact that it's 
declining is a big red flag to a finding of monopoly power. 
So--but even beyond that, if you step back and think--one of 
the markets that I had to look at when I was at the FTC was 
whether or not general department stores constitute a separate 
market. That was an empirical question. Did those general 
department stores compete with the boutiques in the mall?
    So, for example--and we concluded that in fact--even though 
there were only two that looked the same, there was only a 
Nordstrom's and a Macy's, that in fact what was constraining 
price were all those boutiques on the mall. So, for example, 
Senator, I think--if you think about, where would you go if you 
were looking to buy a product, I'd be really surprised if you 
didn't think about going to Amazon. Amazon is a special search 
engine that actually has three times the number of product 
searches conducted on it that Google does.
    Similarly, I think when--if you talked to local 
advertisers, it's interesting that Mr. Barnett used the example 
of Milwaukee doctors, because what local advertisers tell you 
today is the number-one place you have to be is Facebook. 
That's where most local advertising is happening. And I think 
Mr. Katz actually even mentioned that the platforms of the 
future for local--for shopping are going to be Facebook and 
Twitter. So when I think you look at, what is the relevant 
market and what are the constraints on Google, you don't want 
to just look at, what are the other general search engines. You 
want to look at whether or not there are other competitors like 
the boutiques in the mall that are constraining it.
    Senator Blumenthal. I very much appreciate your answers, 
and my time has expired. I may have some more in writing, 
particularly as to the market definition and your analysis. But 
I appreciate your being here today, and thank you for your 
answers.
    Ms. Creighton. Thank you.
    Senator Kohl. One more round of 3 minutes.
    Mr. Katz, according to Google consumers can go directly to 
Nextag simply by entering www.nextag.com into their web 
browser, so why should it matter how you're being treated by 
Google's search engine?
    Mr. Katz. Well, when people shop, and this is something 
we've studied and they've studied, what people do is they type 
in ``washing machine.'' They don't type in Amazon or Nextag, 
they don't type in Google Products, they type in ``washing 
machine.'' From there, the rest takes place.
    When you type in ``washing machine'' the Google--first half 
of the Google page begins to lay out and, as we've discussed, 
begins to preference advertisers or products that have a 
preferential or preferential advertising relationship with 
Google. If they did type in Nextag.com, first we would bless 
the Lord above, and then they would go directly to Nextag.com.
    Senator Kohl. What would happen to your business in the 
United States if you no longer appeared near the top of 
Google's search results?
    Mr. Katz. About 65 percent of our search referrals come 
through Google today, so our business would be severely 
impaired. We are probably one of the most successful internet 
companies in the United States that nobody has ever heard of 
because we have really perfected the marketing and use of the 
Google platform, as Eric mentioned it earlier. The down side of 
that is, people haven't heard of us. So if we could not utilize 
that platform, which I've described I think is happening, we've 
certainly seen the benefits, that would severely impair our 
business.
    Senator Kohl. Mr. Stoppelman, what would happen to your 
business if you lost access?
    Mr. Stoppelman. Thank you, Mr. Chairman. About 75 percent--
I believe that's the right number--of our traffic overall is 
sourced through Google one way or another. About 50 percent of 
that is traffic coming for people sort of generally searching, 
starting their search on Google, and eventually finding their 
way to Yelp. And then the other 25 percent of that 75 percent 
number is people that are qualifying, they want to go to go to 
Yelp so they're adding that key word in one way or another. So, 
needless to say, if we were not in Google it would be 
completely devastating to the business.
    Senator Kohl. All right.
    Ms. Creighton, would you argue that it is completely 
permissible under antitrust law for Google to favor its own 
products and services on its results page?
    Ms. Creighton. Senator, I think the question is whether or 
not Google has the ability to provide the answers that it--that 
consumers want, so I think what Google in fact does is it--it 
is constrained because consumers can switch away to be 
providing the answer it thinks is best for consumers, and it's 
not doing that for charitable reason, it's doing that because 
unless it does people are going to be going somewhere else.
    So if Google thinks that it has the best answer, then it 
will be displaying that. But if consumers aren't picking on 
it--picking that--that site, then it's going to drift down over 
time because Google is going to be ranking higher the things 
that consumers are actually clicking on.
    Senator Kohl. All right.
    Senator Lee.
    Senator Lee. Thank you, Mr. Chairman. I just have a couple 
of questions I wanted to ask of Mr. Stoppelman and Mr. Katz. As 
a prelude to that, I want to reemphasize that I'm a firm 
believer in the free market. I'm also an almost life-long fan 
of Robert Bork. In high school I once drove across town just to 
hear him speak. It therefore shouldn't be surprising I'm 
focused on consumer welfare. That was always his emphasis in 
antitrust law, was consumer welfare.
    My question to both of you is this: what, in your view, 
does Google currently do that most harms consumers, and what 
can Google do by way of voluntary action to help alleviate any 
problems that they might have caused in that regard, starting 
with you, Mr. Stoppelman.
    Mr. Stoppelman. Yes. Thank you, Mr. Senator.
    So what can Google do? I think the key would be separating 
out distribution from its own properties. For us that's--that's 
the most important issue. Your chart, I think, very 
definitively showed that Google is preferencing itself on a 
regular basis over a wide variety of queries, and often Yelp 
has the best content when users are doing local searches. And 
if it's not surfacing that toward the top but instead is taking 
out most of the real estate with its own property that it only 
recently decided, you know, was the most relevant, than 
that's--that's a big problem.
    Senator Lee. Mr. Katz.
    Mr. Katz. I would say, you know, the guiding principle is 
really a level playing field. If that were happening I wouldn't 
be here today. There is a few things that Google could address 
if they really wanted to. I would argue its in their interests. 
They clearly don't agree with that. One simple premise. If 
they're going to create a placement or a link anywhere on their 
page, it should be Nextag's easy ability, without changing our 
business, without becoming something we aren't, that we can get 
access to that link or that add unit. Today that's not the case 
for roughly the top half of the page, and for the best ad unit 
they sell on the page, we can't even compete for it.
    Second, they would label more clearly. Those units that you 
pulled out that are top dead center on the page, those aren't 
labeled as commercially preferential to Google. Not everybody 
can be there and consumers really don't know what's behind the 
scenes. They'll never find the benefits of Nextag or another 
site because the first half of the page is where everything 
happens. And last, I think back, I just emphasized level 
playing field, level playing field, level playing field. Simple 
principle. If they get it, they make it happen.
    Senator Lee. Thank you both very much.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you.
    Senator Franken.
    Senator Franken. Thank you, Mr. Chairman.
    Ms. Creighton, you worked very closely on the Microsoft 
case over 10 years ago. There are many parallels between that 
case and what Google is doing today. You may not agree with 
that, but I think you would agree that it isn't enough for 
Google to just say trust us. In fact, I think you said that.
    Ms. Creighton. Yes.
    Senator Franken. They need to explain to businesses and 
consumers what they are doing and why. In the Microsoft case, a 
technical Committee was created to help monitor and enforce the 
obligations in the final court order. To be clear, DOJ hasn't 
filed suit against Google, and I'm not suggesting that they 
should, but I do see some merit in Google taking the initiative 
to create a Committee of technologists and other small 
businesses that could review algorithm tweaks and help provide 
some assurances that Google is treating everyone equally. What 
do you think of that idea?
    Ms. Creighton. Senator, I'd have to defer to the company in 
terms of whether that's a good business idea. As a former 
antitrust enforcer and an antitrust attorney, I'd be extremely 
concerned about--that--that's just another word for regulation. 
So, you know, I don't know if you had a chance to see Mr. 
Barnett's--I think it's in his written testimony. He had to 
search for Milwaukee doctors and he shows a big Places page at 
the top on the Google search results. I'd encourage you to run 
that same search on Yahoo. It looks exactly the same.
    Now, it looks different on--and Bing, and I think the real 
question that we have is whether or not--there's research that 
both Microsoft and Google have done, and it's public, that 58 
percent of all users actually want an answer returned. And one 
of the things you've probably heard, Microsoft advertises it 
everywhere, that Google only returns links, Microsoft returns 
answers. So I think really the question we have to ask is 
whether or not we want to say that Google can't compete or it's 
going to have to go through a regulatory Committee before it 
can be responsive to that demand. The consumer----
    Senator Franken. I guess I was suggesting something 
voluntary.
    Ms. Creighton. I think, Senator, that Google--because 
consumers can switch, their incentive is to do exactly what 
you're describing today. They have no incentive. They have an 
incentive----
    Senator Franken. To do what I just described today, or 
what?
    Ms. Creighton. They have an incentive to be--to be 
returning what consumers want, not to be biased in favor of 
their own content. So, for example, I think there may be a 
misunderstanding as to what happens, for example, if you click 
on one of those Places pages. So Google is actually--is--is 
deflecting advertising revenue away from those pink ads onto a 
Places page, but that Places page is itself a set of natural 
search results.
    Where consumers go on that Places, two-thirds of the time 
they actually click through to the website of the company that 
they're searching for, another quarter of the time they go to 
review sites. So, they only click 7 percent of the time on the 
actual Google ad, so Google is actually losing money with that 
in the short term. But the long term, the reason it does that, 
is it's competing with Yahoo, and Bing, and everyone else 
because it's trying to provide--the way you get a consumer back 
and you make more money over the long term is by providing 
those answers.
    Senator Franken. OK. So you're saying that doing this 
voluntarily, to maybe----
    Ms. Creighton. Is--is what--is what they do today.
    Senator Franken. No. I said----
    Ms. Creighton. I'm sorry
    Senator Franken [continuing]. That they would do--I'm sorry 
to go over time, but there's just some misunderstanding here, 
Mr. Chairman. To create a technical Committee to review what 
they do, is what the Microsoft case did, which you worked on. 
That's what I was----
    Ms. Creighton. Yes, Senator. I--what I--I'm sorry. What I 
meant to say was that they actually, as Mr. Schmidt I think 
explained a little bit, they actually run live tests with us as 
their guinea pigs, like 1 percent of the traffic. They'll do 
side-by-sides: do you like this, or like this? And so I think--
I think that I'm not sure I understand how----
    Senator Franken. OK. You worked on Microsoft and you know--
--
    Ms. Creighton. Yes.
    Senator Franken [continuing]. That they--as part of the 
settlement to comply with the settlement, that they formed a 
technical Committee to review this. You said that would be 
regulation and I said, what if they did it voluntarily? Then 
after that we kind of lost the strain of what we were talking 
about, I think.
    Ms. Creighton. I'm sorry, Senator. I'm sure that was my 
confusion. Let me try again. In short, I think Google already 
changes its algorithm 500 times a year. I think a technical 
Committee would be too slow to be able to keep up with the 
changes in the market.
    Senator Franken. Thank you.
    Thank you, Mr. Chairman.
    Senator Kohl. Senator Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman.
    Just in fairness to Mr. Schmidt, I understood his testimony 
actually to be that he felt Google did have a special 
responsibility by virtue of its size and I want to just express 
my appreciation for his acknowledgement, and I hope also his 
receptivity to suggestions to do better, which I think would 
distinguish him from the experience in Microsoft.
    Mr. Barnett, you have had very significant antitrust 
enforcement experience comparable to Ms. Creighton's--yours at 
the Department of Justice as head of the Antitrust Division. 
And I wonder if you could tell us whether you think--and you 
have no responsibility to answer this question, but if you were 
in that position now whether you would bring a case, or at 
least begin an investigation.
    Mr. Barnett. Thank you, Senator. I guess I would start by 
saying, you know, in that regard Ms. Creighton referred to her 
background. I don't think anyone would accuse me of having been 
overly aggressive or prematurely pulling the trigger on 
bringing monopolization cases, but there was a case that we 
looked at.
    And while I won't go into the details, that had to do with 
Google, who wanted to enter into a transaction with Yahoo! 
Where the Department looked specifically at the search and paid 
search advertising markets and Google abandoned that 
transaction in the face of a representation from the Department 
that we were about to file a suit to challenge it in court. So 
I can tell you that, based on my experience, there's at least 
one instance where I think they had crossed the line.
    Earlier this year they acquired ITA, which is an online 
travel search asset. That's another issue which I won't go 
into, but I will say that I think the Department was right to 
challenge that, which they did. In this context I am more than 
willing to say that I would certainly open an investigation, 
and indeed that's--that's a really important point here. A lot 
of the hard questions--many of the things we're talking about 
having to do with deceptive display and all that have nothing 
to do with the search algorithm, but there have been a lot of 
questions raised about, what does Google do with its search 
algorithm?
    To the best of my knowledge, nobody has ever actually--
nobody outside Google has ever actually looked at it to 
determine what's going on. And I'm not talking about posting 
the algorithm on the internet. I'm talking about, in a 
confidential investigation, enabling a responsible antitrust 
enforcement agency to gather the facts. And I would certainly 
want to gather the facts, and based on what I've seen, I would 
be very concerned that there is harm to consumers.
    Senator Blumenthal. I want to thank you for your testimony. 
I invite any of the witnesses to comment on the market 
analysis, market definition, related questions, but most 
especially on the question that has been raised by myself and 
others as to what Google might voluntarily do, because 
certainly enforcement actions, as both you and Ms. Creighton 
know, are costly, time consuming, cumbersome, blunt, and 
inexact instruments of protecting competition, and far better 
to have voluntary actions that can avoid even the appearance or 
complaints about antitrust violations. And again, to emphasize, 
I have formed no conclusions myself, whatever that's worth, 
about the merits or the issues of fact and law here. So, thank 
you for being here and thank you for sharing your perspectives 
and views.
    Senator Kohl. Thank you, Senator Blumenthal.
    Today's hearing demonstrates the importance of vibrant and 
open competition on the internet. The actions of Google as a 
dominant internet search firm has profound effects on the 
ability of businesses to prosper and to compete, as well as on 
the ability of consumers to find the best products and services 
at the best prices.
    We need to continue to consider whether Google merely does 
its best to serve consumers' interests as it claims, or biases 
its search results so as to distort competition in its favor as 
its critics argue. We will continue to examine these issues. We 
very much appreciate your being here. You have added much 
information and light to this very important topic, and this 
hearing is now closed.
    [Whereupon, at 4:50 p.m. the hearing was concluded.]
    [Questions and answers and submissions for the record 
follow.]
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