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Is Google Selling Out to Governments?

By Dan Newman – Apr 15, 2013 at 9:00PM

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What should investors make of the search engine's EU settlement?

Google's (GOOGL -0.96%) never taken kindly to governments that it thinks overstep their bounds. It abandoned China after deciding not to follow Chinese censorship laws. It regularly declines requests to remove search results that criticize governments around the world. But now, to avoid a $5 billion fine, it has to bend to demands from a European Union antitrust investigation and alter search results to help competitors.

Is this surrender a sign of a more obedient Google?

Rebel yell
Back in 2010, after Google discovered an attack on its services with the goal of stealing intellectual property and information on human-rights activists, Google decided to relocate its Chinese business to Hong Kong. In questioning what to do, it was clear Google felt uneasy about any censorship in the first place:

We launched in January 2006 in the belief that the benefits of increased access to information for people in China and a more open Internet outweighed our discomfort in agreeing to censor some results. At the time we made clear that "we will carefully monitor conditions in China, including new laws and other restrictions on our services. If we determine that we are unable to achieve the objectives outlined we will not hesitate to reconsider our approach to China."

At the time, Google lead the country with a 36% share of search revenue. Now it has only 16% market share, with government-compliant (BIDU 2.74%) taking 79%. A U.S. lawsuit against Baidu for following the Chinese censorship laws was recently dismissed in March on grounds that such a case infringes on China's sovereignty and that the court lacks jurisdiction.

Google also keeps a list of government requests for content removal. These span from the Philippines, where Google "received a request from the office of a local mayor to remove five blogs for criticizing the mayor," to the U.S., where Google "received five requests and one court order to remove seven YouTube videos for criticizing local and state government agencies, law enforcement, or public officials." Neither request was followed.

... to falling in line
Also in 2010, the European Union began investigating Google because of its 80% European market share and allegedly lowering competitors' chances of being found through its search while promoting its own services. But instead of fleeing Europe as it did in China, Google submitted plans last week to change its practices to settle the investigation. This allows Google to avoid a fine that could be 10% of its last year's revenue, which would amount to about $5 billion.

Looking at the plan's details, it becomes clear that only a few concessions may harm Google's dominance. Google will clearly label its own services separate from search results, allow third parties to opt out of Google's scraping of content, and let advertisers switch to competitors with more ease. Clearly labeling Google services might actually give the services more cachet. Third parties would probably be hurt more if they removed their data from Google than if not. The only barbs to Google are those that lessen their power over binding contracts.

Even though it seems that Google is giving in to regulators, it may have worked out a plan that allows it to keep its hold over Europe while avoiding any fines. While it appears that Google lost the fight, and might be more obedient to future demands from any government, it still remains an advocate for free information with its own interests well represented.

Fool contributor Dan Newman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Baidu and Google. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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