Is the FTC Investigation Into Google’s Operations Warranted? Definitely, Here’s Why.

The world’s largest online search engine, Google Inc., is now subject of a U.S. Federal Trade Commission (FTC) review, after the agency officially announced the formal investigation last Friday.

 Users do have many alternatives to finding information online, from other search engines, including Microsoft Bing, to specialized search engines that retrieve information from particular databases, like financial information from the Securities and Exchange Commission (SEC).

Although far from perfect, the reality today is that Google’s superior algorithmic technologies make the search engine the go-to place for online search – giving the company 65-percent market share of the U.S. Internet search market alone, and a whopping 84-percent of the global search market share.

Google maintains the company is exceedingly transparent in how it ranks search results (but there’s evidence it seems to favor top sites – that’s a different topic), and that it clearly labels and differentiates paid advertisements from organic search results (fine). However, as nice as that may be, the primary reason behind the investigation stems from more significant and potentially illegally activities in the way the company generates revenue.

Most of Google’s revenue is generated from its online advertising business. In the latest quarterly earnings (Q1 2011), Google reported $8.58-billion in gross revenue, up 27% from the same period last year. $8.306-billion of which was generated from advertising, that represents over 96.7-percent of total revenue for the period.

The issue is that a significant portion of Google’s advertising revenue could be generated from non-legitimate companies that advertise illegal products and services to U.S. consumers. For example, it is difficult to miss advertisements on Google-owned webpages that offer cheap drugs without prescriptions – an illegal activity – that Google in the process could be greatly profiting while essentially promoting the operations of the illegal enterprises.

Google maintains the company takes aggressive action through developed systems to identify, mitigate, and remove illegal advertisements, but the company has not been very transparent as to how successful it really is at identifying those ads. More recently, Google tweaked its systems (dubbed Panda update) to demote spam sites, and low quality websites from its index, a move that changed over 10-percent of U.S. search results. Google has also filed lawsuits against counterfeit pharmacies in the past that used its advertising platform Google AdWords.

The U.S. Justice Department has already launched an investigation specifically toward complaints of advertisements relating to illegal drugs. In that case, Google has earmarked $500-million toward a possible settlement with the U.S. Justice Department, where if the fine is paid, would make it one of the largest fines ever paid by a U.S. firm to the U.S. government.

Although Google claims to be transparent, it is not as transparent as perhaps it should be in many different functional areas: ranking organic search results, ranking sources in Google News, censoring search results abroad, promoting its own offerings, and possibly most importantly: mitigating profit from illegal advertisements. Now, the last time I checked, if I promoted the sale of illegal/counterfeit drugs (even if I didn’t have proper knowledge of the law), it is an illegal act, and as far as I’m concerned, there is (or, at least there shouldn’t be) no difference between me, you, Google, or any other organization.

It could be argued that Google is simply an advertising medium criminals are using, and that if Google begun censoring which types of advertisements can/cannot be shown (especially given Google’s near monopoly of the online advertising market), then we’re just heading down the Big Brother road. Rather, it is the government’s responsibility to identify, shut down, and prosecute those responsible for selling illegal drugs.

Google says the company would fully cooperate with the current FTC investigation, and that it strongly believes its principles will “stand up to scrutiny”.