UK Internet Search Engines

Wednesday 26th January 2011 Westminster Hall

16:00

[Graham Jones (Hyndburn) (Lab)]

Thank you, Mrs Main, for chairing this Adjournment debate. I am told that it is on a subject that has not been addressed in Parliament so substantially before. However, the subject affects the UK economy and other European economies, and my constituency particularly.

Reach Global, in the ward of Church in my constituency, is a major online company involved in the search for, and retrieval and collation of information—it is a search engine. Netmovers is a major property internet search site that Reach Global owns and it is part of Reach Global’s portfolio of vertical UK search engines. Reach Global’s owners are resident in the UK, they pay taxes in the UK and they employ and train British people. Reach Global is a cutting-edge British company, but like many British companies it is being squeezed out by unfair and anti-competitive practices by Google. There is growing evidence that Google is leveraging its dominance in the search engine market into adjacent markets, much as Microsoft did when it leveraged its dominance in the operating systems market into adjacent markets, such as the web browser market.

E-commerce and e-business are booming. According to 2009 figures from the Office for National Statistics, the UK’s digital economy supports 143,000 enterprises, generating a total turnover of £178 billion of revenue, with nearly £100 billion of gross added value to the UK economy. Against that exponential growth, however, there is evidence that some smaller companies are finding that they are unable to gain access to the online search engine market.

According to Ofcom, in May 2010, 87% of internet search engine users chose Google. Numerically, that is 32.4 million out of 35 million UK searches, which was up 5% on the previous year. Google’s grip is tightening further. By January 2011, its market share had risen to 91% of the UK search market and as a result it dominated online advertising revenue. Bing has 3.87% market share, Yahoo! 2.85%, Ask 1.26% and the remainder of the providers, including UK providers, have just 1.34% of market share between them.

Google has been the focus of much criticism, with claims that it could be abusing its dominant position in the market. In my view, Google has gone from being a competitor to a predator and from a horizontal organic search client to a monopoly giant, with subliminal and unclear sponsored searches that favour other Google products.

It is important that we create the right market conditions to facilitate innovation in the online economy. Competition must be allowed to flourish, which I believe would create the right conditions and defend the interests of British companies, particularly high-tech IT companies.

Concerns are now being raised that Google’s dominant position is stifling innovation and preventing smaller companies from entering the market. Earlier this month, Google was in the headlines for disclosing that in 2010 it had made £2.2 billion in the UK market, claiming approximately 50% of UK online advertising revenue.

All that has led to Google becoming subject to an EU anti-trust investigation into its European operations, with allegations of anti-competitive behaviour. There are suggestions that Google’s search results are influenced by advertising and even that Google’s technology might deliberately lower the visibility of rival sites.

Acting as the principal gateway to the internet, Google has a responsibility to ensure that it provides an open and transparent service, and one that is free from bias or purchased favouritism. Because of its domination of the global search market and its ability to penalise competitors by placing its own services at the top of search results, Google has a virtually unassailable competitive advantage. Moreover, Google can deploy that advantage well beyond the confines of the search engine sector to any service that it chooses. Wherever it does so, incumbents are toppled, new entrants are suppressed and innovation is imperilled. The top result in any search usually results in 50% of the traffic going through that site, so it is easy to see why anyone would want to have the number one slot in the return on any search that is made.

The preferential placement of Google’s price comparison service, for example, caused traffic to the UK’s leading price comparison services to fall by an average of 41% over two years. During the same period, internet traffic in general rose by 30%. That is a marked contrast, but more marked is the fact that traffic to Google’s price comparison site rose by 125% during the same period.

The preferential placement of Google Maps decimated traffic to Multimap and Streetmap, the UK’s two leading online mapping services. The share price of TomTom, a European maker of navigation systems, fell by 40% this week after the announcement of Google’s free turn-by-turn satellite navigation service. RightMove, Britain’s leading real estate portal, lost 10% of its market value on the basis of a mere rumour that Google was planning a UK property search service.

The delineation between advertising and search results is becoming blurred. It is becoming more difficult to separate a sponsored from an unsponsored result. Google’s revenues exceeded $29 billion last year, but that pales next to the hundreds of billions of dollars of other companies’ revenues that Google controls indirectly through search results and sponsored links. That revenue-driven model has encouraged Google to begin promoting its own services at or near the top of its search results, bypassing the algorithms that it uses to rank the services of others.

Reach Global in my constituency currently hosts a UK-focused search engine that is in its seventh incarnation. The search engine, Searchers, has been in continual development for seven years and is independent and owned and funded by a private company. It is a very British enterprise. I am led to believe that it is the largest UK search engine apart from those emanating from the United States. Reach Global believes that Searchers could have an important role to play in the domestic economy where it claims Google fails: focusing on British business, promoting a sense of our national identity and, crucially, aiming to keep at least a portion of the massive advertising revenues available within our economy. As it is UK-based, its results are relevant to UK users.

I hope that the Minister will take up an offer to visit Reach Global. It is a fantastic company, and its investment in IT is incredible. I hope that he will accept that offer and see for himself what a great company it is. According to the ONS, Reach Global is one of 65 businesses working in the information and communications sector in Hyndburn, one of 2,000 in Lancashire and one of 144,000 in the UK.

Foundem is another British company that appears to have been blocked or sanctioned by Google in what appears to be a misuse of internet-filtered search results. The company provides search database solutions to a variety of British high street companies. It was leading the way in supporting US and European Union investigations into monopoly practices. In 2006, Foundem dropped to 144th in Google searches but remained first on Yahoo! and seventh on Ask. It is time to look beyond network neutrality and consider search neutrality: the principle that search engines should have no editorial policies other than that their results be comprehensive, impartial and based solely on relevance.

Without search neutrality rules to constrain Google’s competitive advantage, we may be heading toward a bleakly uniform world of Google everything—Google Travel, Google Finance, Google Insurance, Google Property, Google Telecoms and, of course, Google Books. Some will argue that Google is so innovative that we need not worry, but Google Maps, Google Earth, Google Groups, Google Docs, Google Analytics, Android and many other Google products are all based on technology that Google has acquired rather than invented.

It is not just about computers. Google’s Android smartphone operating system is gaining significant market share. The bundling of Google products with the operating system puts other companies that offer a free product, such as Skype, at risk of losing out to Google’s in-built advantages.

[Mike Weatherley (Hove) (Con)]

Will the hon. Gentleman give way?

[Mrs Anne Main (in the Chair)]

Order. Is the hon. Member for Hyndburn (Graham Jones) prepared to give way?

[Graham Jones]

I will.

[Mike Weatherley]

I thank the hon. Gentleman and congratulate him on securing this debate. I have also met representatives of Foundem. Does he agree that the Google position is stifling British businesses? I congratulate him on taking part in this debate, and particularly on championing the British aspect.

[Graham Jones]

I welcome that intervention, which is helpful. That is quite true, and it is the thrust of the point that I am making. British companies are being stifled. Moreover, the Treasury is losing out. In 2008-09, The Guardian reported that Google, by locating its companies outside the UK, avoided paying £450 million to the UK Treasury, and that was just in one year. Google is also taking advantage of the lower tax rates. It has leverage with large organisations and can employ other commercial anti-competitive practices to the disadvantage of British companies. I take on board the hon. Gentleman’s point; it is very relevant.

I want to come on to the extension of Google into the mobile market. There is speculation that Google may seek to acquire, or seek preferential contracts with, 3G networks specifically to harness advantageous proprietary Google technology into that network, which again would be to the disadvantage of other companies.

Although I am aware that competition law is predominantly dealt with on a European level, what legislative and non-legislative efforts do this Government intend to take to address the imbalance and protect cutting-edge British companies, such as the one that the hon. Gentleman mentioned? I am sure that in his constituency he has IT companies like Reach Global that need our help. What action are the Government planning to take to ensure that a competitive yet innovative market exists in the UK online industry, for the benefit of companies, customers and the economy?

At a time when other markets are struggling, the online digital economy is growing and innovating. We must ensure that it remains open to fostering as many innovative competitors as possible and that British companies and British interests are not compromised.

A recent study by the Boston Consulting Group found that the internet contributed an estimated £100 billion to the UK economy in 2009. To put the figure into perspective, it contributed more than construction, transport or utilities. To achieve its full potential, smaller businesses need to be given the opportunity to grow. The Government need to ensure that we create the right conditions for new economic activity to flourish.

In conclusion, it is in the interests of customers, business and securing the recovery of the UK economy that this issue be dealt with.

16:12

[The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)]

It is a delight to serve under your chairmanship again, Mrs Main. I congratulate the hon. Member for Hyndburn (Graham Jones) on securing this debate. Initially, we were scratching our heads when the title was first put in front of us. In a sense, though, the debate is very much about Google and its dominant position in search.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

I congratulate my hon. Friend the Member for Hyndburn (Graham Jones) on securing this important debate. Although I recognise his concerns, he has opened up a wider issue, which involves competition, innovation and the internet. I hope that the Minister will address the issue of his Department’s responsibilities for securing competition on the internet to ensure that the UK can play a leading part in the innovation and economic benefits that will follow.

[Mr Vaizey]

I will certainly try to do that. If I do not, I hope that the hon. Lady will intervene again to get me back on the straight and narrow. Essentially, the hon. Gentleman was talking about his concerns, and those of some of his constituents, who appear to be running very interesting, go-ahead, high-tech companies—exactly the kind of companies that we want to encourage in this country. There are concerns that the growth and potential of such companies are being stifled by the alleged dominance of Google. Let me give an illustration of how pervasive Google is—“dominance” is a word that is pregnant with other meanings, so I will use “pervasive”. The hon. Gentleman has cited the Boston Consulting Group report, which pointed out the value of the e-commerce market in the UK. My understanding is that that report was commissioned by Google, which just goes to show that almost everywhere we turn, there is a debate about Google.

This is the second time in this Chamber that we have had a debate in which the focus has been on Google. The previous debate was about the breach of privacy that was carried out by street cars that Google put on the road to create Google Street View. Many hon. Members raised concerns about not only that specific breach but privacy on the internet. It is my responsibility, within Government, to try to shape internet policy, so I will try to address some of the issues that the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) raised.

[Jim Shannon (Strangford) (DUP)]

Is the Minister aware that a great many people with tremendous talent in my constituency have had to leave Northern Ireland to get jobs elsewhere? What steps does he intend to take to ensure that that ability and experience can be utilised to its full potential here in the United Kingdom? What does he intend to do to encourage and foster business?

[Mrs Anne Main (in the Chair)]

Order. This is a very short debate and I ask that interventions are kept brief.

[Mr Vaizey]

I am grateful to you, Mrs Main, and for the intervention.

What is the current position regarding search engines? It is absolutely true that the foremost popular internet search engines in this country are based in America. The top two have more than 90% of the market, and that situation is replicated pretty much across the globe, as evidenced by Google’s global market share of around 85%. On one level, the internet search engine market obviously operates in a free market environment, and in the UK there are no barriers to a consumer’s ability to switch to a preferred search engine or to stay loyal to the one of their choice. Many search engines, including the most popular, have local versions that search only UK websites.

[Graham Jones]

Will the Minister comment on the bundling of browsers? Apple’s Safari has a direct link with Google, in that the Google search is in the taskbar, and Microsoft’s browser has its own Bing search engine. Will the Minister admit that such bundling practice is anti-competitive and does not create an open and level playing field with fair competition?

[Mr Vaizey]

It is open to the consumer to choose the product that best suits them, but it is also open to individual companies to partner with whichever companies they choose. Consumers want a service that offers good performance and enables them to find what they want quickly and easily. Google has entered a market and gained market share by giving consumers what they want.

The hon. Gentleman is obviously not speaking in a vacuum, and he referred in his speech to the investigation that is being undertaken into Google. All businesses operating in Europe have to comply with competition law, and the EU is carrying out an anti-trust probe into the alleged abuses by Google. He has mentioned the case of Foundem, which was one of the companies that took a complaint to Europe to secure the probe. It cited allegations of manipulation of its search results, particularly the unfavourable treatment of its unpaid and sponsored results, and the preferential placement of Google’s own services. The probe clearly demonstrates that regulators are alive to the possibility of dominant market players abusing their positions.

The hon. Gentleman also made the point that a number of companies in the UK—not least in his constituency—have concerns about Google’s alleged dominance. It is perfectly open to those companies to ask the Office of Fair Trading to investigate, and I understand that OFT considered the Google case in 2009 and concluded that there was no evidence to suggest that UK consumers had suffered as a consequence of Google’s market share. In his evidence to the Culture, Media and Sport Committee, John Fingleton, the director general of fair trading said:

“Where a company has achieved that position by superior innovation, foresight and better targeting of customers, we’re very wary of intervening…We see a lot of customers benefit from what’s happening in this marketplace from very high innovation—it’s good for the British economy. We don’t want to send a negative signal about that.”

We must keep in mind that there are, according to one source, 177 UK search engines servicing the UK market, including not only the organisation that the hon. Gentleman has mentioned, Reach Global, but companies such as Mojeek, which is based in East Sussex and offers a

“crawler based search engine providing unbiased, fast and relevant search results combined with a clean user interface and user privacy conscious approach.”

It is important to say that where allegations of abuse are made, it is open to individual companies to approach the Office of Fair Trading. We have a robust competition regime in this country and in Europe, and where there is evidence of abuse, it is perfectly possible for the relevant competition authorities to investigate it.

We are debating Google, but we could be debating equally interesting issues involving individual companies on or engaged in the internet. For example, many people who use the internet do all their transactions or engagements via Facebook. The hon. Member for Hyndburn has mentioned Safari’s tie-up with Google, but again, if one has an iPhone or iPad, much of one’s engagement with the internet works through applications vetted and sold by Apple. We are, to a certain extent, coming to a point in the development of the internet where consumers may choose to stay with one or two trusted sites or companies, be it Apple, Facebook, Google or a particular internet service provider, as well as using the open internet where people search and find information.

It is also worth making the point that many ISPs in this country are British-based. One can access the internet through BT or Virgin Media. When raising concerns about the dominance of Google, we should also celebrate the fact that a British company such as BT, which is at the heart of our tech industry, is a global company with a presence in 170 nations around the world.

On general internet policy, the hon. Member for Newcastle upon Tyne Central was probably inviting me to talk a bit about net neutrality, among many other things that take my interest. I am conducting a number of round tables and much policy development work on a host of different issues. The first is illegal piracy and the unauthorised downloading of music and film. I am seeking to implement the Digital Economy Act 2010, which will obviously affect the development of the internet. There is also the protection of children from inappropriate content. Again, I am seeking a self-regulatory solution from ISPs in order to give consumers the opportunity to choose to protect their children from inappropriate content.

Another issue on which I have spoken and which has produced an interesting debate is net neutrality, on which I will briefly set out the Government’s position. The term “net neutrality” is difficult, because it means different things to different people. Interestingly, my speech on the subject was called, “The open internet”, but it was interpreted in entirely the opposite way. Let me be clear that we are absolutely committed to an open internet. That is relevant to the constituents of the hon. Member for Hyndburn, because we want small, high-tech and internet companies to have an opportunity to reach consumers without being unfairly discriminated against.

The internet has developed at a huge pace and in directions that were impossible to predict, so we are wary about introducing legislation that would dictate how it might evolve. In my opinion, the internet has done very well without over-regulation, and I want such innovation to continue. Nevertheless, the improved transparency requirements provided by recent revisions of the electronic communications framework, along with a competitive marketplace and the ability to switch easily between providers, should mean that regulation in that area is unnecessary. We want to give the market the opportunity to self-regulate, which is important, but Ofcom will monitor closely how the market develops. If it develops in an anti-competitive way, Ofcom will have the appropriate powers to intervene.

[Graham Jones]

Does the Minister agree that the examples I quoted about Google’s rise show that that has taken place at others’ cost and that other companies have fallen? What has happened has been to the disadvantage of UK firms in an anti-competitive way.

[Mr Vaizey]

That is a difficult question to answer. First, Google operates in a competitive environment, where there will be winners and losers. As UK citizens, we may be patriotic enough to have wished that it was a UK search engine that had won that particular battle, but the fact is that it was Google. My second point is that it is an open internet, and it is open to any consumer to use any search engine that they choose. Thirdly, although I am not here as an advocate for Google, it is probably worth pointing out that, as a search engine, Google has provided huge opportunities to UK companies—not just high-tech companies, but retailers and small businesses—who have the opportunity to reach a global audience.

The hon. Member for Strangford (Jim Shannon) has mentioned the talent and ability of young people in Northern Ireland—I completely concur with his comments—and invited me by implication to talk about how we plan to ensure that our creative industries in this country continue to flourish. In that respect, the hon. Member for Hyndburn and, indeed, his constituents, whose letter I was fortunate enough to see a copy of, are right to point out that high-tech innovation takes place not only within the M25, but all over the country. The north-west and Northern Ireland are two particular areas where there is a lot of expertise and skill. Particularly in the north-west, the development of Salford and MediaCityUK will have a significant impact on the growth of creative industries. The creation of Creative England, with one hub in Manchester, is a source of Government support for the creative industries in general, and I hope that that organisation will have an impact.

In general, we want to create new businesses to try to keep our young talent here. We want to lower the regulatory barriers that have a huge impact on the sector, including employment and environmental laws, and take account of the cumulative impact of existing and potential regulation. We want to look at the international regulatory regime and how it should adapt to the rise of the internet and the challenges and opportunities that it presents.

The constituents of the hon. Member for Hyndburn mentioned the Hargreaves review, which will look at the intellectual property system and consider how it can possibly be reformed to overcome barriers to growth and enable business models to develop that are fitted for the digital age. We want to look at the application of the competition regime and consider how it should be best structured, empowered and guided to deliver a competitive and thriving UK media system. We also want to look at the removal of blockages in the skills system, which mean the needs of employers in the sector are not fully met.

[Graham Jones]

On the correspondence that he has received from Reach Global, will he accept my offer to come to Church to have a look at that company? I would appreciate that.

[Mr Vaizey]

Absolutely. The hon. Gentleman has asked me twice now, and the second time he did so particularly nicely. It goes without saying that I am delighted, honoured and flattered to be asked to visit that company in the hon. Gentleman’s constituency and see the work that it is doing, which has impressed him so much.

Those are some of the issues that we are considering under the creative industries growth review. Let me sum up briefly. First, I absolutely understand the hon. Gentleman’s concerns about Google. The EU anti-trust investigation reflects the widespread concerns, although Google operates in a competitive market and the Office of Fair Trading investigated the issue about 18 months ago. Secondly, I passionately believe that we need an open internet that is not overly regulated and that allows innovation and competition to develop. Thirdly, we are focused on our creative industries growth review, which we hope will produce a strategy for growth that will help young people in Northern Ireland, in the north-west and in the north-east, and that will help this country’s huge creative advantages.