Google Invests $50 Million in Auction.com

[mrengine]

Google is using its sizable power and cash to put a real estate company on the map. Google Capital, a fledgling venture capital arm of the Internet behemoth, announced Wednesday it is investing $50 million in Auction.com, a growing online real estate marketplace.

Source: [cnbc.com...]

[austtr]

I took a bet with a colleague two years ago that Google would move into the real estate market place. Time to collect.

Auction.com, which sells properties directly from its site through an auction process

Be interesting to see how they monetize the model and whether we will soon see the start of real estate offices vanishing from Main Street in the same way that travel agent offices have done.

[Shepherd]

...sources there say this is a pure-play investment. While Auction.com has access to vast amounts of real-time data on residential home sales and pricing, there will be no product integration.

Yeah... mmmm, ok then...

[Shepherd]

Google invests in these companies and these companies spend money on Adwords. By doing this Google is able to artificially inflate the cost of advertising to other companies in the same sector by driving up bid prices. It's almost like shill bids, but Google cleanses themselves by calling it an investment in another company. Creative yes, but also terribly bad for competition.

This was a comment in the article, it hit me like a truck. We've seen this in our niche, google invests in competitor, adwords prices go up. What a perfect game for google, they basically make their investment in the company back from the company's adwords spend, they get a vig on that money because the other advertisers have to spend more, and they get a piece of the company they invest in... freaking brilliant.

[turbocharged]

Google invests in these companies and these companies spend money on Adwords.

I just searched for a city based real estate auction term and auction.com had the first adwords and organic positions, so I'd say the point is quite valid. The auction.com investment by Google could be used as a fifty million dollar adwords voucher. lol I'm sure all the money won't be spent on adwords, but such a large investment by Google does raise the question of how this influences a bid centered marketplace for other real estate businesses competing for the same advertisements.

I wonder how widespread this problem is, whether it has been brought to the attention of regulators and whether any businesses adversely impacted by such investments have even bothered to file any complaints over the practice? Not that malfeasant regulators would do anything anyway, but it would be interesting to see how they would shield Google from what appears to be a very legitimate concern on the surface.

[Shepherd]

We've been dealing with this for about 2 years now in our niche, we have not filed any complaints but that option is definitely still on the table.

There's no doubt that this activity has an affect on the adwords ecosystem, we've seen it first hand. I wonder if there are any adwords spend requirements in the investment structure. I wonder how much cash actually changes hands in these deals and how much of the investment is given to the company in "adwords allowance".

[turbocharged]

Shepard, I did about a dozen or so city based real estate queries in Google and found auction.com displayed above the fold in adwords on all of them. I could see how the adwords ecosystem, in this type of Google investment environment, would place competing real estate services at a significant disadvantage.

You noted that you have been dealing with this for two years. Were there any other Google Ventures or Capital backed companies found in adwords, during this two year time period, that were benefiting from the same cash infusion as Google has done with auction.com?

I think what is going on with auction.com provides the clearest evidence that Google's large investments in specific companies has the potential to harm businesses by driving up the cost of advertising. Yes, I believe this to be an anti-competitive practice and yet another example of the failure of regulators at home (USDOJ and FTC) and abroad to protect consumers and small businesses.

It's possible that Google has grown too big and wields too much influence to ever be challenged in the United States. Presently, Google has a 67.6% market share in search (Google Search - [comscore.com...] ), 51% market share in mobile platforms (Android - [pcmag.com...] ), a leading 36% market share in web browsers (Chrome - [w3counter.com...] ) and another commanding lead in online video (Youtube - [comscore.com...] ), which logged nearly twice the video minutes watched as the distant second place Facebook. With this large of a footprint, combined with the hundreds of investments that Google has made into other businesses, I don't know if there is any room for new entrants to emerge without being swallowed up by Google. I also am not very optimistic about how existing businesses will survive 10, 20, etc. years from now if Google is permitted to expand, invest and otherwise gain powerful footholds in many other industries. It's terrible, but inept regulator agencies and unconcerned politicians around the world have allowed this type of anti-competitive marketplace to not only emerge but thrive.

[tangor]

It's all about the tax dollars the govt's get in return... even with G fudging in that regard wit all their lawyers. G is big business... and that cash fluidity is funding more than a few governments these days.

[Shepherd]

Were there any other Google Ventures or Capital backed companies found in adwords, during this two year time period, that were benefiting from the same cash infusion as Google has done with auction.com?

Yes, that's exactly what we've been dealing with. A few years back google (ventures) invested in one of our competitors and every since it has been impossible to compete in adwords and maintain a profit on those ads.

Their "presumed" spend on adwords, based on our knowledge of the niche, has got to be unprofitable, only propped up by the investment they received OR by receiving preferential cpc prices. I say presumed because there is no way of knowing what their actual spend is due to the way cpc's are calculated these days.

[Shepherd]

Adding insult to injury, a few months after google invested in this competitor, our site and a few other competitors got hit with the penguin penalty leaving the company google invested in as the only ecom result in the top 10 organic results... just a coincidence though I'm sure.

[turbocharged]

It's all about the tax dollars the govt's get in return

@tangor

The tax system is indeed very complex here in the USA and I'm sure elsewhere. Most executives are compensated with shares in the company they work for and capital gains are taxed at rates of 10-15% when those gains are realized. Small businesses, such as sole proprietors, are taxed at rates of 10-39.6%. Earning just $50,000 in a year throws a sole proprietor into the 25% tax bracket. The point I'm trying to make is that the government gets less tax revenue from large corporations such as Google when compared to small businesses. Furthermore, multinational companies have the benefit of shifting money to their operations in other countries which allows them to avoid paying their fair share of taxes. For example, do a search for Google tax shelter in Bermuda. Google allegedly used a shell company in Bermuda to shift $10 billion to in an effort to avoid paying $2 billion in taxes to other countries.

@ Shepherd

That's terrible to hear that auction.com is the second related company Google has invested in that you must compete with. It sounds to me like you have sustained some damages from this, and it would certainly justify filing a complaint and possibly other legal remedies. I know Google is huge and feared by many, but may I ask why you have not filed any complaints yet with the government? In my opinion, Google is not going to stop expanding and things will not get any better unless some businesses stand up to them.

And I hear you on those penalties and how Google ironically gives more free real estate space to those companies they own, invest in or are partnered with. I've seen this too with client websites.

I really hope some businesses with the financial resources band together to stand up to Google. The courts may be the only place for a somewhat fair hearing to take place at since the USDOJ and FTC apparently are letting Google do whatever they so choose despite its impact on consumers, competition and the broader economy.

[Shepherd]

...auction.com is the second related company Google has invested in that you must compete with.

Luckily auction.com is not directly in our niche.

To be honest, I'm not a big fan of government intervention.

As far as the organic serps go, that's google's deal. As far as I'm concerned they can do whatever they want there, they are under no obligation to play fair there, in my opinion.

On the other hand, when it comes to a product that I'm paying for, such as adwords, I feel that google should have to disclose when the playing field is not even. I think there is a real conflict of interest issue with adwords, especially with google moving into so many new verticals.

I wonder if any other advertising mediums (newspapers, television) have to disclose to advertisers that they have a financial interest in other companies that are advertising with them? I know that if the evening new does a story about a company they generally disclose if they have a financial interest in that company.

[turbocharged]

To be honest, I'm not a big fan of government intervention.

I'm not a fan of government intervention either because they tend to botch things up. However, our tax dollars support agencies that have the responsibility to ensure businesses do not grow so dominate that they threaten consumer choice and competition. I don't know of any small businesses with the financial resources or risk tolerance to take Google on. They should not have to, in my opinion, if government agencies were doing their jobs.

As far as the organic serps go, that's google's deal. As far as I'm concerned they can do whatever they want there, they are under no obligation to play fair there, in my opinion.

I understand what you mean, but would disagree because of Google's very important role in the entire internet economy and how they use their search product to expand and support entry into other verticals - potentially turning entire industries upside down.

On the other hand, when it comes to a product that I'm paying for, such as adwords, I feel that google should have to disclose when the playing field is not even. I think there is a real conflict of interest issue with adwords, especially with google moving into so many new verticals.

The conflict of interest definitely exists, but what other channels are businesses going to use in lieu of Google? Google controls 1/3 of all online advertising globally and disclosing their relationship with other companies advertising with Adwords will not change their dominance. This is why many businesses find they are dependent on Google regardless of how fair or unfair their business practices may be.

I wonder if any other advertising mediums (newspapers, television) have to disclose to advertisers that they have a financial interest in other companies that are advertising with them? I know that if the evening new does a story about a company they generally disclose if they have a financial interest in that company.

An interesting point. Financial news networks I believe are bound by different disclosure laws that pertain to investments. The same should be applied to large online advertising companies, although I doubt having that information would make many business owners avoid advertising with Google. For example, will real estate auction websites stop advertising on Adwords knowing that Google gave a $50 million Adwords voucher to auction.com? The other businesses may not like it, but they will not cut off their arm in protest. Even if these businesses were to stop advertising on Adwords, I'm sure Google would reap the benefits of a larger return on their investment because the company they invested in would dominate their industry at an accelerated pace.

Today it's auction.com and tomorrow another company. At this rate Google's organic and paid search results may look mostly like a directory of Google owned/invested/partnered websites for the most profitable keyword queries. Maybe it will take that occurring for ordinary users to disburse and find something else. But by then that something else may have been already purchased by Google.

[Shepherd]

I doubt having that information would make many business owners avoid advertising with Google.

It's a place to start. As it stands now advertisers believe that they are participating in a fair, non-bias, auction to determine the price of their advertising and sometimes that is not the case, at the very least that should be disclosed. In a perfect world, a google owned or backed company should not be allowed to participate in the adwords auction and affect the advertising cost of others. google owned or backed companies could still advertise on google's pages, it is their site after all.
I think it would also be important for consumers to know that the advertising may not always be what it seems. A certain level of advertising may indicate a better quality business or product and that may not be reality if the advertiser is being pumped up by the advertising medium.