What the leaked FTC memos on Google really teach us

By Mark Jamison

Politico did well for
itself in producing five articles based on leaked internal Federal Trade
Commission (FTC) documents related to the agency’s decision not to pursue an antitrust
case against Google eight years ago. (See herehereherehere, and here.) The articles tell a
story of FTC lawyers, Facebook, and Amazon warning political appointees that
Google was trying to leverage its successful search engine to build other
products and to place its products prominently on Apple and Android phones.

The Federal Trade Commission building in Washington, DC, via Reuters

According to Politico, the appointees “fumbled,” “misread the evidence in front of their eyes,” and “let Google off the hook.” The publication asks its readers to conclude that the FTC was too “cautious,” that this is evidence that antitrust regulators are incapable “of reining in the tech industry’s titans,” and that politics played a major role because “Google already had a heavy presence in D.C. and allies in the Obama administration.”

Politico is wrong: The real
lessons from the leak and the articles are that predictions about the future of
an industry or company are almost always wrong, that the FTC did its job by
encouraging a vigorous internal debate before making a decision, and that
leaked documents should be viewed cautiously.

Most
predictions are wrong, so stay flexible

A central point from the
articles is that FTC lawyers correctly predicted that mobile search was going
to be huge. Then it followed that it was a mental — and perhaps moral — failing
of the commissioners that they disagreed with the attorneys.

The attorneys’ prediction
was right, but it doesn’t follow that the commissioners’ decision was wrong
given what they knew. Many predictions in the proceeding turned out to be
incorrect. The attorneys argued that targeted
advertising had “limited potential.” The economists, Mozilla, and Amazon
were wrong about who could
compete with Google. Facebook thought the Google+ social
network was a threat, and Amazon thought the same about Google’s shopping
product. They were both wrong.

Also, miscalculating the
potential of mobile services is common. The Federal Communications Commission
once thought cell phones were a luxury item and dragged its feet awarding cellular
licenses. Around the same time, AT&T thought cellular was unimportant and
let the Baby Bell companies have the licenses it could have had. And the
breakup of AT&T was based in part on the premise that fixed lines for
telephone service were long-term bottlenecks. The reality is that fixed-line service
has almost disappeared.

The pervasiveness of
incorrect predictions has significant implications for antitrust. Embracing a
faulty forecast hurts customers and investors if the decision is costly to reverse
or never reversed. So the most effective strategy for regulators is often to
keep options open, which is consistent with the FTC’s decision to address
problems with mobile only if they actually arise.

Intense
internal debates are good

Politico and some observers frame the situation as one where lawyers
are right and economists are wrong on antitrust. But as described above,
everyone was wrong on something.

A better understanding of
the documents is that the commissioners and staff were comfortable with
internal disagreements and wanted opposing views openly and thoroughly
expressed. This approach to decision-making is considered best practice in
executive teams and boards of directors and is often used in the White House.
Consultant Jim Brown, who advises boards of directors on their processes, suggests that boards create
structured debates even if members agree on an issue.

Problems
with leaked documents

Leaked documents are always
problematic. At best, they tell an incomplete story, and leaks always break
trust.

Context is necessary for
understanding the documents and the leak. Readers are left to either assume
that everything of relevance is in the documents (the
what-you-see-is-all-there-is cognitive bias) or to speculate about what is
missing — led largely by confirmation biases and other prejudices. They are
also left to speculate on why these documents were leaked and not others. This
lack of context makes it dangerous to reach strong conclusions such as to the
mindsets, capabilities, and political motivations of the decision makers.

Breaking trust damages
organizations. Any organization dealing with complex and dynamic issues needs
to have candid and frank discussions in order to perform its job well. If
people in the organization feel that they cannot trust others, these
conversations become more staged and less substantive. If FTC staff and
commissioners cannot have frank and difficult discussions, then perhaps their
authority to make significant decisions should be restricted, as they are
unlikely to explore the decisions adequately.

What’s the
bottom line?

The Politico articles
should be read as an example of how hard it is to make antitrust decisions that
are significant and subject to great uncertainty. The case itself should be
considered a study in how an agency used conflicting opinions to obtain rich
information and made decisions that kept options open while markets continued
to evolve.

(Disclosure statement: Mark Jamison provided consulting for Google in 2012 regarding whether Google should be considered a public utility.)