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Regulatory scrutiny alone is a test for Google

As trustbusters ratchet up the pressure on Google, the Web giant may be challenged to pursue as aggressive a corporate strategy as it historically has.

Even though the Federal Trade Commission has begun a "formal review" of Google's business, the agency may never bring a case. And if trustbusters do file an antitrust suit against Google, it's not at all clear they can win.

But one lesson learned from a similar regulatory probe a decade ago is that antitrust actions alone have a way of slowing dominant companies down.

The case, of course, is the Department of Justice's antitrust suit against Microsoft. The landmark case, in which Microsoft was branded a monopolist, led ultimately to a settlement that was widely dismissed as too lenient. But nine years after the settlement, Microsoft, though powerful, isn't the dominant force it was in the late 1990s.

Microsoft's dominance diminished as new technology platforms emerged, notably Web search and mobile telephony. We'll never know if Microsoft was bypassed by rivals in those emerging markets because it was distracted by the antitrust case, handcuffed by the settlement, or simply too slow to recognize the potential of the new businesses.

But there are plenty of lessons from the Microsoft case for Google as it faces similar challenges. Google's ambitions remain great. It continues to move into new markets, confronting new competitors.

If regulators ratchet up the pressure, Google may be hard-pressed to follow strategies that sometimes seem second-nature to it. Earlier this month, Google began offering a Groupon-like daily deals service. Under the microscope of antitrust regulators, Google may have to be particularly cautious about the way its algorithms produce results that could tout Google Offers over rival services.

Earlier this year, Google announced plans to acquire ITA Software, which provides technology to travel industry players such as Expedia, Hotwire, and Kayak. Regulators scrutinized the deal, ultimately approving it while requiring Google to continue licensing ITA's travel technology to those competitors for five years on "reasonable and nondiscriminatory" terms, and to pass along complaints from travel competitors about where they land in Google's search rankings.

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Count on that sort of scrutiny to rise as the FTC pursues its probe. And that can have a chilling effect on executive decisions at Google when it comes to even considering acquisition targets. It's not just worrying about getting deals nixed; executives will also have to factor in the legal costs and executive time that the increased scrutiny brings.

Maybe the biggest threat is to the development of Google's crown jewels, the algorithms that power its search engine. If trustbusters are truly worried about Google producing search results that favor its products and services over those of rivals, they may seek to force Google to alter the algorithms that produce those results.

Google, of course, has no desire to have the government tell it how to develop its products. There's little doubt it will fight any such effort just as hard as Microsoft battled regulatory attempts to tell it how to develop the Windows operating system. Microsoft won that battle, even as rivals moved past it in adjacent markets. It looks like Google will now have the challenge of avoiding the same fate.

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