Google Can Shut Down Congress With A Word

Includes: BIDU, GOOG
by: Dana Blankenhorn

The word is Baidu (NASDAQ:BIDU).

Google (NASDAQ:GOOG) Chairman Eric Schmidt is due to be the center of a political circus on Wednesday, testifying before a Senate sub-committee whose very title is “The Power of Google.”

He can change the direction of the hearing by simply changing the subject, and asking Congress what it wants to do, or what it can do, about the dominant Chinese search engine Baidu.

At issue in the hearing is not just whether Google is a monopoly, but whether it has abused its position to disadvantage others.

Schmidt's testimony will be followed by a panel where Nextag, Yelp, and two lawyers will try to convince Congress that Google must be regulated.

Meanwhile, liberal groups will be demonstrating outside, calling Google a threat to anyone's privacy, including that of members of Congress. They want Google to be stopped from tracking people or, in the absence of that, regulated like a public utility. It's hard to see how services based on location can be delivered if companies aren't able to track their subscribers, with permission.

These are not the only Washington threats to Google. The FTC is investigating Google for abusing its power, aiming to open the “black box” of search engine operations that is its stock and trade, its most important trade secret. Astroturf groups like the American Homeowners Grassroots Alliance are also springing up to attack the company, which has long been a target of AT&T-linked observers such as Scott Cleland.

But Schmidt can shut that down quite quickly by raising the specter of China. While there are reports Chinese regulators want to crack down on the structures that let companies such as Baidu trade in U.S. capital markets, they're unlikely to take action against companies that are already using the system. Companies like Baidu.

And Baidu has ambitions to beat Google around the globe. It already has a Google-like 75% share in China for search, and is moving now into both Egypt and Thailand, with other countries to follow.

Does Congress really want to hamstring America's ability to compete with China in fast-growing Asian and Middle East markets, Schmidt will ask. And the majority, I predict, will respond to his China card. While there will doubtless be investigations, and maybe some regulations, on America's Internet sector, this is not a market Congress is willing to let China take without a fight.

Disclosure: I am long GOOG.