The (impending) demise of Google Reader has caused an immediate problem for those of us who still still use it regularly, forcing us to find a new RSS reader. But could Google’s decision to shut down Reader (and other services) ultimately lead to a bigger problem down the road for Google itself? Could the day be coming when the government steps in to regulate or control Google?
Ryan Avent made that case last week in The Economist, writing about what he calls “Google’s Google problem.” He argues that Google’s services and products have become so important that they’ve started to affect the way people think, plan and make decisions. “The more we all participate in this world, the more we come to depend on it,” Avent wrote. If those services were to be interrupted, they could have a negative impact on many people and, possibly, the economy. Avent argues that since we “tend not to entrust this sort of critical public infrastructure to the private sector,“ it may be inevitable that the government would step in at some point to ensure that these services continue.
But is there a chance that Google would shut down a much more widely used service than Reader, like search or Gmail? Paul Krugman makes the microeconomic theory case in The New York Times as to why it could happen. While a service like search may have a value to society that exceeds the cost of providing it, some of those benefits are due to network externalities (i.e., the more people that use it, the more valuable it becomes to everyone) and Google may not be able to properly “capture” these externalities to cover their costs.
Or, as All Things D wrote yesterday, Google may also choose to shut down services due to concerns over complying with privacy laws. These types of issues may be problematic enough that Google will only, ultimately, choose to support the services with a really large number of users. Former Google Reader product manager Nick Baum put it to All Things D this way: “My sense is, if it’s a consumer product at Google that’s not making money, unless it’s going to get to 100 million users it’s not worth doing.”
But, Avent argued, it’s not just shutting down a widely used service that could trigger government intervention in Google, but the loss of trust that terminating even lesser used products (like Reader) which could cause the government to act. If people don’t trust that Google will support new products going forward, they may be less likely to sign on, which can affect business and economic growth. “Google may face a trust issue,” Avent wrote, and that may, ultimately, be Google’s biggest problem.
Is the possibility of direct government intervention in Google’s operations realistic? It seems unlikely today, but it’s not impossible to envision in the future. Krugman called it a logical conclusion. More importantly, Avent asked whether the threat of it will be enough of a deterrent to keep Google from shutting down other popular services in the future? Only time will tell.
It’s good food for thought and makes me wonder about applying the theory to other products and services that could be viewed as critical to the economy. How about Amazon Web Services? Or Amazon.com? Or even Facebook or Twitter (where most of the value to users comes from externalities)? Could the day come when the government declares these services to be public utilities and steps in to make sure they keep running? Let’s hear your opinion on this theory in the comments.
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