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Google probe focuses on search dominance

Google may be entering a make-or-break phase in its colorful history, now that U.S. regulators have opened an investigation into whether the company has been abusing its dominance of Internet search and advertising to stifle competition.

The probe by the Federal Trade Commission, confirmed by the company Friday, will require Google to convince regulators that its closely guarded recipe for search results is designed to give people the best recommendations, not bury links to its rivals.

If you search for a local business, for example, Google might highlight its own listing, from a service called Google Places, instead of one on Yelp, a popular review site and Google competitor.

Requests for directions may turn up Google Maps, and queries for a video might point to the company's own site, YouTube. Or if you type "mortgage" in Google's main search box, the top ad might be for Google Advisor, which lists the lowest interest rates.

The inquiry also is expected to peer into Google's financial engine: the advertising links tied to the subject of each search request. Some of these commercial messages appear at the top of the results page, while others are stacked in the right-hand column.

Even as Google has expanded into video, mobile phones and television, the text advertising that pops up alongside search results and other Web content generates most of Google's revenue -- an amount expected to exceed $35 billion this year.

Some websites contend Google has rigged its system in a way that drives up the ad prices, even though Google says the rate is determined by bids submitted in an auction. Others say Google purposely blocks their ads from appearing because the company views them as competitive threats. A coalition of Internet travel companies, including Expedia, Hotwire and Kayak, have welcomed the investigation.

The FTC is following the lead of European regulators who launched a similar investigation last November. The Texas attorney general has been looking into Google's business practices, too.

The search engines for Microsoft and Yahoo also sometimes feature their own services in search results. The big difference: Google processes about two-thirds of all search requests in the U.S. and handles an even larger volume of advertising. Microsoft's Bing and Yahoo combined have less than 30 percent of the market.

Danny Sullivan, who follows the industry closely as editor-in-chief of the trade journal Search Engine Land, said what Google is doing is not unlike a newspaper running an ad to promote one of its products.

"From what I have seen so far," he says, "Google doesn't seem to be doing anything wrong."

Melissa Maxman, an antitrust attorney in Washington, said the FTC wouldn't have opened its inquiry unless it thought the complaints were credible.

"There is smoke, if not fire," she said.

The FTC's investigation threatens to put Google on the same course as nemesis Microsoft, which was the target of a Justice Department lawsuit that began in the 1990s and dragged into the next decade. That case alleged that Microsoft used its dominant Windows operating system to kill competing software makers.

"It's right out of the same playbook," Maxman said of the FTC's probe into Google.

Although Microsoft thwarted an attempt to break up the company, it was distracted for years, and the company has never been quite the same. The investigation may have made Microsoft more vulnerable to companies such as Google during the late 1990s as the Internet emerged as an important new platform on computers.

Now, Google faces some of the same threats as it tries to figure out how to counter the rising popularity of services such as Facebook.

In an extreme scenario, the FTC's inquiry could be the first step in a long process that ends with Google having to spin off YouTube and some of the other pieces of its empire. Although it doesn't have to, the FTC could hand its case off to the Justice Department, as it did in the Microsoft inquiry.