Have profit margins risen to a permanently higher plateau? Are average Americans better off than they were a generation ago? I had the opportunity to discuss those questions, which are centrally important to investing and economic policy, with Jeremy Grantham a couple of weeks ago.
The discussion took place as part of a larger interview about climate-change investing. Grantham is the co-founder and chief investment strategist of Boston-based Grantham Mayo Van Otterloo (GMO).
It’s been widely reported that over the last 20 years the number of publicly traded companies has decreased by about 50%. The common explanations center on the fact that the number of de-listings, mergers, acquisitions and bankruptcies have outstripped the initial public offerings (IPOs).
But I wanted to know if there was a deeper explanation related to the fact that corporate profit margins are at historical highs. Over the last dozen years, with the exception of the financial crisis, profit margins have been between 9% and 11% of GDP. Prior to that, the last time they were above 9% was in 1951.
The U.S. economy has become more concentrated in the service and technology sectors, which are inherently more profitable than the manufacturing businesses that dominated 50 years ago. Those business, like Amazon, Apple and Google have built incredibly strong, near-monopolistic franchises that should translate to higher margins.
If the market has become dominated with highly profitable, monopolistic franchises, then maybe that is why there are fewer companies and profit markets are no longer “the most mean-reverting series in finance,” as Grantham once claimed.
GMO has looked at this issue extensively. As Grantham noted, “profit margins and return on sales will vary much depending on whether you are in the supermarket business or whether you are in some software company. There is no average to which it moves.”
But that doesn’t necessarily mean that returns for equities will be greater going forward. As Grantham explained, higher margins will attract more capital and reduce the returns relative to other asset classes. “If your capital is returning more in this area than the other area then capital will flow and balance it out,” he said.
Higher margins have been offered as an explanation, by Grantham and others, for why the cyclically adjusted price-earnings (CAPE) ratio is higher than its historical average. But CAPE ratios depend on other factors, such as real interest rates, so margins only tell part of the story.
Grantham said that the monopoly factor has increased margins “a bit.” “Corporate power as exercised through Congress, particularly in the U.S., has clearly increased the total domination of regulatory boards by the industries. Regulations have gone from being concerning to laughable, and totally run by those guys for their own interests,” he said.
Grantham is far more concerned about the societal impacts of unchecked capitalism than he is with its effect on margins. “We are seeing a flowering of corporatism where government is designed to maximize the opportunities of giant influential companies and industries that spend a lot of money lobbying,” he said. “We continue down that primrose path today with yet another cycle of deregulating designed to help corporations.”
Grantham spoke about the “punishing consequences” that tax cuts and deregulation will have on the general public. He said that “maximizing the returns and the share of the pie going to corporations and the superrich is deplorable and has terrible effects on the economy in the long run. The average person in the street doesn’t have the buying power increments that they used to have.”
But is the average American really losing buying power? On this point, Grantham and I disagreed. Whether you go back 10, 20 or 40 years, I contend the standard of living for Americans has increased enormously.
Grantham, however, said that in terms of general well-being and happiness, Americans are worse off.`
“If you do your best to control for everything and measure happiness, this is not a particularly happy country,” Grantham said. “It is not entirely dependent on income by any means, and we have not improved.”
He acknowledged a couple areas where Americans are better off – entertainment, such as high-tech computer games, and medicine, where he said progress in drugs and technology are keeping people alive longer. To those I would add food, in light of the advances in the quality and variety of choices in cuisine, and transportation, considering the speed and safety at which we can travel by car, plane and other means.
But Grantham said that the average worker has not been paid more since 1974 for an hour’s work. “Does he feel more content, or does he feel extremely frustrated by his relative lack of progress compared to others?” he asked, rhetorically. “There is no doubt that he is more frustrated. The suicide rate in that group has gone way up. The drug addiction has gone way up.”
Indeed, he said there are all the indications of a “thoroughly miserable middle America.”
“PRISM” lets the NSA access emails, video chats, instant messages, and other content sent via Facebook, Google, Apple and others. “Upstream” lets the NSA worm its way into the internet backbone—the cables and switches owned by private corporations like AT&T that make the internet into a global network—and scan traffic for the communications of tens of thousands of individuals labeled “targets.”
Under Section 702, the government collects and analyzes over 250 million internet communications every year. There are estimates that at least half of these contain information about U.S. residents, many of whom have done nothing wrong. This information is then shared with law enforcement and “routinely used for purposes unrelated to national security.”
So beware of what you say, what you read, what you write, where you go, and with whom you communicate, because it will all be recorded, stored and used against you eventually, at a time and place of the government’s choosing. Privacy, as we have known it, is dead.
For all intents and purposes, we now have a fourth branch of government.
This fourth branch came into being without any electoral mandate or constitutional referendum, and yet it possesses superpowers, above and beyond those of any other government agency save the military. It is all-knowing, all-seeing and all-powerful. It operates beyond the reach of the president, Congress and the courts, and it marches in lockstep with the corporate elite who really call the shots in Washington, DC.
The government’s “technotyranny” surveillance apparatus has become so entrenched and entangled with its police state apparatus that it’s hard to know anymore where law enforcement ends and surveillance begins.
The short answer: they have become one and the same entity.
The police state has passed the baton to the surveillance state.
This hasn’t fazed President Trump who, much like his predecessors, has thus far marched in lockstep with the dictates of the police state.
Every second of every day, the American people are being spied on by the U.S. government’s vast network of digital Peeping Toms, electronic eavesdroppers and robotic snoops.
Talk about a system rife for abuse.
Ask the government why it’s carrying out this warrantless surveillance on American citizens, and you’ll get the same Orwellian answer the government has been trotting out since 9/11 to justify its assaults on our civil liberties: to keep America safe.
Yet warrantless mass surveillance by the government and its corporate cohorts hasn’t made America any safer. And it certainly isn’t helping to preserve our freedoms. Frankly, America will never be safe as long as the U.S. government is allowed to shred the Constitution.
Now the government wants us to believe that we have nothing to fear from its mass spying program because they’re only looking to get the “bad” guys who are overseas.
Don’t believe it.
Warrantless mass surveillance of American citizens is wrong, un-American, and unconstitutional.
Clearly, the outlook for reforming the government’s unconstitutional surveillance programs does not look good.
As I make clear in my book Battlefield America: The War on the American People, whenever the rights of the American people are pitted against the interests of the military/corporate/security complex, “we the people” lose. Unless Congress develops a conscience—or suddenly remembers that they owe their allegiance to the citizenry and not the corporate state—we’re about to lose big.
It’s time to let Section 702 expire or reform the law to ensure that millions and millions of Americans are not being victimized by a government that no longer respects its constitutional limits.
Mark my words: if Congress votes to make the NSA’s vast spying powers permanent, it will be yet another brick in the wall imprisoning us within an electronic concentration camp from which there is no escape.
Lost in all of the theoretical debate about how evil ISPs will create a have/have-not divide in Internet access, is the reality that it already exists along with massive subsidies to the biggest bandwidth pigs on the planet – Facebook, Google, Twitter, Netflix and the porn industry.
Under Net Neutrality these platforms flourished along with the rise of the mobile internet, which is now arguably more important than the ‘desktop’ one in your home and office. Google and Apple control the on-ramps to the mobile web in a way that Net Neutrality proponents can only dream the bandwidth providers like Comcast and AT&T could.
Because, in truth, they can’t. Consumers are ultimately the ones who decide how much bandwidth costs, not the ISPs. We decide how much we can afford these creature comforts like streaming Netflix while riding the bus or doing self-indulgent Instagram videos of our standing in line at the movies (if that’s even a thing anymore).
Net Neutrality took pricing of bandwidth out of the hands of consumers. It handed the profits from it to Google, Facebook and all the crappy advertisers spamming video ads, malware, scams, and the like everywhere.
By mandating ‘equal access’ and equal fee structures the advertisers behind Google and Facebook would spend their budgets without much thought or care. Google and Facebook ad revenue soared under Net Neutrality because advertisers’ needs are not aligned with Google’s bottom line, but with consumers’.
And, because of that, the price paid to deliver the ad, i.e. Google’s cost of goods sold (COGS), thanks to Net Neutrality, was held artificially low. And Google, Facebook and the Porn Industry pocketed the difference.
They grew uncontrollably. In the case of Google and Facebook, uncontrollably powerful.
That difference was never passed onto the ISP who could then, in turn, pass it on to the consumer.
All thanks to Net Neutrality.
With the rise of the mobile web bandwidth should have been getting cheaper and easier to acquire at a much faster rate than it has. But, it couldn’t because of Net Neutrality. It kept rates of return on new bandwidth projects and new technology suppressed.
Money the ISP’s should have been spending laying more fiber, putting up more cell towers, building better radios went to Google to fritter away on endless projects that never see the light of day.
The ISP’s actually suffered under Net Neutrality and so did the consumers.
And therefore, Net Neutrality guaranteed that the infrastructure for new high-speed bandwidth would grow at the slowest possible rate, still governed by the maximum the consumer was willing to pay for bandwidth, rather than what the consumer actually demanded.
And, once obtained that power was then used to punish anyone who held different opinions from the leadership in Silicon Valley.
Think it through, Net Neutrality not only subsidized intrusive advertising, phishing scams and on-demand porn but also the very censorship these powerful companies now feel is their sacred duty to enforce because the government is now controlled by the bad guys.
Getting rid of Net Neutrality will put the costs of delivering all of this worthless content back onto the people serving it. YouTube will become more expensive for Google and all of the other content delivery networks. Facebook video will eat into its bottom line.
The ISP’s can and should throttle them until they ‘pay their fair share,’ which they plainly have not been.
The Net effect of Net Neutrality is that your ISP may charge you more in the short run for Netflix or Hulu. Or, more appropriately, Netflix and Hulu will have to charge you more and we’ll find out what the real cost of delivering 4k streaming content to your iPhone actually costs.
But, those costs will then go to the ISP’s such that they can respond to demand for more bandwidth. Will they try and overcharge us? Of course. AT&T is just as bad as Google and/or Facebook.
But, we have the right to say no. To stop using the services the way Net Neutrality encouraged us to through mispricing of service. If the ISP’s want more customers then they’ll have to bring wire out to the hinterlands.
Inflated Costs, Poor Service
Net Neutrality proponents kept telling us this was the way to help keep the internet available to the poor and the rural. Nonsense. It kept the internet from expanding properly into the hinterlands.
I live just over the county line in rural North Florida. To the south is a town with cable and DSL. Between cable franchise monopolies retarding expansion across county lines and Net Neutrality keeping margins thin, my home was 10 years behind everyone else getting decent bandwidth to keep up with the needs of the modern Internet.
Bandwidth needs artificially inflated, I might add, by the misaligned cost structure engendered by Net Neutrality in the first place.
It took forever for my phone provider to upgrade the bandwidth across the county line. I begged them for a second line for internet service, they wouldn’t even talk to me. Why? The return on that new line wasn’t high enough for them.
If Google was passing some of the profits from Adwords onto the ISPs I’d have multiple choices for high-speed internet versus just one DSL provider.
As always, whenever the political left tries to protect the poor they wind up making things worse for them.
The Ways Forward
The news is good for a variety of reasons. With Net Neutrality gone a major barrier to entry for content delivery networks is gone.
Blockchain companies are building systems which cut the middle man out completely, allowing content creators to be directly tipped for their work versus being supported by advertising no one watches, wants or is swayed by.
Services like Steemit and the distributed application already built and to be built on it point the way to social media cost models which are sustainable and align the incentives properly between producers of content and consumers.
Steem internalizes the bandwidth costs of using the network and pays itself a part of its token reward pool to cover those costs. So, all that’s left is content producer and their fans. Advertisers are simply not needed to maintain the network.
Net Neutrality was a trojan horse designed to replicate the old shout-based advertising model of the golden age of print and TV advertising. It was a way to control the megaphone and promote a particular point of view.
Look no further than the main proponents of it. George Soros and the Ford Foundation are two of the biggest lobbyists for Net Neutrality. Only the political left and its Marxian fantasies of evil middle men creating monopolies fell for the lies, as they were supposed to.
The rest of us were like, “Really? This is not a problem.” And it wasn’t until you looked under the hood and realized all they stood to gain by it.
Now, with Net Neutrality gone the underlying problem can be addressed; franchise monopolies of cable and phone companies in geographic areas. These laws are still in effect. They still hang like a spectre over the entire industry. Like Net Neutrality, these laws concentrate capital into the hands of the few providers big enough to keep out the competition.
So, instead of championing the end of franchise monopolies, which county governments love because they get a sizable cut of the revenue to fund non-essential programs, the Left made things worse by championing Net Neutrality.
That also needs to end. Even if you believe that franchise monopolies were, at one point, necessary. They are not now. IP-based communication is now fundamentally different than copper wire for discrete services like phone and cable. Let people run all the copper and fiber they want. There’s plenty of room in the conduit running under our sidewalks and streets.
Let a thousand flowers bloom, as the great Lew Rockwell once told me.
YouTube “Tweaks” Its Search Algos After Las Vegas Conspiracy Theories Go Viral
In Silicon Valley’s ongoing crusade to make sure that you only consume mainstream media propaganda, you know because $100,000 worth of Facebook ads crushed Hillary’s campaign and changed the course of human history forever, YouTube has joined the likes of Facebook and Twitter in saying that it will promote more “authoritative sources in search results” going forward. All of which, once again, begs the question of who gets to determine who is an “authoritative source?”
As the Wall Street Journal points out today, YouTube searches for “Las Vegas Shooting” earlier this week included a video from “End Times News Report” with the title “Proof Las Vegas Shooting Was a FALSE FLAG Attack – Shooter on 4th Floor.” The video, created by Jake Morphonios who posts YouTube videos in his spare time, quickly went viral and amassed over 1.1 million views in just 27 hours…but all that changed when YouTube decided to censor Morphonios’ content and replace it with mainstream media videos…you know for your protection.
For example, the fifth result when searching “Las Vegas shooting” on YouTube late Tuesday yielded a video titled “Proof Las Vegas Shooting Was a FALSE FLAG attack—Shooter on 4th Floor.” The video said there were multiple shooters in Sunday’s mass shooting, a claim dismissed by law enforcement. Posted by a channel called the End Times News Report, it amassed more than 1.1 million views in about 27 hours.
The high search ranking of the End Times News Report video claiming there was a second shooter in Las Vegas helped it gain 371,000 views over four hours late Tuesday. On Wednesday, YouTube removed the video.
Jake Morphonios, who runs the End Times News Report along with a damaged-inventory-liquidation business in Kernersville, N.C., said the video eventually reached 2.5 million views. “It was a hot topic, of course, and was going to get some views anyway, but it really did get caught in [YouTube’s] algorithm and went viral from there,” he said. “Clearly it got into featured videos or something.” The 43-year-old said he has posted about 800 videos and typically gets about 5,000 views each.
He said he aims to offer viewers information on news events that mainstream news sources won’t. “It’s my opinion, it’s my analysis, and everyone’s got an opinion, and I can understand that maybe they don’t want me to be considered the equivalent of The Wall Street Journal or the New York Times or something like that,” he said. “But still, I’m not presenting myself as mainstream media. I’m just a guy with a computer offering an opinion. And to be punished for that is, well, it’s draconian.”
Not surprisingly, YouTube said the the “tweaks” made to their search engines were designed to promote more “authoritative sources,” especially when searches are related to “major news events.”
In response to criticism on social media of some search results this week, a person familiar with YouTube said the company is accelerating the rollout of planned changes to its search engine. On Wednesday night, the video service began promoting more authoritative sources in search results, especially pertaining to major news events, the person said. YouTube doesn’t disclose how it determines which sources are authoritative.
But while YouTube refused to offer any insights into how they plan to decipher “authoritative sources” from “non-authoritative sources”, running the same search for “Las Vegas shooting” today, after YouTube’s ‘tweaks’, provides some clues on their methodology…
Conclusion, YouTube’s ‘tweaks’ have turned it into nothing more than a mainstream media echo chamber.
How Google is secretly recording YOU through your mobile, monitoring millions of conversations every day and storing the creepy audio files
If you own an Android phone, it’s likely that you’ve used Google’s Assistant, which is similar to Apple’s Siri.
Google says it only turns on and begins recording when you utter the words “OK Google”.
But a Sun investigation has found that the virtual assistant is a little hard of hearing.
In some cases, just saying “OK” in conversation prompted it to switch on your phone and record around 20 seconds of audio.
It regularly switches on the microphone as you go about your day-to-day activities, none the wiser.
Once Google is done recording, it uploads the audio files to its computer servers – often dubbed “the cloud”.
These files are accessible from absolutely anywhere in the world – as long as you have an internet connection.
That means any device that is signed into your personal Gmail or Google account can access the library of your deepest, darkest secrets.
So if you’re on a laptop right now and signed into Gmail – you could have a listen.
Recordings last around 10-20 seconds on average, and a text version of the conversation is saved.
The Silicon Valley giant states on its terms and conditions that it keeps these recordings for “improving speech recognition against all Google products that use your voice”.
After the Sun Online presented examples of the voice recognition flaws to Google, a spokesman said: “We only process voice searches after the phone believes the hot word ‘OK Google’ is detected. Audio snippets are used by Google to improve the quality of speech recognition across Search.”
Mass surveillance is about control. It’s promulgators may well claim, and even believe, that it is about control for the greater good, a control that is needed to keep a cap on disorder, to be fully vigilant to the next threat. But in a context of rampant political corruption, widening economic inequalities, and escalating resource stress due to climate change and energy volatility, mass surveillance can become a tool of power to merely perpetuate itself, at the public’s expense.
A major function of mass surveillance that is often overlooked is that of knowing the adversary to such an extent that they can be manipulated into defeat. The problem is that the adversary is not just terrorists. It’s you and me. To this day, the role of information warfare as propaganda has been in full swing, though systematically ignored by much of the media.
Here, INSURGE INTELLIGENCE exposes how the Pentagon Highlands Forum’s co-optation of tech giants like Google to pursue mass surveillance, has played a key role in secret efforts to manipulate the media as part of an information war against the American government, the American people, and the rest of the world: to justify endless war, and ceaseless military expansionism.
MIIS CySec is formally partnered with the Pentagon’s Highlands Forum through an MoU signed between the provost and Forum president Richard O’Neill, while the initiative itself is funded by George C. Lee: the Goldman Sachs executive who led the billion dollar valuations of Facebook, Google, eBay, and other tech companies.
Cooper’s eye-opening paper is no longer available at the MIIS site, but a final version of it is available via the logs of a public national security conferencehosted by the American Bar Association. Currently, Cooper is chief innovation officer at SAIC/Leidos, which is among a consortium of defense technology firms including Booz Allen Hamilton and others contracted to develop NSA surveillance capabilities.
The Highlands Forum briefing for the NSA chief was commissioned under contract by the undersecretary of defense for intelligence, and based on concepts developed at previous Forum meetings. It was presented to Gen. Alexander at a “closed session” of the Highlands Forum moderated by MIIS Cysec director, Dr. Itamara Lochard, at the Center for Strategic and International Studies (CSIS) in Washington DC.
Like Rumsfeld’s IO roadmap, Cooper’s NSA briefing described “digital information systems” as both a “great source of vulnerability” and “powerful tools and weapons” for “national security.” He advocated the need for US cyber intelligence to maximize “in-depth knowledge” of potential and actual adversaries, so they can identify “every potential leverage point” that can be exploited for deterrence or retaliation. “Networked deterrence” requires the US intelligence community to develop “deep understanding and specific knowledge about the particular networks involved and their patterns of linkages, including types and strengths of bonds,” as well as using cognitive and behavioural science to help predict patterns. His paper went on to essentially set out a theoretical architecture for modelling data obtained from surveillance and social media mining on potential “adversaries” and “counterparties.”
A year after this briefing with the NSA chief, Michele Weslander Quaid — another Highlands Forum delegate — joined Google to become chief technology officer, leaving her senior role in the Pentagon advising the undersecretary of defense for intelligence. Two months earlier, the Defense Science Board (DSB) Task Force on Defense Intelligence published its report on Counterinsurgency (COIN), Intelligence, Surveillance and Reconnaissance (IRS) Operations. Quaid was among the government intelligence experts who advised and briefed the Defense Science Board Task Force in preparing the report. Another expert who briefed the Task Force was Highlands Forum veteran Linton Wells. The DSB report itself had been commissioned by Bush appointee James Clapper, then undersecretary of defense for intelligence — who had also commissioned Cooper’s Highlands Forum briefing to Gen. Alexander. Clapper is now Obama’s Director of National Intelligence, in which capacity he lied under oath to Congress by claiming in March 2013 that the NSA does not collect any data at all on American citizens.
Michele Quaid’s track record across the US military intelligence community was to transition agencies into using web tools and cloud technology. The imprint of her ideas are evident in key parts of the DSB Task Force report, which described its purpose as being to “influence investment decisions” at the Pentagon “by recommending appropriate intelligence capabilities to assess insurgencies, understand a population in their environment, and support COIN operations.”
The report named 24 countries in South and Southeast Asia, North and West Africa, the Middle East and South America, which would pose “possible COIN challenges” for the US military in coming years. These included Pakistan, Mexico, Yemen, Nigeria, Guatemala, Gaza/West Bank, Egypt, Saudi Arabia, Lebanon, among other “autocratic regimes.” The report argued that “economic crises, climate change, demographic pressures, resource scarcity, or poor governance could cause these states (or others) to fail or become so weak that they become targets for aggressors/insurgents.” From there, the “global information infrastructure” and “social media” can rapidly “amplify the speed, intensity, and momentum of events” with regional implications. “Such areas could become sanctuaries from which to launch attacks on the US homeland, recruit personnel, and finance, train, and supply operations.”
The imperative in this context is to increase the military’s capacity for “left of bang” operations — before the need for a major armed forces commitment — to avoid insurgencies, or pre-empt them while still in incipient phase. The report goes on to conclude that “the Internet and social media are critical sources of social network analysis data in societies that are not only literate, but also connected to the Internet.” This requires “monitoring the blogosphere and other social media across many different cultures and languages” to prepare for “population-centric operations.”
The Pentagon must also increase its capacity for “behavioral modeling and simulation” to “better understand and anticipate the actions of a population” based on “foundation data on populations, human networks, geography, and other economic and social characteristics.” Such “population-centric operations” will also “increasingly” be needed in “nascent resource conflicts, whether based on water-crises, agricultural stress, environmental stress, or rents” from mineral resources. This must include monitoring “population demographics as an organic part of the natural resource framework.”
Other areas for augmentation are “overhead video surveillance,” “high resolution terrain data,” “cloud computing capability,” “data fusion” for all forms of intelligence in a “consistent spatio-temporal framework for organizing and indexing the data,” developing “social science frameworks” that can “support spatio-temporal encoding and analysis,” “distributing multi-form biometric authentication technologies [“such as fingerprints, retina scans and DNA samples”] to the point of service of the most basic administrative processes” in order to “tie identity to all an individual’s transactions.” In addition, the academy must be brought in to help the Pentagon develop “anthropological, socio-cultural, historical, human geographical, educational, public health, and many other types of social and behavioral science data and information” to develop “a deep understanding of populations.”
A few months after joining Google, Quaid represented the company in August 2011 at the Pentagon’s Defense Information Systems Agency (DISA) Customer and Industry Forum. The forum would provide “the Services, Combatant Commands, Agencies, coalition forces” the “opportunity to directly engage with industry on innovative technologies to enable and ensure capabilities in support of our Warfighters.” Participants in the event have been integral to efforts to create a “defense enterprise information environment,” defined as “an integrated platform which includes the network, computing, environment, services, information assurance, and NetOps capabilities,” enabling warfighters to “connect, identify themselves, discover and share information, and collaborate across the full spectrum of military operations.” Most of the forum panelists were DoD officials, except for just four industry panelists including Google’s Quaid.
DISA officials have attended the Highlands Forum, too — such as Paul Friedrichs, a technical director and chief engineer of DISA’s Office of the Chief Information Assurance Executive.
Knowledge is Power
Given all this it is hardly surprising that in 2012, a few months after Highlands Forum co-chair Regina Dugan left DARPA to join Google as a senior executive, then NSA chief Gen. Keith Alexander was emailing Google’s founding executive Sergey Brin to discuss information sharing for national security. In those emails, obtained under Freedom of Information by investigative journalist Jason Leopold, Gen. Alexander described Google as a “key member of [the US military’s] Defense Industrial Base,” a position Michele Quaid was apparently consolidating. Brin’s jovial relationship with the former NSA chief now makes perfect sense given that Brin had been in contact with representatives of the CIA and NSA, who partly funded and oversaw his creation of the Google search engine, since the mid-1990s.
In July 2014, Quaid spoke at a US Army panel on the creation of a “rapid acquisition cell” to advance the US Army’s “cyber capabilities” as part of the Force 2025 transformation initiative. She told Pentagon officials that “many of the Army’s 2025 technology goals can be realized with commercial technology available or in development today,” re-affirming that “industry is ready to partner with the Army in supporting the new paradigm.” Around the same time, most of the media was trumpeting the idea that Google was trying to distance itself from Pentagon funding, but in reality, Google has switched tactics to independently develop commercial technologies which would have military applications the Pentagon’s transformation goals.
Yet Quaid is hardly the only point-person in Google’s relationship with the US military intelligence community.
One year after Google bought the satellite mapping software Keyhole from CIA venture capital firm In-Q-Tel in 2004, In-Q-Tel’s director of technical assessment Rob Painter — who played a key role in In-Q-Tel’s Keyhole investment in the first place — moved to Google. At In-Q-Tel, Painter’s work focused on identifying, researching and evaluating “new start-up technology firms that were believed to offer tremendous value to the CIA, the National Geospatial-Intelligence Agency, and the Defense Intelligence Agency.” Indeed, the NGA had confirmed that its intelligence obtained via Keyhole was used by the NSA to support US operations in Iraq from 2003 onwards.
A former US Army special operations intelligence officer, Painter’s new job at Google as of July 2005 was federal manager of what Keyhole was to become: Google Earth Enterprise. By 2007, Painter had become Google’s federal chief technologist.
That year, Painter told the Washington Post that Google was “in the beginning stages” of selling advanced secret versions of its products to the US government. “Google has ramped up its sales force in the Washington area in the past year to adapt its technology products to the needs of the military, civilian agencies and the intelligence community,” the Post reported. The Pentagon was already using a version of Google Earth developed in partnership with Lockheed Martin to “display information for the military on the ground in Iraq,” including “mapping out displays of key regions of the country” and outlining “Sunni and Shiite neighborhoods in Baghdad, as well as US and Iraqi military bases in the city. Neither Lockheed nor Google would say how the geospatial agency uses the data.” Google aimed to sell the government new “enhanced versions of Google Earth” and “search engines that can be used internally by agencies.”
White House records leaked in 2010 showed that Google executives had held several meetings with senior US National Security Council officials. Alan Davidson, Google’s government affairs director, had at least three meetings with officials of the National Security Council in 2009, including White House senior director for Russian affairs Mike McFaul and Middle East advisor Daniel Shapiro. It also emerged from a Google patent application that the company had deliberately been collecting ‘payload’ data from private wifi networks that would enable the identification of “geolocations.” In the same year, we now know, Google had signed an agreement with the NSA giving the agency open-ended access to the personal information of its users, and its hardware and software, in the name of cyber security — agreements that Gen. Alexander was busy replicating with hundreds of telecoms CEOs around the country.
Thus, it is not just Google that is a key contributor and foundation of the US military-industrial complex: it is the entire Internet, and the wide range of private sector companies — many nurtured and funded under the mantle of the US intelligence community (or powerful financiers embedded in that community) — which sustain the Internet and the telecoms infrastructure; it is also the myriad of start-ups selling cutting edge technologies to the CIA’s venture firm In-Q-Tel, where they can then be adapted and advanced for applications across the military intelligence community. Ultimately, the global surveillance apparatus and the classified tools used by agencies like the NSA to administer it, have been almost entirely made by external researchers and private contractors like Google, which operate outside the Pentagon.
While web-hosting services have been criticised for cancelling the registration of neo-Nazi website, Daily Stormer, progressive left-leaning sites are losing Google ranking and traffic because of a deliberate move to censor “fake” news by the internet search giant.
New data released by World Socialist Websites (WSWS) revealed that sites such as Wikileaks, The Intercept, Electronic Frontiers Foundation, the American Civil Liberties Organisation, CounterPunch and many other organisations with the audacity to provide context about the activities of federal governments not reported in mainstream publications have experienced a significant drop in traffic after Google altered its algorithm.
But while these hosting services are being congratulated by some – and condemned by others on free-speech grounds – for ensuring that those looking to commit violence have to work slightly harder to get access to their like-minded Nazi communities, those who own the means of transmission – namely Google, Facebook and Twitter – are still preventing the rest of us from accessing information that allows people to make sense of the world around us.
The data released by WSWS shows that since Google altered its algorithm, Wikileaks experienced a 30% decline in traffic from Google searches. Democracy Now fell by 36%. Truthout dropped by 25%. Its own traffic dropped by 67% percent over the same period. Alternet saw a 63% decline in traffic. Media Matters saw a 36% drop in traffic. Counterpunch.org fell by 21%. The Intercept fell by 19%.
In a blog post published on April 25th, Google’s chief search engineer, Ben Gomez framed the issue as a change to the tech giant’s technical procedures in response to “the phenomenon of fake news”.
“The most high profile of these issues is the phenomenon of ‘fake news,’ where content on the web has contributed to the spread of blatantly misleading, low quality, offensive or downright false information,” Gomez wrote. “While this problem is different from issues in the past, our goal remains the same—to provide people with access to relevant information from the most reliable sources available. And while we may not always get it right, we’re making good progress in tackling the problem. But in order to have long-term and impactful changes, more structural changes in Search are needed.”
Gomez revealed that Google had recruited more than 10,000 “evaluators” hired to judge the quality of various websites, “real people who assess the quality of Google’s search results—give us feedback on our experiments,” though the chief search engineer did not identify the “evaluators” or explain the criteria against which websites are judged.
The ultimate irony: Google has seemingly allowed its evaluators to exercise their own biases when assessing the truth, accuracy and validity of these websites, and in doing so, are censoring essential information inconvenient to the narrative of the Washington establishment.
Corporate regulation and shadow-blocking
Google is not the only player in this censorship game. Earlier last year, anti-establishment information services – Renegade Inc included – experienced a 20% drop in traffic to its Facebook pages, after the social-network altered its algorithm, again, allegedly in an attempt to crack down on ‘fake news’.
Likewise, Twitter is allegedly shadow-blocking those of the left and right who it perceives to be tweeting content that sits outside of the mainstream. Renegade Inc has not been immune from this sidelining.
While Twitter has formal mechanisms for trolls and those who post abusive content – in which case it will notify users they have been suspended and provide explanations as to why – shadow-blocking is a whole different ball game. ‘Shadow-blocking’ – or ‘shadow-banning’ – are terms used to describe a more informal mode of censorship whereby particular users will simply not show up when you search for their username. Certain tweets may disappear into the ether, and your content may only be visible to people who follow you but will not show up on any Twitter feed, even if after it is re-tweeted.
Russell Bentley, a former American soldier fighting fascism in the Ukraine under the Donetsk People’s Republic – a self-declared, Russian backed separatist state – had his Twitter account shut down two days ago after a sustained campaign of targeted harassment and death threats (prohibited by Twitter’s terms of service) by pro-nazi propagandists.
How the CIA made Google – INSURGE intelligence – Medium
INSURGE INTELLIGENCE, a new crowd-funded investigative journalism project, breaks the exclusive story of how the United States intelligence community funded, nurtured and incubated Google as part of a drive to dominate the world through control of information. Seed-funded by the NSA and CIA, Google was merely the first among a plethora of private sector start-ups co-opted by US intelligence to retain ‘information superiority.’
The origins of this ingenious strategy trace back to a secret Pentagon-sponsored group, that for the last two decades has functioned as a bridge between the US government and elites across the business, industry, finance, corporate, and media sectors. The group has allowed some of the most powerful special interests in corporate America to systematically circumvent democratic accountability and the rule of law to influence government policies, as well as public opinion in the US and around the world. The results have been catastrophic: NSA mass surveillance, a permanent state of global war, and a new initiative to transform the US military into Skynet.
In the wake of the Charlie Hebdo attacks in Paris, western governments are moving fast to legitimize expanded powers of mass surveillance and controls on the internet, all in the name of fighting terrorism.
US and European politicians have called to protect NSA-style snooping, and to advance the capacity to intrude on internet privacy by outlawing encryption. One idea is to establish a telecoms partnership that would unilaterally delete content deemed to “fuel hatred and violence” in situations considered “appropriate.” Heated discussions are going on at government and parliamentary level to explore cracking down on lawyer-client confidentiality.
What any of this would have done to prevent the Charlie Hebdo attacks remains a mystery, especially given that we already know the terrorists were on the radar of French intelligence for up to a decade.
There is little new in this story. The 9/11 atrocity was the first of many terrorist attacks, each succeeded by the dramatic extension of draconian state powers at the expense of civil liberties, backed up with the projection of military force in regions identified as hotspots harbouring terrorists. Yet there is little indication that this tried and tested formula has done anything to reduce the danger. If anything, we appear to be locked into a deepening cycle of violence with no clear end in sight.
As our governments push to increase their powers, INSURGE INTELLIGENCE can now reveal the vast extent to which the US intelligence community is implicated in nurturing the web platforms we know today, for the precise purpose of utilizing the technology as a mechanism to fight global ‘information war’ — a war to legitimize the power of the few over the rest of us. The lynchpin of this story is the corporation that in many ways defines the 21st century with its unobtrusive omnipresence: Google.
Google styles itself as a friendly, funky, user-friendly tech firm that rose to prominence through a combination of skill, luck, and genuine innovation. This is true. But it is a mere fragment of the story. In reality, Google is a smokescreen behind which lurks the US military-industrial complex.
The inside story of Google’s rise, revealed here for the first time, opens a can of worms that goes far beyond Google, unexpectedly shining a light on the existence of a parasitical network driving the evolution of the US national security apparatus, and profiting obscenely from its operation.
The shadow network
For the last two decades, US foreign and intelligence strategies have resulted in a global ‘war on terror’ consisting of prolonged military invasions in the Muslim world and comprehensive surveillance of civilian populations. These strategies have been incubated, if not dictated, by a secret network inside and beyond the Pentagon.
Established under the Clinton administration, consolidated under Bush, and firmly entrenched under Obama, this bipartisan network of mostly neoconservative ideologues sealed its dominion inside the US Department of Defense (DoD) by the dawn of 2015, through the operation of an obscure corporate entity outside the Pentagon, but run by the Pentagon.
In 1999, the CIA created its own venture capital investment firm, In-Q-Tel, to fund promising start-ups that might create technologies useful for intelligence agencies. But the inspiration for In-Q-Tel came earlier, when the Pentagon set up its own private sector outfit.
Known as the ‘Highlands Forum,’ this private network has operated as a bridge between the Pentagon and powerful American elites outside the military since the mid-1990s. Despite changes in civilian administrations, the network around the Highlands Forum has become increasingly successful in dominating US defense policy.
Giant defense contractors like Booz Allen Hamilton and Science Applications International Corporation are sometimes referred to as the ‘shadow intelligence community’ due to the revolving doors between them and government, and their capacity to simultaneously influence and profit from defense policy. But while these contractors compete for power and money, they also collaborate where it counts. The Highlands Forum has for 20 years provided an off the record space for some of the most prominent members of the shadow intelligence community to convene with senior US government officials, alongside other leaders in relevant industries.
I first stumbled upon the existence of this network in November 2014, when I reported for VICE’s Motherboard that US defense secretary Chuck Hagel’s newly announced ‘Defense Innovation Initiative’ was really about building Skynet — or something like it, essentially to dominate an emerging era of automated robotic warfare.
That story was based on a little-known Pentagon-funded ‘white paper’ published two months earlier by the National Defense University (NDU) in Washington DC, a leading US military-run institution that, among other things, generates research to develop US defense policy at the highest levels. The white paper clarified the thinking behind the new initiative, and the revolutionary scientific and technological developments it hoped to capitalize on.
The Highlands Forum
The co-author of that NDU white paper is Linton Wells, a 51-year veteran US defense official who served in the Bush administration as the Pentagon’s chief information officer, overseeing the National Security Agency (NSA) and other spy agencies. He still holds active top-secret security clearances, and according to a report by Government Executive magazine in 2006 he chaired the ‘Highlands Forum’, founded by the Pentagon in 1994.
New Scientistmagazine (paywall) has compared the Highlands Forum to elite meetings like “Davos, Ditchley and Aspen,” describing it as “far less well known, yet… arguably just as influential a talking shop.” Regular Forum meetings bring together “innovative people to consider interactions between policy and technology. Its biggest successes have been in the development of high-tech network-based warfare.”
Given Wells’ role in such a Forum, perhaps it was not surprising that his defense transformation white paper was able to have such a profound impact on actual Pentagon policy. But if that was the case, why had no one noticed?
Despite being sponsored by the Pentagon, I could find no official page on the DoD website about the Forum. Active and former US military and intelligence sources had never heard of it, and neither did national security journalists. I was baffled.
The Pentagon’s intellectual capital venture firm
In the prologue to his 2007 book, A Crowd of One: The Future of Individual Identity, John Clippinger, an MIT scientist of the Media Lab Human Dynamics Group, described how he participated in a “Highlands Forum” gathering, an “invitation-only meeting funded by the Department of Defense and chaired by the assistant for networks and information integration.” This was a senior DoD post overseeing operations and policies for the Pentagon’s most powerful spy agencies including the NSA, the Defense Intelligence Agency (DIA), among others. Starting from 2003, the position was transitioned into what is now the undersecretary of defense for intelligence. The Highlands Forum, Clippinger wrote, was founded by a retired US Navy captain named Dick O’Neill. Delegates include senior US military officials across numerous agencies and divisions — “captains, rear admirals, generals, colonels, majors and commanders” as well as “members of the DoD leadership.”
What at first appeared to be the Forum’s main website describes Highlands as “an informal cross-disciplinary network sponsored by Federal Government,” focusing on “information, science and technology.” Explanation is sparse, beyond a single ‘Department of Defense’ logo.
But Highlands also has another website describing itself as an “intellectual capital venture firm” with “extensive experience assisting corporations, organizations, and government leaders.” The firm provides a “wide range of services, including: strategic planning, scenario creation and gaming for expanding global markets,” as well as “working with clients to build strategies for execution.” ‘The Highlands Group Inc.,’ the website says, organizes a whole range of Forums on these issue.
For instance, in addition to the Highlands Forum, since 9/11 the Group runs the ‘Island Forum,’ an international event held in association with Singapore’s Ministry of Defense, which O’Neill oversees as “lead consultant.” The Singapore Ministry of Defense website describes the Island Forum as “patterned after the Highlands Forum organized for the US Department of Defense.” Documents leaked by NSA whistleblower Edward Snowden confirmed that Singapore played a key role in permitting the US and Australia to tap undersea cables to spy on Asian powers like Indonesia and Malaysia.
The Highlands Group website also reveals that Highlands is partnered with one of the most powerful defense contractors in the United States. Highlands is “supported by a network of companies and independent researchers,” including “our Highlands Forum partners for the past ten years at SAIC; and the vast Highlands network of participants in the Highlands Forum.”
SAIC stands for the US defense firm, Science Applications International Corporation, which changed its name to Leidos in 2013, operating SAIC as a subsidiary. SAIC/Leidos is among the top 10 largest defense contractors in the US, and works closely with the US intelligence community, especially the NSA. According to investigative journalist Tim Shorrock, the first to disclose the vast extent of the privatization of US intelligence with his seminal book Spies for Hire, SAIC has a “symbiotic relationship with the NSA: the agency is the company’s largest single customer and SAIC is the NSA’s largest contractor.”
The full name of Captain “Dick” O’Neill, the founding president of the Highlands Forum, is Richard Patrick O’Neill, who after his work in the Navy joined the DoD. He served his last post as deputy for strategy and policy in the Office of the Assistant Secretary for Defense for Command, Control, Communications and Intelligence, before setting up Highlands.
The Club of Yoda
But Clippinger also referred to another mysterious individual revered by Forum attendees:
“He sat at the back of the room, expressionless behind thick, black-rimmed glasses. I never heard him utter a word… Andrew (Andy) Marshall is an icon within DoD. Some call him Yoda, indicative of his mythical inscrutable status… He had served many administrations and was widely regarded as above partisan politics. He was a supporter of the Highlands Forum and a regular fixture from its beginning.”
Since 1973, Marshall has headed up one of the Pentagon’s most powerful agencies, the Office of Net Assessment (ONA), the US defense secretary’s internal ‘think tank’ which conducts highly classified research on future planning for defense policy across the US military and intelligence community. The ONA has played a key role in major Pentagon strategy initiatives, including Maritime Strategy, the Strategic Defense Initiative, the Competitive Strategies Initiative, and the Revolution in Military Affairs.
In a rare 2002 profile in Wired, reporter Douglas McGray described Andrew Marshall, now 93 years old, as “the DoD’s most elusive” but “one of its most influential” officials. McGray added that “Vice President Dick Cheney, Defense Secretary Donald Rumsfeld, and Deputy Secretary Paul Wolfowitz” — widely considered the hawks of the neoconservative movement in American politics — were among Marshall’s “star protégés.”
Speaking at a low-key Harvard University seminar a few months after 9/11, Highlands Forum founding president Richard O’Neill said that Marshall was much more than a “regular fixture” at the Forum. “Andy Marshall is our co-chair, so indirectly everything that we do goes back into Andy’s system,” he told the audience. “Directly, people who are in the Forum meetings may be going back to give briefings to Andy on a variety of topics and to synthesize things.” He also said that the Forum had a third co-chair: the director of the Defense Advanced Research and Projects Agency (DARPA), which at that time was a Rumsfeld appointee, Anthony J. Tether. Before joining DARPA, Tether was vice president of SAIC’s Advanced Technology Sector.
The Highlands Forum’s influence on US defense policy has thus operated through three main channels: its sponsorship by the Office of the Secretary of Defense (around the middle of last decade this was transitioned specifically to the Office of the Undersecretary of Defense for Intelligence, which is in charge of the main surveillance agencies); its direct link to Andrew ‘Yoda’ Marshall’s ONA; and its direct link to DARPA.
According to Clippinger in A Crowd of One, “what happens at informal gatherings such as the Highlands Forum could, over time and through unforeseen curious paths of influence, have enormous impact, not just within the DoD but throughout the world.” He wrote that the Forum’s ideas have “moved from being heretical to mainstream. Ideas that were anathema in 1999 had been adopted as policy just three years later.”
Although the Forum does not produce “consensus recommendations,” its impact is deeper than a traditional government advisory committee. “The ideas that emerge from meetings are available for use by decision-makers as well as by people from the think tanks,” according to O’Neill:
“We’ll include people from Booz, SAIC, RAND, or others at our meetings… We welcome that kind of cooperation, because, truthfully, they have the gravitas. They are there for the long haul and are able to influence government policies with real scholarly work… We produce ideas and interaction and networks for these people to take and use as they need them.”
My repeated requests to O’Neill for information on his work at the Highlands Forum were ignored. The Department of Defense also did not respond to multiple requests for information and comment on the Forum.
The Highlands Forum has served as a two-way ‘influence bridge’: on the one hand, for the shadow network of private contractors to influence the formulation of information operations policy across US military intelligence; and on the other, for the Pentagon to influence what is going on in the private sector. There is no clearer evidence of this than the truly instrumental role of the Forum in incubating the idea of mass surveillance as a mechanism to dominate information on a global scale.
In 1989, Richard O’Neill, then a US Navy cryptologist, wrote a paper for the US Naval War College, ‘Toward a methodology for perception management.’ In his book, Future Wars, Col. John Alexander, then a senior officer in the US Army’s Intelligence and Security Command (INSCOM), records that O’Neill’s paper for the first time outlined a strategy for “perception management” as part of information warfare (IW). O’Neill’s proposed strategy identified three categories of targets for IW: adversaries, so they believe they are vulnerable; potential partners, “so they perceive the cause [of war] as just”; and finally, civilian populations and the political leadership so they “perceive the cost as worth the effort.” A secret briefing based on O’Neill’s work “made its way to the top leadership” at DoD. “They acknowledged that O’Neill was right and told him to bury it.
Except the DoD didn’t bury it. Around 1994, the Highlands Group was founded by O’Neill as an official Pentagon project at the appointment of Bill Clinton’s then defense secretary William Perry — who went on to join SAIC’s board of directors after retiring from government in 2003.
In O’Neill’s own words, the group would function as the Pentagon’s ‘ideas lab’. According to Government Executive, military and information technology experts gathered at the first Forum meeting “to consider the impacts of IT and globalization on the United States and on warfare. How would the Internet and other emerging technologies change the world?” The meeting helped plant the idea of “network-centric warfare” in the minds of “the nation’s top military thinkers.”
Excluding the public
Official Pentagon records confirm that the Highlands Forum’s primary goal was to support DoD policies on O’Neill’s specialism: information warfare. According to the Pentagon’s 1997 Annual Report to the President and the Congressunder a section titled ‘Information Operations,’ (IO) the Office of the Secretary of Defense (OSD) had authorized the “establishment of the Highlands Group of key DoD, industry, and academic IO experts” to coordinate IO across federal military intelligence agencies.
The following year’s DoD annual report reiterated the Forum’s centrality to information operations: “To examine IO issues, DoD sponsors the Highlands Forum, which brings together government, industry, and academic professionals from various fields.”
Notice that in 1998, the Highlands ‘Group’ became a ‘Forum.’ According to O’Neill, this was to avoid subjecting Highlands Forums meetings to “bureaucratic restrictions.” What he was alluding to was the Federal Advisory Committee Act (FACA), which regulates the way the US government can formally solicit the advice of special interests.
Known as the ‘open government’ law, FACA requires that US government officials cannot hold closed-door or secret consultations with people outside government to develop policy. All such consultations should take place via federal advisory committees that permit public scrutiny. FACA requires that meetings be held in public, announced via the Federal Register, that advisory groups are registered with an office at the General Services Administration, among other requirements intended to maintain accountability to the public interest.
But Government Executivereported that “O’Neill and others believed” such regulatory issues “would quell the free flow of ideas and no-holds-barred discussions they sought.” Pentagon lawyers had warned that the word ‘group’ might necessitate certain obligations and advised running the whole thing privately: “So O’Neill renamed it the Highlands Forum and moved into the private sector to manage it as a consultant to the Pentagon.” The Pentagon Highlands Forum thus runs under the mantle of O’Neill’s ‘intellectual capital venture firm,’ ‘Highlands Group Inc.’
In 1995, a year after William Perry appointed O’Neill to head up the Highlands Forum, SAIC — the Forum’s “partner” organization — launched a new Center for Information Strategy and Policy under the direction of “Jeffrey Cooper, a member of the Highlands Group who advises senior Defense Department officials on information warfare issues.” The Center had precisely the same objective as the Forum, to function as “a clearinghouse to bring together the best and brightest minds in information warfare by sponsoring a continuing series of seminars, papers and symposia which explore the implications of information warfare in depth.” The aim was to “enable leaders and policymakers from government, industry, and academia to address key issues surrounding information warfare to ensure that the United States retains its edge over any and all potential enemies.”
Despite FACA regulations, federal advisory committees are already heavily influenced, if not captured, by corporate power. So in bypassing FACA, the Pentagon overrode even the loose restrictions of FACA, by permanently excluding any possibility of public engagement.
O’Neill’s claim that there are no reports or recommendations is disingenuous. By his own admission, the secret Pentagon consultations with industry that have taken place through the Highlands Forum since 1994 have been accompanied by regular presentations of academic and policy papers, recordings and notes of meetings, and other forms of documentation that are locked behind a login only accessible by Forum delegates. This violates the spirit, if not the letter, of FACA — in a way that is patently intended to circumvent democratic accountability and the rule of law.
The Highlands Forum doesn’t need to produce consensus recommendations. Its purpose is to provide the Pentagon a shadow social networking mechanism to cement lasting relationships with corporate power, and to identify new talent, that can be used to fine-tune information warfare strategies in absolute secrecy.
Total participants in the DoD’s Highlands Forum number over a thousand, although sessions largely consist of small closed workshop style gatherings of maximum 25–30 people, bringing together experts and officials depending on the subject. Delegates have included senior personnel from SAIC and Booz Allen Hamilton, RAND Corp., Cisco, Human Genome Sciences, eBay, PayPal, IBM, Google, Microsoft, AT&T, the BBC, Disney, General Electric, Enron, among innumerable others; Democrat and Republican members of Congress and the Senate; senior executives from the US energy industry such as Daniel Yergin of IHS Cambridge Energy Research Associates; and key people involved in both sides of presidential campaigns.
Other participants have included senior media professionals: David Ignatius, associate editor of the Washington Post and at the time the executive editor of the International Herald Tribune; Thomas Friedman, long-time New York Times columnist; Arnaud de Borchgrave, an editor at Washington Times and United Press International; Steven Levy, a former Newsweek editor, senior writer for Wired and now chief tech editor at Medium; Lawrence Wright, staff writer at the New Yorker; Noah Shachtmann, executive editor at the Daily Beast; Rebecca McKinnon, co-founder of Global Voices Online; Nik Gowing of the BBC; and John Markoff of the New York Times.
Due to its current sponsorship by the OSD’s undersecretary of defense for intelligence, the Forum has inside access to the chiefs of the main US surveillance and reconnaissance agencies, as well as the directors and their assistants at DoD research agencies, from DARPA, to the ONA. This also means that the Forum is deeply plugged into the Pentagon’s policy research task forces.
Google: seeded by the Pentagon
In 1994 — the same year the Highlands Forum was founded under the stewardship of the Office of the Secretary of Defense, the ONA, and DARPA — two young PhD students at Stanford University, Sergey Brin and Larry Page, made their breakthrough on the first automated web crawling and page ranking application. That application remains the core component of what eventually became Google’s search service. Brin and Page had performed their work with funding from the Digital Library Initiative (DLI), a multi-agency programme of the National Science Foundation (NSF), NASA and DARPA.
But that’s just one side of the story.
Throughout the development of the search engine, Sergey Brin reported regularly and directly to two people who were not Stanford faculty at all: Dr. Bhavani Thuraisingham and Dr. Rick Steinheiser. Both were representatives of a sensitive US intelligence community research programme on information security and data-mining.
Thuraisingham is currently the Louis A. Beecherl distinguished professor and executive director of the Cyber Security Research Institute at the University of Texas, Dallas, and a sought-after expert on data-mining, data management and information security issues. But in the 1990s, she worked for the MITRE Corp., a leading US defense contractor, where she managed the Massive Digital Data Systems initiative, a project sponsored by the NSA, CIA, and the Director of Central Intelligence, to foster innovative research in information technology.
“We funded Stanford University through the computer scientist Jeffrey Ullman, who had several promising graduate students working on many exciting areas,” Prof. Thuraisingham told me. “One of them was Sergey Brin, the founder of Google. The intelligence community’s MDDS program essentially provided Brin seed-funding, which was supplemented by many other sources, including the private sector.”
This sort of funding is certainly not unusual, and Sergey Brin’s being able to receive it by being a graduate student at Stanford appears to have been incidental. The Pentagon was all over computer science research at this time. But it illustrates how deeply entrenched the culture of Silicon Valley is in the values of the US intelligence community.
In an extraordinary document hosted by the website of the University of Texas, Thuraisingham recounts that from 1993 to 1999, “the Intelligence Community [IC] started a program called Massive Digital Data Systems (MDDS) that I was managing for the Intelligence Community when I was at the MITRE Corporation.” The program funded 15 research efforts at various universities, including Stanford. Its goal was developing “data management technologies to manage several terabytes to petabytes of data,” including for “query processing, transaction management, metadata management, storage management, and data integration.”
At the time, Thuraisingham was chief scientist for data and information management at MITRE, where she led team research and development efforts for the NSA, CIA, US Air Force Research Laboratory, as well as the US Navy’s Space and Naval Warfare Systems Command (SPAWAR) and Communications and Electronic Command (CECOM). She went on to teach courses for US government officials and defense contractors on data-mining in counter-terrorism.
In her University of Texas article, she attaches the copy of an abstract of the US intelligence community’s MDDS program that had been presented to the “Annual Intelligence Community Symposium” in 1995. The abstract reveals that the primary sponsors of the MDDS programme were three agencies: the NSA, the CIA’s Office of Research & Development, and the intelligence community’s Community Management Staff (CMS) which operates under the Director of Central Intelligence. Administrators of the program, which provided funding of around 3–4 million dollars per year for 3–4 years, were identified as Hal Curran (NSA), Robert Kluttz (CMS), Dr. Claudia Pierce (NSA), Dr. Rick Steinheiser (ORD — standing for the CIA’s Office of Research and Devepment), and Dr. Thuraisingham herself.
Thuraisingham goes on in her article to reiterate that this joint CIA-NSA program partly funded Sergey Brin to develop the core of Google, through a grant to Stanford managed by Brin’s supervisor Prof. Jeffrey D. Ullman:
“In fact, the Google founder Mr. Sergey Brin was partly funded by this program while he was a PhD student at Stanford. He together with his advisor Prof. Jeffrey Ullman and my colleague at MITRE, Dr. Chris Clifton [Mitre’s chief scientist in IT], developed the Query Flocks System which produced solutions for mining large amounts of data stored in databases. I remember visiting Stanford with Dr. Rick Steinheiser from the Intelligence Community and Mr. Brin would rush in on roller blades, give his presentation and rush out. In fact the last time we met in September 1998, Mr. Brin demonstrated to us his search engine which became Google soon after.”
Brin and Page officially incorporated Google as a company in September 1998, the very month they last reported to Thuraisingham and Steinheiser. ‘Query Flocks’ was also part of Google’s patented ‘PageRank’ search system, which Brin developed at Stanford under the CIA-NSA-MDDS programme, as well as with funding from the NSF, IBM and Hitachi. That year, MITRE’s Dr. Chris Clifton, who worked under Thuraisingham to develop the ‘Query Flocks’ system, co-authored a paper with Brin’s superviser, Prof. Ullman, and the CIA’s Rick Steinheiser. Titled ‘Knowledge Discovery in Text,’ the paper was presented at an academic conference.
“The MDDS funding that supported Brin was significant as far as seed-funding goes, but it was probably outweighed by the other funding streams,” said Thuraisingham. “The duration of Brin’s funding was around two years or so. In that period, I and my colleagues from the MDDS would visit Stanford to see Brin and monitor his progress every three months or so. We didn’t supervise exactly, but we did want to check progress, point out potential problems and suggest ideas. In those briefings, Brin did present to us on the query flocks research, and also demonstrated to us versions of the Google search engine.”
Brin thus reported to Thuraisingham and Steinheiser regularly about his work developing Google.
UPDATE 2.05PM GMT [2nd Feb 2015]:
Since publication of this article, Prof. Thuraisingham has amended her article referenced above. The amended version includes a new modified statement, followed by a copy of the original version of her account of the MDDS. In this amended version, Thuraisingham rejects the idea that CIA funded Google, and says instead:
“In fact Prof. Jeffrey Ullman (at Stanford) and my colleague at MITRE Dr. Chris Clifton together with some others developed the Query Flocks System, as part of MDDS, which produced solutions for mining large amounts of data stored in databases. Also, Mr. Sergey Brin, the cofounder of Google, was part of Prof. Ullman’s research group at that time. I remember visiting Stanford with Dr. Rick Steinheiser from the Intelligence Community periodically and Mr. Brin would rush in on roller blades, give his presentation and rush out. During our last visit to Stanford in September 1998, Mr. Brin demonstrated to us his search engine which I believe became Google soon after…
There are also several inaccuracies in Dr. Ahmed’s article (dated January 22, 2015). For example, the MDDS program was not a ‘sensitive’ program as stated by Dr. Ahmed; it was an Unclassified program that funded universities in the US. Furthermore, Sergey Brin never reported to me or to Dr. Rick Steinheiser; he only gave presentations to us during our visits to the Department of Computer Science at Stanford during the 1990s. Also, MDDS never funded Google; it funded Stanford University.”
Here, there is no substantive factual difference in Thuraisingham’s accounts, other than to assert that her statement associating Sergey Brin with the development of ‘query flocks’ is mistaken. Notably, this acknowledgement is derived not from her own knowledge, but from this very article quoting a comment from a Google spokesperson.
However, the bizarre attempt to disassociate Google from the MDDS program misses the mark. Firstly, the MDDS never funded Google, because during the development of the core components of the Google search engine, there was no company incorporated with that name. The grant was instead provided to Stanford University through Prof. Ullman, through whom some MDDS funding was used to support Brin who was co-developing Google at the time. Secondly, Thuraisingham then adds that Brin never “reported” to her or the CIA’s Steinheiser, but admits he “gave presentations to us during our visits to the Department of Computer Science at Stanford during the 1990s.” It is unclear, though, what the distinction is here between reporting, and delivering a detailed presentation — either way, Thuraisingham confirms that she and the CIA had taken a keen interest in Brin’s development of Google. Thirdly, Thuraisingham describes the MDDS program as “unclassified,” but this does not contradict its “sensitive” nature. As someone who has worked for decades as an intelligence contractor and advisor, Thuraisingham is surely aware that there are many ways of categorizing intelligence, including ‘sensitive but unclassified.’ A number of former US intelligence officials I spoke to said that the almost total lack of public information on the CIA and NSA’s MDDS initiative suggests that although the progam was not classified, it is likely instead that its contents was considered sensitive, which would explain efforts to minimise transparency about the program and the way it fed back into developing tools for the US intelligence community. Fourthly, and finally, it is important to point out that the MDDS abstract which Thuraisingham includes in her University of Texas document states clearly not only that the Director of Central Intelligence’s CMS, CIA and NSA were the overseers of the MDDS initiative, but that the intended customers of the project were “DoD, IC, and other government organizations”: the Pentagon, the US intelligence community, and other relevant US government agencies.
In other words, the provision of MDDS funding to Brin through Ullman, under the oversight of Thuraisingham and Steinheiser, was fundamentally because they recognized the potential utility of Brin’s work developing Google to the Pentagon, intelligence community, and the federal government at large.
The MDDS programme is actually referenced in several papers co-authored by Brin and Page while at Stanford, specifically highlighting its role in financially sponsoring Brin in the development of Google. In their 1998 paper published in the Bulletin of the IEEE Computer Society Technical Committeee on Data Engineering, they describe the automation of methods to extract information from the web via “Dual Iterative Pattern Relation Extraction,” the development of “a global ranking of Web pages called PageRank,” and the use of PageRank “to develop a novel search engine called Google.” Through an opening footnote, Sergey Brin confirms he was “Partially supported by the Community Management Staff’s Massive Digital Data Systems Program, NSF grant IRI-96–31952” — confirming that Brin’s work developing Google was indeed partly-funded by the CIA-NSA-MDDS program.
This NSF grant identified alongside the MDDS, whose project report lists Brinamong the students supported (without mentioning the MDDS), was different to the NSF grant to Larry Page that included funding from DARPA and NASA. The project report, authored by Brin’s supervisor Prof. Ullman, goes on to say under the section ‘Indications of Success’ that “there are some new stories of startups based on NSF-supported research.” Under ‘Project Impact,’ the report remarks: “Finally, the google project has also gone commercial as Google.com.”
Thuraisingham’s account, including her new amended version, therefore demonstrates that the CIA-NSA-MDDS program was not only partly funding Brin throughout his work with Larry Page developing Google, but that senior US intelligence representatives including a CIA official oversaw the evolution of Google in this pre-launch phase, all the way until the company was ready to be officially founded. Google, then, had been enabled with a “significant” amount of seed-funding and oversight from the Pentagon: namely, the CIA, NSA, and DARPA.
The DoD could not be reached for comment.
When I asked Prof. Ullman to confirm whether or not Brin was partly funded under the intelligence community’s MDDS program, and whether Ullman was aware that Brin was regularly briefing the CIA’s Rick Steinheiser on his progress in developing the Google search engine, Ullman’s responses were evasive: “May I know whom you represent and why you are interested in these issues? Who are your ‘sources’?” He also denied that Brin played a significant role in developing the ‘query flocks’ system, although it is clear from Brin’s papers that he did draw on that work in co-developing the PageRank system with Page.
When I asked Ullman whether he was denying the US intelligence community’s role in supporting Brin during the development of Google, he said: “I am not going to dignify this nonsense with a denial. If you won’t explain what your theory is, and what point you are trying to make, I am not going to help you in the slightest.”
The MDDS abstract published online at the University of Texas confirms that the rationale for the CIA-NSA project was to “provide seed money to develop data management technologies which are of high-risk and high-pay-off,” including techniques for “querying, browsing, and filtering; transaction processing; accesses methods and indexing; metadata management and data modelling; and integrating heterogeneous databases; as well as developing appropriate architectures.” The ultimate vision of the program was to “provide for the seamless access and fusion of massive amounts of data, information and knowledge in a heterogeneous, real-time environment” for use by the Pentagon, intelligence community and potentially across government.
These revelations corroborate the claims of Robert Steele, former senior CIA officer and a founding civilian deputy director of the Marine Corps Intelligence Activity, whom I interviewed for The Guardian last year on open source intelligence. Citing sources at the CIA, Steele had said in 2006 that Steinheiser, an old colleague of his, was the CIA’s main liaison at Google and had arranged early funding for the pioneering IT firm. At the time, Wired founder John Batelle managed to get this official denial from a Google spokesperson in response to Steele’s assertions:
“The statements related to Google are completely untrue.”
This time round, despite multiple requests and conversations, a Google spokesperson declined to comment.
UPDATE: As of 5.41PM GMT [22nd Jan 2015], Google’s director of corporate communication got in touch and asked me to include the following statement:
“Sergey Brin was not part of the Query Flocks Program at Stanford, nor were any of his projects funded by US Intelligence bodies.”
This is what I wrote back:
My response to that statement would be as follows: Brin himself in his own paper acknowledges funding from the Community Management Staff of the Massive Digital Data Systems (MDDS) initiative, which was supplied through the NSF. The MDDS was an intelligence community program set up by the CIA and NSA. I also have it on record, as noted in the piece, from Prof. Thuraisingham of University of Texas that she managed the MDDS program on behalf of the US intelligence community, and that her and the CIA’s Rick Steinheiser met Brin every three months or so for two years to be briefed on his progress developing Google and PageRank. Whether Brin worked on query flocks or not is neither here nor there.
In that context, you might want to consider the following questions:
1) Does Google deny that Brin’s work was part-funded by the MDDS via an NSF grant?
2) Does Google deny that Brin reported regularly to Thuraisingham and Steinheiser from around 1996 to 1998 until September that year when he presented the Google search engine to them?
Total Information Awareness
A call for papers for the MDDS was sent out via email list on November 3rd 1993 from senior US intelligence official David Charvonia, director of the research and development coordination office of the intelligence community’s CMS. The reaction from Tatu Ylonen (celebrated inventor of the widely used secure shell [SSH] data protection protocol) to his colleagues on the email list is telling: “Crypto relevance? Makes you think whether you should protect your data.” The email also confirms that defense contractor and Highlands Forum partner, SAIC, was managing the MDDS submission process, with abstracts to be sent to Jackie Booth of the CIA’s Office of Research and Development via a SAIC email address.
By 1997, Thuraisingham reveals, shortly before Google became incorporated and while she was still overseeing the development of its search engine software at Stanford, her thoughts turned to the national security applications of the MDDS program. In the acknowledgements to her book, Web Data Mining and Applications in Business Intelligence and Counter-Terrorism (2003), Thuraisingham writes that she and “Dr. Rick Steinheiser of the CIA, began discussions with Defense Advanced Research Projects Agency on applying data-mining for counter-terrorism,” an idea that resulted directly from the MDDS program which partly funded Google. “These discussions eventually developed into the current EELD (Evidence Extraction and Link Detection) program at DARPA.”
So the very same senior CIA official and CIA-NSA contractor involved in providing the seed-funding for Google were simultaneously contemplating the role of data-mining for counter-terrorism purposes, and were developing ideas for tools actually advanced by DARPA.
Today, as illustrated by her recent oped in the New York Times, Thuraisingham remains a staunch advocate of data-mining for counter-terrorism purposes, but also insists that these methods must be developed by government in cooperation with civil liberties lawyers and privacy advocates to ensure that robust procedures are in place to prevent potential abuse. She points out, damningly, that with the quantity of information being collected, there is a high risk of false positives.
In 1993, when the MDDS program was launched and managed by MITRE Corp. on behalf of the US intelligence community, University of Virginia computer scientist Dr. Anita K. Jones — a MITRE trustee — landed the job of DARPA director and head of research and engineering across the Pentagon. She had been on the board of MITRE since 1988. From 1987 to 1993, Jonessimultaneously served on SAIC’s board of directors. As the new head of DARPA from 1993 to 1997, she also co-chaired the Pentagon’s Highlands Forum during the period of Google’s pre-launch development at Stanford under the MDSS.
Thus, when Thuraisingham and Steinheiser were talking to DARPA about the counter-terrorism applications of MDDS research, Jones was DARPA director and Highlands Forum co-chair. That year, Jones left DARPA to return to her post at the University of Virgina. The following year, she joined the board of the National Science Foundation, which of course had also just funded Brin and Page, and also returned to the board of SAIC. When she left DoD, Senator Chuck Robb paid Jones the following tribute : “She brought the technology and operational military communities together to design detailed plans to sustain US dominance on the battlefield into the next century.”
On the board of the National Science Foundation from 1992 to 1998 (including a stint as chairman from 1996) was Richard N. Zare. This was the period in which the NSF sponsored Sergey Brin and Larry Page in association with DARPA. In June 1994, Prof. Zare, a chemist at Stanford, participated with Prof. Jeffrey Ullman (who supervised Sergey Brin’s research), on a panel sponsored by Stanford and the National Research Council discussing the need for scientists to show how their work “ties to national needs.” The panel brought together scientists and policymakers, including “Washington insiders.”
DARPA’s EELD program, inspired by the work of Thuraisingham and Steinheiser under Jones’ watch, was rapidly adapted and integrated with a suite of tools to conduct comprehensive surveillance under the Bush administration.
According to DARPA official Ted Senator, who led the EELD program for the agency’s short-lived Information Awareness Office, EELD was among a range of “promising techniques” being prepared for integration “into the prototype TIA system.” TIA stood for Total Information Awareness, and was the main global electronic eavesdropping and data-mining program deployed by the Bush administration after 9/11. TIA had been set up by Iran-Contra conspirator Admiral John Poindexter, who was appointed in 2002 by Bush to lead DARPA’s new Information Awareness Office.
The Xerox Palo Alto Research Center (PARC) was another contractor among 26 companies (also including SAIC) that received million dollar contracts from DARPA (the specific quantities remained classified) under Poindexter, to push forward the TIA surveillance program in 2002 onwards. The research included “behaviour-based profiling,” “automated detection, identification and tracking” of terrorist activity, among other data-analyzing projects. At this time, PARC’s director and chief scientist was John Seely Brown. Both Brown and Poindexter were Pentagon Highlands Forum participants — Brown on a regular basis until recently.
TIA was purportedly shut down in 2003 due to public opposition after the program was exposed in the media, but the following year Poindexter participated in a Pentagon Highlands Group session in Singapore, alongside defense and security officials from around the world. Meanwhile, Ted Senator continued to manage the EELD program among other data-mining and analysis projects at DARPA until 2006, when he left to become a vice president at SAIC. He is now a SAIC/Leidos technical fellow.
Google, DARPA and the money trail
Long before the appearance of Sergey Brin and Larry Page, Stanford University’s computer science department had a close working relationship with US military intelligence. A letter dated November 5th 1984 from the office of renowned artificial intelligence (AI) expert, Prof Edward Feigenbaum, addressed to Rick Steinheiser, gives the latter directions to Stanford’s Heuristic Programming Project, addressing Steinheiser as a member of the “AI Steering Committee.” A list of attendees at a contractor conference around that time, sponsored by the Pentagon’s Office of Naval Research (ONR), includes Steinheiser as a delegate under the designation “OPNAV Op-115” — which refers to the Office of the Chief of Naval Operations’ program on operational readiness, which played a major role in advancing digital systems for the military.
From the 1970s, Prof. Feigenbaum and his colleagues had been running Stanford’s Heuristic Programming Project under contract with DARPA, continuing through to the 1990s. Feigenbaum alone had received around over $7 million in this period for his work from DARPA, along with other funding from the NSF, NASA, and ONR.
Brin’s supervisor at Stanford, Prof. Jeffrey Ullman, was in 1996 part of a joint funding project of DARPA’s Intelligent Integration of Information program. That year, Ullman co-chaired DARPA-sponsored meetings on data exchange between multiple systems.
In September 1998, the same month that Sergey Brin briefed US intelligence representatives Steinheiser and Thuraisingham, tech entrepreneurs Andreas Bechtolsheim and David Cheriton invested $100,000 each in Google. Both investors were connected to DARPA.
As a Stanford PhD student in electrical engineering in the 1980s, Bechtolsheim’s pioneering SUN workstation project had been funded by DARPA and the Stanford computer science department — this research was the foundation of Bechtolsheim’s establishment of Sun Microsystems, which he co-founded with William Joy.
As for Bechtolsheim’s co-investor in Google, David Cheriton, the latter is a long-time Stanford computer science professor who has an even more entrenched relationship with DARPA. His bio at the University of Alberta, which in November 2014 awarded him an honorary science doctorate, says that Cheriton’s “research has received the support of the US Defense Advanced Research Projects Agency (DARPA) for over 20 years.”
In the meantime, Bechtolsheim left Sun Microsystems in 1995, co-founding Granite Systems with his fellow Google investor Cheriton as a partner. They sold Granite to Cisco Systems in 1996, retaining significant ownership of Granite, and becoming senior Cisco executives.
An email obtained from the Enron Corpus (a database of 600,000 emails acquired by the Federal Energy Regulatory Commission and later released to the public) from Richard O’Neill, inviting Enron executives to participate in the Highlands Forum, shows that Cisco and Granite executives are intimately connected to the Pentagon. The email reveals that in May 2000, Bechtolsheim’s partner and Sun Microsystems co-founder, William Joy — who was then chief scientist and corporate executive officer there — had attended the Forum to discuss nanotechnology and molecular computing.
In 1999, Joy had also co-chaired the President’s Information Technology Advisory Committee, overseeing a report acknowledging that DARPA had:
“… revised its priorities in the 90’s so that all information technology funding was judged in terms of its benefit to the warfighter.”
Throughout the 1990s, then, DARPA’s funding to Stanford, including Google, was explicitly about developing technologies that could augment the Pentagon’s military intelligence operations in war theatres.
The Joy report recommended more federal government funding from the Pentagon, NASA, and other agencies to the IT sector. Greg Papadopoulos, another of Bechtolsheim’s colleagues as then Sun Microsystems chief technology officer, also attended a Pentagon Highlands’ Forum meeting in September 2000.
In November, the Pentagon Highlands Forum hosted Sue Bostrom, who was vice president for the internet at Cisco, sitting on the company’s board alongside Google co-investors Bechtolsheim and Cheriton. The Forum also hosted Lawrence Zuriff, then a managing partner of Granite, which Bechtolsheim and Cheriton had sold to Cisco. Zuriff had previously been an SAIC contractor from 1993 to 1994, working with the Pentagon on national security issues, specifically for Marshall’s Office of Net Assessment. In 1994, both the SAIC and the ONA were, of course, involved in co-establishing the Pentagon Highlands Forum. Among Zuriff’s output during his SAIC tenure was a paper titled ‘Understanding Information War’, delivered at a SAIC-sponsored US Army Roundtable on the Revolution in Military Affairs.
After Google’s incorporation, the company received $25 million in equity funding in 1999 led by Sequoia Capital and Kleiner Perkins Caufield & Byers. According to Homeland Security Today, “A number of Sequoia-bankrolled start-ups have contracted with the Department of Defense, especially after 9/11 when Sequoia’s Mark Kvamme met with Defense Secretary Donald Rumsfeld to discuss the application of emerging technologies to warfighting and intelligence collection.” Similarly, Kleiner Perkins had developed “a close relationship” with In-Q-Tel, the CIA venture capitalist firm that funds start-ups “to advance ‘priority’ technologies of value” to the intelligence community.
John Doerr, who led the Kleiner Perkins investment in Google obtaining a board position, was a major early investor in Becholshtein’s Sun Microsystems at its launch. He and his wife Anne are the main funders behind Rice University’s Center for Engineering Leadership (RCEL), which in 2009 received $16 million from DARPA for its platform-aware-compilation-environment (PACE) ubiquitous computing R&D program. Doerr also has a close relationship with the Obama administration, which he advised shortly after it took power to ramp up Pentagon funding to the tech industry. In 2013, at the Fortune Brainstorm TECH conference, Doerr applauded “how the DoD’s DARPA funded GPS, CAD, most of the major computer science departments, and of course, the Internet.”
From inception, in other words, Google was incubated, nurtured and financed by interests that were directly affiliated or closely aligned with the US military intelligence community: many of whom were embedded in the Pentagon Highlands Forum.
Google captures the Pentagon
In 2003, Google began customizing its search engine under special contractwith the CIA for its Intelink Management Office, “overseeing top-secret, secret and sensitive but unclassified intranets for CIA and other IC agencies,” according to Homeland Security Today. That year, CIA funding was also being “quietly” funneled through the National Science Foundation to projects that might help create “new capabilities to combat terrorism through advanced technology.”
The following year, Google bought the firm Keyhole, which had originally been funded by In-Q-Tel. Using Keyhole, Google began developing the advanced satellite mapping software behind Google Earth. Former DARPA director and Highlands Forum co-chair Anita Jones had been on the board of In-Q-Tel at this time, and remains so today.
Then in November 2005, In-Q-Tel issued notices to sell $2.2 million of Google stocks. Google’s relationship with US intelligence was further brought to light when an IT contractor told a closed Washington DC conference of intelligence professionals on a not-for-attribution basis that at least one US intelligence agency was working to “leverage Google’s [user] data monitoring” capability as part of an effort to acquire data of “national security intelligence interest.”
A photo on Flickr dated March 2007 reveals that Google research director and AI expert Peter Norvig attended a Pentagon Highlands Forum meeting that year in Carmel, California. Norvig’s intimate connection to the Forum as of that year is also corroborated by his role in guest editing the 2007 Forum reading list…
I’m sure all of you heard about the $2.7 billion fine imposed by the EU on Google as a result of its anti-competitive behavior, but not many of you probably know exactly what the search giant did to earn it. To shine some light on the topic, let’s take a look at a few excerpts from a recent article written by Silicon Valley antitrust lawyer Gary Reback.
Before 2007, if a user searched for a product on Google, other sites listing prices for that product would appear among the general search results, ranked in the order of their quality to users. These “comparison shopping sites” were designed to identify merchants with the lowest prices. The more accurate and comprehensive their results, the higher they were ranked and the more traffic they generated.
But the more successful that comparison shopping sites became, the more they threatened Google’s business plan. Google makes money by selling ads placed next to its free search results, and merchants could not be expected to bid for ad placement if the listings in comparison shopping sites on the same search undercut their prices.
To address this, Google developed a cunning plan, the first phase of which was documented in a report by the FTC. Portions of the report were published by the Wall Street Journal more than two years ago.
Quoting internal Google documents and emails, the report shows that the company created a list of rival comparison shopping sites that it would artificially lower in the general search results, even though tests showed that Google users “liked the quality of the [rival] sites” and gave negative feedback on the proposed changes.
Google reworked its search algorithm at least four times, the documents show, and altered its established rating criteria before the proposed changes received “slightly positive” user feedback. Internal Google documents predicted that the proposed changes would reduce rivals’ user traffic up to 20 percent and subsequently reported producing the desired results once the changes were implemented.
At the same time, Google started putting the results from its own comparison shopping service at the top of search results. After these changes, the only source of low-price information readily available on Google’s search platform came from Google’s own comparison shopping service, known at the time as Google Product Search, which listed the lowest prices for products in its database at no charge to merchants.
Google’s conduct certainly hurt its rivals, particularly after a second round of search-listing demotions documented by the European Union. Many companies have been forced to lay off all of their employees and even shut down operations.