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Google's billion dollar business model under -

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The international precedent set by a ruling of the Australian Federal Court means that instead of
just being the messenger, Google is responsible for the misleading ads generated by a search.


CHRIS UHLMANN, PRESENTER: Its motto is "Don't be evil", but the Australian Federal Court has ruled
that tech giant Google is guilty of cashing in by misleading consumers.

The verdict sets an international precedent; it means that Google is responsible for any deceptive
ads generated by a search using its engine.

The ruling threatens Google's ad revenue, which in Australia alone is estimated in the hundreds of

But as Sarah Dingle reports, with its business model under threat, Google's unlikely to let the
decision rest.

SARAH DINGLE, REPORTER: British boy band One Direction is taking Australia by storm. Frenzied fans
queue for hours just to catch a glimpse of their idols.

Those who can't be there join in at home, and hoping to own a small part of it, they turn to
Google. A search for free music takes them into the heart of Google's complex business model where
every click counts.

engine, it's an advertising company.

SARAH DINGLE: Ads are Google's lifeblood. They account for 96 per cent of the company's global
revenue, which last year was almost US$38 billion. But this month, Google lost a landmark case in
Australia's Federal Court which is now threatening those rivers of gold.

ROD SIMS, CHAIRMAN, ACCC: It was clearly a case of an advertiser who was paying Google, basically
trying to take advantage of a better known competitor.

SARAH DINGLE: The Federal Court found Google had served up ads which misled and deceived consumers.

In one instance before the court, a search for Harvey World Travel delivered a link to a
competitor's website.

ROD SIMS: This sponsored advertiser had, through Google's algorithms, connected their site to a
competitor's name. So they were really taking advantage of a competitor's name to get on to their

SALLY SCOTT, TRADE PRACTICES LAWYER: Google did not choose misleading terms, however because of its
technology it was found responsible for the misleading links, the misleading advertising links.
This decision very much undermines the way that these search engines operate.

SARAH DINGLE: At Harvard's Business School in Boston, Associate Professor Ben Edelman examines how
commercial interests shape the internet. A consultant for companies like Microsoft, he's been
watching the Australian decision to make Google accountable for its ads.

BEN EDELMAN, HARVARD BUSINESS SCHOOL: The question of what Google needs to do to keep its ads safe
has been hotly-contested on every continent worldwide and now, finally, Australia has achieved the
important result that Google needs to do more to keep consumers safe.

SARAH DINGLE: He says the Federal Court's case hasn't stopped the practice of misdirecting

BEN EDELMAN: So I'm gonna type in "sheridan seoul". Well the surprise is this advertisement at the
top. It says "Grand Hyatt Seoul". Wait, I asked for the Sheraton. The Sheraton and the Hyatt: those
aren't the same at all. Those are direct competitors. When you ask for one, Google is trying to
send you off to the other instead - exactly what the ACCC sued about.

NICK LEEDER, MD, GOOGLE AUSTRALIA: Our core business is desktop search. That's where we make most
of our money.

SARAH DINGLE: Last night in Sydney, e-commerce leaders and the technorati gathered at the
University of Technology. In a rare public appearance, Google's Australia-New Zealand managing
director is outlining his vision for the future of online business and Google's continuing

Given the recent Federal Court decision finding that Google is liable for the misleading ads
generated by its search engine, what implications does this have for Google's business model?

NICK LEEDER: We were really disappointed by the outcome of that. We're giving it some thought at
the moment about what to do, and because of that I actually can't say all that much. But I would
say that we are in the business of creating platforms for advertisers and for users to connect and
that's our role that we see.

SARAH DINGLE: Google's technology has revolutionised the way companies and consumers connect.

Once, missing the Yellow Pages deadline was commercial suicide. Now, search engines like Google
deliver instant search results and targeted ads, which Google staff can help tailor to help
maximise impact.

But online advertising is largely unregulated.

SARAH DINGLE: For Alastair MacGibbon, cyber security is his bread and butter. The former head of
the Australian Federal Police's high tech crime unit counts Microsoft amongst his clients.

ALASTAIR MACGIBBON: There's more that internet companies like Google can do to stop ads that are
improper or indeed sometimes outright illegal from being served to consumers.

BEN EDELMAN: Google makes money from every advertisement. They make money from the good
advertisements, they make money from the bad advertisements. Do they have an incentive to take out
the bad advertisements? Not always.

SARAH DINGLE: Ben Edelman says every ad click means cash for Google, regardless of where the user

BEN EDELMAN: Google is selling ads to just the sleaziest of folks. Often the ads that you get will
take you to sites that at the very least want to put adware on your computer.

SARAH DINGLE: Under the then Trade Practices Act, there was no financial penalties for Google's
breach. But following the court's decision, the onus is now on Google itself to police these bad
ads and the implications are huge.

SALLY SCOTT: What the court has done is put an extra onus on Google to go above and beyond having
policies in place and actually determine itself whether or not the advertisers have chosen
misleading search terms.

SARAH DINGLE: The company has just under a fortnight to seek leave to appeal in the High Court.

SALLY SCOTT: In my view, Google cannot afford not to appeal. They must appeal.

SARAH DINGLE: But the ACCC is determined not to back down on a prosecution which is being watched
around the world.

ROD SIMS: If we see areas of behaviour that we think are problematic then we'll take it on, no
matter how large the companies are.

CHRIS UHLMANN: Sarah Dingle reporting.