A few days ago, a lawyer representing an entrepreneur called Dan Savage sent the U.S. Department of Justice a nine-page, 4,000-word letter. Savage, 59, runs Sourcetool.com, a business-to-business Web site that acts as a directory, listing -- and ranking -- hundreds of thousands of companies that sell industrial products.
Like many Internet entrepreneurs, Savage, who started his company in 2005, built his business model around Google. Using Google's AdWords program, he proposed to make bids on specific search terms -- "ball bearings," say -- that would ensure that a Sourcetool ad would be placed high on the right hand side of the Google page whenever someone searched for places to buy ball bearings. That's how paid search works.
But because his was a free site, he needed to generate revenue from advertising. For that, he used Google's other ad program, AdSense, which placed targeted advertising on the right hand page of the Sourcetool home page whenever a user clicked through to Sourcetool to find a company that would sell him ball bearings. Savage estimates that he was paid around 10 cents every time someone clicked an ad. The difference between that and what he paid Google to advertise against search terms -- usually around five to six cents -- was his profit.
According to the letter, Google at first gave Savage nothing but encouragement. By May 2006 -- with the company barely six months old -- it was earning around $115,000 a month on $653,000 in revenue. According to Savage, his biggest expense was paying Google to advertise against search terms, which was costing around $500,000 a month.
In the summer of 2006, however, Google, suddenly and without any warning, raised Sourcetool's minimum bid requirement to $1, and in some cases as much as $5 or $10. Savage discovered this only after he saw...

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