The digital giant faces renewed attempts to tackle alleged abuses of its market dominance. Is there a case? Simon Wilson reports.
What’s happened?
Margrethe Vestager, the European Union’s commissioner for competition, last week filed formal antitrust charges against Google, on the grounds that the search engine giant has abused its market dominance by skewing search results to favour its own comparison shopping service over those of its rivals.
If Google fails to disprove the charges, the US company could face a fine of up to 10% of its global revenues – more than €6bn. In practice, any fine is likely to be a fraction of that sum. But what is conceivably more damaging is that Google could also face a morass of new legal and regulatory strictures that would constrain executives and product engineers for years to come.
Is this just about online shopping?
No. What makes the case matter is that if the commission establishes wrongdoing, it could become a precedent for the way Google – and other firms – have to handle other businesses, such as travel and mapping. Analysts say it’s the most significant tech sector competition case since Brussels took on Microsoft. That battle began in the 1990s and ran for over a decade, ultimately resulting in €2bn of fines for Microsoft.
Meanwhile, separately, the European Commission is investigating whether Google has broken competition law by forcing handset makers using its smartphone platform Android to pre-install Google apps on their phones.
What exactly is Google accused of?
The thrust of the commission’s “statement of objection” to Google is the accusation that – from 2008 onwards – when a consumer uses Google to search for shopping-related data, the site systematically displays its own comparison product, Google Shopping, at the top of search results “irrespective of whether it is the most relevant response”. As such, Vestager – a Danish politician nicknamed the “Iron Lady” in her homeland – has chosen a very specific charge that covers one small part of Google’s activities.
Some analysts reckon her strategy is to use this charge, where the EU’s evidence may turn out to be relatively clear-cut, to force it to negotiate over a wider range of issues. Either way, Brussels says that it does not want a solution based on changes to the page layout or the search algorithm. Instead, it is looking to agree a “future-proof” solution based on broad principles of fair search.
What’s the background?
The commission’s move is a reversal of its previous stance, reflecting hardening opinion in the EU. This has surprised America, given that competition authorities there closed a similar inquiry two years ago. Vestager’s predecessor, Joaquin Almunia, had been keen to draw a line under a legal saga that had been rumbling for more than five years (the first anti-trust action against Google was filed in Brussels in 2009, by a UK price comparison service, Foundem).
Almunia believed it would be hard to prove that customers had been harmed, and the two sides came to a preliminary deal last year. But the resolution was met with anger by complainants, as well as European business leaders and politicians, and the deal didn’t survive Almunia’s replacement.
Should the EU probe be welcomed?
The FT argues the probe brings transparency to a long-running saga, “plagued by suggestions of political interference and lobbying by French and German ministers, as well as Google’s online rivals”. On the face of it, there are “sound reasons to look closely at Google’s activities in search” and the nature of the internet – where network effects can create winner-takes-all positions – means regulators are right to be vigilant.
Google can rightly point to many competing search engines – yet its vast share of the search market (around 90% in Europe) means “it can appear to be the gatekeeper of the internet”. Control of the vital search algorithms gives it the opportunity to drive users towards services that it favours, while exploiting its own stable of businesses, such as YouTube and the Google Play app store.
What happens next?
Google’s lawyers have ten weeks to prepare a formal response. They can then request a meeting with officials and national governments to argue their case. According to sources cited by The Sunday Times, Google officials believe the commission could build a legal case, albeit on a smaller scale than reported.
“If there is any chance of legal resolution, we would much prefer this to happen and the matter be settled once and for all, as opposed to the constant verbal and other attacks coming from the commission,” a source told the paper. Given that in the past 25 years the commission has lost just one abuse-of-dominance case, an out-of-court settlement would appear to be Google’s best bet.
Red tape is strangling European innovation
The European Commission’s move against Google is “not overtly political or protectionist”, says The Economist. But rather than rein in US companies, “European politicians should focus on fixing what is holding back the old world” from building world-beating digital platforms – namely “the lack of a common digital market” in Europe. Today only 15% of consumers shop online across borders within the EU.
To set up Europe-wide operations, an e-commerce firm “has to jump through numerous bureaucratic hoops, from tax rules to labour laws, in each country”. Europe needs to recognise the importance of scale in the digital economy, and do much more to foster a single, open market – much like America’s, in fact.