Why Margrethe Vestager’s Android case terrifies Google

Any attempts to curb the operating system’s growth would hit the tech giant’s bottom line.

To understand why Google is so worried about the European Commission’s case against Android, just consider one number: Sales of smartphones eclipsed personal computers by 500 percent last year.

The case, which could be filed as early as this week, poses a much larger threat to the California-based company than the Commission’s current litigation over Google’s dominant search engine. While that probe has been winding its way through the regulator for the past six years, the industry has dramatically shifted.

Google’s search engine controls around 90 percent of the market in Europe, making it an unparalleled platform for ads and generating tens of billions in profit annually. But as users have pivoted from computers to mobiles, Google has struggled to transfer that advertising model to the small screen. Android, the No. 1 mobile operating system in the world, is key to its efforts to shore up its existing ad channels and develop new ones in the $250 billion mobile Internet economy.

“Mobile is the fastest-growing major part of Google’s business worldwide and any attempts to curb its growth by new legislation will cause pain,” says Neil Mawston, executive director for wireless device strategies at Strategic Analytics, a research firm.

That is why a fast-moving probe into Android, launched in April 2015, is looking more dangerous for the Internet giant than the 2010 case against its search engine.

A second front

Of the 1.4 billion smartphones shipped worldwide last year, all but 300 million ran on Android, according to Strategy Analytics. That gave the firm an 81 percent market share of the mobile market. By contrast, PC manufacturers shipped 280 million desktop computers last year, the vast majority of them running Microsoft’s Windows operating system.

But Margrethe Vestager, the European commissioner for competition, appears to be finalizing formal charges against Android. In recent weeks, antitrust investigators have been pressing Google’s rivals and customers to hand over confidential evidence. That is usually a sign it is ready to escalate a probe.

Leveling formal accusations against Android would open a second front in the regulator’s battle and increase the risk of massive fines. It would also further strain relations between Brussels and Washington, where Vestager’s probes into U.S. tech firms have drawn accusations of protectionism and anti-U.S. bias.

Android, which Google licenses for free, is a key channel for keeping users within its sphere of influence. Through Android, billions of users worldwide are nudged towards Google’s proprietary services, from search to email.

At the heart of many complaints is Google Play. According to Statista, the Android app store stocks 1.6 million apps, more than Apple’s app store and four times more than Amazon.

Rival app-makers complain Google allows smartphone makers to install Google Play on an Android phone only if they also carry other Google services, like email, maps and in particular search, which must receive prominent placement.

They argue Google Play, with its breadth of apps, is a “must have” or essential service in the eyes of phone manufacturers, forcing them to install Google’s other services on their phones.

Some companies are also concerned the data collected by Android strengthens Google’s dominance in other areas such as online search. Others claim the Silicon Valley firm gives its own engineers privileged access to new versions of Android, handing an advantage to Google’s own services.

American app-maker Disconnect lodged a formal complaint with the Commission alleging Google abused its control of the Play store to stifle rival services.

“Everything is driven by keeping people in the Google ecosystem and monetizing the hell out of them,” says one antitrust lawyer representing a Google rival, who requested anonymity because of the investigation.

Google declined to comment. In a blog post published last year, Hiroshi Lockheimer, a vice president of engineering for Android, stressed that Google did not require manufacturers using Android to pre-install Google’s own apps.

He said rules requiring manufacturers to install a suite of apps is aimed at ensuring consistent performance across phones, while giving users “a great ‘out of the box’ experience with useful apps right there on the home screen.”

The Commission’s probe is not just crucial for Google and the wider mobile sector, but also for the Internet of Things.

Cisco, an IT firm, estimates that some 50 billion devices will be connected to the Internet by 2020, from refrigerators to tracking devices for cattle. Already some 10,000 equipment manufacturers currently build products around Android.

The Commission’s case could have a material impact on whether that number increases or declines.