How to make Google stronger: Punish it

Brussels fears big fines on US search giant are not leveling the playing field.

There are dangers in confronting Google. Knocking it down can sometimes only make it stronger.

Brussels has forced Google to change its business practices three times in just over a year, but it is far from clear that Google’s new practices are changing the commercial landscape in the way that regulators wanted.

The U.S. tech firm has been Europe’s No. 1 target during the mandate of Commissioner for Competition Margrethe Vestager. She has already fined the company over €6 billion and is mulling other investigations on multiple fronts. But her goal of restoring competition in the markets dominated by Google seems increasingly elusive with each new crackdown.

Hiring the world’s best lawyers and consultants has helped Google to seemingly respect the letter of the law (that will be for the judges in Luxembourg to decide) while at the same time circumventing the changes Brussels wanted to see in the market. In addition, the Commission finds itself with a multitude of potential future probes in markets adjacent to the ones it was probing.

“The problem with Google and some other internet companies is that they do not seem to start playing by the rules even when told to. This … points at a fundamental problem with their business model,” Agustín Reyna, head of legal and economic affairs at European consumer organization BEUC, said.

Google declined to comment for this story.

Three major recent EU interventions — in online shopping, mobile operating systems and privacy rules — and their aftermath expose a similar pattern. At every step, the search giant outwitted the Commission, turning a crackdown into opportunity. And for every window the Commission painstakingly tried to close, new ones opened.

1. Comparison shopping

In June 2017, Vestager fined Google €2.42 billion for favoring its own comparison shopping service over its rivals’. To comply with the Commission’s injunction for equal treatment, Google in September proposed an auction system through which companies could bid for visibility in the Google Shopping box.

For almost 16 months, the Commission has been monitoring this shopping box, where prices are compared on a shopper’s screen.

Although Vestager may approve the remedy as part of a package deal, it contains some fundamental flaws, an EU official said. “This solution does not restore competition between comparison shopping sites, but rather gives them access to Google’s box,” the official said. The extra complication (and advantage for Google) however, is that the auction mechanism makes the rivals pay for each bid. That money goes to Google.

It remains unclear whether a similar solution as in shopping could be rolled out to other pending complaints in search. Vestager originally advanced shopping amid a wider range of issues in news, maps, flights or local search. Restaurants, airlines and media are still waiting for a solution to their Google-related problem — some of them for almost a decade. Thomas Vinje, a lawyer acting against Google in the shopping case, previously predicted such a rollout would cause a “firestorm of protest.”

2. Android

In July 2018, Vestager fined Google another €4.3 billion, mainly for obliging phone manufacturers using its Android operating system to install Google’s profitable search and browser apps if they wanted access to its must-have “Play” app store.

In response to the decision, Google in September allowed the phonemakers to give more prominence to rival apps such as Mozilla’s Firefox browser or Microsoft’s Bing search engine. But again, the tech giant saw a way of building a new, successful business model out of the remedy: Google started charging the manufacturers a licensing fee if they did not install its own search or browser apps.

The fee caused French search engine Qwant to miss a major deal with a smartphone manufacturer, according to Qwant CEO Eric Léandri. “The manufacturer could choose between getting Google Search for free and getting Qwant but paying €40 per device to Google. Bearing in mind that the manufacturer wanted to produce 10 million phones, that choice was quickly made,” Léandri said. In practice, Google was mounting a new barrier to the use of rival apps, arguing that the Commission left it no other way to preserve its business model. A lawyer for a firm involved in the Android case said that he raised the fact that this new barrier was equally anticompetitive in his feedback to the Commission on Google’s remedies.

As in search, the Commission’s landmark mobile probe opened rather than closed the door to further enforcement. Barely one week after Google implemented changes in response to the Android decision — which was focused on Google’s Chrome and search apps — a Commission official flagged the possibility of fresh probes into the tying of other apps such as YouTube or Google Maps. In December, the Commission sent fresh questionnaires exploring how Google uses Android to shield services such as Google Drive, Maps and Waze from competition, MLex reported.

3. Advertising and privacy

Thirdly, Google’s implementation of the EU’s far-reaching “GDPR” privacy rules in May 2018 increased the company’s market share in online advertising, according to research from Cliqz, a German startup that provides online privacy tools and called Google “the biggest beneficiary of GDPR.”

GDPR is threatening press publishers’ business model, but not Google’s, a public affairs manager at a media company said. Users can now consult online media even if they refuse to share their data. This is the traditional media’s only way to get data, the manager added. Google in contrast can follow people via its browser, where users give their consent when accepting the terms and conditions, which is the default setting, the manager said. Users’ data is crucial to compete in online advertising, a market increasingly dominated by Google and Facebook.

More cases loom in advertising as well. While the Danish commissioner is finalizing yet another probe into Google’s AdSense, her chief economist Tommaso Valletti already suggested opening a new front in online advertising that may well apply to Google.

Too little, too late

In these cases, Google thought three moves ahead, on three different chess boards.

The European Commission is no small fry. The world’s most active competition authority had early digital experience in the Microsoft cases, where it learned not to draft overly prescriptive remedies. But this time it looks as though Brussels’ competition technocrats left too much leeway for Google, failing to engineer remedies that could, in the short to medium term, revive competition in the markets where the company is dominant.

As the clock kept ticking, Google solidified its position in fast-moving digital markets such as online search and related vertical services, mobile operating systems and online advertising. Some say beyond repair.

“Enforcement always provokes a reaction [from the companies],” a top EU competition lawyer said. “That is why the intervention should be clear cut, such as by breaking up a company, otherwise you indeed risk a Google-style scenario,” the lawyer added.

The European Commission, which is still monitoring Google’s compliance with both antitrust decisions, declined to comment.

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