The European Union has just hit the tech giant Google with a record-breaking fine for uncompetitive practices. Is that fair? Simon Wilson reports.
What's happened?
Google has been slapped with a record fine of €2.4bn more than the annual budget contributions of many EU countries by the EU regulator for abusing its dominant position in the web search market. The judgment follows seven years of legal wrangling between the web behemoth and the European Commission, and marks the first time Google has been punished by a major global antitrust authority. A couple of billion euros is not nothing, obviously but for a firm with $90bn sitting in the bank, it's not a giant chunk of change either. Probably more important are the implications for Google's future conduct, and for the tech sector as a whole.
What exactly is Google accused of?
The EU's competition commissioner, Margrethe Vestager, argues that, from 2008 onwards, Google abused its near-monopoly in online search (with 90% of the market in Europe) to unfairly steer customers towards Google Shopping, its own online retail and price-comparison product. In other words, when a consumer uses Google to search for shopping-related data, the site displays Google Shopping results first, whether or not they are the most relevant. As such, Vestager, a Danish politician nicknamed the "Iron Lady" in her homeland, has chosen to pick her initial battle over one small part of Google's activities. The EU is now investigating how else the company may have abused its position.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Was the decision fair?
Vestager thinks so: she dismisses claims that the probe was politically motivated (see box), and says that what Google has done is illegal under EU antitrust laws. Google's practices "denied other companies the chance to compete on their merits and to innovate", which has hurt consumers, she says. Google begs to differ: it disagrees with the decision, but has said it will pay the fine. It thinks the regulator has a weak case that has failed to provide evidence that consumers have been harmed or taken into account rivals that are often used to search for products, such as Amazon and eBay. The decision is likely to bring resentments in Silicon Valley to the boil the tech giants charge the EU with unfairly targeting US companies. Donald Trump, with his "America first" agenda, is likely to agree. The EU regulator stopped cooperating with the US Federal Trade Commission when it decided not to pursue charges in 2013, reports Rory Cellan-Jones on the BBC, and there is anxiety in Europe about how the big American technology giants have dominated the digital economy. "Expect further action to try to limit their powers, with the potential for growing political tension between Brussels and Washington." The political and legal battle seems likely to grind on.
How will this affect Google?
The fine may be small change for Google, but it shouldn't get blas, says the Lex column in the FT. It may set the tone for future decisions, including separate EU probes into the way Google bundles search and browser functions in smartphones running its Android operating system and how its AdSense service prevents third-party sites sourcing search ads from Google's competitors. The former echoes past US and EU battles with Microsoft over its bundling of browsers and media players with Windows. Microsoft had to back down, hastening its loss of market share in browsers. The EU suit against Google is likely to lead to civil suits from firms who think they've lost out as a result of Google favouring its own services and they could soon accumulate worldwide. But Google is likely to be most concerned about the impact on its future operations. The way it prioritises its search results generates a lot of income from ads, says Chris Green of tech consultancy Lewis, quoted on the BBC. "Dent that by even a few percentage points, and there's quite a big financial drop."
What will Google do now?
It has 90 days to stop its illegal activities and explain how it will change its ways or face fines of up to 5% of the average daily turnover of Alphabet, Google's parent company. Based on income last year, that could amount to more than €5.4bn. But more important is precisely how Google will change its behaviour. It is up to Google to find a way to comply with the judgment, but it will fight to protect its crown jewel its closely guarded search algorithm from the prying eyes of regulators and competitors, says Mark Scott in The New York Times. Whatever it comes up with will be closely watched by analysts, rivals and regulators to make sure it really does level the playing field.
Will this hurt big tech?
Many in the US dismiss these battles, arguing Google is too wealthy and powerful for the EU to inflict damage, says Sally Hubbard in Forbes. But these cases could change the business landscape. For some it will be an opportunity: a potent tool for competitors looking for a foothold. For others it will be a threat: antitrust enforcers around the world may follow the EU's lead. Other tech giants "may face similar charges of discrimination from... enforcers and private litigants and ultimately could be required to treat their own services and those of rivals the same way. Now that's a big deal."
Why the EU is battling big tech
The EU fears that it has ceded control of the world's digital economy to the US without a fight and that just as the world relies ever more on digital platforms controlled by Google, Facebook and other US firms, America may be able to repeat this trick in other areas in future; areas where Europe has historically been strong, such as luxury vehicles or energy. Some influential voices, such as The Economist, argue that rather than seeking to rein in US firms, Europe should be focusing on the issues that have held back Europeans from creating world-beating digital platforms in particular the lack of a "common digital market" across national borders within the EU.
