Feature
The European Commission just slapped Mountain View Calif.-based Google with a $2.7 billion fine for favoring its own shopping services in its search results.
The European Commission is the executive arm of the European Union.
For a company that made $90.3 billion in revenues in 2016, the fine may be stiff, but bearable.
What will likely hit Google in the pocket much harder over the coming years is the part of the ruling that orders Google to change the practice within 90 days.
'What Google Has Done Is Illegal'
The European Commission accused Google of giving its own online service, Google Shopping, higher priority in search results to the detriment of other price comparison services, such as TripAdvisor and Expedia.
In a statement that was surprisingly direct, even for the straight-talking European Commission competition chief Margrethe Vestager, she described the search giant's practice as illegal:
“Google has come up with many innovative products and services that have made a difference to our lives. That's a good thing. But Google's strategy for its comparison shopping service wasn't just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors.
“What Google has done is illegal under EU antitrust rules. It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation."
The fine broke the previous EU record for a monopoly case, a $1.12 billion fine levied against US chipmaker Intel in 2009.
Playing Favorites in Google Shopping Results
Currently, the Google search engine provides search results to consumers, who pay for the service with their data. According to the EU, 90 percent of its revenues in the European region stem from the advertisements that surface when a user makes a query.
In 2004 Google entered the separate market of comparison shopping in Europe, with a product that was initially called Froogle, renamed Google Product Search in 2008 and called Google Shopping since 2013.
To give the service an edge, Google changed its strategy in Europe in 2008 to:
- Give prominence to its own shopping service and
- Push competing price comparison shopping services lower in search rankings.
By doing so, Google massively increased traffic to its comparison shopping service. In fact, the EC estimates the traffic increased by:
- 45-fold in the United Kingdom
- 35-fold in Germany
- 19-fold in France
- 29-fold in the Netherlands
- 17-fold in Spain
- 14-fold in Italy
Potential Further Fines for Google
The $2.7 billion fine is only the start though. Google is also obliged to stop the practice and to apply the same processes and methods to position and display rival comparison shopping services.
It will also have to show the Commission how it intends to remedy the situation. If it fails to do so, it will be liable to a further fine of five percent of the average daily worldwide turnover of Alphabet, Google's parent company.
More to the point, with this ruling, the EC has opened up a path for companies in Europe who believe their business has suffered as a result of this practice to take civil action against Google in court.
Google Responds
Google issued a statement in response to the ruling almost as soon as the EU statement was released. In it, it argued that it uses the practice to compete with the likes of Amazon and eBay in fair competition. The statement reads:
“We think our current shopping results are useful and are a much-improved version of the text-only ads we showed a decade ago. Showing ads that include pictures, ratings, and prices benefits us, our advertisers, and most of all, our users.
"And we show them only when your feedback tells us they are relevant. Thousands of European merchants use these ads to compete with larger companies like Amazon and eBay."
As a result, the statement continued, the company disagrees with the decision and will reexamine it closely:
“Given the evidence, we respectfully disagree with the conclusions announced today. We will review the Commission’s decision in detail as we consider an appeal, and we look forward to continuing to make our case,” it concluded.
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Competitors, Consumer Advocates Meet Ruling With Praise
However, it is the dominance of Google and other internet shopping giants that lies at the core of the issue.
FairSearch.org is a lobby group of businesses and organizations that seeks to ensure choice across the internet ecosystem by defending competition in online and mobile search. It welcomed the EC decision.
Thomas Vinje, spokesman and legal counsel to FairSearch said in a statement following the ruling that it shows the EC is serious about these issues despite, “nearly seven years of foot-dragging by Google.”
“Google search results are not designed to deliver the most relevant results (and best prices) to consumers, but rather to make the most money for Google. Consumers have therefore faced reduced choice of goods and services and ultimately paid higher prices than they would have done had Google provided objective results,” Vinje said.
In response to accusations that the EC is anti-American Vinje added:
“The European Commission pursues US tech companies because they are the ones who dominate their industry. In industries where European companies dominate — for example energy, transportation and often financial services — the Commission pursues them, not American companies.”
The European Consumer Organisation (BEUC) has also welcomed the decision. Director General of BEUC Monique Goyens said:
"This decision is a game-changer. The Commission confirmed that consumers do not see what is most relevant for them on the world’s most used search engine but rather what is best for Google. Now we need to see real changes to the company’s business practices so that consumer choice prevails when shoppers search Google for the product they want."
“Google’s illegal conduct in shopping services is just the tip of the iceberg. The Commission should now conclude its other investigations against Google ...."
Still More Trouble Ahead for Google
This is not the end of Google’s problems in Europe. The Commission has already come to the preliminary conclusion that Google has abused a dominant position in two other cases.
Those cases include monopoly allegations against Google over its Android operating system and mobile apps and claims that its AdSense advertising placement service prevents third-party websites from sourcing search ads from Google's competitors.
