News Analysis
There has been, to date, a remarkable silence over the staggering $5 billion fine that the European Union handed down to Google for what it said was a breach of anti-trust rules. Nor has Google said anything direct about the decision apart from saying that it will appeal it — it has 90 days from the date of the July 18 ruling. Nor have any of the phone makers that use Android on their devices said very much.
There was, of course, a reaction from U.S. president, Donald Trump, who has warned European governments in the past about the consequences of targeting American tech companies. However, in the context of the escalating trade war between the U.S and Europe his reaction was to be expected.
I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the U.S., but not for long!
— Donald J. Trump (@realDonaldTrump) July 19, 2018
How Google Breached EU Anti-Trust Rules
There were three areas that European competition commissioner Margrethe Vestager cited in her ruling as breaching the competition rules. They include the following.
- Requiring manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google's app store (the Play Store);
- Making payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and
- Preventing manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google (so-called "Android forks").
The Commission concluded that that these three types of abuse form part of an overall strategy by Google to cement its dominance in general internet search, at a time when the importance of mobile internet is growing significantly. It added that the practices also harmed competition and innovation in the wider mobile space, beyond just internet search, because they prevented other mobile browsers from competing effectively with the pre-installed Google Chrome browser.
What about Apple and iPhone, or Blackberry? According to the ruling both differ from Google as Android is different from operating systems exclusively used by vertically integrated developers (like Apple iOS or Blackberry). Those are not part of the same market because they are not available for license by third party device manufacturers.
Related Article: How Will the GDPR Impact Third-Party Lead Generation?
Phone Makers May Have To Pay For Android
While this may all be good for smaller companies at first glance, there is the possibility that because of the ruling, companies that wish to build on Android may have to pay for it. In a statement posted on a Google blog, Google CEO Sundar Pichai wrote, “[The decision] misses just how much choice Android provides to thousands of phone makers and mobile network operators who build and sell Android devices; to millions of app developers around the world who have built their businesses with Android; and billions of consumers who can now afford and use cutting-edge Android smartphones.”
While he did not specifically say that enterprises that use it would have to pay, he said the decision could up-end the current business model. The post continued, “In 2007, we chose to offer Android to phone makers and mobile network operators for free. Of course, there are costs involved in building Android, and Google has invested billions of dollars over the last decade to make Android what it is today… So far, the Android business model has meant that we haven't had to charge phone makers for our technology, or depend on a tightly controlled distribution model…Today’s decision rejects the business model that supports Android, which has created more choice for everyone, not less.“
Mark Skilton is professor of practice in information systems management at of Warwick Business School in the UK. He said that Google has always been a contradiction, in that it is a market facilitator, which also wants to control that market. Google claims that it has to compete with other big players and that swapping to an alternative search service is 'one click away'. Skilton, though, believes, it is locking up around 80 percent of mobile devices with pre-installed Google Android software that is the issue. "The real issue is not the supplier side 'problems' which have been dominating the shape of the market; its having a demand side where consumers have real choice instead of being locked into just one vendor’s world view of the digital economy,” he said. “It must be remembered Google 'defines the market' and is not just an innocent bystander."
He added that while Google claims it is a free market for users in practice that is not true. While network operators want to protect their billion-dollar investment in the infrastructure that enables internet to work, but it is when it becomes a monopolistic control from the supplier to the end user it becomes a problem. "The internet is in urgent need of moving to its next level of evolution, which will be a more distributed and edge-based world. It is being seen with the rise of the internet of things that are multiplying the number of connections to smart homes, products, transport and everything else — this will bring a more open market,” he added.
Does Google Face U.S. Scrutiny?
This is the next battleground for Google and the big tech players, but GDPR and the European Commission's focus on the tech giants is becoming a significant issue for them. The battleground could be moving to the U.S. soon, as well. According to reports from the Reuters news agency, the head of the US Federal Trade Commission, which has investigated Alphabet’s Google in the past for abuse of web dominance, has said that he would take a closer look at Europe’s recent decision to fine the company.
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Asked about the dominance of Google and Apple in the smartphone market, Simons reportedly said, “There is the two of them so they compete pretty heavily against each other.” He added that markets dominated by few companies are where antitrust enforcers often expect to find “problematic conduct.” The FTC had previously investigated Google for abusing its huge market share in web search, but ended the probe in early 2013 with a mild reprimand.
Related Article: The GDPR and Plain Language: What You Need to Do to Comply
Fining Google Could Be Anti-Competitive
There is also the possibility that sanctioning Google could be construed as anti-competitive, according to Tom Koulopoulos, founder of the Andover, Mass.-based Delphi Group, which provides consulting services and research on the technology industry.
Bundling has been a perennial topic in tech, he said. The issue is much more complex than Google’s current scenario. Apple has no such issue since its only OS/device option is the iPhone, which clearly comes bundled with a myriad of Apple apps. He postulates, then, that not allowing Google to compete on equal terms itself is anti-competitive. “The practical side of this is that the market has needed natural monopolies to justify the investment and risk required to develop the platforms,” he said.
However, all indications, such as this action against Google, seem to indicate that this will soon need to come to an end. “For decades we’ve been suffering from a form of tech Stockholm syndrome; falling in love with our technology captors. I have little doubt that the next generation of technology will spur innovation through choice rather than captivity,” said Koulopoulous.
He also pointed out that Wall Street does not see Google as being in a position at present to be impacted by this isolated incident globally. It does not affect Google’s fundamentals. In large part that's because whether Google apps are bundled in an Android phone or not, barely changes the end result, that an Android phone will have an abundance of Google apps.
U.S. Companies Should Pay Attention
The reality facing American companies doing business in Europe is that the laws overseas governing business practices are not the same and support a different philosophy, John Zanni, president of Singapore-based Acronis said. Amazon, Facebook, Cisco are among the dominant U.S. companies that should be cautious with their business practices in Europe. These companies have to be sensitive to these differences when they coordinate between their sales people and their legal people on how they go about certain practices.
“If they don’t follow the rules, then give an opportunity to the European Union to fine them. I foresee the EU handing out U.S. tech companies with upwards of $10 billion in fines in a year’s time. Sometimes it is the only way one learns,” he said.
