Here’s Why Google’s Antitrust Defense Is Faltering in Europe
Google is having a very bad day indeed. Not only have European Union regulators whacked it with its third set of antitrust charges in 15 months, but the tech giant is clearly not doing well in its defense against the earlier accusations.
To recap, the first set of charges was about Google giving excessive prominence to its own comparison shopping services at the top of its search results—this is where the firm’s defense is looking leaky.
The second set was about how Google runs the Android ecosystem—here, Google has just successfully applied for an extension on handing in its defense, so we don’t yet know how well its argument will go down on this front.
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The third set, unveiled Thursday, concerns AdSense for Search. This is Google’s advertising platform for the likes of online retailers and publishers and telecoms operators, who incorporate Google’s (GOOG) search functionality into their websites. The website publishers and Google share a roughly even split of the revenue from those ads.
According to the European Commission, when users searched for things in those boxes over the last decade, Google used various illegal tactics to stop them seeing ads coming from rival advertising platforms.
Sure, you might say, Google provided the box. So why can’t it dictate what goes in the box? The issue there is that Google has cornered approximately 80% of the European “search advertising intermediation” market, making it the dominant player by far—and saddling it with extra responsibilities as a result.
The Commission claims that, from 2006, Google forced website publishers not to source ads from Google’s competitors. Then, from 2009, it replaced this practice with demands for premium placement for ads coming from its own advertising network, and for the right to authorize ads coming from its rivals.
If this is all true, Google is in trouble. As competition commissioner Margrethe Vestager put it in a Thursday press conference: “We believe that all these restrictions allowed Google to protect its very high market share for search advertising. [It] stifled choice and innovation to the detriment of consumers.”
Google and its parent company, Alphabet, have 10 weeks to come up with a defense against this set of charges. They also have until September to defend against the Android charges.
As for Google’s defense over the comparison-shopping charges, Vestager is clearly unimpressed—so much so that she has issued a “supplementary statement of objections” to bolster her department’s case.
Google tried to argue that the Commission messed up in defining the comparison-shopping market, by not including big players like Amazon (AMZN) and eBay (EBAY). Vestager has now hit back by saying these are not Google’s rivals at all in this space—if anything, they are its customers. Even if they were genuine rivals, she added, Google would still be clearly dominant and therefore in her crosshairs.
On top of that, the Commission’s competition directorate has now come up with even more evidence to show Google “systematically” pushed its own comparison-shopping services to the top of its search results “no matter if it is the most relevant response to the query,” plus more evidence “to show how important prominent display on Google’s search result page is for a website’s traffic.”
“We believe that Google’s actions have harmed consumers who get the results that Google wants them to see, not necessarily the ones that are most relevant,” Vestager said. “We believe that Google has held back innovation because rivals knew that…however good their services, they could never be as visible as Google’s.”
The Commission’s investigations into Google have been going on for six years now. Vestager defended the slow pace to an extent, by pointing out that the Commission has to build a solid legal case—after all, when it comes to the fining stage, companies tend to fight back in court.
However, she was clearly irked at the failure of her predecessor, Joaquin Almunia, to bring an end to the case in 2014. Almunia almost let Google get away with a settlement, before being shot down by his colleagues at the Commission.
“I made it a priority for my services to work as fast as possible in this very data-heavy case,” she said. “[But] anybody would have wished for the previous Commission to have solved the case, that the strategy from the previous Commission would have been successful, that it would have ended in 2014.”
Google must wish the same.
Two years ago, it was almost able to return to business as usual. Now it faces potential fines and serious changes to the way it structures its search results and does business with its search partners. It could yet lose the grip it has over the Android ecosystem—and then there’s the matter of the other investigations.
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As Vestager noted on Thursday, her department is still looking into complaints about Google’s behavior in the travel and local-search markets, as well as those from news publishers and image providers over how Google uses their content in Google News. This latter affair dovetails with the EU’s upcoming copyright reforms, which may force Google to pay licensing fees for reproducing snippets of articles and thumbnails of story pictures in its search results.
“We believe that our innovations and product improvements have increased choice for European consumers and promote competition,” Google said in a Thursday statement.
Is the European Commission treating the American behemoth unfairly? A political factor is undeniable—it killed Almunia’s attempted settlement in 2014, after all—but, according to Vestager, this is mainly about Google’s dominant position. This is a firm with an EU search market share above 90%.
“Google is a company that has come up with some incredibly innovative products…these products changed our lives, I think, to the better,” she said. “But this magnificent innovation doesn’t give you the right to deny others a fair chance to compete and to innovate. If the evidence shows Google has broken competition rules, I think we have a duty to act.”