The EU’s $5 Billion Fine Is Bad News for Google—but It’s Not About the Money

July 20, 2018, 2:00 PM UTC

Unlike Facebook, Google has so far managed to stay out of the spotlight with respect to how it capitalizes on data that people willingly—if unknowingly—give the company. With European Union regulators’ $5 billion fine on Google for violating antitrust law, the respite may be coming to an end.

While this situation feels like a blast from the past—reminiscent of U.S. regulators’ 1998 antitrust action against Microsoft—the stakes now are quite different. On the surface, it appears to be a dispute over anti-competitive behavior in the world of software and hardware. But it is really about access to highly personal data, and the very business model that underlies Google’s enormous profitability.

In this case, the EU wants Google to stop requiring smartphone manufacturers to preinstall its Chrome browser and to make Google’s search engine the default. Regulators also want Google to cease banning phone manufacturers from using unofficial, or “forked,” versions of the Android mobile operating system. Google said in response that “Android has created more choice for everyone, not less,” and that the company would appeal the EU decision.

Google makes most of its money selling targeted ads, to the tune of a likely $60 billion in mobile advertising revenue just this year, according to eMarketer. The critical word here is “targeted.” About 80% of all smartphones produced today run Android, providing Google with a massive user base. The more precise the information Google has about the users of Android phones, the more precise its ads can be, and the more advertisers will pay for them. For an advertiser, the most expensive keywords are those that offer it the unique potential to target customers with a high likelihood to stick with the brand for the rest of their lives, such as those searching for phrases like “insurance.” Google can make more than $50 from a single click on an insurance ad keyword.

Google’s deals with manufacturers give it an incredible amount of access to user data. Google gives away its operating system for free, which attracts manufacturers. It requires the manufacturers to pre-install software such as its browser and search engine, which attracts users. It also treats app developers well. And having lots of apps and users attracts advertisers.

The more Google apps you have, the richer the picture Google’s algorithms can create of your likely interests. The more it can observe what you do on Android (which literally knows where you are), Gmail, YouTube, Maps, Chrome, and of course, search, the more laser-focused Google can be in deciding which ad to serve you—and the easier it is for Google to extract higher prices from advertisers who want to get their message in front of you.

The general public has already abandoned its trust in Google and other tech companies due to their collection and misuse of user data. With this decision, the Silicon Valley giants now must also weather a potentially fatal blow to the lucrative business models they have built.

There was once a time when it was considered unethical to monitor what people accessed from an information source, such as a library. Indeed, no less a trusted resource than the American Library Association states, “The right to privacy—the right to read, consider, and develop ideas and beliefs free from observation or unwanted surveillance by the government or others—is the bedrock foundation for intellectual freedom.”

We are dimly becoming aware that we have allowed that foundational bedrock to be monetized. Whether awareness will lead to rejection, or more stringent regulation of the algorithmic parsing of our lives and interests, remains to be seen. Regardless, the EU’s fine on Google shows that the will to resist is still alive.

Rita Gunther McGrath is a professor of management at Columbia Business School.

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