After a five-year long investigation, the European Commissioned announced it has sent a Statement of Objections to Google alleging it has abused its dominant position in the markets for general internet search services by favoring its own comparison shopping product in general search pages.
The commission says this infringes on EU antitrust rules because “it stifles competition and harms consumers”. The commission notes that sending a Statement of Objections does not prejudge the outcome of the investigation.
Do you believe Google’s practices harm consumers or stifle competition? Let us know in the comments.
But that’s only part of the news as the commission has also launched a formal investigation into Google’s Android business. We’ll get to that later. First things first.
Search
EU Commissioner in charge of competition policy Margrethe Vestager said: “The Commission’s objective is to apply EU antitrust rules to ensure that companies operating in Europe, wherever they may be based, do not artificially deny European consumers as wide a choice as possible or stifle innovation”.
“In the case of Google I am concerned that the company has given an unfair advantage to its own comparison shopping service, in breach of EU antitrust rules. Google now has the opportunity to convince the Commission to the contrary. However, if the investigation confirmed our concerns, Google would have to face the legal consequences and change the way it does business in Europe.”
Let the convincing commence. Google has already posted an article to its official blog called “The Search for Harm“.
In that, Amit Singhal, Senior Vice President, Google Search writes, “In the summer of 2010, Google announced plans to acquire the flight search provider, ITA. As we said at the time, while many people buy their airline tickets online, finding the right flight at the best price can be a real hassle. Today Google Flight Search has made that much easier. Search for ‘Flight CDG to SFO’ and you get the different options right there on the results page. It’s a great example of Google’s increasing ability to answer queries directly, saving people a lot of time and effort — because as Larry Page said over a decade ago ‘the perfect search engine should understand exactly what you mean and give you back exactly what you want’.”
“At the time of the ITA acquisition, several online travel companies–Expedia, Kayak, and Travelocity–unsuccessfully lobbied regulators in the US and the European Union to block the deal, arguing that our ability to show flight options directly would siphon off their traffic and harm competition online. Four years later it’s clear their allegations of harm turned out to be untrue. As the Washington Post recently pointed out (in an article headed ‘Google Flight Search, four years in: not the competition-killer critics feared’) Expedia, Orbitz, Priceline and Travelocity account for 95% of the US online travel market today.”
Noting a “similar situation in Europe,” he shares this graph looking at travel sites in Germany:
Later in the posts, he shows similar graphs for shopping sites in Germany, France, and the UK, each of which show Google Shopping being trounced by other sites like Amazon, eBay, and others.
According to Singhal, people have more choice than ever before. For search, they have Bing, Yahoo, Quora, DuckDuckGo, and “a new wave of search assistants” including Apple’s Siri and Microsoft’s Cortana. For specialized search, he names Amazon, Idealo, Le Guide, Expedia and eBay. For social sites, which he says people are increasingly using to find recommendations, he names Facebook, Pinterest, and Twitter for finding things like where to eat, which ovies to watch, or how to decorate their homes. For news, he says people often go directly to their favorite sites.
“Of course mobile is changing things as well,” he writes. “Today 7 out of every 8 minutes on mobile devices is spent within apps — in other words consumers are going to whichever websites or apps serve them best. And they face no friction or costs in switching between them. Yelp, for example, has told investors they get over 40% of their traffic direct from their mobile app. So while in many ways it’s flattering to be described as a gatekeeper, the facts don’t actually bear that out. ”
He continues, “Which brings me to the competition. Companies like Axel Springer, Expedia, TripAdvisor, and Yelp (all vociferous complainants in this process) have alleged that Google’s practice of including our specialized results (Flight Search, Maps, Local results, etc.) in search has significantly harmed their businesses. But their traffic, revenues and profits (as well as the pitch they make to investors) tell a very different story.”
“Yelp calls itself the ‘de facto local search engine’ and has seen revenue growth of over 350% in the last four years. TripAdvisor claims to be the Web’s largest travel brand and has nearly doubled its revenues in the last four years. Expedia has grown its revenues by more than 67% over the same period.”
He even quotes something Expedia allegedly told investors, noting that it’s “remarkable” given their complaints: “We’re seeing increased traffic coming through Google Hotel Finder. It is clearly getting more exposure. And in general … the product continues to improve. And Google has invested in it, we’ll continue to invest in it … From our standpoint, we’re happy to play in any market that Google puts out there and over a long period of time, we have proven an ability to get our fair share in the Google marketplaces.”
Yeah, that one’s a bit of a head scratcher.
Axel Springer, Singhal notes, “continues to invest in search, including the French search engine Qwant, because as the company told investors, ‘there is a lot of innovation on the search market‘.”
He concludes the whole post by saying, “Any economist would say that you typically do not see a ton of innovation, new entrants or investment in sectors where competition is stagnating — or dominated by one player. Yet that is exactly what’s happening in our world. Zalando, the German shopping site, went public in 2014 in one of Europe’s biggest-ever tech IPOs. Companies like Facebook, Pinterest and Amazon have been investing in their own search services and search engines like Quixey, DuckDuckGo and Qwant have attracted new funding. We’re seeing innovation in voice search and the rise of search assistants — with even more to come. It’s why we respectfully but strongly disagree with the need to issue a Statement of Objections and look forward to making our case over the weeks ahead.”
The Commission, which says it’s concerned users don’t necessarily see the most relevant results in response to queries “to the detriment of consumers and rival comparison shopping services” and that it’s “stifling innovation,” has put out a fact sheet about its Statement of Objections to Google. It goes on to name the following points as its preliminary conclusions (emphasis from the Commission):
Google systematically positions and prominently displays its comparison shopping service in its general search results pages, irrespective of its merits. This conduct started in 2008.
Google does not apply to its own comparison shopping service the system of penalties, which it applies to other comparison shopping services on the basis of defined parameters, and which can lead to the lowering of the rank in which they appear in Google’s general search results pages.
Froogle, Google’s first comparison shopping service, did not benefit from any favourable treatment, and performed poorly.
As a result of Google’s systematic favouring of its subsequent comparison shopping services “Google Product Search” and “Google Shopping”, both experienced higher rates of growth, to the detriment of rival comparison shopping services.
Google’s conduct has a negative impact on consumers and innovation. It means that users do not necessarily see the most relevant comparison shopping results in response to their queries, and that incentives to innovate from rivals are lowered as they know that however good their product, they will not benefit from the same prominence as Google’s product.
The Commission says to “remedy the conduct,” Google should “treat its own comparison shopping service and those of rivals in the same way.” It adds, “This would not interfere with either the algorithms Google applies or how it designs its search results pages. It would, however, mean that when Google shows comparison shopping services in response to a user’s query, the most relevant service or services would be selected to appear in Google’s search results pages.”
The Statement of Objections gives Google a chance to make its case and seek an oral hearing to present its comments. The Commission says it will carefully consider Google’s comments before taking a decision. It also points out that the Statement of Objections only relates to the first of four concerns the Commission has outlined in the past, and that it continues to investigate Google’s conduct with regards to the others.
The FairSearch Coalition, a group of complaining Google competitors, said, “The Commission’s actions are significant steps toward ending Google’s anti-competitive practices, which have harmed innovation and consumer choice. More than 30 companies and consumer organizations filed complaints concerning Google’s abuse of its dominance in search. Google’s abuses have devastated rivals, from mapping to video search to product price comparison. While the Commission’s action concerning the search practices of Google is very significant, it has previously identified other problematic areas that are not covered, and we look forward to those being addressed in due course.”
Android
As mentioned, the commission has opened a new investigation into Android, even as reports are circulating that Apple sold more of its smart watches on the first day of sales than manufacturers sold Android smart watches throughout all of last year.
“Since 2005, Google has led development of the Android mobile operating system,” the Commission says. “Android is an open-source system, meaning that it can be freely used and developed by anyone. The majority of smartphone and tablet manufacturers use the Android operating system in combination with a range of Google’s proprietary applications and services. These manufacturers enter into agreements with Google to obtain the right to install Google’s applications on their Android devices. The Commission’s in-depth investigation will focus on whether Google has breached EU antitrust rules by hindering the development and market access of rival mobile operating systems, applications and services to the detriment of consumers and developers of innovative services and products.”
“Smartphones, tablets and similar devices play an increasing role in many people’s daily lives and I want to make sure the markets in this area can flourish without anticompetitive constraints imposed by any company,” said Vestager
The investigation will focus on three main allegations (again, emphasis is the Commission’s):
1. whether Google has illegally hindered the development and market access of rival mobile applications or services by requiring or incentivising smartphone and tablet manufacturers to exclusively pre-install Google’s own applications or services;
2. whether Google has prevented smartphone and tablet manufacturers who wish to install Google’s applications and services on some of their Android devices from developing and marketing modified and potentially competing versions of Android (so-called “Android forks”) on other devices, thereby illegally hindering the development and market access of rival mobile operating systems and mobile applications or services;
3. whether Google has illegally hindered the development and market access of rival applications and services by tying or bundling certain Google applications and services distributed on Android devices with other Google applications, services and/or application programming interfaces of Google.
FairSearch weighed in on that too: “The Commission’s determination to investigate this is important because Google Android has used its dominance to move from an open system to a closed one, so it can exclude competitors to the benefit of its own businesses.”
Google has already responded to the Android allegations as well with a post called “Android has helped create more choice and innovation on mobile than ever before“.
This time it’s Hiroshi Lockheimer, VP of Engineering, Android making the argument: “The pace of mobile innovation has never been greater. Smartphones are being adopted globally at an increasingly fast pace, with over hundreds of millions shipped each quarter, and the average smartphone price fell 23% between 2012 and 2014. It’s now possible to purchase a powerful smartphone, without subsidies or contracts, for under $100. And the app ecosystem has exploded, giving consumers more choice than ever before. Android has been a key player in spurring this competition and choice, lowering prices and increasing choice for everyone (there are over 18,000 different devices available today).”
He continues, “It’s an open-source operating system that can be used free-of-charge by anyone—that’s right, literally anyone. And it’s not just phones. Today people are building almost anything with Android—including tablets, watches, TVs, cars, and more. Some Android devices use Google services, and others do not. Our Google Play store contains over one million apps and we paid out over $7 billion in revenue over the past year to developers and content publishers. Apps that compete directly with Google such as Facebook, Amazon, Microsoft Office, and Expedia are easily available to Android users. Indeed many of these apps come pre-loaded onto Android devices in addition to Google apps. The recent Samsung S6 is a great example of this, including pre-installed apps from Facebook, Microsoft, and Google. Developers have a choice of platforms and over 80% of developers are building apps for several different mobile operating systems.”
“The European Commission has asked questions about our partner agreements. It’s important to remember that these are voluntary—again, you can use Android without Google—but provide real benefits to Android users, developers and the broader ecosystem.”
He concludes by making the point that Android’s success isn’t just about benefiting Google, but that it has helped manufacturers compete with one another with their own offerings while helping developers increase their audiences.
Should Google be penalized either for search or for Android practices? Neither? Both? Tell us what you think.
Images via Google