Google fined gazillions: Do they care?

Published on the 27/07/2018 | Written by Pat Pilcher

Google EU fines

Google forced to cough up big bucks in action reminiscent of Microsoft anti-trust case, but will it have any impact?...

Last week, the EU whacked Google with massive fines, imposing a multi-billion-Euro penalty on the search engine and software giant for abuse of its market position through several practices to stifle competition.

The €4.34 billion (AU$6.83 billion) fine levied by the EU is the biggest so far in their eight-year anti-trust stoush with Google and is significantly larger than the €2.4 billion penalties imposed on Google last year concerning manipulation of results for comparison shopping searches.

“Google has always been a contradiction, in that it is a market facilitator who also wants to control that market.”

It’s a big number in anyone’s language, but for Google it is just the cost of doing business, and a minor dent in global profits. According to the AFR, €4.34 billion is about the same amount of money Google generated every 16 days in their 2017 financial year.

Google’s parent company Alphabet has continued unaffected – enjoying a 5 percent gain in share price after announcing a 26 percent increase in revenue to US$33 billion in Q2.

According to Mark Skilton, professor of practice in Information Systems and Management at Warwick Business School, the penalty is part of moves to reign in Google’s OS dominance which, in turn, has led to a dominant position in mobile search and browsing.

“Google has always been a contradiction, in that it is a market facilitator who also wants to control that market,” Skilton says. “Google claims that it has to compete with other big players and that swapping to an alternative search service is ‘one click away’, but in my view, it is its locking up of around 80 percent of mobile devices with pre-installed Google Android software that is the issue.” And the Commission agrees.

With the increasing use of mobile devices, rather than PCs, the move to reign in Google’s dominance in the smartphone space takes on extra significance. According to IDC’s most recent Worldwide Quarterly Mobile Phone Tracker, Android accounted for 85.1 percent of the world’s smartphones in 2017. Android also makes a sizeable contribution to Google’s revenues.

The move by the EU found several anti-competitive practices by Google. One of the first issues involved incentives paid to smartphone manufacturers – provided they pre-installed Google search, and no other rival search services. The EU alleges that this stifles competition and innovation.

Another issue figuring in the decision to regulate Google was contractual requirements that phone manufacturers not use competing operating systems developed on Android source code. In the PC market, this practice has been underway for some years as evidenced by the many competing Linux distros. Amazon already does this with a custom version of Android called Fire OS (this also explains why vital Google services such as Google Maps are missing on Amazon’s Fire OS hardware).

In addition to paying a hefty fine, Google will be required to end anti-competitive practices by mid-October and will face daily fines of five percent of revenues if they choose not to comply. Unsurprisingly, Google has advised it will be appealing the ruling.

The multi-billion euro question is this: Will the required tweaks to Google’s business model have any ramifications on the broader smartphone market?

Analysts and industry experts argue that small flaws in the EU ruling could see Google continue to dominate the smartphone industry.

While the ruling should give smartphone makers the ability to develop phones based on alternative versions of Android, such as Amazons Fire OS, the devil is in the detail.

Crucially, the EU has not stipulated that Google must provide any Google apps to smartphones with customised versions of Android. The reality of this could mean custom Android equipped smartphones may continue to lack critical apps such as Google Maps. Because of this, non-Google-sanctioned Android versions could still struggle. Adding further to the woes of smartphone makers using custom Android versions are carriers, many of whom may not see great sales prospects for such hobbled handsets.

For iStart readers of a certain age, the situation may sound familiar. Twenty years ago, US regulators took Microsoft to task over its bundling of Internet Explorer in Windows. The anti-trust stoush came out of the fact that Microsoft’s Windows OS was sold on 95 percent of all PCs, conferring Microsoft with significant competitive advantages, effectively making Internet Explorer the default browser over other browsers such as Netscape.

Since then, things have moved on. Internet Explorer (now Edge) is affectionately known as “Internet exploder”, and typically gets used once, maybe twice – to download Chrome or Firefox browsers on a fresh Windows install.

Ironically, Google also appears to be making use of some of Microsoft’s old legal defences. These include publishing a “how to uninstall” video which is very similar to what Microsoft showcased during its antitrust trial.

None of this is a huge surprise. Google now occupies a similar market position to that held by Microsoft back in 1998. Like Windows then, Android is hard to avoid and thanks to a raft of complex deals that are all but invisible to the consumer, is making Google a tonne of money.

But there are some significant differences. In 1998 when Microsoft faced anti-trust action, Internet Explorer had only just launched (and accounted for around a quarter of web users compared to Netscape’s Navigator). Meanwhile today, Google’s Chrome browser and its search engine are huge. Chrome’s market share is an estimated 60 percent share of all installed browsers. More significantly, Google’s search business accounts for an estimated 90 percent of search engine traffic.

Moreover, the bulk of the user base for Chrome and Google search has nothing to do with anti-competitive Android bundling requirements. Scrapping mandated bundling is unlikely to lead to enhanced competition given the sheer momentum already in place with Chrome and Google search. The ruling may allow phone makers to do deals with Bing, Opera and other alternatives to Google. It might even make a few other players money, but as a win for consumer choice and enhanced competition, the jury’s going to be out on that one for a long time.

While anti-trust actions nipped Microsoft’s dominance of the browser market in the bud, the same is unlikely to be said for Google. Crucially, in 1998, regulators took a long-term view and bridled an emerging product. Twenty years later, regulators are attempting to curtail the dominance of several already enormous products. The sheer level of end-user adoption already in play likely mean it’s too late.

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