In Google vs. the EU, a $2.7B fine could just be the start

Kuwait Times - - TECHNOLOGY -

Google’s par­ent com­pany Al­pha­bet can eas­ily af­ford the $2.7 bil­lion write-down it’s tak­ing to cover a big an­titrust fine in Europe. But it might find it harder to shrug off the rest of the Euro­pean regulatory as­sault that’s headed its way. In June, a Euro­pean Com­mis­sion rul­ing slapped down Google for abus­ing its mar­ket dom­i­nance in search by un­fairly di­rect­ing vis­i­tors to its com­par­i­son shop­ping ser­vice, Google Shop­ping, to the detri­ment of its ri­vals.

The reg­u­la­tors not only im­posed a huge fine, they also in­sisted that Google change the way it pro­vides search re­sults in Europe. Al­pha­bet is still mulling an appeal of that rul­ing, which could take years to get through the Euro­pean Court of Jus­tice. And that case is only the first of sev­eral such in­ves­ti­ga­tions that have em­broiled Google across the At­lantic, a sit­u­a­tion that raises un­cer­tainty about its abil­ity to op­er­ate freely on the con­ti­nent go­ing for­ward.

Why Europe is up­set

Af­ter a seven-year an­titrust probe, the Euro­pean Com­mis­sion con­cluded that Google sti­fles the abil­ity of ri­vals like Yelp to com­pete. That’s a dif­fer­ent stan­dard than in the US, where reg­u­la­tors tend to step in only when con­sumer prices go up due to mo­nop­o­lis­tic power. Europe’s top an­titrust reg­u­la­tor, Mar­grethe Vestager, said Google “de­nied other com­pa­nies the chance to com­pete on the mer­its.” Google says it’s giv­ing con­sumers what they want: product list­ings with pic­tures and prices, sav­ing them the trou­ble of re­peat­ing a search on an­other site. In two other cases, the com­mis­sion charges Google with al­legedly forc­ing its An­droid smart­phone part­ners to fa­vor Google’s apps and lim­it­ing the way its ad-part­ner web­sites can dis­play search ads from Google ri­vals. An Al­pha­bet spokes­woman said Mon­day the com­pany had noth­ing to say on the mat­ter be­yond its blog re­sponse to the fine last month, in which it painted it­self as an un­der­dog in product search com­pared to Ama­zon.

How much Google could hurt

It’s un­clear how con­straints on its be­hav­ior could af­fect it, but 33 per­cent of Al­pha­bet’s rev­enue - roughly $8.5 bil­lion in the lat­est quar­ter - came from the re­gion it calls Europe, the Mid­dle East and Africa. Be­yond the fine, Al­pha­bet faces a penalty of up to 5 per­cent of its av­er­age daily turnover if it doesn’t give equal treat­ment to ri­val com­par­i­son shop­ping ser­vices in Europe by late Septem­ber. It’s up to Google to fig­ure out how to do so.

“These things tend to hob­ble a com­pany’s be­hav­ior even if there isn’t a de­ci­sion,” says Jonathan Taplin, a for­mer pro­fes­sor at Univer­sity of South­ern Cal­i­for­nia and au­thor of “Move Fast and Break Things: How Google, Face­book and Ama­zon Have Cor­nered Cul­ture and Un­der­mined Democ­racy.”“I don’t think it’s the end, I think it’s the be­gin­ning.” Google’s pre­vi­ous of­fers to the com­mis­sion to change its search re­sults were re­jected. That’s why it’s con­fus­ing try­ing to pre­dict what a so­lu­tion would look like, says Mark Bal­lard, head of re­search for Merkle, an ad agency that rep­re­sents Gap, Crate&Bar­rel and other big on­line ad spen­ders.

On Mon­day, Al­pha­bet Inc. re­ported sec­ond-quar­ter earn­ings of $3.52 bil­lion, down 28 per­cent from $4.88 bil­lion a year ear­lier; that fig­ure in­cludes the ef­fect of the $2.7 bil­lion Euro­pean fine. Ad­justed earn­ings were $8.90 per share, be­low the $10.26 an­a­lysts were ex­pect­ing, ac­cord­ing to Fac­tSet. Rev­enues rose 19 per­cent to $20.9 bil­lion af­ter sub­tract­ing com­mis­sions it paid out, right on par with ex­pec­ta­tions. Al­pha­bet shares dropped more than 3 per­cent in af­ter-hours trad­ing, to $966.

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