Analysis: Google may face years of regulatory action
BEYOND the headline-grabbing €2.4billion (R35.2bn) fine that EU anti-trust regulators have levelled against Google, the internet giant is likely to be shackled for years by Tuesday’s precedent-setting decision defining the company as a monopoly.
The ruling opens the door for further regulatory action against more crucial parts of Google’s business – mobile phones, online ad buying and specialised search categories such as travel – while easing the standard of proof for rivals to mount civil lawsuits showing Google has harmed them.
So far, investors have shrugged off the EU’s threatened crackdown, with the shares of Google’s holding company, Alphabet, down 1.8 percent in early US trade amid a continued sell-off in technology stocks. The stock has doubled in the two years since European authorities vigorously stepped up investigations into Google. It trades just behind rival Apple as the world’s most valuable stock, with a market capitalisation of $666bn (R8.6 trillion).
The real sting is not from the fine for anti-competitive practices in shopping search services but the way the EU has thrown the issue back to Google to solve, which means the company won’t be able to comply through an easy set of technical steps.
In effect, the commission is forcing Google to demonstrate that rivals have made substantial inroads into its businesses before there is much chance of it being let off the regulatory hook. EU competition chief Margrethe Vestager promised Google was in for years of monitoring to guard against further abuses.
“Just being put on notice can limit Google’s strategic options into the future,” Matti Littunen, a digital media and online advertising analyst with Enders Analysis in London, said.
The EU’s 2004 ruling that Microsoft had abused its dominant market position in Windows and other markets is now seen as having curtailed the software giant’s moves over the subsequent decade to expand more quickly into markets such as online advertising, opening the way for Google’s rise.
Putting the onus on the company underlines regulators’ limited knowledge of modern technologies and their complexity, Fordham Law School professor Mark Patterson said. “The decision shows the difficulty of regulating algorithm-based internet firms,” he said. “Anti-trust remedies usually direct firms that have violated anti-trust laws to stop certain behaviour or, less often, to implement particular fixes. This decision just tells Google to apply ‘equal treatment’, not how to do that.”
The EU ruling is a warning shot for two continuing EU probes into Google’s Android mobile operating system and AdSense ad system, said Richard Windsor, an independent financial analyst who tracks competition among the biggest US and Asian internet and mobile players, including Google.
“If the EU turns around and says Google can no longer bundle its Google Play app store as a default feature on many Android smartphones, this opens up the market to other handset makers to put their own software and services front and centre on their phones,” he said.
Littunen agreed, saying although Google may be able to meet EU objections in the AdSense case by making relatively modest changes to its advertising systems to enable website customers to run ads from Google advertising rivals, the Android case has many complicated factors with no easy solution.
More importantly, Google must find ways to change its business practices without harming its very lucrative advertising business model, which accounted for about 85 percent of the $90.3bn in revenue of Alphabet in 2016.
“The EU’s identification of ‘super-dominance’ in internet search throughout the European Economic Area is confirmed and will provide a cornerstone for the assessment of other ongoing cases, especially regarding Android and AdSense,” said Jonas Koponen, competition chief at Linklaters law firm in Brussels. “This could result in a profound change to the company’s business models.”
Yet another worry for the company could be a wave of lawsuits in the future. “We can expect to see a series of damages claims brought by the rivals that were excluded from the market by Google’s conduct,” said Peter Wills, the co-head of competition law for Bird & Bird in London.
With Vestager giving no ground in her record demand last year to collect €13bn in unpaid taxes from Apple and stopping Google from squeezing out rivals, other tech giants will probably think twice before testing her further.