It was another record breaking week for Google. In a landmark competition case Google was fined €2.4bn (c 3% of its turnover) for boosting its own online shopping service while relegating others. The previous record for a tech competition case was in 2009 when Intel was fined €1.09 bn for abusing its market dominance on central processing units (CPUs).
Seek and ye shall find… but only what I want you to see…
The statistics around search come as no surprise:
81% of all purchase decisions start with online research (Retailing Today, 2014).
The first position on Google search results on desktop has a 34.36% click through rate and on mobile has a 31.35% click through rate. (Advanced Web Ranking, 2015.)
Margrethe Vestager, the European competition commissioner, is a formidable adversary for multinationals who may try to bully their competitors, abuse their dominant positions or who fail to uphold the EU’s principle of equal treatment.
In her office in Brussels, Margrethe Vestager has a statue of a raised middle finger – a gift from a trade union when she was deputy prime minister of Denmark. She was credited by the writers of the brilliant Danish political drama series Borgen as being one of the inspirations for the lead character Birgitte Nyborg played by Sidse Babett Knudsen.
"The actress followed me around for a day when I was minister of economy, to see how it works," Vestager said.
It is no surprise that she took a hard line pointing out that Google – which enjoys more than 90% market share for search in Europe – had “denied European consumers a genuine choice of services and the full benefits of innovation”.
Google responded: “Given the evidence, we respectfully disagree with the conclusions announced…We will review the commission’s decision in detail as we consider an appeal, and we look forward to continuing to make our case.”
So what are the facts?
In 2004 Google launched its UK version of price comparison site Froogle (Frugal - geddit??)
In 2008 the service was relaunched as Google Shopping. According to the commission, the new version boosted Google’s own shopping service while crushing rivals.
In 2009 price comparison site Foundem – set up by British Mom & Pop team Adam and Shivaun Raff – filed an official complaint with the European Commission that Google was breaking the law with its algorithm which demoted rivals.
Microsoft, Google’s old rival, added its name to the complaint.
In 2010 the EU announced an inquiry into alleged antitrust violations by Google.
In 2014 Google agreed that rival services could be featured alongside its own.
In 2015 Google was charged with monopoly abuse “giving an unfair advantage to its own comparison shopping service, in breach of antitrust rules”. Google maintains the charges are “unfounded”.
In 2016 Google was charged with monopoly abuse in both its Android mobile operating system where smartphone and tablet makers place Google search, email, mapping and other apps prominently on devices potentially at the expense of competing services and AdSense which places advertising on independent websites. The EU is considering whether Google “has reduced choice by preventing third-party websites from sourcing search ads from Google’s competitors”. AdSense is one of Google’s crown jewels.
In June 2017 Google received a €2.4bn fine in the comparison shopping service case and is told it has 90 days to make appropriate changes to its search engine or face further fines.
If Google fails to comply the EU maintains the right to start imposing a daily fine of 5% of revenues.
Google strongly denies the claims that it has been bad for competition, arguing that the changes made to its comparison shopping service in 2008 benefited consumers. “People usually prefer links that take them directly to the products they want,” Kent Walker, Google’s general counsel, wrote in a blog.
It was argued that the decline of price comparison websites is due to a large degree because of the rise of Amazon and eBay.
Indeed 44% of people go directly to Amazon to start their product searches, compared to 34% who use search engines like Google, Bing, and Yahoo to search for products. (Marketing Land, 2015).
The battle with the digital monopolists is on…
Vestager: “These things go back to Adam and Eve, it’s all about greed and fear. Greed to have something by cutting corners, fear of being driven out of the market."
While it is a record fine, it nevertheless equates to just 3% of Google’s $92bn turnover. The decision, however, is likely to lead to multiple lawsuits.
The Commission is expected to publish a redacted version of its report – without commercially sensitive information – in the next few months.
The Commission’s decision will help encourage companies to sue Google for damages.
Vestager: “It is for everyone who feels they have been hurt by the illegal Google behaviour to take the report and use it in court as part of their evidence.”
Several companies are already gunning for Google from different angles.
News Corp, Expedia, Deutche Telekom, Getty Images and Axel Springer, the German publisher, all filed complaints in the search case.
Advertisers are also seeking an overhaul of online ads' automated distribution by 'intelligent' software which resulted in some ads appearing alongside repugnant videos.
As Robert Thomson, chief executive of News Corp, points out: "There is the enduring contradiction between the claimed sophistication of, say, Google’s ability to target audiences and track tastes for advertisers, and its inability to identify the tasteless, the terroristic, the perverted and the pirated. It is profit before provenance and probity.”
The Times said that more than 300 of the world’s largest advertisers pulled their ads from YouTube until there was reform.
Unilever has asked for independent validation of viewing statistics and Vodafone has drawn up a whitelist of sites where its ads can appear.
“The algorithmic alchemy of the biggest tech companies is redefining our commercial and social experiences, but like the alchemists of old, algorithms are also a charlatan’s charter, allowing claims of pure science when human intervention is clearly doctoring results to suit either commercial imperatives or political agendas," said News Corp's Thomson.
Google is also being attacked for its First Click Free program which requires pay-walled news publishers to allow those who click to their stories from Google’s search results to have free access for up to three stories per day.
“The problem is that applies across devices so frankly you get a lot of free content,” said John Ridding, the Financial Times chief executive, at the FT’s Future of Media and Telecoms conference.
Thomson points out: “There is a hierarchy of content – some news stories are more meaningful than others, some are better sourced than others – but in a horizontal world, the flat earth ethos of distribution companies, qualitative distinctions are diminished and the incentive to fabricate the fake rises exponentially. That will not change until Facebook, who are confronting the issue, and Google, who are not, recognise the relative value of premium content…. Instead of giving readers a choice and a chance to access premium content, Google banishes that content from search results.”
Earlier this year, the Wall Street Journal limited access to First Click Free and by May it suffered a 94% fall in referrals from Google. Predictably, the Wall Street Journal is referring this to the European Commission.
Vestager appears to be keen to add to her impressive trophy cabinet of global gorilla scalps having fearlessly taken on Amazon, Apple, Fiat, Gazprom and Starbucks among others. She is expected to announce a decision regarding the investigation into McDonald’s tax affairs in Luxembourg shortly.
Action continues to be taken to prevent abuse of dominant positions. The problem is that the cases take years to decide and the fines imposed – however record breaking – pale into insignificance when compared to turnover. Google’s €2.4bn fine represents just c 3% of Google’s turnover. Google will make it back in under two weeks!
The fine may just be seen as a worthwhile licence fee to achieve commercial gain.
Some believe therefore that the only way forward would be for Google to separate the search engine from associated services such as shopping and news.
Google’s competitors may be rubbing their hands in glee but the fight is far from over. Google will appeal.
The global gorillas will continue to slug it out over many years.
Whilst Dylan reminds us that The Times They Are A Changin’ …. they won’t change overnight and many of the smaller companies may not be around long enough to see the results….
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