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Friday, 17 April 2015

The European Commission is taking a massive swing at Google. Is it an attack against the free market? Or a fair and necessary attempt to stop a company with too much power, which abuses this power to gain even more dominance on the world market.

The European Commission has a fierce reputation of occasionally targeting large and high-profile, multinational companies, when they don’t stick to the European laws and regulations, and penalizing these companies with massive penalties. 

Perhaps the most high-profile company in the past, being penalized by the European Commission, has been Microsoft, which received a big blow on the chin about a decade ago.  

The next, extremely high-profile target on the list of the European Commission is Google: the giant US information management company, which issues, among many other services, the world-famous Google search engine and the Android operating system for smartphones and tablets.

The company is currently under threat of a gargantuous penalty of up to € 6 billion; allegedly for: 
  • Unlegally tampering with search results, thus favouring search results from companies affiliated to itself and aggrieving competing companies, whose offer would be equal to or better, compared with the offers that Google favoured;
  • Shutting some competing companies in the area of mobile services, when these offer services for the Android platform and don't agree to some of Google's arrangements and conditions.
These are the reasons that the European Commission is targeting two of the most important pillars of Google's business, through two separate legal cases against Google:

  • The Google Search Engine itself and the sequence of the results that it provides to its numerous users;
  • The Android operating system for mobile appliances. 
Probably the main target in this unprecedented, legal battle is the so-called source code of the search algorithm, which Google uses for its world-famous and globally leading search engine; an engine so powerful and widely used, that it is the favorite search engine of over 90% of the European population in average.

The secrecy, importance and impact of this search algorithm can be compared with the legendary recipe of Coca Cola. 

This is the reason that Google is adamantly against handing this search algorithm over to the European Commisson and goes through great, great lenghts to prevent this from happening.

I will show you parts of the two press releases, which were issued by the European Commission and have been published two days ago.

The following snippets are applicable to the Google search engine and search results:

Brussels, 15 April 2015

The European Commission has sent a Statement of Objections to Google outlining the Commission's preliminary view that the company is abusing a dominant position, in breach of EU antitrust rules, by systematically favouring its own comparison shopping product in its general search results pages in the European Economic Area (EEA). The Commission is concerned that users do not necessarily see the most relevant results in response to queries – to the detriment of consumers and rival comparison shopping services, as well as stifling innovation.

Google has a dominant position in providing general online search services throughout the EEA, with market shares above 90% in most EEA countries.
Since 2002, Google has also been active in providing comparison shopping services, which allow consumers to search for products on online shopping websites and compare prices between different vendors. The first product it offered, "Froogle", was replaced by "Google Product Search", which in turn was replaced by its current product "Google Shopping".

The Statement of Objections outlines that the markets for general search and comparison shopping are two separate markets. In the latter market, Google faces competition from a number of alternative providers.

The Commission's preliminary conclusions in the Statement of Objections

The Statement of Objections alleges that Google treats and has treated more favourably, in its general search results pages, Google's own comparison shopping service "Google Shopping" and its predecessor service "Google Product Search" compared to rival comparison shopping services.

Google's conduct may therefore artificially divert traffic from rival comparison shopping services and hinder their ability to compete, to the detriment of consumers, as well as stifling innovation.

The Statement of Objections takes the preliminary view that in order to remedy the conduct, Google should treat its own comparison shopping service and those of rivals in the same way. 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.

And the following snippets are applicable to the Android operation system for smartphones and tablets:

Brussels, 15 April 2015

The European Commission has opened formal proceedings against Google to investigate in-depth if the company’s conduct in relation to its Android mobile operating system as well as applications and services for smartphones and tablets has breached EU antitrust rules.

The Commission will assess if, by entering into anticompetitive agreements and/or by abusing a possible dominant position, Google has illegally hindered the development and market access of rival mobile operating systems, mobile communication applications and services in the European Economic Area (EEA). This investigation is distinct and separate from the Commission investigation into Google's behaviour in internet search.

Since 2005, Google has led the development of the Android mobile operating system. In recent years, Android has become the leading operating system for smart mobile devices in the EEA, to the extent that today, the majority of smartphones in Europe are based on Android.

Android is an open-source mobile operating system, meaning that it can be freely used and developed by anyone. The majority of smartphone and tablet manufacturers, however, use the Android operating system in combination with a range of Google's proprietary applications and services. In order to obtain the right to install these applications and services on their Android devices, manufacturers need to enter into certain agreements with Google.

Following the receipt of two complaints, as well as an initial investigation carried out by the Commission on its own initiative, the Commission has now opened a formal investigation to assess if certain conditions in Google's agreements associated with the use of Android and Google’s proprietary applications and services breach EU antitrust rules.

Of course, Google went through great lengths to deny all allegations from the European Commission. It tried to make these two high profile cases seem like an attack from the European leaders against the free market in general and extremely successful businesses in particular: as the result of envy, instead of the fruit of thorough research.

Yet, I have the opinion that these investigations probably aren’t that and I am quite certain that the European Commission has a viable case against Google. Although both investigations cover a different area of operations within the Google company, there is one common factor in it:

From a position of sheer global dominance, an almost unbelieve coverage and usage ratio in the whole EU in particular, as well as an overwhelming financial fire-power, the company Google does everything to maintain and expand its position of market leader on the markets for search engines, online adverts, content management (blogger) and mobile operating systems. In the process, Google tries to maximize the yields of these business areas, which is by itself justifiable.

Google does so using legally accepted methods; f.i. by continuously improving their main products and thus offering the best quality in products and services or through the acquisition of companies in the same business areas and incorporating their products in Google’s services portfolio. Both are of course perfectly legal.

However, allegedly Google also uses a illegal modus operandi in both its search engine and its mobile operating systems, in which the competition eventually bites the dust, without ever having had a chance for a fair fight against this information behemoth.

These allegations are especially serious, as perhaps not “de jure”, but definitely “de facto”, Google has a near monopoly (actually an oligopoly) in the market for search engines, online adverts and mobile operating systems: all markets, in which Google is the strongest party, leading in sheer numbers by lightyears.

When this company is using its company size, financial firepower, coverage and usage ratio and dominance in the European and global markets to press its competitors away from the market, allegedly by deploying a set of ‘foul tricks” and dishonest working methods, it is justifiable that the European Commission steps in.

Not only will these steps of the European Commission be a painful warning towards Google itself, but also a firm warning from the European Union in the direction of other near-monopoly players in the information and social media industry: Facebook, LinkedIn, Twitter, Apple and Uber, to name a few.

“Play by our rules or face the grim consequences from our policies and regulations!”

These days, it is not yet certain that the European Commission has an ironclad case, in which it can prove all of its allegations against Google. However, the EC's past of similar allegations against other companies, has proven beyond a reasonable doubt that the Commission does not shoot with rubber bullets and can inflict some serious pain among companies, offending its rules.

I sympathize with the commission in this matter and hope for a firm but fair investigation. I am always very reluctant when companies get such a powerful position on the world market, especially when they have the smell of abuse floating around them.

And when Google would be freed from all allegations after all and it would be decided by the European Commission that the company does business firmly, but fair, that would also be good news for the rest of the world.

So let’s find that out!

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