June 27th, 2017
Google has been handed a record-breaking fine of €2.42bn (2.7 billion USD or 175 billion INR) by the European Union (EU) for abusing its dominance of the search engine market to favour and promote its online shopping service.
Google is also liable to face civil actions for damages that can be brought before the courts of EU Member States by any person or business affected by its anti-competitive behaviour.
Google has been found guilty of exploiting its reputation as Europe’s most popular search engine to promote its own shopping service (Google Shopping) by making its products more visible in search results and demoting rivals’ products in the process.
The verdict concludes a seven-year investigation into the US-based company’s search algorithms. It is the largest antitrust fine imposed by the European Commission, an EU body.
Google, meanwhile, could appeal the decision in EU courts, essentially delaying the final verdict by years. In a statement, the company said, “We respectfully disagree with the conclusions announced today. We will review the Commission’s decision in detail as we consider an appeal, and we look forward to continuing to make our case.”
What is Google guilty of?
Google’s flagship product is the Google search engine, which provides search results to consumers, who pay for the service with their data. Almost 90% of Google’s revenues stem from adverts, such as those it shows consumers in response to a search query.
In 2004, Google entered the separate market of comparison shopping in Europe. This is Google Shopping. It allows consumers to compare products and prices online and find deals from online retailers of all types, including online shops of manufacturers, platforms (such as Amazon and eBay), and other re-sellers.
When Google entered comparison shopping markets, there were already a number of established players. Comparison shopping services rely to a large extent on traffic to be competitive. More traffic leads to more clicks and generates revenue. Furthermore, more traffic also attracts more retailers that want to list their products with a comparison shopping service. Given Google’s dominance in general internet search, its search engine is an important source of traffic for comparison shopping services.
From 2008, Google began to implement in European markets a fundamental change in strategy to push its comparison shopping service. This strategy relied on Google’s dominance in general internet search, instead of competition on the merits in comparison shopping markets:
- Google has systematically given prominent placement to its own comparison shopping service.
- Google has demoted rival comparison shopping services in its search results.
This means that by giving prominent placement only to its own comparison shopping service and by demoting competitors, Google has given its own comparison shopping service a significant advantage compared to rivals.
Did Google’s abuse of its dominant position stifle competitors?
Yes. The European Commission’s investigation revealed that Google’s attempt at bypassing the EU’s antitrust laws was very profitable.
- Since the beginning of each abuse, Google’s comparison shopping service has increased its traffic 45-fold in the United Kingdom, 35-fold in Germany, 19-fold in France, 29-fold in the Netherlands, 17-fold in Spain and 14-fold in Italy.
- Following the demotions applied by Google, traffic to rival comparison shopping services on the other hand dropped significantly. For example, the Commission found specific evidence of sudden drops of traffic to certain rival websites of 85% in the United Kingdom, up to 92% in Germany and 80% in France. These sudden drops could also not be explained by other factors. Some competitors have adapted and managed to recover some traffic but never in full.
Google could face further fines if it doesn’t stop its illegal activities
While market dominance in itself is not illegal under EU antitrust rules, dominant companies (like Google) have a special responsibility to not abuse their powerful market position by restricting and stifling competition, either in the market where they are dominant or in separate markets.
Commissioner Margrethe Vestager, in charge of competition policy, said: “Google has come up with many innovative products and services that have made a difference to our lives. That’s a good thing. But Google’s strategy for its comparison shopping service wasn’t just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors … What Google has done is illegal under EU antitrust rules. It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation.”
EU regulators have given Google 90 days to stop its illegal activities or face fines of up to 5% of the average daily worldwide turnover of parent company Alphabet.
The Commission has said it is Google’s sole responsibility to ensure compliance and it is for Google to explain how it intends to do so and the antitrust body will keep a close watch on Google’s compliance.
Why is this a landmark verdict?
The verdict is significant not only because of its historically high fines but also because it brings to the forefront of monopolies in the tech world. Monopolies are known to be dangerous for an economy as they kill competition, restrict innovation and harm medium- and small-sized businesses.
But monopolies are widespread in the tech world, and a conversation needs to be had about their consequences. (Presently, the EU has confirmed that it is not considering whether or not it might be necessary to break up Google as a monopoly.)
Additionally, the decision comes at a time when US companies are accusing EU regulators of being biased against American companies by subjecting them to unfair rules, regulations and fines. (However, if we examine the antitrust decisions made by the European Commission between 2010 and 2017, it becomes clear that only 15% of them have hit US companies while nearly 75% have targeted European firms.)