On Tuesday, the European Commission (EC) announced that it is levying a $2.7bn fine on search giant Google for abusing its dominant search position to illegally favor its own vertical shopping search offering, Google Shopping.
In explaining the record fine for breaking EU antitrust rules, EC Commissioner Margrethe Vestager stated:
…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.
Google, not surprisingly, was quick to issue a response refuting the EC’s claim that it has illegally acted to stifle competition. In it, Google’s general counsel Kent Walker stated that the company “respectfully disagrees” with the EC’s conclusions and suggested that the rise of competitors like Amazon could be responsible for the challenges other shopping comparison sites have faced.
“When you use Google to search for products, we try to give you what you’re looking for,” Walker wrote. “Our ability to do that well isn’t favoring ourselves, or any particular site or seller – it’s the result of hard work and constant innovation, based on user feedback.”
An appeal, while not yet announced, would appear likely.
In the meantime, Google parent company Alphabet has 90 days to cease the conduct the EC found to be illegal or it will face daily fines of 5% of its average daily worldwide turnover. The EC also noted that in addition to the fine being levied by the EC, Google could face civil penalties for its behavior and that a new EU Antitrust Damages Directive will “[make] it easier for victims of anti-competitive practices to obtain damages.”
A sign of things to come?
While Google, which generated some $90bn in revenue last year, can easily swallow the EU’s $2.7bn fine without batting an eye, the billion-dollar fine signals that regulators, after years of talk, might now be willing to take action to reign in large tech companies that are increasingly dominant.
Google and Facebook, for instance, have been labeled by some as a duopoly that needs to be regulated more heavily, and as a candidate, now-U.S. President Donald Trump went so far as to publicly state that Amazon has “a huge antitrust problem.”
There’s no evidence that tech giants like Google, Apple, Facebook and Amazon are going to become less dominant any time soon. In fact, the evidence indicates that the dominance of a handful of large tech firms will only grow. This has led to concern that these companies are becoming too powerful and must be reigned in to protect the public.
While it’s too early to know whether the EC’s Google fine is the beginning of a period of aggressive antitrust enforcement, the EC did use its press release to point out that it “has already come to the preliminary conclusion that Google has abused a dominant position in two other cases” involving Google’s mobile OS Android and AdSense.
It also noted that it “continues to examine Google’s treatment in its search results of other specialised Google search services” — a not-so-subtle warning that Google is still under a powerful antitrust microscope.
Is a Europe-US split developing?
Some observers have suggested that the EC unfairly targeted Google, an American company, and that this week’s fine is actually intended to serve protectionist goals without starting an overt trade rift. The EC has dismissed these arguments.
While U.S. presidential candidate Trump bandied about the “antitrust” word in reference to Amazon, which is owned by one of his most prominent tech industry critics, Jeff Bezos, it’s somewhat doubtful that President Trump will eschew his business-friendly political platform and go after big tech firms who employ tens of thousands of highly-paid workers in the U.S.
This raises the prospect of a Europe-US split in which large tech companies, most of which are headquartered in the U.S., are forced to change the way they operate in Europe while keeping their modus operandi the same across the pond.
For companies that rely in some form on these tech giants, particularly large brands, this possibility is worth paying close attention to. After all, if Google is forced to make significant changes to the way it operates in Europe, it could affect how Google’s many frenemies work with and compete against it in Europe versus the rest of the world.