Google's Biggest Concern About Its $2.7 Billion EU Fine Is Not the Money

The EU has felt keenly its relative powerlessness in the face of American tech companies' increasing dominance of global commerce. While many European citizens and European enterprises have contributed significantly to those American led efforts - Apple's Jonny Ive, eBay's acquisition of Skype, etc etc - the locus of monetizing innovation has remained largely in California.

With this latest action, the EU has not really hurt Google financially but may finally have found a way of challenging its supremacy by threatening its continued control of search, especially in the artificial-intelligence-driven, voice-controlled future. JL

Klint Finley reports in Wired:

The big issue for Google isn't the fine, or the change to its shopping listings. It's that regulators are forcing it to change how it handles search. As Google expands into new areas, such as voice-controlled virtual assistants, it seeks to provide people with what they're looking for directly, whether that's an answer to a question, the address of a restaurant, or a list of movie showings. The (EU) order chips away at that  by opening the door to more lawsuits. That's good news for competing shopping sites.

The European Union just fined Google $2.7 billion. And that might not even be the worst news for Mountain View.

The EU's executive branch, the European Commission, also ordered Google to change the way it displays search results from its online shopping tool. When you search for a product, Google has long shown results from Google Shopping in a box that floats above its regular search results. The commission ruled that this preferential treatment of its own content is illegal and anti-competitive. The company has 90 days to begin ranking its own shopping comparison in the same way it lists those from competitors, or face additional fines of up to five percent of its average annual turnover. The order only applies to search results in the European Union.

The big issue for Google isn't necessarily the fine, or even the change to its shopping listings. It's the fact that regulators are forcing it to change how it handles search. The company has been retooling its search results to be more than just a list of websites. As Google expands into new areas, such as voice-controlled virtual assistants, it seeks to provide people with what they're looking for directly, whether that's an answer to a question, the address of a restaurant, or a list of nearby movie showings. Today's order chips away at that idea by opening the door to more lawsuits.

That's good news for competing shopping sites, which can now also sue Google in European civil court, and potentially for other companies as well. Yelp has long complained about the way Google lists its own restaurant reviews over those of competitors, and today's decision could be the first step towards changing that.

Since Google can still appeal the case, it's still too early for those competitors to celebrate, though some hope it's a signal of changes to come. "This will be the most significant enforcement event in consumer tech antitrust in nearly 20 years," Yelp VP of policy Luther Lowe wrote on Twitter yesterday, citing the Justice Department's landmark ruling against Microsoft in 2000 as the last major event in tech antitrust history. But the potential impact is still far from certain.

The Case Against (and For) Google

Today's order was a long time coming. The EU began its investigation in 2010, after British price comparison site Foundem, French legal search engine eJustice.fr, and Microsoft-owned Ciao from Bing complained that Google's practices put competitors at a disadvantage. But the regulators didn't formally accuse the Google of an antitrust violation until 2015.

The commission analyzed the results of 1.7 billion real Google search queries—around 5.2 terabytes of data—and concluded that, on average, the company placed results from competing online shopping services only on the fourth page of its results. "Google has come up with many innovative products and services that have made a difference to our lives," EU Commissioner Margrethe Vestager said in a statement today. "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."

Barry Lynn, author of Cornered: The New Monopoly Capitalism and the Economics of Destruction and the head of the New America Foundation's Open Markets program, compares Google's behavior to a railroad that steers its riders to stores that the railroad company also owns.

But Google has long argued that online shopping is more competitive than ever and that Amazon and eBay, not Google, are the truly dominant players in the market.

“When you shop online, you want to find the products you’re looking for quickly and easily," Google senior vice president and general counsel Kent Walker said in a statement today. "And advertisers want to promote those same products. That's why Google shows shopping ads, connecting our users with thousands of advertisers, large and small, in ways that are useful for both.”

The EU's order comes amid what appears to be a crackdown on US-based technology companies in Europe. France fined Facebook 150,000 euros for alleged privacy violations, and several other EU countries are investigating the company's privacy practices. Last year the EU's ordered Apple to pay 13 billion euros—about $14.5 billion at the time—plus interest in back taxes, saying that Ireland had given the company preferential tax treatment. And don't forget the right to be forgotten, a controversial EU regulation that forces Google and other companies to purge inaccurate or outdated personal information from their search results. The EU also filed a formal antitrust complaint against Google over its Android operating system last year, arguing that requiring handset makers to include Google's apps on Android phones was unfair to competitors. The EU has yet to issue a fine in that case.

The View from America

Google has largely escaped similar scrutiny in the US. Federal Trade Commission staffers recommended a lawsuit against Google over unfair business practices back in 2012, according to documents acquired by The Wall Street Journal in 2015. But, ultimately, FTC commissioners decided not to pursue a lawsuit after Google made a few changes, such as allowing companies like TripAdvisor and Yelp opt out of having their content used in Google's own services. The agency was rumored to be investigating Google's Android policies last year, but the agency hasn't taken any action yet.

President Trump has implied that his administration might not be as friendly to tech giants as the Obama administration was. Last year he said that Amazon has a huge antitrust problem. On the other hand, he spoke well of Monsanto and Bayer's proposed merger earlier this year, suggesting he's not overly concerned with antitrust issues.

For his part, President Barack Obama called the EU's actions protectionism. "[Americans] have owned the Internet. Our companies have created it, expanded it, perfected it in ways that [European companies] can’t compete," Obama said in an interview with Recode in 2015. "And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some of their commercial interests."

Others argue that antitrust simply isn't the right way to regulate internet companies. In the US, regulators generally only go after companies for antitrust violations when there is demonstrable harm to consumers, usually through rising prices. Online services are generally free. New America fellow and former employee of both Facebook and the Obama-era White House Dipayan Ghosh says that, despite their size and popularity, companies like Google and Facebook don't really have monopolies, at least not in the way that, say, Amtrak does, or the way certain internet service providers do in many cities. There are several alternative search engines and social networks you can use instead of one of the larger players, and it's hard to say who the dominate players will be a few years down the line. "[Antitrust] doesn't seem to be the right manner of regulation, given the intricacies involved in delivering innovations over the internet," he says. "In fact, it almost seems arbitrary."

Barry Lynn disagrees. In fact, he argues that previous antitrust cases paved the way for today's internet companies. Although the Department of Justice backed down from its original order for Microsoft to split into two companies after Microsoft appealed its case and the Bush administration reshuffled the agency, Lynn says the case did have an impact. "It was a real signal to other companies," says Lynn. "And it led Microsoft to change its behavior in a serious way. I would argue that case is what allows for companies like Google and Facebook to emerge." Had Microsoft simply been allowed to go on as it had, Lynn argues, it might have been able to quash today's internet giants long ago.

Ideally, then, the EU's antitrust case would do much the same for the next generation of startups—in Europe, at least. The EU isn't splitting up Google. But it is sending a message.