Alphabet Inc.’s Google was hit with a $5.1 billion fine from the European Union over what the EU calls an abuse of the Android operating system.
The decision mark’s the EU’s biggest antitrust fine to date. The bloc’s antitrust regulator found Wednesday that Google had abused the dominance of its Android operating system to promote and entrench the company’s popular search engine.
The fine – Europe’s largest so far related to antitrust issues – is equivalent to around 40 percent of Google’s 2017 net profit of $12.62 billion.
“Google’s strategy for its comparison-shopping service wasn’t just about attracting customers by making its product better than those of its rivals,” Margrethe Vestager, the EU's competition commissioner, said in the decision. “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.”
The EU also ordered Google to change the terms of certain agreements with mobile phone producers and telecommunications operators.
Namely, they ordered Google to no longer require mobile phone producers to make Google their default search engine, and to stop making them pre-install the Chrome browser if they want to pre-install Google’s Play store, which is the prevailing way to download Android apps. Google’s Android software currently runs on more than 80% of all smartphones.
Bart Omlo, VP Sales EMEA & Latin America at Kentico Software, commented on how this could affect the current landscape: “With the European Union taking more responsibility to protect citizens’ data, it will be more difficult for companies to get the most value out of information gathered and provide innovative, well-targeted messages to individuals. Real market disruptors are becoming more careful of their approach and are tending to avoid the EU as their ‘playing ground’ to test new ideas,” he said.
He went on to describe how this could change the European market: “The unanticipated consequence is that this could cause start-ups and scale-ups to move elsewhere, which could compromise the competitiveness of the European market. The challenge for EU companies over the next few years will be to strike the right balance between success (monopoly), privacy (GDPR), and the intelligent use of available data. I’m confident that this balance will soon be restored, as it is in everybody’s benefit.”
In a blog post on the ruling, Google CEO Sundar Pichai said that Android has increased competition, not diminished it.
Google's main rebuttal is that Android users can easily remove the pre-installed apps and download third-party alternatives. Pichai also implied that forcing Google to stop application bundling could prevent it from offering the Android software for free. "So far, the Android business model has meant that we haven't had to charge phone makers for our technology, or depend on a tightly controlled distribution model," Pichai wrote.
Mark Johnson, CEO of Loyalty360, weighed in on the situation.
“I think the biggest challenge I see with this is not the dominance of the OS, yet we’ve seen an increased push of regulatory control in the UE, which I think is good in some ways. The biggest challenge has been some of the backlash that has made it more challenging for brands to drive customer, channel and brand loyalty. If you look at GDPR (General Data Protection Regulation) and the restrictions that are being placed on some brands’ access and use of data, it is impacting their choice of potential outside vendors or suppliers who have that,” Johnson went on to say. “We need to look at the agency conflict that we learned about in business school. Monopolies and monopsonies now are looked at differently. Many do not feel Google has monopolistic powers, yet they have monopsony powers, their ability to control these data points, especially in an environment where others are being overly cautious (Europe and GDPR), makes this all the more interesting.”
Johnson continues to say, “Google has the ability to control all of this data, and the more control they have over it, they can effectively push the price of that data, especially for others, down. If they have more data (making their data more valuable) and push the value of data down for others (as they become the market maker), there needs to be a perspective on how this is regulated and controlled. Brands need data to make actionable insights about their customers, and this is the bigger concern for me.”
If Google doesn't change the conduct, as required by the EU, within 90 days, the company could face charges of up to 5 percent of the average daily worldwide revenue of Alphabet, Google's parent company, despite its appeal.