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A week into Google’s dramatic skirmish with the European Union, search has drawn most of the attention. But it’s the other case from Brussels that may have Google more worried.
The EU Competition Commission launched its investigation into Android last week in a move that could expose gaping blind spots in the tech giant’s ability to churn out innovation and profits. The EU is looking at three of its practices: Pushing exclusive pre-installations of its apps and services on devices; bundling them; and blocking modified versions of the software. The case is structured similarly to its earlier charges against Microsoft, which was subjected to $1.5 billion in fines for bundling its browser.
Next to the search case, the commission’s new probe could have more teeth.
“The Android case is less advanced but, in a way, it’s a more conventional theory of what the Commission can do,” said Paul Lugard, a partner with Baker Botts who specializes in antitrust law. “I would not be very happy, if I were with Google, to hear that the Android case is going to accelerate.”
Google was not blindsided. The EU began its probe months ago, according to executives familiar with Google. One source said Google considered a potential regulatory threat as early as 2007, when it created the Open Handset Alliance, setting the wheels in motion for Android’s explosive growth.
But the probe comes at an awkward time. Despite Android’s dominant market share, the operating system has yet to bolster Google’s bottom line. In February, the company said Google Play paid developers $7 billion in the prior 12 months, about $3 billion shy of Apple’s far smaller market. Overall profits in Android hardware are suffering, too.
Google’s response has been to tighten its grip, restricting how hardware partners use Android in an attempt to seize more control over its open source product. If the EU were to net a concession from Google in its probe, it’s likely to be on bundling — Google’s requirement that its apps are available in a package on smartphones and tablets — one former employee said. “It’s what the OEMs complain the most about,” this person said.
On this front, some of Google’s rivals could help make its case to the EU. In its response to the probe, Google pointed to Amazon’s customized Android system and the bundling deals Samsung has with Facebook and Microsoft. Google could also point to Cyanogen, the well-funded Android startup that recently inked a partnership with Microsoft, as evidence of vibrant competition.
Google declined to comment further on the investigation.
Regardless of how the probe unfolds, its existence alone could hinder two pillars of Google’s plans for Android. First, there’s its future beyond phones: Android is increasingly steering into cars, TVs, wearables and other connected devices. For now, that expansion is even more restrictive than it is on handheld devices, with Google curtailing any potential customization of its software. It’s a tactic the EU Commission, which is particularly concerned with market dominators bleeding into other industries, would not view favorably.
And then there’s Android’s future in emerging markets. There, Google is aggressively trying to develop a more uniform version of Android and halt its fragmentation. It’s even pondering a side entry into China, according to the Wall Street Journal. The probe could derail that, as Chinese officials watch European developments closely. “Any plans that Google has to go into China are going to be hurt by this EU investigation,” said the former employee.
Finally, there’s the chance that the EU’s probe can spark a similar suit here.
The FTC closed an Android case two years ago. But that does not preclude a rehashing, said Matt Reilly, counsel for FairSearch, an advocacy group backed by Microsoft, and a former assistant director for the FTC Bureau of Competition. “It could be an exciting, high-profile case,” he said. One that the agency’s lawyers may jump to take. “That’s what I liked working on at the FTC,” he added.
If the FTC does not pursue Android, other agencies might. Multiple people close to the companies involved in the EU cases against Google said they are pitching similar complaints to the Attorneys General and the Department of Justice.
Google’s best hope may be time. Evolution in the mobile industry is fast. When the EU case on search began in 2010, Facebook’s first Android app was five months old. Symbian was the world’s largest mobile operating system. Android had just pushed to fourth place, with 9.6 percent according to Gartner, after passing Microsoft Windows.
By the time the EU investigation into Android takes shape, Android may look very different from how it looks today.
This article originally appeared on Recode.net.
