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Why the EU's massive antitrust fine could become a huge headache for Google

2016 DealBook Conference
Google chairman Eric Schmidt helped the company deftly navigate the Obama years. But the Trump years might be more difficult.
Photo by Bryan Bedder/Getty Images for The New York Times

Google suffered a major blow on Tuesday as European competition regulators announced a massive €2.42 billion ($2.7 billion) fine against the company for abusing its “dominance” in the search engine business when consumers are looking to buy things.

The fine is “off the charts in terms of size,” according to Randy Picker, an antitrust law expert at the University of Chicago. Even more ominous for Google: The ruling is part of a larger antitrust investigation by European regulators.

In a press release describing the decision, the European Commission found that Google had illegally used its dominance of the search market to artificially boost traffic to its comparison shopping service. That was unfair to competing comparison shopping services, the commission argues, and was ultimately harmful by limiting consumer choice and innovation.

Comparison shopping is not a particularly important part of Google’s business, so the immediate impact from the ruling might not be that big. What makes the ruling significant is that could signal that European regulators are going to start treating Google like a dangerous monopolist, the way both US and EU regulators treated Microsoft in the 1990s and early 2000s.

And once you accept that premise, it raises a lot of thorny questions. Until now, Google has enjoyed a free hand to decide how present search results, and it has often decided that prominently featuring Google-owned services like Google Maps, Google News, or Google Flights was the best way to do that. Now all of those decisions could come under scrutiny from European regulators, potentially pitching Google into the kind of legal morass that ensnared Microsoft two decades ago.

The big challenge for regulators is figuring out how to draw a clear line between search engine features that provide a better experience for users versus those that merely give an unfair advantage to Google-owned products. Experts I talked to think the European Commission still has work to do on this front.

How a row of five ads cost Google $2.7 billion

If you go to Google and search for “flip flops,” you’ll see a page that looks something like this:

That strip of boxes at the top, each showing a particular flip flop model available for sale, comes from Google’s shopping service. And its placement at the top of search results is what cost the company that €2.42 billion fine.

According to the EC, competing comparison shopping services like Nextag and Foundem languish far down in Google’s search results. “The most highly ranked rival service appears on average only on page four of Google's search results, and others appear even further down,” the commission’s press release says. The EC says that Google has “included a number of criteria” in its search algorithm that push down these rival sites in search results.

But Google has a couple of plausible responses here: First, when a customer searches for “flip flops,” they want to go to a site where they can actually buy flip flops, not to another page of search results. Product search engines like Nextag and Foundem appear so far down in search results, in Google’s view, because they aren’t very relevant to users’ searches.

Second, Google argues, some product search engines have thrived in recent years despite Google’s allegedly anticompetitive behavior. Amazon.com, for example, has a powerful product search engine of its own — one that features not only Amazon-sold products but also third parties selling stuff through Amazon’s platform.

The EC wasn’t persuaded by these arguments, ruling that Google needed to give “equal treatment to rival comparison shopping services and its own service.”

But those Google shopping boxes are ads, Picker told me. “I can't imagine what they're thinking,” he said. “Google is in the advertising business. That's how it makes its money. It has no obligation to put other people’s ads on its website.” He said he looked forward to reading the decision once it was released to better understand the EC’s reasoning.

Google’s European ordeal is just getting started

Obviously $2.7 billion is a lot of money, even for Google. But if this were the only case Google was facing, the company could pay the fine, change how it presents shopping search results, and move on. The larger problem for Google is that the ruling represents a shift in the way European regulators think about it.

“Google is dominant in general internet search markets throughout the European Economic Area,” the EC press release states. So far, the EC has only concluded that Google abused that dominance to gain an advantage in the comparison shopping market, but that might just be because it hasn’t finished its work on other issues.

“The Commission continues to examine Google's treatment in its search results of other specialised Google search services,” the press release says.

One company rooting for further EU action is the consumer review site Yelp. Yelp CEO Jeremy Stoppelman has long accused Google of giving its own lackluster local reviews product an unfair advantage over competitors like Yelp and TripAdvisor. For example, if you search for “dentist Washington, DC,” you get a results page that looks like this:

That box at the top is restricted to Google’s own local dentist listings — a service that competes directly with Yelp. Yelp argues that on a level playing field, its business listings would usually rank higher than Google’s, since it has a more vibrant community of reviewers and better reviews. Instead, Google’s results appear first, giving Google’s own service a boost.

“The consumer really has to dig deep to find a site like Yelp” in Google search results, Stoppelman told me in a recent interview. He argues that Google’s decision to favor its own local results over Yelp pages hampered Yelp’s growth in Europe.

The European Commission is also considering whether Google abused Android’s dominance in the mobile operating system or the dominance of AdSense in the online ad market. And with a sympathetic regulator in Brussels, others with complaints about the way Google’s search engine — or other dominant products like the Chrome browser — are more likely to come forward.

It’s easy to think of other places where conflicts of interest could arrive. Google has a flight search engine that competes with Expedia and Travelocity. The company has repeatedly clashed with news organizations over its scraping of content for Google News. Google has also been using its search traffic to pressure publishers to adopt a technology called accelerated mobile pages that allows Google to host publishers’ content. Google’s Chrome has become the internet’s most popular browser, and the company recently announced plans to offer ad-blocking features that could disadvantage non-Google advertising networks.

In the past, Google has been able to preempt these kinds of issues with savvy lobbying. It has argued that it can’t be a monopolist in search because competitors like Bing are just a “click away.” Google cultivated relationships with the Obama administration, which has pushed back against European efforts to crack down on the company. Google Chair Eric Schmidt helped Hillary Clinton with campaign technology.

But Donald Trump’s unexpected election throws that strategy into turmoil. Republicans are not normally fans of vigorous antitrust enforcement, but the Trump administration has little reason to go to bat for a company with such deep ties to Democrats. And the “just a click away” argument has started to seem less plausible over time, as Google’s dominance in search only seems to grow.

Disclosure: My brother works at Google.

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