Google Turns EU Regulatory Violations Into Fees

(Bloomberg Opinion) -- Companies that grow into $800 billion monopolists tend to be pretty savvy. Devious, even. So it goes for Google. 

European regulators declared in July that Alphabet Inc.’s Google was abusing its power in the way it used its Android smartphone software to give the company a big leg up over rivals. Since then, it has been unclear how Google would ensure it complied with the laws in Europe while protecting its lucrative pole position on many of the world’s smartphones.

Google is no dummy. The company has come up with a clever solution that may fix its problem. Whether sly is a compliment or an insult depends on your view of Google. 

Google Turns EU Regulatory Violations Into Fees

The regulators took issue with how Google made its Android software available free to smartphone makers but with strings attached that the EU said broke the law. The EU said Google forced companies that make Android-powered smartphones and tablets — partners that include Samsung — to give the company preferential treatment by, for example, requiring that its web-search app and Chrome browser be included automatically if those companies also wanted the official Android app store to be pre-installed. It turns out that most people probably want a popular app store on their smartphones. The EU had other complaints, too. 

Google has appealed the EU decision, but the company still needed to come up with a way to stop any practices that the EU said violated its antitrust laws. On Tuesday, Google announced its proposed fix. I thought that Google might be forced to pay those smartphone companies to ensure Google search, Google Maps, YouTube and other apps would stay front and center on as many of the billion-plus Android smartphones sold every year as Google could manage. 

Google’s elegant solution is the opposite, with a caveat that I’ll explain later. Google has proposed to charge those smartphone makers an unspecified fee for each device  that comes installed with a handful of Google apps, including the Google Play app store to download nearly all other apps such as Facebook, Spotify or Amazon. The device makers can choose whether to have the Google search app and the Chrome browser automatically included on Android devices out of the box. 

Google Turns EU Regulatory Violations Into Fees

It’s truly genius. Google, through actions the EU said broke its antitrust laws, got both smartphone users and makers hooked on Android and all the Google apps. Now that they’re addicted, Google is asking everyone to pay up to keep getting their Google fix. Sundar Pichai, Google’s CEO, hinted in July that Google might charge a fee for its Android software, which has been commonplace for Windows and other software operating systems. I didn’t believe Google would do so, but it has in a twisted way. 

Not every maker of Android phones will pay Google. Some simply won’t pony up. Others will be happy to take money from as many companies as they can to install Microsoft’s Outlook, Amazon’s Twitch or other apps on people’s smartphones instead of —  or in addition to —  a Google alternative. If people really want Google Maps or Gmail, they can figure out how to download those apps on their own. That’s what iPhone users do. (I don’t know how mass numbers of people will download alternative apps without the Google Play app store, however, although there may be work-arounds.) 

Even with Google’s clever strategy, Google might still might end up paying more to Android device makers than the likely small fees it may get from them. It may be in Google’s interest to pay its partners to make sure that the Google search box in particular stays front-and-center on people’s phones. 

The company has already been paying more money to companies that funnel people to Google’s web search on smartphones. Apple Inc. appears to get the biggest share of Google’s $11 billion in annual payments from funneling web traffic to Google search, but the company says it also pays Android smartphone makers and cellphone carriers to make sure people search on Google rather than on Bing or Duck Duck Go. Those traffic costs could spike if Google needs to make sure Android device makers aren’t giving prominence to search alternatives. But it’s difficult to predict the impact. 

I can’t wait to see what happens. Perhaps all the Android partners will pay up. Perhaps few will. And if they don’t, maybe Google experiences zero drop-off in use of its smartphone apps and technologies. Or maybe Microsoft gets aggressive about dangling cash at Android device makers who are happy to cash in by pushing alternatives to Google search on the smartphone-buying masses. I’m rooting for chaos. 

We may see many more experiments with Android devices that have few hints of Google. I hope we do, but I suspect we won’t now that Google and Android have such mighty brands and use in many parts of the world. This is a real-world test of the power of consumers’ affection for Google’s internet services and a test of how strong Google’s monopoly power truly is. Those Android deals with strings attached did their job, and now Google doesn’t need too many more tricks to continue its dominance. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.

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