Why Google’s Android Fell Afoul of EU on Antitrust: QuickTake

(Bloomberg) -- Since 2007, Google has given away its Android mobile-phone operating system and a suite of free apps. That’s been a great deal for Google: With Android installed on 77 percent of mobile phones worldwide, vast rivers of data pour through those apps every day, powering the company’s lucrative advertising business. But has it been a great deal for everybody else? The European Union has decided not. Its antitrust unit has fined Google 4.3 billion euros ($5 billion) and ordered the company, a unit of Alphabet Inc., to change its business practices. Something Google gives away for free -- sometimes with strings attached -- is causing a lot of headaches.

1. How did Android get so big?

Google has had a leg-up because its free Android operating software is an attractive choice for companies that don’t want to build or buy their own. But it has required makers of phones and tablets to preload Android devices with a bundle of Google apps if they want to license the Google Play Store, an important app supermarket for Android devices. For some of the largest device makers and telecom operators, Google has also offered financial incentives to install its search service on their devices, according to the EU.

2. What’s Google’s leg-up?

Think of the screen on a mobile device as valuable real estate -- companies compete to convince users to download their apps and display the icons on device screens, where they can be easily accessed. That user traffic is how Google and other app makers get paid -- through subscriptions, in-app purchases or advertising. Google’s free Android software, combined with its app-bundling business model, was poised to help it win a third of all global mobile ads in 2018, according to research firm eMarketer, which would give it about $40 billion in sales outside the U.S. All of this contrasts with the method used by Apple Inc., whose operating system only runs on its own gadgets and devices.

3. What does the EU say Google has done wrong?

The EU said Google has strong-armed device makers into pre-installing its Google search and Google Chrome browser. Companies that want to license Google Play -- an important gateway to other non-Google products -- must contractually agree to add those and other services to their devices. As a result, Google’s dominance in search has been reinforced and competing search engines and browsers have had a harder time reaching users on mobile phones, the EU said. The antitrust authorities also take issue with the financial incentives Google offers and say that Google has prevented manufacturers from selling mobile devices that run on competing operating systems based on the Android open-source code.

4. Who’s allegedly been hurt?

Google’s rivals for apps offering search, browser, mapping and Play store services all say it’s been hard for them to compete on Android phones. That’s largely because there’s no incentive for mobile-phone makers or users to download alternatives if Google’s services are already on there. For Google competitors, it’s crucial to get visibility on mobile devices because people spend vast amounts of time on their phones and tablets these days.

5. How about consumers?

The EU said it’s concerned Google’s behavior harms consumers because they’re not given as wide a choice as possible. Crucially, Google’s conduct has hurt the ability for rival search engines and mobile browsers to compete and hindered the development of new operating systems based on Android, according to EU antitrust chief Margrethe Vestager. Thwarting alternative versions of Android operating systems has held back opportunities for the development of new apps and services, thus hurting innovation, the EU said.

6. What does Google say?

It says Android has actually increased choice and lowered costs for consumers with its free operating system, which allows device makers to sell phones at much lower prices than Apple’s. The contractual agreements also help ensure a common, consistent version of the operating system so developers don’t have to build multiple versions of their apps, Google has said. Manufacturers can always preload other apps alongside Google’s. And if users don’t like the Google apps, nothing is stopping them from downloading others, the company argues.

7. What did the EU decide?

Along with a whopping fine of 4.34 billion euros, the EU ordered Google to cease the anti-competitive behavior with its mobile-phone business within 90 days. The EU says it’s up to Google to figure out how. That could require the company to remove or renegotiate contracts, paving the way for competing apps to be pre-installed with Google’s apps on devices. That could erode Google’s vast revenue stream from mobile ads. But it remains to be seen how effective the EU order can be in terms of boosting competitors given the lock Google has on many popular apps, like search and maps.

8. Wasn’t Google already in trouble with the EU?

Yes. It hit Google with a record antitrust fine of 2.4 billion euros ($2.8 billion) in June 2017. The EU said the search giant was favoring its shopping service over that of rivals. The EU told Google to grant other comparison-shopping services equal treatment in the product listing ads that appear at the top of the Google search page. Google set up an auction for those spots, sparking criticism from some competitors who complain the changes fall short of the EU’s requirements. The EU has said it’s watching Google’s actions there closely. The EU also continues to investigate the company for hindering competition for online ads over its AdSense for Search product. The search giant is challenging last year’s decision and said it would challenge Wednesday’s.