Microsoft-Probe Blunder Said to Haunt EU as Google Risks Fines

(Bloomberg) -- The European Union is seeking to draft “future-proof” solutions for how Google might change its shopping search service according to people familiar with the probe into the search-engine giant.

The EU case centers on Google Product Search and Google Shopping and whether the company unfairly promotes those services when users search for a product and whether it pushes competitors’ comparison-shopping sites lower.

The European Commission is wary of ordering any remedy that could quickly become irrelevant in the fast-changing technology sector, so it’s looking for ways to fix the situation without imposing rigid prescriptions of what Google should do, said the people, who spoke on condition of anonymity because details of the probe aren’t public. The authority, which has two other active investigations targeting the U.S. tech giant, is also said to be considering financial penalties.

Instead, officials prefer to lay out general principles that put the onus on the firm to find a way of displaying comparison shopping search results fairly and could be applied flexibly across different devices and as technology changes, the people said. A final decision, including fines, could be issued in the coming months, they said.

Stripped-Down

Haunting regulators is a 2004 order for Microsoft Corp. to sell a stripped-down version of its Windows office software, which was ridiculed as pointless by computer makers and shunned by customers. EU Competition Commissioner Margrethe Vestager also faces criticism that EU investigations take too long in the rapidly changing technology industry.

During the Microsoft probe, the EU ordered the company to remove a media player that was bundled with Windows -- supposedly giving customers the chance to select rival products. But the move was a flop and Microsoft said only 1,787 copies of that version were sold to retailers and distributors, many of which may have sat unsold on store shelves, compared to 35.5 million copies of the full Windows XP software.

Regulators need to avoid describing "in any sort of detail what the page should look like," said Thomas Vinje, a lawyer and a spokesman for Fairsearch, a coalition that includes Oracle and TripAdvisor. That approach is "highly likely to become antiquated rather rapidly."

Google declined to comment on possible remedies while reiterating that its goal is to help shoppers find the best vendor for a given product.

Google is the highest-profile probe facing Vestager, who’s called 2017 her "G year" as she aims to conclude this case as well as a politically charged investigation into Russian gas supplier Gazprom.

Fair Chance

Retailers pay Google Shopping or other comparison shopping services for referrals that bring in paying customers after they click on a highlighted product or service.

Google Shopping’s costs-per-click have been rising as demand increases -- even as overall costs-per-click have been falling for years -- according to a 2015 survey of 1,000 retailers by Koozai. Search advertising was slated to attract nearly $16.5 billion of spending in western Europe last year, according to an eMarketer report.

The EU should move fast to give firms a fair chance to compete, said Richard Stables, chief executive officer of Kelkoo, a shopping comparison site. Kelkoo’s revenues and visitor numbers have been in free fall over the past decade and a decision needs to come this year for his business to stay in the game, he said.

Fair play is something Vestager talks about frequently when asked about Google, saying that successful companies that have grown big should allow others to challenge them.

‘Best’ Results

The European Commission declined to comment on the timing of a decision or its content, but pointed to an April 2015 statement that Google should treat its own comparison shopping service the same way in its general search results as its rivals.

“We would not want to interfere with Google’s design choices or how its algorithms work,” Vestager said at the time. “Rather, the purpose of such a potential remedy would be to ensure that consumers see the best comparison shopping results. They should not just be shown Google’s own shopping results."

Antitrust regulators have been told by EU lawmakers that they should consider breaking up Google, splitting its search engine off from other commercial services. That’s not likely to happen and it’s not what most companies complaining to the EU are asking for.

‘Even Handed’

"There has been a broad consensus among complainants and consumer groups that the most appropriate remedy in the Google search case would be one based on the even-handed, equal treatment principle," said Shivaun Raff of Foundem, a shopping search site that was first to complain to the EU about Google in 2009.

Google referred to a blog post last year by its general counsel, Kent Walker, who said the company’s aim is to connect users seeking a product directly to the merchants that can sell it to them.

Google has made efforts to improve shopping ads in response to customers’ demands -- even if the improvements were "bad for a handful of price comparison aggregators who claimed to have lost clicks," Walker said.

Google Shopping’s real rival is Amazon.com Inc., "by far the largest player on the field," Walker said. The European Commission’s case "just doesn’t fit the reality of how most people shop online. Consumers don’t just look for products on a search engine, then click on a price comparison site, and then click again to visit merchant sites."

"Forcing us to direct more clicks to price comparison aggregators would just subsidize sites that have become less useful for consumers," he said.

Google, owned by Alphabet Inc., previously offered to cede space to shopping search firms when it tried and failed to wrap up a potential EU settlement to shut the case without fines. Google would display links to three rival shopping search services, chosen and paid by auction, and it has now started to label its own shopping results that appear separately from the general search results.

Should the EU push too far, the search giant could still decide to pull its shopping service in the region, according to one person familiar with the case.

That would mean the prominent picture ads would only appear on its websites outside the bloc. Europe might see a stripped-down Google after all.

--With assistance from Mark Bergen

To contact the reporter on this story: Aoife White in Brussels at awhite62@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Peter Chapman, Molly Schuetz