Google Fine Is Small Change Compared With EU's Bigger Threat
(Bloomberg) -- Google’s record-breaking 2.4 billion-euro ($2.7 billion) European Union fine could end up being just a fraction of the costs from the EU’s demand that it stop skewing search results to favor its own shopping site.
While the penalty will barely make a dent in its $90 billion cash hoard, Google faces the prospect of less ad revenue and a regulatory backlash targeting other services from maps to restaurant reviews as well as the threat of even more penalties.
The search-engine giant will have “the sword of Damocles hanging over its head,” said Jay Modrall, a lawyer for Norton Rose Fulbright in Brussels. That’s because it’s no longer Google’s choice on how it makes changes to allay EU concerns. Instead, it’s “under a legal requirement to do so and under notice that if its commitments are not sufficient, it’ll be fined even more.”
EU antitrust chief Margrethe Vestager’s decision marks the end of a seven-year probe fueled by complaints from small shopping websites as well as bigger names, including News Corp., Axel Springer SE and Microsoft Corp. European politicians have called on the EU to sanction Google or even break it up while U.S. critics claim regulators are targeting successful American firms.
Alphabet Inc.’s Google must “stop its illegal conduct” and give equal treatment to rival price-comparison services, according to a binding order from the European Commission. It’s up to Google to choose how it does this and inform the EU of its plans within 60 days.
Vestager gave Google a 90-day ultimatum to find ways to give equal treatment to smaller price-comparison services that compete with the Google Shopping ads that appear when people search for products. The EU will also monitor Google for five years and can force the company to pay additional fines of up to 5 percent of its daily revenue if it doesn’t comply.
The EU order “seems to be quite simple but is actually quite complicated in the sense that they leave it to Google to come up with a solution,” said Ben Van Rompuy, a lecturer at Leiden University in the Netherlands. That won’t be easy when the PageRank algorithm uses some 200 factors to determine where to place products in search results, he said.
Kent Walker, the general counsel for Mountain View, California-based Google, said the company disagrees with the EU’s conclusions and will consider a court appeal.
“When you shop online, you want to find the products you’re looking for quickly and easily,” Walker said in a blog post. “We think our current shopping results are useful and are a much-improved version of the text-only ads we showed a decade ago.”
Google has been pushing its own comparison-shopping service since 2008, systematically giving it prominent placement when people search for an item, the EU said. Rival comparison sites usually only appear on page four of search results, effectively denying them a massive audience as the first page attracts 95 percent of all clicks.
“The bias at the moment is absolutely brazen,” said Shivaun Raff of Foundem, a British price-comparison site that helped kick off the EU case with a complaint on how the site appeared in search results. “Put in almost any travel query and you will almost always see Google surge to the top of search services.”
Ombline Ancelin, a lawyer at Simmons & Simmons in Paris, says there’s something “rather normal” for a private company that pulled itself up from nothing to favor its own services. Yet, the EU’s shopping decision appears to impose on Google obligations similar to those you would expect for a former state monopoly such as a water or power supplier.
“That’s the real trouble for Google as it brings into question it’s economic model, which has been to develop a very strong position in one market -- search -- and use that as leverage in another connected market,” she said.
Tuesday’s fines could just be the first in a series of EU antitrust penalties for Google, which is fighting on at least two other fronts, including its Android mobile-phone software and the AdSense online advertising service. Vestager said she might also need to look at Google’s maps, travel and restaurant reviews, where regulators have also received complaints.
"All of the businesses closely connected to search must be at risk," said Matthew Hall, a lawyer at McGuireWoods in Brussels.
While the penalty is a record, it will do little to faze a company whose parent has more than $90 billion in cash. Of graver concern is the way regulators called on Google to change the way it handles online shopping searches, one of its biggest sources of sales growth and strongest weapons against rivals Facebook Inc. and Amazon.com Inc.
"These companies make so much money that it seems like a slap on the wrist no matter how big the number may appear to be," said Horace Dediu, the founder of Asymco, which studies the technology industry. "Companies treat these kinds of things as wounds, something that you can get over."