Regulatory Scrutiny Threatens Google's Global Android Domination

  • An unfavorable ruling would hurt ability to compete with Apple
  • `It's all about data, and without data, you are nothing.'

Google Faces FTC Scrutiny on Android App Approval

Google Inc.’s Android’s operating system has come to dominate the world’s smartphones. Now, regulatory pressure could chip away at that leadership.

The Federal Trade Commission is investigating new concerns about whether the company is violating antitrust laws by stifling competitors’ access to Android, according to people familiar with the matter. European regulators are also probing Google’s operating system, which holds more than 80 percent of the global market.

While there’s no guarantee the FTC will even bring a case, much less find wrongdoing, a ruling against Google could hamper its ability to compete with Apple Inc. and Microsoft Corp. for advertising dollars. Google could be forced to let smartphone and tablet makers swap out core applications such as search, maps and YouTube for others. That would mean forfeiting reams of valuable data the search giant uses to target consumers and sell ads, which account for the bulk of its business.

“It makes zero sense business-wise,” said James Cakmak, an analyst at Monness, Crespi, Hardt & Co. “It’s all about data, and without data, you are nothing.”

Google spokeswoman Gina Scigliano declined to comment.

Bundled Apps

Android ties several Google products, including search and maps, into one bundle, much the way Microsoft did with Windows almost two decades ago. That means if you buy an Android phone, you automatically get Google maps and the Chrome browser, among other services.

While manufacturers are allowed to hide Google apps and put their own forward, they can’t delete some of the Google ones, said Frank Gillett, an analyst with AT Forrester Research.

In Europe, Microsoft was eventually forced to unbundle Internet Explorer from its operating system and then watched its share of the browser market plummet to 22 percent from 54 percent in the space of about four-and-a-half years, according to data compiled by StatCounter GlobalStats. Something similar could happen to Google’s Gmail, Maps and Chrome if the company is forced to unbundle those and other services.

Appease Regulators

Under pressure, Google could make moves to appease regulators, according to Harvard Business School associate professor Ben Edelman. One might involve rewriting contracts with manufacturers to remove language that requires the bundling of services.

"One natural response would be to remove the offending provision from the contract and tell everyone ‘we had these rules and we’re taking it out because we thought about it and thought it was a bad idea,”’ said Edelman, who has worked for Microsoft.

Another possibility: give phone and tablet buyers more choice -- letting them download the apps they want when they first buy the phone and delete the ones they don’t. That would be painful because Google’s whole business model depends on using its free apps to grab as many people as possible and mine their data.

"Maps and Chrome would be a huge deal,” Cakmak said. "If you can’t target, then you’re in trouble.”

The regulatory probes could hinder Google’s efforts to improve the consistency of the software that runs on multiple devices made by multiple manufacturers. For years, developers have complained that making applications for different hardware, all with different size screens and processors, is much harder than developing apps for Apple’s more orderly universe of iPhones and iPads.

“I have to say that increasing the coherence or consistency of experience would be a good thing for Android,” Gillett said.

Given the regulatory scrutiny, however, Google will probably move more carefully with Android -- hampering its ability to bring fresh innovations to market.

"I have no doubt these things are being discussed in Googleplex hallways,” said Al Hilwa, an IDC analyst. "This is just an ongoing issue for Google.”