What’s Next for Google as Europe’s Antitrust Complaints Increase

  • EU regulator files new statements of objections against Google
  • Company has weeks to appeal but conversations could last years

Google’s challenges in Europe became larger on Thursday when the European Union widened and bolstered its antitrust claims against the Alphabet Inc. unit.

European antitrust regulators sent Google two additional "statements of objections," saying that it had collected extensive evidence that the company favors its own comparison-shopping service in its search results and that it prevented customers of one of its popular online advertising services from placing ads with rivals and restricted how rival ads were displayed. 

While this is an escalation for the advertising probe, the statement of objections focused on comparison shopping bolsters a case the European Commission first laid out in an antitrust complaint in April 2015. Both of these investigations are in addition to an ongoing antitrust case against Alphabet Inc. for the alleged market-dominance of its Android mobile operating system that the EU filed in April.

The antitrust issues are just one strand of a net of regulatory problems entangling the company in Europe. It is facing a separate inquiry into its use of copyrighted content from European publishers and complaints about its compliance with European "right to be forgotten" rules. A bevvy of individual European governments are also investigating the company for alleged underpayment of tax.

In response to the latest EU antitrust complaints, Google said that its products "increased choice for European consumers and promote competition," and that will provide a detailed response to the European Commission’s claims in the coming weeks. In the past, Alphabet Chairman Eric Schmidt has said European officials should spend more time trying to promote Europe’s own tech sector and less time trying to punish successful American companies. A number of U.S. Treasury officials have recently said the EU seems to be engaging in closet protectionism by unfairly targeting large American tech companies in both antitrust and tax probes.

Delayed Action

Google will have eight weeks to respond to the EU’s additional evidence in the shopping inquiry and ten weeks to respond to its findings in the advertising case. Both deadlines can be extended by mutual agreement. 

And then, if the Commission does ultimately find against Google, the company can appeal the decision to the EU General Court in Luxembourg, the EU’s second-highest judicial body. Decisions can be further appealed to the EU Court of Justice, the top court. An antitrust case could drag on for years: After the EU found Microsoft in violation of antitrust rules for favoring its own applications in the Windows operating system in March 2004, it took more than eight years for Microsoft to exhaust all the legal appeals over that decision and over the fines imposed.

Neither AdSense nor the comparison shopping decisions are likely to do too much financial damage to Google. While Google derives most of its $74.5 billion in annual revenue from advertising, its AdSense product, which is the one under EU scrutiny, constituted less than 20 percent of Google’s total ad revenue in 2015, a percentage has been declining steadily since 2010. What’s more, the EU’s investigation is primarily focused on the conditions Google imposed on AdSense customers from about 2006, with the EU itself noting that its investigation has already prompted Google to "change the conditions in its AdSense contracts" to give customers more flexibility to display.

The company does not break out how much revenue it generates from its comparison shopping service. EU fines are based on the revenue a company derives in the EU, multiplied by the number of years of misconduct. But penalties are capped at ten percent of a company’s annual global revenue.

Android Impact

Richard Windsor, an analyst at Edison Investment Research, wrote in a research note Thursday that while Google has "a very serious problem with the EU" it is likely to be the outcome of the Android antitrust probe that will have the biggest potential impact on Alphabet’s bottom line. "Without revenue growth coming from Android devices, Google’s growth would be very pedestrian indeed," Windsor said. And more than any fines, Windsor said, it is the restrictions that the EU may impose on Google’s sale of Android-equipped devices or the inclusion of Google Play with those devices, that could do the most damage.

Dimitri Sirota, chief executive officer at BigID, a New York-based startup that helps customers safeguard data, traces some of Google’s issues to the concerns Europeans have about the data the company collects and what it does with it. "There are a lot of general concerns about people who have dominant positions in data and Google is a very dominant company in that regard," Sirota said in a telephone interview. The most recent EU allegations won’t help Google convince consumers it is using their data to help them, rather than advertisers, he said. "The problem with Google is that it is a black box," he said. "You don’t really know how its algorithms work."

He said the company was clearly trying to convince European consumers that it was a good actor through increased corporate philanthropy, funding the arts and investing more in European startups. But it remained an open question, he said, whether such activity would help Google overcome the sense among many Europeans that it is not entirely trustworthy.

“Google search, and what influences its algorithms, are widely unknown but are based as far as we know on human needs and are a reflection of our previous searches," said Simon Wadsworth, founder of Igniyte Ltd., a U.K.-based brand management consultancy. "To prove anti-completive behavior will be difficult,"

“Google also provides many products free such as Maps, developer tools and Gmail," Wadsworth said, “which competitors such as Bing have similar versions of, but yet are less popular. Because of this, it’s worth considering the impact of penalizing a company which continues to lead the way in terms of innovation.”

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