Google to Create Shopping Service Unit to Satisfy EU

  • Google Shopping must rely on own revenues to bid for ad slots
  • EU ordered Google to offer equal treatment to shopping rivals

Why Google May Be Starting a Shopping Service Unit

Google will create a standalone unit for its shopping service and require it to bid against rivals for ads shown on the top of its search page, in an effort to satisfy European Union concerns over the display of product results, three people familiar with the investigation said.

Google faces a Thursday deadline to comply with an EU antitrust order for it to give equal treatment in how the search engine shows competitors’ comparison-shopping sites, according to the people, who asked not to be named as the negotiations are private. While the shopping service will remain part of Google, it will operate separately and use its own revenues to bid for ads.

Google was ordered by regulators to stop promoting its own shopping search results over competitors’ and to make changes by Sept. 28 designed to give rivals a better chance to compete, the EU said in June when it fined the company 2.4 billion euros ($2.8 billion). The company could be fined up to 5 percent of daily revenue if it fails to comply.

Al Verney, a spokesman for Google in Brussels, declined to comment. The offer is part of Mountain View, California-based Google’s efforts to comply with the EU order while it challenges the regulators’ findings in court.

Google parent Alphabet Inc. reports revenue for Google and its "Other Bets," like self-driving cars and Nest thermostats. The search giant has a few divisions, like YouTube, its hardware unit and cloud-computing business, that operate independently under Google. The new shopping service would fit this model as a division only in Europe.

10 Slots

As part of the EU remedies, the company will tweak an advertising panel at the top of the search screen that shows several pictures of products with links to retailers’ websites, one person said. Each of 10 slots will be auctioned off to give rival sites, such as Kelkoo.com or Shopzilla Inc., a chance to buy space to show links to retailers. Any changes only affect Google’s sites in Europe.

While Google Shopping can bid for those slots, it will be run separately to ensure that its bids reflect its own operating costs and aren’t subsidized by Google. Regulators have accepted that the panel is for advertising and slots cannot be given away, the person said. Each slot will be labeled with the name of the service providing the link, such as "By Google," similar to pages that showed up on French and Dutch versions of Google last week.

Google Shopping has grown quickly since 2009 to account for as much as a fifth of the highly profitable ad revenue Google generates, according to industry estimates. Andreas Reiffen, chief executive officer of search firm Crealytics, estimated earlier this year that the format accounts for roughly a quarter of ad revenue in Europe. Alphabet reported sales in Europe, the Middle East and Africa of $8.5 billion during the second quarter, a third of all company revenue.

Alphabet shares rose less than one percent to $937.46 at 11.33 am in New York. They’re up 18 percent so far this year.

Further Fines

After levying the record fine in June, EU regulators have threatened further penalties if Google doesn’t make changes that give customers a chance to choose other shopping comparison services. EU Competition Commissioner Margrethe Vestager said last week that she would start investigating if Google’s offer "doesn’t work" and if companies that complained about Google’s behavior are still unhappy.

Europe has become a battleground for regulators and technology giants, with Apple Inc. ordered by the EU to pay some 13 billion euros in back tax and Germany examining whether Facebook Inc. unfairly compels users to sign over personal data. Google may face more fines over its Android mobile-phone software and AdSense advertising service in two other EU cases due to be finalized soon.

Richard Stables, chief executive officer of Kelkoo, said Google’s offer to sell rivals slots was worse than the search engine’s 2013 attempt to settle the EU case. Anyone who believes such an offer will resolve problems in the shopping search market "doesn’t understand how the market works," he said.

Foundem, a U.K. shopping site, last week slammed an auction for the slots, saying it creates "an additional anti-competitive barrier" that sees companies pay for placement instead of getting traffic for free from relevant search results. Foundem’s 2009 complaint to the EU helped trigger the probe after it said links to its sites were unfairly pushed down in Google search results. Google had argued that the links were rated less relevant because they weren’t of high quality.

— With assistance by Mark Bergen

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE