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Google's Loss in Europe Isn't Europe's Win

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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An inadequate understanding of European Union politics and a certain amount of tone-deafness have left Google with a really big mess. As Brad Stone and Vernon Silver write in the latest Bloomberg BusinessWeek cover story, Google cut an antitrust deal with a Spanish politician, former EU Commissioner for Competition Joaquin Almunia, only to see it scrapped in the face of fierce opposition from a German politician (European Commissioner Guenther Oettinger) and a German publisher (Matthias Doepfner, chief executive officer of Axel Springer). Then Almunia’s successor, former Danish Finance Minister Margrethe Vestager,  accused the company of using its dominant position in search “to create advantage in related markets.” And that’s not all:

Vestager (pronounced Vestayer) announced a new investigation into whether Google had abused its dominant position with the Android operating system for smartphones. She suggested other cases were possible, too -- regarding Google’s expansion into the markets for local search, maps, images, travel, etc. For Google, this was a nightmare portending years of scrutiny, a fine of up to $6 billion, and edicts that could forever limit the effectiveness of its products.

So, yeah, bummer for Google, which along with Apple, Facebook and Amazon.com (what some people refer to as GAFA) has become a target of European politicians concerned about privacy and resentful of U.S. Internet imperialism. I have this pet theory that cleverly avoiding European taxes has earned GAFA a lot of enemies too. And European politics are complicated -- cut a deal with a Spaniard and the Germans and the Dane won’t necessarily buy into it.

But reading Stone and Silver’s highly entertaining account set me to wondering: What exactly are the Europeans getting out of this? Certainly not more competition, at least not yet -- Google is more dominant in search in most European markets than it is in the U.S. Not a whole lot of innovation, either. Outside of some Nordic hotspots, Europe has continued to be mainly a consumer of online innovation, not a producer of it. And isn’t it telling that Google’s most influential opponent in European industry has been not an Internet entrepreneur but the head of an old-line media company?

Now, maybe new restrictions from the EU will alter the playing field enough to foster European challengers to GAFA’s dominance. But I have a lot of trouble envisioning that -- there’s simply no one waiting in the wings in Europe. In fact, the most credible future challengers to GAFA’s dominance at the moment all seem to be based in China.

China has had its own set of anti-GAFA policies, collectively know as the Great Firewall of China. These rules have effectively banned Google and Facebook from the country and made life complicated for Apple and Amazon. They were motivated far more by a desire for political control than by economic considerations, and they probably aren’t the only reasons the Chinese market has proved hard for U.S. Internet companies to conquer. But in any case the country now has a group of homegrown Internet giants -- Tencent, Ali Baba and Baidu are the big three -- that have begun to make inroads outside China. Staving off U.S. Internet imperialism can be done, but I can’t believe European politicians will ever be willing to go to the lengths that China has. They’ll fine Google, but they won’t replace it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net