Tech

Google Isn't Fixing Its Real Shopping Problem

Regulatory fights in Europe are not as important as improving the product.

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Photographer: Georges Gobet/AFP/Getty Images

As Google appeals the European Commission's antitrust ruling that cost the search giant 2.42 billion euros ($2.82 billion) and pretends to provide a remedy, its biggest competitor in shopping search, Amazon, is offering better service to customers. Google needs to shift gears -- and fast -- by focusing on improving its product, not the legal confrontation. 

The European Union has published a summary of Google's appeal against the antitrust ruling, which punished it for prioritizing its own shopping comparison engine, Google Shopping, over outside competitors. The summary makes it clear that Google is rehashing old arguments repeatedly made during its seven-year investigation. The company aims to prove to the EU's General Court that it put product search ads in a special box above the "organic" search results to improve the customer experience, not to drive traffic to Google Shopping. It argues that the European Commission hasn't proved that the practice increased traffic to Google Shopping or decreased it to other comparison sites, though the commission cited traffic data as evidence in the ruling. And it claims that competitors shouldn't be entitled to access Google product improvements.

It's difficult to see why the court, which hasn't handed a defeat to the Commission in competition cases in 38 years, might prove receptive to these known arguments. But since product improvements figure so prominently in the Google appeal, it's worth considering whether consumers are best served by Google's current way of delivering results from a range of shopping comparison services.

A little more than a month ago, Google offered a remedy to a problem that the European Commission hasn't cited. It created an auction system in which shopping comparison services can bid for space in the special box. Google Shopping bids on an equal footing with them, in an arm's-length arrangement, and it's required to turn a profit so it can't use Google's muscle to win every auction. A month ago, as the system began to operate, I wrote that the competitors failed to show up. That's still the case; search for any item -- a toaster, a vacuum cleaner -- on any of Google's European sites, and chances are you won't see any prices from any comparison engine but Google Shopping. The Financial Times recently ran an experiment, running 500 product searches in six countries, and only 1 percent of the ads that came up were from somebody else.

"Shopping comparison services are placing ads on our site but we do not disclose numbers," Google spokesman Elijah Lawal told me via email.

Well, some of them aren't placing ads at all -- for example, the French site Acheter-moins-cher.com, launched in 1998. It doesn't charge per customer click-through, as Google Shopping and many other comparison sites do. Instead, it charges merchants 1 to 3 percent on sales. That allows the site to display a link to the merchant with the lowest price first, not the link to the merchant that's willing to pay for clicks. As Frederic Lambert, the founder and manager of Acheter-moins-cher.com, told me:

The ad auction system works only for a company that has the same business model as Google Shopping: a pay-per-click system. It doesn't work for us: How could we bid on a system that will cost us a lot more than what we make on a sale? We cannot bid without changing the philosophy of our website.

From a customer's point of view, that philosophy makes more sense than the Google approach. When we shop for products on the internet, we want to see the lowest price (as long as we know the merchant offering it will deliver). Google's system, with or without the auction remedy, doesn't necessarily lead the customer to the lowest prices.

Let's use the example Google itself has used to explain the remedy scheme: A Cuisinart toaster. On Tuesday, searching on Google.fr yielded the lowest price of 63 euros for the CPT160E model; on Acheter-moins-cher.com, the same toaster could be found for 45.99 euros. 

It's clear from the summary of the Google appeal that the company revives the argument that its real competitor in shopping search is Amazon, not the comparison services. "The contested decision fails to take proper account of the competitive constraint exercised by merchant platforms," it says. And indeed, a merchant can pay Amazon to promote its offering. Unpromoted ones, however, still come up high on the results page. Searching Amazon.fr, I found the Cuisinart CPT160E toaster for 45.99 euros, just like on Acheter-moins-cher.com. It works similarly for other products.

There are two takeaways from this. First, just as Google says, Amazon is a formidable competitor to both Google and the shopping comparison engines. Like the most impartial of them, it's likely to lead the customer to the lowest price -- and its size makes it a deadly force in this competition. But second, Google Shopping has the wrong business model to remain competitive with Amazon; the service shows a customer ads from clients who have paid up front and not the best prices available. Besides, comparison engines that want to avail themselves of the Google remedy need to have a similar business model because otherwise it's difficult for them to pay up front in the auctions.

If Google wanted to provide the best customer experience and bring the shopping comparison sites along, it would move to the Acheter-moins-cher.com model and start charging competing sites on an actual sale rather than sell ad space to them.

It's easy to forget after the EU ruling that, at the end of the day, it's all about delivering what users want, not about minimizing regulatory interference. Google appears to be making that mistake.

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

    To contact the author of this story:
    Leonid Bershidsky at lbershidsky@bloomberg.net

    To contact the editor responsible for this story:
    Mike Nizza at mnizza3@bloomberg.net

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