The European Commission has fined Google a record-breaking 2.42 billion(~$2.73BN) for antitrust violations pertaining to itsGoogles Shopping search comparison service in what is widely considered the most significant antitrust ruling in Europe since the 2004 Microsoft decision.
For some context on the size of the fine, Googles (Alphabets) full year revenue for 2016 was almost $90BN. The Commission said the fine has been calculated on the basis of the value of Googles revenue from its comparison shopping service in the 13 EEA (European Economic Area) countries concerned.
Its finding states that:
- Google has systematically given prominent placement to its own comparison shopping service: when a consumer enters a query into the Google search engine in relation to which Googles comparison shopping service wants to show results, these are displayed at or near the top of the search results.
- Google has demoted rival comparison shopping services in its search results: rival comparison shopping services appear in Googles search results on the basis of Googles generic search algorithms. Google has included a number of criteria in these algorithms, as a result of which rival comparison shopping services are demoted. Evidence shows that even the most highly ranked rival service appears on average only on page four of Googles search results, and others appear even further down. Googles own comparison shopping service is not subject to Googles generic search algorithms, including such demotions.
As a result, the EC said it found Googles comparison shopping service is much more visible to consumers in Googles search results, while rival comparison shopping services are much less visible.
Speaking during a press conference about the ruling, Competition Commissioner Margrethe Vestager said: Google has given its own comparison shopping service an illegal advantage by abusing its dominance in general Internet search. It has promoted its own service, and demoted rival services. It has harmed competition and consumers. Thats illegal under EU antitrust rules.
This decision requires Google to change the way it operates, and to face the consequences of its actions, she added.
Google must end the censured conduct within 90 days or face additional penalty payments of up to 5 per cent of the average daily worldwide turnover of Alphabet, its parent company, for each day of non-compliance. (Although any such fine for non-compliance would require a separate Commission decision but would be backdated to the date of when the non-compliance started).
In an official statement on the decision, Vestager noted: Google has come up with many innovative products and services that have made a difference to our lives. Thats a good thing. But Googles strategy for its comparison shopping service wasnt just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors.
Vestager confirmed it will be up to Google to come up with a remedy to comply with the Commissions decision although it will also face (likely years of) being closely monitored by regulators for compliance.
The decision requires Google to stop its illegal conduct within 90 days. And Google must respect a simple principle it has to give equal treatment to rival comparison shopping services and to its own. It has to apply the same method and processes to position and display its own and rival comparison shopping services in its search results, she added.
This means that Google cannot simply stop dong what its doing now and replace it with other practices that have the same or an equivalent anticompetitive effect. It is Googles sole responsibility to ensure compliance. And it is for Google to explain how it intends to do so. I have no reason to believe that Google will not comply.
Commenting on the Commission decision in a statement, Googles Kent Walker, SVP and general counsel, said: We respectfully disagree with the conclusions announced today. We will review the Commissions decision in detail as we consider an appeal, and we look forward to continuing to make our case.
When you shop online, you want to find the products youre looking for quickly and easily. And advertisers want to promote those same products. Thats why Google shows shopping ads, connecting our users with thousands of advertisers, large and small, in ways that are useful for both, he added.
The company said it will review the Commissions decision in detail as we consider an appeal.
Vestager further noted that anyone who has suffered damage from Googles illegal behavior can claim compensation from Google before national courts.
Another key additional point of todays decision is that the Commission has found Google to be a dominant company in Internet search a finding which will now feed into any additional EU antitrust investigations into its behavior.
Not just other existing formal investigations, such as pertaining to Googles search advertising; during the press conference Vestager noted that her department is also aware of complaints pertaining to other Google products, such as image search, maps and travel search. Although she stressed there are no formal investigations into those products at this point.
A few words on concerns that Google may have abused its dominance as a search engine to give an illegal advantage to Google products other than Google Shopping, she said. Weve been looking into this and todays decision is a precedent. A precedent which can be used as a framework to analyze the legality of such conduct.
Her department would, however, be looking closely at the particular characteristics, detail and difference as well as the facts in each additional market where concerns are held about a Google product, she added.
Todays decision shows that in Europe companies must compete on their merits, said Vestager. Regardless of whether they operate online or on high streets, regardless of whether theyre European or not. We invite you to make the most out of the European market, and the potential of 500 million citizens and therefore 500 million potential customers. And we congratulate you for being successful.
But the applause stops when you stop competing on the merits. Youll never get a free pass to stop competing on the merits neither in the market you dominate, nor in other markets.
Dominant companies, as Google has now been formally judged, need to be more vigilant and have a special responsibility to ensure they are not in breach of antitrust rules, she added, stressing this applied both in the market where its dominant and in any other market.
Welcoming the Commissions decision, Shivaun Raff, CEO and co-founder of Foundem, the lead complainant in the case, said: We welcome todays announcement that the European Commission has adopted a Prohibition Decision in the Google Search case.Although the record-breaking 2.42BN fine is likely to dominate the headlines, the prohibition of Googles immensely harmful search manipulation practices is far more important. There cant have been many Competition cases where the stakes for consumers, businesses, and innovation were any higher.
For well over a decade, Googles search engine has played a decisive role in determining what most of us read, use and purchase online. Left unchecked, there are few limits to this gatekeeper power. Google can deploy its insidious search manipulation practices to commandeer the lions share of traffic and revenues in virtually any online sector of its choosing, quietly crushing competition, innovation, and consumer choice in the process.
The Commission still has two outstanding formal investigations into Googles business into its search advertising practices, and how it bundles other Google products with its Android mobile OS (which in some European markets has around an 80 per cent marketshare).
On these ongoing investigations, Vestager had chilling words for Google suggesting it is also inclining towards a conclusion of anticompetitive behavior. Although she emphasized no final decision has been made.
She said: We are also making good progress with our two other pending enquiries into certain Google practices concerning Android, as well as search advertising. Our preliminary and this is of course important, these are preliminary conclusions in relation to both practices is that they breach EU antitrust rules.
Froogle > Google Product Search > Google Shopping
The Europe Unions investigation intocomplaints about the GoogleShopping service (previously called Froogle and then Google Product Search) dates back more than six years, although the Commission only issued a formal Statement of Objections (SO) in April 2015, extending that in July last yearwith further objections when it also issued objections againstAdSense.
A third EC antitrust investigation pertains to Googles mobile OS, Android, and also remains ongoing.
The blocs law puts a special obligation on dominant companies not to abuse their power to try to harm existing competitors or block new entrants. And, in Googles case, its search engine is massively dominant in the region accounting for more than90 per cent of the search market in Europe.
The complainants in the Google Shopping case have accused the company of demoting rival vertical search services in its general search results, and thereby depriving their businesses of scale and market access. It has also been accused of positioning its own shopping service prominently in search results.
The original complaintto the EC that Google had manipulated search results was made to the Commission by shopping comparison site, Foundem, in 2009 who said its service effectively vanished from Google search results weeks after launch in 2006, and was not reindexed until years later to the evident detriment of the business.
A formal investigation into this complaint was opened by the EU in 2012, under the prior competition commissioner, who went on to reject three proposed settlements from Google.
Current competition commissioner Vestager took up the post in 2014 by which time complainants relating to the case numbered more than two dozen. She went on to issue formal chargesagainst Google Shopping in 2015, and supplemental charges in 2016.
Last fall the Commission gave Google a series of extensions to respond to these charges. The companys formal response finally came in November when it argued: There is simply no meaningful correlation between the evolution of our search services and the performance of price comparison sites.
Evidently the Commission disagreed with Googles defense of its behavior.
Vestager touched on some of the companys arguments in a Q&A during the press conference saying it had analyzed and dismissed the notion that general Internet search is in competition with search within the Amazon universe, for example, as Google has tried to argue.
Exactly this line of thinking and these argument was looked into in depth before we sent the supplementary statement of objection. And there we say we do not find that Google Shopping is in competition with Amazon and eBay and the like, she said. And the reason is because they are different. In Amazon and eBay you can search within the Amazon and eBay universe of different retailers.
One of the things that you find in Google Shopping is, for instance, some of the major brands that you do not find in Amazon. Because these brands they would like themselves to have the consumer contact their search pattern, their payment information, the information about what they have bought lately. You can find them on Google Shopping, you cannot find them in the Amazon universe. You also see that in the relationship with other shopping comparison services. Amazon could be a customer of Google Shopping but another comparison shopping service cannot be a customer of Google Shopping.
The competition that should be fierce should be the competition between shopping comparison services and this is exactly the point of this case, that Google has used its dominant position in general Internet search to promote itself and demote its rivals of shopping comparison services in this particular market, she added.
In a blog post responding to the Commissions ruling at greater length today, Google continues to dispute the Commissions analysis with Walker arguing that consumers shopping online want to find products quickly and easily, and thats why it links directly to products rather than to shopping comparison services.
Thats why Google shows shopping ads, connecting our users with thousands of advertisers, large and small, in ways that are useful for both, he writes. We believe the European Commissions online shopping decision underestimates the value of thosekinds of fast and easy connections. While some comparison shopping sites naturally want Google to show them more prominently, our data show that people usually prefer links that take them directly to the products they want, not to websites where they have to repeat their searches.
We think our current shopping results are useful and are a much-improved version of the text-only ads we showed a decade ago. Showing ads that include pictures, ratings, and prices benefits us, our advertisers, and most of all, our users. And we show them only when your feedback tells us they are relevant. Thousands of European merchants use these ads to compete with larger companies like Amazon and eBay, he adds.
During todays press conference Vestager spent some time detailing her approach to the case, which she inherited from prior commissioner, Joaqun Almunia,after his attempts at reaching settlement solutions with Google had failed.
I chose to take the case forward in a different way, she said. Before reaching todays conclusion we have analyzed huge quantities of data. This includes 5.2TB of actual search results from Google that is more or less the equivalent of 1.7BN search queries.
Its a lot of data. And it is of course needed because our decision has to be based on firm evidence. We have to prove our points, even if they may seem intuitive.
She noted, for example, that the Commission looked at the impact of having a prominent place in Googles search results first analyzing studies on user click behavior, which she said indicated there is a link (i.e. between a prominent placement and more traffic). But also running further tests to determine whether users are clicking on the top result because its more relevant, rather than because its most prominent.
We simulated what happens when you swap the ranking of generic results and this confirmed that the same result receives significantly more traffic when ranked higher up, she noted.
And while she said the EC had not found specific evidence of intent by Google when it comes to demoting rivals, it has evidently found enough evidence of the impact of systematic demotions of rival services by Googles algorithms, and the contrary promotion of its own services, to conclude that Googles behavior breaches EU antitrust law.
The Commission found evidence of sudden drops in clicks on certain rival websites of more than 90 per cent after Google applied demotions, noted Vestager. Some of them adapted and managed to recover some of the traffic, but never in full.
There are high barriers to entry in the market. The more consumers use a search engine, the more attractive it becomes to advertisers. The profit generated in term can be used to attract even more consumers, similarly the more data a search engine gathers from consumers, well, the better equipped it is to improve its results, she added.
She said Google has implemented its illegal practices pertaining to price comparison services everywhere it offers its own comparison shopping service starting as early as 2008, in Germany and the UK, followed by France, Italy, the Netherlands, Spain, the Czech Republic and finally Austria, Belgium, Denmark, Norway, Poland and Sweden; an area which she said has some 418 million citizens.
Googles practices have deprived millions of European consumers of the full benefits of competition, genuine choice and innovation, she added.
The Commissions full decision will be published online in due course, according to Vestager, after it has agreed with Google and third parties involved in the case on any confidential business secrets that need to be redacted.