The European Union hit Google’s parent company Alphabet with a massive $5.1 billion fine today stemming from an anti-trust investigation. The EU has concluded that Google illegally used its Android cell phone operating system to give an edge to its mobile browser and search apps. Here’s how the EU press release describes Google’s behavior:
Google obtains the vast majority of its revenues via its flagship product, the Google search engine. The company understood early on that the shift from desktop PCs to mobile internet, which started in the mid-2000s, would be a fundamental change for Google Search. So, Google developed a strategy to anticipate the effects of this shift, and to make sure that users would continue to use Google Search also on their mobile devices.
In 2005, Google bought the original developer of the Android mobile operating system and has continued to develop Android ever since. Today, about 80% of smart mobile devices in Europe, and worldwide, run on Android.
When Google develops a new version of Android it publishes the source code online. This in principle allows third parties to download and modify this code to create Android forks. The openly accessible Android source code covers basic features of a smart mobile operating system but not Google’s proprietary Android apps and services. Device manufacturers who wish to obtain Google’s proprietary Android apps and services need to enter into contracts with Google, as part of which Google imposes a number of restrictions.
More specifically, Google offers big incentives to only include Google search and the Chrome browser on Android phones. It also forbids manufacturers from installing any alternative Android branches based on its publication of the source code. As a result, the EU concludes: “Google’s practices have denied rival search engines the possibility to compete on the merits.”
The $5.1 billion fine is based on an EU estimate of the value of revenue generated from search advertising on Android phones. Google is given 90 days to stop “its illegal conduct.” If it fails to do so, there will be significant additional fines. “If Google fails to ensure compliance with the Commission decision, it would be liable for non-compliance payments of up to 5% of the average daily worldwide turnover of Alphabet, Google’s parent company,” the press release says.
For its part, Google has said it plans to appeal the decision:
— Google Europe (@googleeurope) July 18, 2018
The NY Times points out that this comes in the midst of President Trump’s recent imposition of tariffs and complaints about the EU trading practices:
The long-anticipated ruling arrived during a politically delicate period, with Europe and the United States engaged in an escalating economic conflict by imposing tariffs on an array of products from alcohol to aluminum. Last week, on a trip to Brussels, President Trump kept up his complaints that American businesses were at a disadvantage here. Jean-Claude Juncker, the president of the European Commission, the bloc’s executive arm, is set to visit Washington next week for talks with Mr. Trump.
It’s worth noting that this is not the first time Google has been hit with a multi-billion dollar fine by the EU. Last June the EU hit Google with a $2.7 billion fine claiming that Google search was unfairly favoring Google shopping in its results. This report contains a bit of the announcement by European Union Competition Commissioner Margrethe Vestager:
Update: Here’s a Bloomberg interview with Competition Commissioner Vestager on today’s decision. She twice avoids making any statements about whether U.S. regulators should be investigating the company as well: