Europe’s Misguided Anti-Google Crusade
The EU’s campaign against the Internet giant is missing the point: Google isn’t doing anything that hurts consumers.
The European Commission has Google in its sights.
Last year, European Union trustbusters formally accused the U.S. tech giant of abusing its near-monopoly of Internet search in Europe to favor its own comparison-shopping service. Now, they have charged Google with abusing the dominance of Android, its smartphone operating system, to push mobile-device manufacturers to pre-install Google’s search engine and Chrome browser, its Play Store app market, and proprietary apps such as Maps. And further probes are in the pipeline. The stakes are huge: In each case, the commission could fine Google up to 10 percent of its global turnover, which was $74.5 billion last year. But this politicized attack on Google is mostly misconceived.
EU competition policy operates differently than American antitrust action. Whereas the U.S. system involves antitrust authorities bringing legal cases that are ultimately adjudicated in the courts, in the EU the commission is judge, jury, and executioner. Its impartiality is therefore of paramount importance. Yet in the case of Google, the commission is anything but impartial. Politically appointed EU officials, who are pressured by powerful German and French companies and their respective governments, are paranoid that the EU is an also-ran in the new digital economy, which is dominated by U.S. firms. Instead of focusing on removing the regulations that stymie European digital firms, they increasingly want to hobble American ones. Indeed, the EU’s digital economy commissioner, Germany’s Günther Oettinger, has argued that Europe needs to regain its “digital independence” and “replace today’s web search engines, operating systems, and social networks.”
The EU’s competition commissioner, Denmark’s Margrethe Vestager, insists that her motives aren’t protectionist. Yet even on its own merits, the commission’s case against Google does not stand up. EU authorities have scarcely shown that consumers are harmed by Google’s behavior. The commission also ignores the fact that while Android is extremely popular now, existing and new competitors could easily usurp it, so heavy-handed commission intervention is unnecessary and harmful.
Google doesn’t make money from Android itself: It gives it away for free. Unlike Apple’s proprietary iOS or Windows Phone, Android is “open source.” That means anyone is free to use its underlying source code as they please. Clearly, Google doesn’t spend a fortune developing and promoting Android out of kindness; it aims to make a profit. It does that primarily via its search engine, which generates revenue through mobile advertising, and the Play Store, through which Google gets a cut from each app sold.
Even though Google relies on its search engine and app store to make money from Android, it doesn’t force smartphone manufacturers such as Samsung, Motorola, and HTC to pre-install both. Companies are free to use Android without installing any Google services. That is what Amazon’s Fire Phone (which flopped) and tablets (which have had a bit more success) do. And it’s what Xiaomi, a Chinese smartphone-maker, does, since China bans Google services.
So what’s the problem? “If you want to make a commercially viable Android smartphone in [the Western world], I challenge you to make one that doesn’t have the Play Store,” Harvard Business School professor Ben Edelman told the Wall Street Journal. (Emphasis added.) Edelman, a consultant for Google’s competitors, unwittingly let the cat out of the bag: Smartphone manufacturers pre-install the Play Store not because Google is abusing its dominant position but because that is what consumers want. On its own, a smartphone is of limited use. It’s the apps that greatly enhance its usefulness.
While Google doesn’t force smartphone-makers to pre-install the Play Store, it does set conditions if they choose to do so. They must set Google as the default search engine and pre-install Chrome and other apps. The commission objects to this bundling, arguing that manufacturers should be “free to choose which apps they pre-install on their devices.” But smartphone manufacturers, such as Samsung, can and do pre-install other apps: their own proprietary ones, as well as those of Google rivals such as Facebook and Amazon. Moreover, downloading alternatives to Google apps is simple, and most Europeans do it. Google Hangouts is pre-installed, yet most prefer to chat using WhatsApp. Google Music is too, yet many more stream music with Spotify. Google Plus has had no success as a social network against Facebook and Twitter. If you don’t like Chrome, you can choose Opera, Firefox, or even an AdBlock browser.
The commission also objects to the fact that Google provides financial incentives to device manufacturers to pre-install its search engine exclusively. Arguably, it is thereby trying to entrench its dominance of mobile searches, which now outnumber those made on traditional computers. Whether consumers are harmed by this is debatable; Google’s search engine is by far the best. Europeans overwhelmingly choose to use it on Windows PCs, which favor Microsoft’s Bing search engine. So Google might be wise to offer to drop these (unnecessary) incentives.
The commission’s third complaint is that Google doesn’t allow manufacturers that pre-install Google apps on any of their devices to sell devices running on modified versions of Android. But again, it’s not clear that this hurts consumers. Google’s reasonable justification for this is to limit fragmentation: Whereas almost all Apple users are automatically upgraded to new versions of iOS when they come out, Google’s lack of control over the Android ecosystem means that many different versions are in use at once. That adds to the cost and complexity of designing apps, deterring investment and depriving consumers of choice. Such issues would be multiplied by the further fragmentation of having modified versions of Android running.
Android gives manufacturers, app designers, and consumers much more flexibility than Apple does. The latter has full control over its proprietary iOS, which is available only on its own devices. Apple also decides which apps are pre-installed and forces consumers to use its own app store. Yet even though Android is much less restrictive than Apple, the commission is going after it in the belief that its current market share means its dominance is entrenched. But is it really?
Back in the digital dark ages before smartphones, EU trustbusters forced Microsoft to unbundle its Internet Explorer browser and Windows Media Player from its Windows operating system, viewing their bundling as an abuse of the monopoly that Windows enjoyed on desktop PCs. Yet Windows’ monopoly didn’t prevent competitors such as Apple’s iTunes besting Media Player. And even though Windows’ dominance was far more entrenched than Android’s, it eventually ended — not because of EU authorities’ intervention but because its rivals innovated and outcompeted it.
Android is very popular at the moment. But the smartphone market is fiercely competitive. Apple is hugely profitable, while Microsoft’s deep pockets ensure that Windows Phone will continue to challenge. Moreover, there is nothing stopping others — such as Samsung, a Chinese upstart, or even a European one — from building an Android rival. Indeed, messaging apps such as China’s WeChat are already evolving into platforms that enable consumers to do all sorts of tasks without leaving the app, thereby undermining Android’s importance. Since Android’s current dominance could — and one day will — be disrupted by rivals, the commission is wrong to get so worked up about it. If Android really did harm consumers, that day would surely come sooner.
Only EU authorities have a problem with Android. U.S. trustbusters, who previously investigated Google’s search practices, aren’t targeting its smartphone operating system. On April 19, the day before the commission charged Google, Canada’s competition watchdog closed its own probe into Android. So Google should test the good faith of EU authorities. It ought to offer to drop the financial incentives for exclusivity. In return, the commission ought to drop its other charges. If EU authorities don’t, it would be yet more evidence that their real motives are political and protectionist.
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