The European Union has hit Google with a €4.3 billion fine, the equivalent of $5 billion. This is the largest fine any government organization has ever given for antitrust violations.
What did Google do to warrant this kind of attention, and was it justified? Let’s take a look.
Why Did the EU Fine Google?
The EU provides three primary reasons for the fee, all related to Android:
- Google requires Android phone manufacturers to preinstall Google’s Search app and the Chrome browser if they want access to the Play Store.
- Google paid certain large phone manufacturers and mobile network operators to exclusively preinstall the Search app on their devices
- Additionally, Google prevented manufacturers that preinstalled any Google apps from selling a single smart mobile device running an alternative (or forked) version of Android.
The EU views these as anticompetitive measures that Google used to solidify the dominance of its search engine. Google’s interest in Android, after all, has always been about managing the shift from desktop PCs to mobile devices without being left behind.
It’s hardly been a year since Google faced a then-breaking €2.4 billion ($2.8 billion) fine from the EU for different monopolistic practices. That case involved highlighting Google Shopping results over alternative price comparison sites.
Google Shopping was allegedly able to surpass alternative price comparison services not because it was better, but because it was integrated directly into the world’s most popular search engine.
To understand the most recent Google case, we must first take a look at Google’s relationship to other companies in the Android ecosystem.
The Open Source Nature of Android
Android is, for the most part, an open source project. Companies such as Samsung, HTC, LG, and Amazon are free to use Android in their products however they wish.
Many companies have adopted Android as a way to save money. They can deliver a fully functional device without having to do the research and hire the engineers needed to build an operating system from scratch. Individuals are free to use Android in any capacity as well.
Google’s Relationship With OEMs and Carriers
Google doesn’t license Android or charge any fees. Instead, Google places terms and conditions on granting access to the Play Store and other Google apps. The recent EU case centered around these conditions.
If a company wants to sell a device that comes with the Play Store, it must also provide Google Search. Google doesn’t require Chrome to be the default browser, but it has provided financial incentives for some manufacturers and carriers to do so. It is less concerned with OEMs providing alternative interfaces, such as Samsung’s Experience (formerly TouchWiz), HTC’s Sense, and LG’s UX.
The Importance of App Stores
Many choose smartphones based on the available apps. The lack of apps was a reason Windows Phone failed to gain momentum. Many iPhone users stick with the Apple ecosystem because of iMessage and FaceTime. Google’s app integration is the reason a large number of people choose Android.
App stores have a chicken and egg problem. People don’t want to use an app store that has few apps. And developers have little reason to put software in an app store with relatively few users.
Unlike Apple, Google didn’t make the Play Store a success by providing its own devices. Instead, other companies used Android to create phones that people wanted. Customers purchased Motorola Droid, HTC One, and Samsung Galaxy devices. Nexus hardware only appealed to a limited audience. It’s only with the recent Pixel devices (our Pixel 2 review) that Google’s mobile hardware has entered the mainstream.
So without these companies, the Play Store would not have gained enough market share to attract developers. And now that the Play Store is as large as it is, Google leverage it as a way to get companies to do what it wants.
When a manufacturer enters a relationship with Microsoft, it’s agreeing to ship a Windows product. Android manufacturers, however, are not in the business of making Google phones. They make their own devices, which happen to run Android and use the Play Store.
If Google wants Android to provide a more consistent and ubiquitous experience, akin to Chromebooks, then it’s left trying to force Android manufacturers to change their existing behavior. But that’s a complicated affair when the companies involved are as much competitors as they are allies. It’s even more complicated by the fact that Google’s Android strategy doesn’t only involve dominance on mobile, but dominance as a search engine, web browser, email provider, and more.
Learning From Past Antitrust Cases
While there are differences in Google’s case, the company is still catching flak for the same reason Microsoft did—engaging in monopolistic and anti-competitive behavior. Here are two past cases involving Microsoft:
- In 2004, the European Commission fined Microsoft €497 million ($784 million). This was for leveraging its near-monopoly in the PC desktop market to make Windows Media Player dominant over other media players. The result was Windows XP Edition N, which came without Windows Media Player or Movie Maker.
- The following year, the Korean Fair Trade Commission made similar rulings, resulting in Windows XP K and KN.
- In 2009, the EU alleged that Microsoft’s bundling of internet Explorer with Windows violated antitrust law. This came in response to a complaint that Opera, which made a competing browser, filed in 2007. Rather than provide users with an option to download alternative browsers, it chose to ship a version of Windows without a browser entirely. This lead to Windows 7 E.
In both cases, manufacturers were free to choose the media player or web browser of their choice, and they largely stuck with Microsoft’s offerings. Consumers, on the other hand, were stuck with install disks that costed the same amount but were missing expected functionality.
Google and Microsoft are hardly alone here. In 2012, the United States government took Apple and several major book publishers to court for allegedly conspiring to raise and fix the price of ebooks. The publishers settled, but Apple went to court. In the end, Apple had to pay a $450 million fine.
Why was Apple in this situation in the first place? A major part of the selling pitch for the iPad, launched in 2010, were ebooks. Apple was using its influence as a tech manufacturer to gain dominance in and help shape the digital book publishing industry.
Questions to Consider
Looking at these cases, here are a few questions to keep in mind:
- Should companies stay in their lane? Governments don’t like for companies to grow large in one area and then use that size to quickly become competitive in another industry.
- Is the landscape changing too quickly? Two decades ago, web browsers and media players came in boxes. They added features that were not built into the operating system. It was a cultural norm to buy software this way, and companies could make a living doing it. Now, much of this software comes as part of our PCs and mobile devices. We might even view a product as deficient for lacking them.
- Are the lines too unclear? A company that provides an operating system and a bundle of integrated software or services is now competing in dozens of industries. When is it doing what consumers expect, and when is it going too far?
- Are centralization and monopoly two sides of the same coin? The Apple App Store and Google Play dominate the mobile landscape. That means two companies effectively manage and police the software that we all use on our phones. Is this fine, or should the law push the industry toward app stores that are less centralized?
- How much do borders matter? Amazon, Apple, Facebook, Google, Microsoft, Twitter, and similar are all giant American companies whose influence reaches all over the world. Don’t be surprised if institutions try to limit that power. Global politics impact the way people interact with giant tech companies from other countries as well, such as Huawei (China), Samsung (Korea), and Sony (Japan).
Back to Google and this $5 billion fine: going forward, the company may have to rethink its relationship with Android OEMs and its business strategy. Is it not enough to continue getting a cut of every sale that goes through Google Play?