Google WILL wriggle away from Euro probe... but THEN what?

Turning monopoly into new revenue stream


Analysis Google seems on course to win an remarkable victory over competition regulators in Europe. The deal could potentially seal in Google's dominance over the search business for five years, forbidding further prohibitive action against it - and setting a high barrier for potential startup competitors across a range of sectors.

Most extraordinarily of all, the victims of Google's actions would essentially have to start paying it (see page 2: Google’s remedy) for something that they once enjoyed at no cost.

It's an unusual story because European regulators pride themselves on keeping big business in check, contrasting their approach to what they see as the "Wild West Capitalism" of the United States. It's also a bit odd because across Europe, and particularly in the UK, politicians put great store by their "tech startup clusters", often craving Google's blessing for such initiatives. Yet these so-called "disruptive" startup companies are only allowed to be "disruptive" up to a point. The settlement outlines can't disrupt Google's business.

So what's it all about and what is the deal?

The European Commission's antitrust unit has been examining Google since 2008.

Fundamentally it's an issue of a company seeking to extend its dominance in one area to hamper businesses in another. There's no argument that Google is in a monopoly position: Google has an 87 per cent share of Europe's online advertising market, which it maintains using its 93 per cent market share in search. Whether one can switch easily to another search engine is a red herring - dominance is what matters here, and that dominance is not in dispute.

The current discussions entail Google trying to forestall a formal lawsuit by making changes to its behaviour, and agreeing to these changes. Almost all the proposals affect businesses that rely on their own, specialised search as a key part of their operation: such as mapping companies, travel or financial services and price-comparison businesses. A small part of the proposal deals with how Google indexes and displays newspapers and magazines.

In 2010, the Commission formally opened its investigation into Google's dominant position in search, months after UK-based price-comparison outfit Foundem filed its complaints to the EC and the US Federal Communications Commission.

At the time, the Commission canvassed opinion over a wide range of issues about whether Google had abused its position by favouring its own vertical (or specialised) search services and hampering vertical rivals. It also looked at whether Google's dominance had skewed the advertising market, using exclusivity arrangements and locking advertisers into its services. It also touched on copyright issues. The result was a “meaty” package of objections.

However, many of these were not followed through after Google shrewdly made certain concessions, such as providing "data portability" for advertisers.

Rivals... what rivals?

But Mountain View insisted on playing hardball on one area in particular: its ability to place its own products over those of specialist rivals. For example, Google's Finance, Shopping and Maps are vertical search products that the company heavily promotes. They are far from "best in class", but critics argue that they succeed because of Google's dominance, rather than their intrinsic quality.

Critics add that with rivals destroyed, Google can increase prices. In the words of Google executive Santiago de la Mora: "Search is critical. If you are not found, the rest cannot follow."

Google received a major filip in January of this year, when the FTC's investigation into the practice agreed that that stacking the deck in favour of Google's products caused harm to rivals, but overall benefited consumers.

The FTC concluded that shafting rivals could "be plausibly justified as innovations that improved Google’s product and the experience of its users," as it secured only voluntary promises from Google and closed its investigation.

What's Good for Google is Good for You, the FTC concluded. That was half the battle won. Europe remained, however.

In April Google outlined its plan (PDF), and the most recent update only modifies this cosmetically. The latest proposals were leaked to The Register.

Next page: Google’s remedy

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