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Consumers Lose in European Union's Struggle against Google

Anti-technology hysteria continues to build in the European Union. Margrethe Vestager, the European Commissioner for Competition, confirmed today that she is still considering breaking up Google into smaller companies, ostensibly to protect online competition. This follows the Commission’s proposals for “Fair Taxation of the Digital Economy” that appeared on March 21st, which seek to redefine where profits for digital companies are registered and subject to corporate taxation, as well as introducing a new “interim tax” on revenues to generate more money for the Commission’s coffers.

Crackdowns on American tech giants have been occurring in the EU for years, and some commentators have suggested the Commission’s stance derives from the lack of large European tech firms. Continuing to penalize American innovators, however, will not benefit European businesses, and will certainly harm European consumers.

The ongoing cases against Google in Europe present the clearest consumer harm, and serve as an indictment of the lax rules that the Commission applies to antitrust. After last year’s record breaking €2.4 billion ($2.7 billion) fine over alleged misconduct by Google with its Shopping service, the Commission is preparing two more complaints against the search leader. These cases concern Android, the Google’s mobile operating system, and AdSense, Google’s advertising provider.

In the Android case, the Commission states that Google’s product bundling policy, in which mobile phone manufacturers can only use the Android OS with the Google Play store if they preinstall a suite of other Google products such as Google Maps, is anticompetitive. Google’s defense is that while the Android OS has an open source version that developers can use without the Play Store; they require that the Google suite is installed with the Play Store to improve the consumer experience.

The Commission knows that the Play Store is the most popular method of downloading mobile applications in Europe, but believes that this bundling has harmed European companies attempting to develop competitor applications. Hypocrisy abounds, since the commission wants Google to give away proprietary software (Google Play Store) with an open source platform (Android), but wants companies to be able to refuse to use other Google products.

Not only is this odd from a contractual standpoint, but it would provide no consumer benefit. Having a service like Google Maps preinstalled, just as Apple has its own apps preinstalled on iOS, is an added convenience, allowing consumers to use their phone with ease immediately. If they are not fans of these products, they can easily hide them away and adopt competitor platforms. The popularity of Waze as an alternative to Google Maps attests to this possibility. Unbundling, the way that was once proposed in an effort to separate Internet Explorer from Windows during the “Browser Wars,” is of great inconvenience to consumers. When Microsoft introduced browser bundling, this lowered the cost of installing an Internet browser from the $40-50 competitors were charging to nothing, similar to the way pre-installation of Google products has lowered the cost of various mobile services.

The AdSense case is about “search advertising intermediation,” since Google is the largest company in Europe that provides advertising platforms for third party websites. It alleges that three Google policies violate European competition law: companies using AdSense may not source ads from Google’s competitors, Google search ads must be placed at the top of AdSense queries, and non-AdSense ads must be approved by Google before running alongside its platform. This verdict would be the most damaging of the three EU cases brought against the company since it attacks Google’s core business model.

If Google is not allowed to arrange the placement of advertisements on the third parties that use AdSense, this would make the operation of search ads on smaller websites more complicated, as it would limit the degree to which Google could automate placement. This in turn would reduce Google’s ability to auction off ad space, since it could not algorithmically decide optimal ad placement when advertisers purchase space through Google.  A change this significant to how Google operates AdSense seems both unfeasible to implement, and unenforceable by the Commission. Ultimately, this means that in Europe, Google’s entire business model would carry a presumption of guilt in all its advertising-based ventures (which is most of Google). Consumers, who have a favorable view of the search giant, would be the main losers of such a crackdown.

The Google Shopping case which was decided last year, and is still in appeals, reveals the lack of rigor with which the EU has carried out its investigations. Google has been investing heavily to address competition complaints, despite the Commission being unsatisfied, and this has led it to fall behind Amazon in improving its shopping services. The Commission ignored the full extent of competition in online shopping, focusing rather on Google’s most vocal critics, such as Yelp, and, amazingly, ignoring Amazon as a competitor altogether. Studies cited against Google in the case were of poor methodological quality, and mischaracterized Google’s consumer welfare implications. Google responded to the EU’s accusations as “wrong as a matter of fact, law, and economics.” This appears to be the case.

Moving forward, the Commission should learn from its mistakes, rather than threatening to amplify its assault on Google. Breaking up the technology giant would do little to increase competition, given that it is Google’s quality, not its size, that keeps users on the service.