The recent comments and actions of the EU’s top antitrust enforcer, combined with recent drastic actions by Google, speak volumes about the tough EU antitrust outcomes Google faces going forward. While the Brussels-based media appreciate the serious antitrust risk Google faces in the EU, it is not clear whether the U.S.-based media or investors are paying much attention -- yet.
In a nutshell, recent signals from the EU and Google suggest that the conventional wisdom in the U.S. and among investors is underestimating the real antitrust risk to Google in imagining there ultimately will be a relatively benign settlement or just a fine, and not appreciating the EU’s likely Prohibition Decision remedy will impose a non-discrimination/neutrality duty against anticompetitive self-dealing, which could result in significant to substantial changes to Google’s business model and operations -- potentially globally.
EU Commissioner Vestager’s signals
The EU’s Antitrust Chief Margrethe Vestager, in a recent interview with the New York Times, implicitly signaled her current intention to impose a Prohibition Decision on Google for abusing its dominance in “general online search services” to harm competition in “comparison shopping services.”
Commissioner Vestager said: “You need to be able to say this [EU-Google decision] will hold up in court.” Why must she be sure her case “can hold up in court?” That’s because Commissioner Vestager clearly expects to issue a court-appealable, “Prohibition Decision” that rules Google dominant in search and abusive of its search dominance via favoring its own shopping service over rival comparison-shopping services.
Importantly, Commissioner Vestager signaled that the timing of her Prohibition Decision on Google search bias, will likely take longer than expected, because she said: “what we need to do is ask them [Google] for more data to have a comprehensive picture so they aren’t just giving us data that solely substantiates their position.”
In addition per Bloomberg reporting, the EU is implicitly signaling that it is on path to issue an additional Statement of Objections against Google’s Android mobile operating system, for having “illegally hindered the development and market access of rival mobile operating systems, mobile communication applications and services” in the EU market.
Google’s telling big “Google Compare” signal
Apparently most everyone in the U.S. has missed the obvious connection between Google facing an EU Prohibition Decision in the EU against Google’s “comparison shopping service” per the above discussion, and Google at the same time quietly shutting down its financial-services “comparison shopping” service Google Compare preemptively in the U.S. and the UK.
It is no coincidence that Google just happens now to be shutting down its five-year effort to promote its own comparison service of financial services when the EU is poised to issue a Prohibition Decision against Google’s comparison service of shopping products.
They are sister Google offerings with similar “pay-to-play” business models that disintermediate everyone because Google has a de facto EU monopoly on accessing the search audience. (This is especially problematic for a Google search engine that built global trust in its search result rank objectivity with an unwavering public promise prominently on their website that: “We never manipulate rankings to put our partners higher in our search results and no one can buy better PageRank. Our users trust our objectivity and no short-term gain could ever justify breaching that trust.”)
Since around February 22nd, Google’s Compare webpage has informed visitors that “Google Compare will discontinue offering its credit card, auto insurance, and mortgage comparison service beginning March 23rd 2016.”
“Google Compare” is the successor branding of “Google Advisor,” which Google started in 2011 in part by leveraging its $65m acquisition of the UK price comparison website BeatThatQuote, with ambitions to become the world’s one-stop info-intermediary for most all consumer personal financial services.
Relevant to antitrust, Search Engine Journal described Google Compare as a “comparison shopping” service. It explained that “Google’s compare tool is a lead generation platform… [And that] You may recognize its eye-catching photos mixed in with the traditional text ads it shows above the organic [search result] listings…” It further explained: “Google’s foray into comparison shopping reached its peak in late 2015, when the company began showing its compare tool above nearly all of the AdWords ads in relevant queries.”
ZDNet included a copy of Google’s letter to its Compare partners that explained its position: “…the Google Compare service itself hasn't driven the success we hoped for. …after a lot of careful consideration, we've decided that focusing more intently on AdWords and future innovations will enable us to provide fresh, comprehensive answers to Google users…”
ZDNet’s coverage included a telling quote from Andrew Rose, the CEO of Compare.com, Google’s strategic partner it needed to launch the Google Compare service: "It was a bit shocking today to hear that they are exiting; It's just interesting to see them throwing in the towel."
What do these signals tell us?
First, Google is tacitly confirming it expects a Prohibition Decision against Google Shopping.
Apparently, it also is choosing to shut down Google Compare, quietly on its terms and with its own PR narrative to head-off and minimize any brand damage that could occur from Google Compare being shut down due to abuse of dominance finding. (Given the $65m size of Google’s BeatThatQuote write-off, and the annual revenue impact loss of shuttering Google Compare, Google apparently will have to include the financial impact that the closure of Google Compare has on 1Q16 reported earnings.)
Second, it suggests that practically a Prohibition Decision against Google Shopping may either have to be implemented globally per the EU, or that Google concludes technically or business-wise, that if it has to act as a neutral dominant search gatekeeper and stop favoring Google content in a third of the world, it practically may have to do it globally -- for one reason or another. Whether or not the EU’s Prohibition Decision practically affects the ~2/3 of users and revenues outside of the EU, is a very material magnitude difference of X to 3X.
Third, does Google’s drastic preemptive change in Google’s global business approach to shopping for services -- in likely reaction to impending antitrust accountability -- signal that this case is about much more than the risk of a potential large fine, but is about potentially forcing a major change in Google’s business model by requiring Google to abide by a monopoly non-discrimination/neutrality principle that prohibits monopoly-self-dealing -- i.e. Google routinely favoring/prioritizing some of its own content over rivals content.
This is far from a trivial matter, because Google has a world-leading amount of Google-owned proprietary content and >190 “products” and “services” that Google potentially has been able to favor over competitive alternatives.
One big way that this could adversely affect Google’s business model long term is increasing traffic acquisition cost (TAC) payments to potentially millions of Google’s partners and consequently reducing the percentage of vastly more profitable Google Network revenues that do not pay the same traffic acquisition cost payments to partners. It does not appear that the market has contemplated, or factored in, this different apparent going-forward scenario.
Conclusion
To date conventional wisdom apparently has capped Google’s antitrust risk as limited to an easily payable fine; it has not contemplated the business model and financial impact of Google operating under a monopoly non-discrimination/neutrality principle that prohibits Google’s monopoly-self-dealing via common search-discrimination.
In addition, conventional wisdom and the market apparently have not contemplated the reputation and brand value ramifications for Google here. Google is one of the most valuable brands in the world and is valuable and respected in large part because it has long publicly represented Google as an honest broker of the world’s information.
At core the EU’s antitrust authority is on path to ruling legally that Google is the Internet’s dominant information gatekeeper and a non-neutral, biased broker that anticompetitively discriminates in favor of its commercial interests over the interests of Internet users, competition and innovation.
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Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an emergent enterprise risk consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.
