The fine imposed on Google for unfair search is not the point

Written by on July 4, 2017 in Guest Blog with 0 Comments

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Google has time on its side in Android. I think that it is the remedies that the EU imposes that have the potential to do the real damage as long as they are quickly put in place.

I view the fine as almost an irrelevance.

Alphabet has been handed a $2.7bn fine by the EU as punishment for what the EU considers to be anti-competitive practices in using search results to promote its own shopping services over those of competitors.

  • This fine amounts to just 23 days of net cash flow from operations for Alphabet, causing only a small ripple in what is otherwise a powerhouse of cash generation.
  • Google has 90 days to change its algorithm to bring search results into line with what the EU considers to be fair or suffer a further fine equivalent to 5% of daily global revenues ($14m) for every day that the algorithm continues to breach the EU ruling.
  • Google clearly intends to appeal the ruling but I am doubtful whether it has a realistic chance of changing the outcome.
  • This is but one of three current complaints being made against Google with the Android and AdSense complaints yet to be addressed.
  • Of the other two, I think that the Android complaint has the scope to do the most damage.
  • Again, this is not because of a fine that could be even bigger than this one, but because of the possibility that the EU forces Google to unbundle Google Play from the rest of its Digital Life services.
  • This “bundling” is laid out in the Mobile Application Distribution Agreement (MADA) that each handset maker has to sign in order to get access to Google Play.
  • This agreement requires handset makers to install certain Google services on the device at the factory, set them as the default service as well as to put a search bar on the home screen.
  • It is well known that it is almost impossible to sell an Android device in developed markets that does not have Google Play on it meaning that every Android device in developed markets is effectively a Google ecosystem device.
  • Google’s position is that it is “entirely voluntary” for handset makers to sign the MADA which I believe is a very misleading statement.
  • This is because if handset makers do not sign the MADA, they are unlikely to be able to sell their devices in good volumes in developed markets.
  • This is why I believe that while the MADA is entirely voluntary technically, it is effectively mandatory because there will be no meaningful handset sales without it.
  • I don’t think for one moment that the EU will be fooled by the “entirely voluntary” defence which is why Google needs to come up with a far more robust defence for its conduct in Android.
  • If Google was forced to unbundle Google Play from its other Digital Life services, handset makers and operators would be free to set whatever they like by default potentially triggering a decline in the usage of Google’s services.
  • However, one thing that Google has in its favour is time, as these proceedings can take years to be resolved.
  • The longer it takes, the more time that Google will have to become entrenched with users before it is forced to unbundle Google Play from its other services.
  • By that time, if Android users are already hooked on Google’s services, the need to have the MADA will be diminished as users will simply download the services to which they have become accustomed from the app store.
  • Hence, the longer the process takes, the less teeth the remedy will have.
  • The caveat to this is the power of default and the example set by Apple Maps and Internet Explorer.
  • Apple Maps is an inferior service compared to both Google Maps and HERE but it has managed to gain traction in iOS by being set as default with no option for the user to change it.
  • Internet Explorer’s market share has been gradually eroded over a period of many years since Microsoft was forced to unbundle it from Windows.
  • Consequently, I think that there is still a possibility that Google loses its entrenched position with users if the EU forces it to relax the MADA requirement, but it could take a long time.
  • Alphabet’s share price has barely reacted to this news and at $955, I still find it to be unattractive preferring instead, Tencent, Microsoft and Baidu.

This article was first published on RadioFreeMobile.

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About the Author

About the Author: Dr Richard Windsor is the founder of Radio Free Mobile which is an independent research provider. The research helps clients to understand and evaluate the players in the digital ecosystem and presents a unique perspective on how all the pieces fit together in an easy to read and digest way. The product is available on a subscription basis and counts members of the handset, telecom carrier, Internet, semiconductor and financial industries as its subscribers. RFM is the land of the one man band meaning that Dr. W. also makes the tea. .

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