Europe Wins the Google Battle That U.S. Couldn't
The European Union's antitrust authority just accomplished what the U.S. Federal Trade Commission concluded in January it could not: It partially pried Google Inc.'s hands off the Internet steering wheel.
To settle an antitrust investigation, Google is agreeing to distinguish between its own services and those of competitors in search results, Bloomberg News reports. This will slow -- though not stop -- the digital economy's gatekeeper from leveraging its dominance in search into market power in other areas.
Currently, when a consumer looks for, say, flights on Google, the search engine provides a list of airfares offered by Google's advertisers. Next comes a box, dubbed a "Google flight search,'' listing the major carriers and their prices. Only after that do online travel services, including Expedia, Kayak and TripAdvisor, appear; they often provide less expensive fares yet can require more time to filter through the many options.
The same goes for shopping services. Google Shopping caught on slowly until the company began inserting the price-comparison site near the top of search results, pushing down competitors' listings and reducing the odds that a consumer would see or click on them.
Google also has created specialized search results that provide direct answers to queries before providing links to shopping search engines. The strategy has worked: Google Shopping ranks among the highest product sites, while traffic to rivals, including Nextag, Shopper.com and PriceGrabber, has plummeted.
Google says it's making life easier for us all by listing its specialized results and services first. Those wishing to use the discounters are free to keep clicking. The EU apparently disagrees and has "invited" Google to change its practices to avoid a lawsuit.
Google has proposed, and the EU appears willing to accept, a three-part approach, according to the Financial Times: For sites on which Google doesn't sell ads, such as news and weather, it will label its in-house services as Google-owned. In other words, the EU wants consumers to consider results that give priority to Google's own services as if they were paid advertisements. For sites on which Google sells ads, including travel and local company reviews, it will more prominently display links to at least three competitors, such as travel-service rivals Expedia, TripAdvisor and Kayak. And for areas in which search results consist of paid ads, such as shopping, Google will hold auctions for competitors who wish to have their links displayed.
The upshot is that, because of the FTC's hesitance, searches in the U.S. will produce less consumer-friendly results. The FTC, after a two-year investigation, closed its case after concluding that Google was motivated more by wanting to improve the user's experience than by a desire to stifle competition. The FTC was giving Google the benefit of the doubt.
EU Competition Commissioner Joaquin Almunia seems to have started from the opposite vantage point -- that Google is an aggressive competitor and will try to cement its Internet dominance whichever way it can. Google's market share for search is about 90 percent in the EU and more than 80 percent in the U.S.
Competitors who instigated the EU investigation can claim a partial victory, though they aren't pleased that Google won't have to change its algorithms. The company can keep giving preferred placement in results to in-house services so long as they're clearly labeled. The EU settlement also contains no finding that the company broke antitrust rules.
Still, the agreement is legally binding for five years, with a third party monitoring compliance. Google could face a fine of as much as 10 percent of annual sales for failing to keep its promises. The FTC's decision, on the other hand, isn't binding. In the U.S., Google voluntarily agreed to small changes having to do with advertising without signing a consent decree.
If the EU-imposed changes fail to help rivals whose Internet traffic has been decimated because of Google's algorithms -- or if the labeling backfires and confers a special status on Google's services -- EU antitrust authorities could strike again. State attorneys general, consumer advocates and members of Congress will also be watching the EU's upcoming market test of Google's proposed changes.
The FairSearch Coalition, a group of technology companies including Microsoft, Expedia and Nokia, will make sure of that. They are among the companies that claimed Google gave itself preferential treatment in search results. FairSearch already has filed a separate complaint against Google over its Android operating system on mobile phones. And Google's Motorola Mobility unit is the subject of another EU probe related to patent licensing. This war -- Google versus everyone else -- is just warming up.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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