EU Commission vs Google – why it matters

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April 21, 2015 by Paul Goldsmith

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I first used a search engine back in 1995. It was powered by Yahoo and from what I remember it was really quite hard to get the information I wanted. Yahoo, and it’s rival back then, Microsoft’s MSN service made money from companies paying to come up in their results, and had rather basic methods for organising the information and pages they indexed.

Meanwhile, at Stanford University in California, Sergey Brin is assigned to show Larry Page around the university. Both post-grad students strike up a conversation and decide soon to work on an improvement to these search engines. Originally called “BackRub”, they renamed it “Google”, a play on the number Googol, which is a 1 followed by 100 zeros, reflecting the almost infinite amount of information on the web that they are striving to organise. Google aimed to ‘rank’ the relevance of the pages that came up on search, using complex algorithms to measure the usefulness of the page, also taking account of links from other highly ranked pages to it. The whole point of Google was that their search results were ordered by relevance. Yes, you could also pay for adverts, and to be put in search results, but it would be clearly identified that you were an advert, and customers soon learned that the first search result on the first page was Google’s opinion of what was ‘best’ and most relevant, and that would be good enough for them. Hence, Google grew to World dominance, including 90% of the searches in the EU. Apparently  the most searched for term in Microsoft’s search engine ‘Bing’ is ‘Google’.

This is why the news that the EU Commission is charging Google with abusing its dominant position and favouring its own services at the expense of rivals, is so important. The investigation, which has lasted five years in response to complaints made five years’ ago by rivals such as Amazon and EBay, focused first on the ‘comparison shopping’ service, where people look for the best price for goods across different websites.  In the Commission’s allegations, they say that results are weighted towards Google services, even, and this is important if those results are not the most relevant. The Commission also found that when people search for hotels and flights to destinations, Google maps would appear first in the results, even if not asked for. It has also been looking at the ways that a Google works with advertisers and how it scrapes websites for content and uses it. What is important here is that Google’s relationship with its customers is based on it providing the best results, and the most relevant results. If the Commission can prove this isn’t happening, then huge reputational damage will be done.

It won’t just be reputational damage either. Google has ten weeks to respond to the allegations, after which the EU Commission, if not satisfied with their explanation, could fine them 10% of their revenues, which is about £4bn. It would be unlikely to be this high though: Intel were fined £1bn in 2009 and in their combined battles with the EU Microsoft has been fined £2bn, the last time being in 2013.  In addition, there will need to be changes applied to how Google presents its results, and officials will be appointed to check that Google complies. To understand what can happen here, before the EU investigated Microsoft, they included Internet Explorer pre-installed for free in Windows operating systems, meaning other browsers couldn’t compete. The EU forced Microsoft to include a feature in their operating system that, when a new computer starts up, consumers are given a choice of browsers immediately, and the one they choose is downloaded and installed.

Even once this investigation is dealt with, the EU are looking at Google’s Android service, seeing it too was prioritising Google services, and whether Google was doing enough to allow others to make their own versions of the tablet and smartphone operating system.

Google is now a massive company, with a monopoly in a product used and relied upon by over a billion people. Its dominance is not automatically a bad thing for consumers, depending on its behaviour. Being this big will always attract the attention of the regulatory authorities, and that is just so. It is worth remembering that even the father of the free-market, Adam Smith, admitted that monopoly abuse was illiberal and should be dealt with by the state. If Google has been abusing its monopoly position, then it deserves what it gets.

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