The European Commission fined Google 4.34 billion euros, accusing the US company of abusing its dominant position in the smartphone operating system market via its Android. The fine is much higher than the € 2.4 billion fine issued last year by the Commission for another case of infringement of competition, linked to the way Google displayed results for online shopping-related searches. The new fine could have serious consequences for Google in the smartphone sector, one of its most profitable businesses. To get an idea of the figure: Alphabet – the holding that controls Google – ended 2017 with a turnover of 95.4 billion euros, with a net profit of 11 billion euros.
Fine of € 4,34 bn to @Google for 3 types of illegal restrictions on the use of Android. In this way it has cemented the dominance of its search engine. Denying rivals a chance to innovate and compete on the merits. It's illegal under EU antitrust rules. @Google now has to stop it
– Margrethe Vestager (@vestager) July 18, 2018
Google will have to stop the practices deemed illegal by the European Commission within 90 days. In the event that you do not comply with the request, further penalties may be requested “up to 5 percent of Alphabet's daily average worldwide turnover”.
According to the European Commission, in recent years Google has adopted precise commercial strategies aimed at favoring Android over competing operating systems, with policies that have in fact forced manufacturers to adopt its systems and services to the detriment of others available. Android is used on around 80 percent of smartphones around the world, not counting other devices such as smartwatches, tablets and guidance systems. Android is provided commission-free to manufacturers, but under conditions that – according to the Commission – oblige them to include applications provided by Google, on which the company makes money thanks to advertising and paid services.
The Commissioner for Competition in the European Union, Margrethe Vestager, concluded that Google used “illicit” systems to force smartphone manufacturers to pre-install Google applications and services, such as the search engine and the Chrome browser, by placing them as condition to be able to access Google Play, the store where applications for Android are downloaded. Nothing prevents manufacturers from using alternative systems to Google Play, but the management of parallel stores is complicated, expensive and offers a little immediate experience to users, accustomed to accessing the official and best known one of Google.
Vestager also accused Google of giving financial incentives to device manufacturers if they used Google as their default search engine, instead of other similar systems. The practice is believed to be against free competition, especially given Google's dominant position in the online search industry. The Commission has found other restrictions imposed by Google punishable, which effectively prevent smartphone manufacturers from adopting operating systems competing with Android, but based on the latter's source code.
Based on the investigations conducted so far, the European Commission has therefore asked Google to terminate all practices deemed contrary to free competition. According to Vestager, in fact, the commercial strategies employed by Google have further strengthened its dominant position on the online search market, reduced the possibility for producers of other apps to compete on an equal footing and prevented alternative operating systems from emerging and having spaces in which to survive, without being crushed by the competition.
What Google replies
Already during the long phase of the investigation, Google's lawyers had defended the company's activities, arguing that the Commission had not including the mechanisms that make Android work and had neglected the choices of consumers, precisely oriented towards Google services. According to the US company, the Commission has also underestimated other aspects of the smartphone market, such as the existence of Apple and its iPhones in the industry. On this point, the European Commission has instead explained that it has taken Apple into consideration, reaching these conclusions:
However, the Commission did investigate to what extent competition for (downstream) end users, in particular between Apple and Android devices, could indirectly limit Google's market power in licensing Android to device manufacturers (upstream), concluding that this type of competition does not sufficiently limit Google upstream, for a number of reasons, including:
• the fact that the purchase decisions of end users are influenced by a number of factors (such as the characteristics of the hardware and the brand of the devices), which are independent of the mobile operating system;
• the fact that Apple devices are usually more expensive than Android devices and therefore may not be accessible to a large portion of the user base of Android devices;
• the fact that users of Android devices who decide to switch to devices sitive Apple have to bear transfer costs, such as the loss of applications, data and contacts, as well as having to learn how to use a new operating system and
• the fact that even if end users decide to switching from an Android device to an Apple device, the effects on Google's core activities are limited as Google Search is the default search engine for Apple devices and it is therefore likely that Apple users will continue to use Google Search for their searches .
The accusations about the “forced” presence of Google apps on smartphones with Android have always been rejected by the company. The defense is that any non-Google app that offers alternative services to its is always available just a few clicks away through the app stores. According to Google, this would make unfair competition or the exclusion of competitors impossible, thus confirming the possibility for anyone to compete on Android. Finally, Google has always argued that the rules on apps to preload on Android are designed to make Android work at its best, giving users the things they expect to find on a smartphone.
After the fine was announced, Google said it will appeal.
Android has created more choice for everyone, not less: a thriving ecosystem, rapid innovation and lower prices are the classic characteristics of strong competition. We will appeal the Commission's decision. #AndroidWorks https://t.co/VJebsb7fIy
– Google Italy (@googleitalia) July 18, 2018
In a long post on Google's official blog, the company's CEO Sundar Pichai wrote that in recent years Android has given its users the ability to choose, and has not instead limited their options as claimed by the European Commission. Pinchai recalled that no manufacturer or telephone operator is obliged to use the version of Android released periodically by Google, and that manufacturers can independently create their own versions of operating systems based on Android. As for the pre-installed applications, Pichai wrote that they can be easily deleted from your smartphone and replaced with others.
