Tvist med EU-kommisionen kan gynna Googles konkurrenter
Techjättarna är numera vana vid att bli utredda av EU:s lagstiftare. Men den överklagan som Google riktat mot kommissionen, och som snart ska avgöras, är av särskilt intresse för hela sektorn. Fallet är ett första test av vilken makt beslutfattarna har att kontrollera jätteföretagen. Tvisten kan bli ett prejudikat för vilka krav som Google och Apple kan ställa på leverantörer av enheter som exempelvis läsplattor och telefoner. Förlorar Google kan det skapa möjligheter för bolag som Amazon, Alibaba och Facebook, skriver Barron’s.
Google’s $5 Billion Android Battle Could End Its Dominance
Jack Denton, Barron's, 5 October 2021
Big Tech investors are used to scrutiny from European Union regulators. With the pile of pending cases and fresh inquiries launched by Brussels against the likes of Google, Apple, Facebook, and Amazon seemingly growing by the month, even technology analysts admit they find it hard to keep up.
But an appeal battle between Google and the European Commission in Luxembourg deserves special attention.
Much of the global effort to rein in Big Tech remains in the early stages — untested in courts. That’s what makes last week’s appeal trial between Alphabet‘s (ticker: GOOGL) Google and the EU so important. The verdict, now expected sometime in the coming months, is an early test of governments’ ability to force change at tech giants.
This fight over a 2018 order and $5.1 billion fine, has the potential to shake Google’s dominance in mobile search and the primacy of its Google Chrome internet browser. Losing the appeal could remove Google’s stranglehold over the Android universe, which for years has fed cash to the company’s advertising business by helping to serve ads to users of the mobile operating system.
A final verdict could spark a domino effect, including opening the door for a fellow tech giant like Amazon.com (AMZN) to enter the mobile market — disrupting a sector that’s essentially controlled by Google and Apple (AAPL).
The Legal Fight in Luxembourg
The European Commission alleged in 2018 that Google abused its dominant position in the mobile search and operating system (OS) markets, largely through leveraging its control of the Android OS. Google bought Android in 2005 and eventually offered the mobile operating system free to handset manufacturers around the world.
There are two particularly important pillars of the Commission’s case against Google.
The first focuses on contracts that require Android device manufacturers — the handset makers — to pre-install Google Search and Google Chrome if they wish to license the Google Play Store, a crucial app for users hoping to easily install software on their phones.
The second turns to Google’s obstruction of “Android forks” — unauthorized modified versions of Android. Under contracts called anti-fragmentation agreements (AFA), Google prevents device manufacturers from licensing its proprietary apps, like Chrome and the Play Store, if they develop or sell any devices running on an Android fork.
“Android has created more choice for everyone, not less, and supports thousands of successful businesses in Europe and around the world”
In 2018, the Commission ordered Google to end both requirements and also fined the search giant a record €4.34 billion ($5.07 billion). Google complied but appealed the verdict.
Google’s arguments center on the notion that Android’s ecosystem has promoted diversity in the array of devices and apps on offer, giving consumers more choice. The tech giant further argues that the Commission has insufficiently considered the intense competition Android faces from Apple and its iPhone operating system.
“Android has created more choice for everyone, not less, and supports thousands of successful businesses in Europe and around the world,” a Google spokesperson said in a statement. “This case isn’t supported by the facts or the law.”
Last week’s five-day court session in Luxembourg saw the Commission draw special attention to the difficulties faced by Amazon and Alibaba (BABA) when they launched their own mobile operating systems on Android forks in the early 2010s. The Commission contended that there was demand from device manufacturers to sell handsets with Android forks, but they were prevented from doing so by Google’s AFAs.
Google’s legal rebuttal said the Commission’s argument was “based on vague and incorrect arguments” that don’t concern the specifics of the obligations facing device manufacturers.
The Threat of an Android Sea Change
While Google complied with the Commission’s 2018 order, the company has arguably become even more dominant in Europe.
Google’s market share of mobile operating systems in Europe has fallen seven percentage pointssince 2018, to 67%, according to research group Statcounter. But the decline is roughlyon pace with its results across the globe, where it has about 72% of the market, down from about 77% in 2018. And over the same period, Google’s overall share of the mobile search market has actually grown to 97% in Europe, higher than its global share of 95%.
While the 2018 order hasn’t had a major effect on Google’s business, losing the appeal could be a different story because it would solidify the ruling and arguably set a global precedent. It would also allow competitors to swoop in on the Android space after waiting on the sidelines for years while the case was under appeal.
“After what we’ve seen from Apple in the last month, nothing is off the table”
Wall Street analysts say there is precedence for global changes from regional decision. In September, Apple made concessions to app developers worldwide after a ruling from Japan’s Fair Trade Commission over App Store payment rules.
“After what we’ve seen from Apple in the last month, nothing is off the table,” said Dan Ives, an analyst at broker and investment firm Wedbush.
While global changes are not expected to drastically change the dominance of Google’s search and Chrome browser, a permanent change to Google’s anti-forking rules could have an impact on the company’s bottom line.
The AFAs have stopped the likes of Amazon, Alibaba, and Facebook (FB) from successfully breaking into the mobile market by limiting the pool of device manufacturers willing to do business with them.
Alexandre de Cornière, a professor at the Toulouse School of Economics specializing in digital economics and competition policy, said that banning AFAs could pave the way for Amazon, in particular, to “really disrupt the duopoly of Google and Apple.”
De Cornière describes a possible outcome where Amazon, emboldened by Google’s loss in Europe, decides to make a second significant attempt to break into the mobile market. The launch of its Fire phone in 2014 was arguably hindered by AFAs. Using the backbone of Android, Amazon could license its own operating system with an Amazon app store to device manufacturers “and potentially become a third player” in the market.
Amazon declined to comment on its long-term plans.
The Specter of a Big Tech Crackdown
The case in Luxembourg is being closely watched as a bellwether—both for how the EU will rule in the future, and how U.S. legal decisions will be made. Google faces a suite of antitrust cases in the U.S., including a lawsuit from the Justice Department.
“If [the Luxembourg case] went against Google, it would also further embolden regulators within the U.S., especially in this broader climate,” said Ives.
The $5.1 billion on the table in Luxembourg represents one of three major antitrust cases Google has faced in Europe carrying a multibillion-dollar fine. Thus far, financial penalties have done little to change behavior in Big Tech.
Earlier this month, shares of Google-parent Alphabet were trading at an all-time high. And, despite a recent slide, they’re still up more than 50% this year.
“The financial penalties are getting bigger and bigger over time, but so are these companies and their balance sheets”
“These companies seem to be able to push on and continue operating and succeeding,” said Scott Kessler, an analyst at investment research firm Third Bridge. “The financial penalties are getting bigger and bigger over time, but so are these companies and their balance sheets.”
More challenging to Google is how lawmakers and regulators could force the company to change its behavior — even if the appeal goes its way.
A spokesperson for the Commission told Barron’s that “one should keep in mind that fines are only part of the story — the remedies that the [European Commission competition regulator] imposes can also play an important role in ensuring an effective competition policy.”
De Cornière believes there is “a decent probability” that the Commission will come back to stop Google with new regulatory powers, regardless of the appeal.
This means that Google potentially faces a lose-lose in Luxembourg. If it loses the appeal, the Android market would be permanently opened in Europe, potentially forcing to Google cede some control of the ecosystem. If it wins, EU regulators could still try to force the same changes through legislation.
In December 2020, the Commission proposed two new acts: the Digital Markets Act and the Digital Services Act. They would pave the way for sweeping changes to rules for internet groups, and the prospect of breaking up tech giants is on the table. These acts are currently making their way through the EU’s legislative process.
Meanwhile, the next major chapter for companies like Google, in analysts’ view, is collaboration between U.S. and EU regulators.
Making real changes to the competitive balance in the sector is one of the driving goals of European Commission Vice President Margrethe Vestager, who has been the leading force cracking down on Big Tech in Europe for much of the past decade.
Vestager met last week with U.S. Secretary of State Antony Blinken, U.S. Secretary of Commerce Gina Raimondo, and U.S. Trade Representative Katherine Tai during the U.S.-EU Trade and Technology Council this week. It’s the inaugural meeting of a forum expected to see cooperation on issues including technology regulation.
As part of a joint statement after the meeting, the group said it intends to cooperate on the misuse of technology and misinformation, as well as “encourage compatible standards and regulations.”
“We also plan to engage in a discussion on effective measures to appropriately address the power of online platforms and ensure effective competition and contestable markets.”