It would not be wrong to say that a great majority of the world’s population has used Google’s products and services, justifying its no. 1 position among tech companies. However, the European Commission (“EC”) decided that Google has crossed the line in its efforts to keep that position. The company was hit with the outstanding fine of €2.42 billion for abusing its dominance as a search engine, by giving an illegal advantage to its own comparison shopping service, as stated in the EC’s decision from 27 June 2017.
Despite the fact the internet giant is well-known, firstly for its search engine, Google has also launched many other tools including, since 2004, a comparison shopping service – now named “Google shopping.” This service allows consumers to compare products and prices online and find deals from online retailers of all types, including online shops of manufacturers, platforms (such as Amazon and eBay), and other re-sellers.
By the time Google initiated Google Shopping (then named “Froogle”) in 13 European Economic Area (“EEA”) countries, there were already a number of established players on the comparison shopping market. The launch did not go well, and the service “simply [did] not work,” according to one internal company document from 2006.
Two years later, the company began to implement a fundamental change in strategy to improve its comparison shopping service in those European markets. The changes were piloted in Germany and the United Kingdom, in January 2008, and then extended to France in October 2010, Italy, the Netherlands, and Spain in May 2011, the Czech Republic in February 2013, and Austria, Belgium, Denmark, Norway, Poland and Sweden in November 2013.
In order to apply the new strategy, Google relied on its dominance in general internet searches, since, in order to be competitive, comparison shopping services rely to a large extent on traffic. Google has had a dominant position in providing general online search services throughout all 31 EEA countries since 2011, with market shares above 90% in most of them, according to the EC’s report from 2015.
More traffic leads to more clicks and generates revenue. Furthermore, more traffic also attracts more retailers that want to list their products with a comparison shopping service.
However, market dominance, as such, is not illegal under EU antitrust rules. Still, dominant companies have a special responsibility not to abuse their powerful market position by restricting competition, either in the market where they are dominant or in separate markets, as the EC outlined.
And, according to the EC, that is exactly what Google did: systematically gave prominent placement to its own comparison shopping service, and demoted rival comparison shopping services in Google’s search results.
More specifically, Google’s new strategy consisted of the following. Upon a consumer query, Google Shopping’s results would be displayed at or near the top of the search results, irrespective of its merits. On the other hand, the company changed the generic search algorithms based on which rival comparison shopping services appear in Google search results, which caused even the most highly ranked rival service to appear on average only on page four of the search results, and others even further down.
As a result, Google’s comparison shopping service is much more visible to consumers in Google’s search results, while rival comparison shopping services are much less visible.
Bearing in mind the evidence which shows that consumers click far more often on results that appear higher up in Google’s search results, it is clear how demotion of rival comparison shopping services impacted their businesses, and gave a significant advantage to Google Shopping at the same time.
Since the beginning of each abuse, Google Shopping has increased its traffic 45-fold in the United Kingdom, 35-fold in Germany, 19-fold in France, 29-fold in the Netherlands, 17-fold in Spain and 14-fold in Italy. According to the EC’s decision, following the demotions applied by Google, traffic to rival comparison shopping services on the other hand dropped significantly, even up to 92%. These sudden drops could not be explained by other factors.
In addition, Google’s conduct has had a negative impact on consumers and innovation, since the users do not necessarily see the most relevant comparison shopping results in response to their queries. Moreover, the rivals’ incentives to innovate are lowered, as they know that however good their product is, they will not benefit from the same prominence as Google’s product in the search results.
Based on these conclusions, the EC claimed that “this shows that Google’s practices have stifled competition on the merits in comparison shopping markets, depriving European consumers of genuine choice and innovation.”
The company is ordered to end the conduct within 90 days or face penalty payments of up to 5% of the average daily worldwide turnover of Alphabet, Google’s parent company (Alphabet’s full year revenue for 2016 was almost $90 billion). The EC decided on the fine based on the value of Google’s revenue from Google Shopping in the 13 respective EEA countries.
Furthermore, Google has to refrain from any measure that has the same or an equivalent object or effect, that is, it must provide equal treatment to rival comparison shopping services and its own service. Basically, Google search results should show the most relevant service(s) upon a user’s query, notwithstanding if it is Google Shopping, or some other service.
Google immediately disagreed with the EC’s decision and expressed its intention to appeal. It is left for us to see within the next 3 months how this significant legal & business matter will be resolved. Its outcome will most likely shape future business battles of all tech companies.