Google's $2.7B Antitrust Fine

What's happening?

The European Union's enormous $2.7 billion fine on Google fanned the debate over the question: Where is the line between giving users a better experience and promoting Google at the expense of market competition?

 

The E.U. and the U.S. have very different answers to this question—and those answers have a huge impact on our lives online and off. 

 

The European Commission, which levied the fine, regulates all commercial activity within the European Union. They found that Google broke EU antitrust laws by abusing its market dominance in one category—search—to promote another Google product—Google for Retail—at the expense of its competitors.

 

Here's how that works. Let's say (just hypothetically) it's hot today and you think it's a great idea to buy a baby pool. You search Google for "baby pool," and see this: 

search for baby pool

The images at the top are advertisements—companies selling baby pools pay Google for Retail to rank their results in this separate, high-appeal section. The first rival shopping comparison site shows up, on average, on page 4 of the Google's search results. That's the root of the $2.7 billion fine. (For context, Google's annual revenue is $90 billion.)

Why is it important?

In both the E.U. and the U.S., the crucial questions are:

  1. What is a digital monopoly?

  2. What can't a digital monopoly do?

 

Both governments are beginning to recognize dominant digital companies as monopolies. In businesses that operate in a world of scarcity, monopolies come from controlling supply. In business (like Google) that operate in online worlds of abundance, monopolies come from controlling demand. That difference has a massive impact on how monopolies are born. Online companies benefit from a virtuous cycle in which consumers attract advertisers, which earns money for the company, which can be used to earn more consumers, etc—all while network effects improve those consumers' experience. (This is Ben Thompson's Aggregation Theory, which you can read more about here.) Big digital companies get bigger.

 

But the E.U. and U.S. have meaningfully different ways of thinking about what digital monopolies can't do. The E.U. cares most about competition. The U.S. cares most about consumer experience—specifically, prices.

Debate it!

How should we regulate digital monopolies?

United States: 

Since the 1980s, most American leaders have held the view that monopolies shouldn't be able to harm consumers by increasing prices. This is complicated by the fact that digital monopolies (through network effects and other benefits) tend to decrease prices as they dominate a market. It's true that competition benefits the consumer—but when you focus on the competition, not the consumer, you're using a proxy when you don't need to at all. 

 

In Google's view, which the U.S. ideologically aligns with, it simply doesn't make sense to promote other comparison shopping sites, both from a consumer and advertiser perspective. "When you shop online, you want to find the products you’re looking for quickly and easily. And advertisers want to promote those same products." 

 

The vast majority of Google's business is a marketplace: they match consumers with intent to advertisers. Should they not be allowed to a) show you the product you search for with b) an advertiser buying access to that space? Why would they need to show another comparison shopping site's results on their platform—when it is clearly not what the consumer searched for?

 

It's much more likely that the E.U. model would punish and constrict tech companies. The U.S. is less likely to tie down companies like Google and Facebook. That reticence is a good thing for all of us.

European Union:

In general, E.U. leaders believe monopolies shouldn't be able to restrict competitors, because this harms consumers by choking innovation in the market. Google's $2.7 billion (€2.42b) fine is one example of this view in action.

 

In the European Commission's opinion, what Google does is illegal because it "denies other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation."

 

Even more importantly, you enforce this competition-focused view through antitrust regulation, which naturally promotes innovation. If you believe in a more consumer-focused system, you enforce it through red tape regulation, which limits new businesses and innovation in the market. 

 

As tech and business analyst Ben Thompson put it, "antitrust regulation is fundamentally different from the sort of red tape that limits entrepreneurship. Indeed, it is directly opposed: red tape regulation entrenches incumbents and limits new entrants, while antitrust regulation limits incumbents and enables new entrants." 

 

By protecting healthy competition, you protect the consumer—and the means by which new and important companies are created in the first place.

Learn more...

  1. The European Commission's press release announcing the decision
    • "Google has come up with many innovative products and services that have made a difference to our lives. That's a good thing. But Google's strategy for its comparison shopping service wasn't just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors. What Google has done is illegal under EU antitrust rules. It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation."
  2. Google's response to the fine
    • "When you shop online, you want to find the products you’re looking for quickly and easily. And advertisers want to promote those same products. That's why Google shows shopping ads, connecting our users with thousands of advertisers, large and small, in ways that are useful for both.

      We believe the European Commission’s online shopping decision underestimates the value of those kinds of fast and easy connections. While some comparison shopping sites naturally want Google to show them more prominently, our data shows that people usually prefer links that take them directly to the products they want, not to websites where they have to repeat their searches."