The EU's Huge Fines on Google May Touch Google's Core Business Model

It is reported that the EU is planning to rule on Google's abuse of the dominant market position of Android system next month, playing its second punch in the "three consecutive attacks" on Google, and this punishment is likely to become the heaviest punch in this combination because it touches Google's core business model.

FT quoted people familiar with the matter as saying that EU competition commissioner Margrethe vestager will announce the EU survey results within a few weeks, which will become the most significant regulatory intervention encountered by Google's business model so far. At present, the specific amount of the fine is not known, but according to relevant regulations, the European Commission can issue a sky high fine of US $11 billion to Google's parent company alphabet.

After the news, Google class A shares once fell 1.2%, but then the decline narrowed to close down 0.35%. In subsequent after hours trading, Google's share price continued to decline slightly by 0.13%.

EU "three combos"

The "struggle" between the European Union and Google began eight years ago. At that time, many companies and consumer groups from the United States and Europe accused Google of ranking the products sold by e-commerce through its search engine, which put other e-commerce platforms at a disadvantage in the search ranking.

The survey lasted seven years. Because it was determined that Google abused its dominant position in the search engine market to provide a more favorable ranking for its e-commerce business, the European Union issued a huge ticket of 2.4 billion euros (about US $2.7 billion) to Google, which became the largest ticket issued by the European Commission for enterprises' market disruption at that time.

In addition to web search ranking, Google is also facing antitrust investigations in Android operating system and online advertising market in Europe. In 2016, the EU accused Google of abusing the dominant position of Android system in the European mobile market and setting unfair restrictions on mobile device manufacturers and network operators equipped with Android system; In the same year, the EU again accused Google of signing strict contract terms with its partners in Adwords advertising service, which violated the EU antitrust law.

This time, the EU's punishment on Google is the second punch in the "three consecutive attacks": ft pointed out in the report that the EU will impose a fine on Google's parent company, alphabet, on the basis that the company abused the dominant position of Android in the smartphone operating system market. Compared with the huge fine a year ago, the EU's punishment can really touch the most basic business model of Google in the mobile Internet era, that is, through the widely used Android system to ensure the utilization rate of Google search and app store on terminal products, so as to consolidate Google's search and advertising business.

Deng Zhisong, senior partner of Beijing Dacheng Law Firm, told the 21st Century Business Herald reporter in an interview that although the Android system is open source, its whole system is firmly controlled by Google, and its market share is also quite high.

According to Gartner, a market research firm, Android accounted for 84.8% of the market share of new smartphones sold worldwide in 2016, while IOS system used by Apple accounted for 14.4% and other systems accounted for only 0.8%. In 2017, the market share of Android system further increased to 85.9%, IOS was 14%, and the market share of other systems further decreased to 0.1%.

At the time of the complaint in 2016, the European Commission pointed out that Google added a priority license for its own products and applications to the Android system and did not allow the operating systems of rival companies to run on the open source code of the Android system. In addition, the European Commission also accused Google of giving priority to pre installing Google software to mobile phone manufacturers in exchange for financial benefits.

Deng Zhisong explained to reporters that if Google does require smartphone manufacturers to pre install Google software while using Android, this behavior may be suspected of bundle sales.

"In China, Article 17 of the anti monopoly law also stipulates that enterprises with a dominant market position are prohibited from tying goods without justified reasons. If the market share reaches 50%, these acts are not allowed, otherwise they may constitute abuse of their dominant market position," he said, "That year, Microsoft was also investigated by the European Commission for bundling IE browser in Windows system."

Digital antitrust or further tightening

Turning to the antitrust in the digital field, Deng Zhisong said that from the perspective of legal constituent elements, this is not much different from the antitrust in traditional industries. The difference between the two is mainly in the form of expression.

He pointed out that there are so-called "bilateral markets" on Internet platforms in Europe, the United States and China. "Many Internet services seem to be free, but this is only the" bilateral "side," said Deng Zhisong, "Enterprises will make money through other ways, such as advertising and value-added services, which constitutes the other side, which we call the 'bilateral market'."

On this basis, scale has become another factor. "The larger the scale, the stronger it will be, the more data there will be, and the more market power there will be," said Deng Zhisong.

Google's troubles are not only from the European Union. According to the Washington Post, a senior Democratic member of the US Congress is also calling on the US government to investigate Google, which may be regarded as another example of the changing attitude of the US legislature towards technology giants.

Democratic Senator Keith Ellison wrote to the Federal Trade Commission (FTC) on May 31, suggesting that regulators follow the pace of the European Union and "keep an eye on" Google and its parent company, alphabet, to judge whether there are similar acts in the United States and whether such acts violate FTC regulations.

It is worth mentioning that the FTC just changed its leadership a month ago, and Joseph Simons became the new chairman of the agency. He previously believed that the FTC should "invest a lot of resources to find out whether its regulatory attitude towards major mergers and acquisitions is too loose". It is believed that Simons may hold a stricter attitude towards business mergers and monopolies.

The Washington Post believes that if Democrats win the 2018 mid-term election, Silicon Valley technology companies represented by Google may usher in tougher regulation.

Previously, the FTC had launched an antitrust investigation against Google during the Obama administration. At that time, some consumers and competitors, including yelp, accused Google of giving priority to its own services in the search result ranking, which is the reason why the EU issued a ticket to Google last year.

However, after the investigation, FTC did not ask Google to split up or adjust its business model. In recent letters, Ellison urged FTC to disclose more information about the previous investigation. In addition to Ellison, many congressmen such as Richard Blumenthal, ed Markey and Elizabeth Warren also called on FTC to investigate Google or the Internet giants it represents.

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