EU Antitrust Ruling: Google vs. Forces Bigger Than Even Itself

Whether it’s in the field of trade, tax, foreign investment, antitrust, culture, or anything else, initiatives that block foreign companies from doing business – while often well-meaning, and sometimes aiming for consumer protection, local justice, or even some international development objective – perhaps fail to realize their own flaws.

Primary among them is protectionism. In levying grand and bold strictures and fines upon offending (foreign) companies, regulators find themselves deep in (political) wars of tit-for-tat – at best, trade skirmishes; at worst, “we just don’t like you and we’re going to score political points by stopping you from doing business here, while collecting large fines to help us fund yet more regulation.” Their justificatory verbiage doesn’t admit this, so we’re left to sift through disingenuous judgments that defend, on various counts, the premise that some large company has “broken the law.” Wink-wink.

This brings us to the EU’s judgment against Google, in which Google has been slapped with a $2.7 billion (US) fine, and forced to “comply,” because it’s been deemed to have unfairly promoted its “comparison shopping service” against smaller competitors, by “abusing its monopoly position.”

Is this amateur hour?

I have no beef with the position that Google holds a dominant position in search results in Europe – it certainly does. (It’s worth pointing out that consumers embrace Google Search – and always have – based on the excellent user experience and Google’s ability to test and adapt to changing needs.) I’m certainly also willing to concede that Google frequently uses its dominant, near-monopoly position in numerous markets to further its own interests, increase ad prices, and squelch competition. It’s the sort of thing Wall Street likes – and when it’s threatened, fears – the type of subject matter that is a staple of quarterly corporate earnings conference calls wherein analysts try to ascertain just how dominant a company will continue to be. Any large company.

In their rush to find Google guilty of something, the EU regulators took shortcuts. There are dozens or hundreds of Google practices that could be examined in depth, by means of showing how they enter various industries by (a) encroaching on them with their own products and services that now gain prime placement in Google Search; (b) built upon massive collection of private vertical industry data as well as private consumer data. (This just in: Google owns Google Analytics, Chrome, Android, YouTube, Gmail, DoubleClick, Maps, Home,…) In short, Google doesn’t act like a trusted partner who is there to facilitate their partners’ success through careful stewardship of private data. Instead, they act like a massive corporate data surveillance entity that can compete with you any time.

[Some of Google’s attempts to enter related industries failed: Google+ and Orkut, Knol, Wave, and numerous others. They aren’t all-powerful, evidently.]

In spite of Google’s dominance and temptation to abuse that position, a legal case must go far beyond mere assertion of an impression. Presumably, the fair legal route would dig into how and where Google plotted to harm competitors in any number of subsets of their business, and weigh this against what might be considered to be the norm in the rough-and-tumble of global capitalism and corporate regulation. It would also weigh this in the context of what consumers actually demand. Surely, a regulator’s role wouldn’t be to go around looking for small, potentially very unsuccessful or unsuitable providers of services and information, and force all consumers to use them until those unsuccessful providers received enough windfall profits that they could grow into hated monster monopolies far worse than Google?

How does the technology community feel about this? Here, I sense there tends to be a divergence between official Valley-speak and practitioners on the ground (notable exception: anyone who works at Google). Engineers tend to be anarchists and justice-driven, to a degree. They tend to be against monopoly power in principle. Following that principle, many will tell you (as some have told me) that it’s “good to see any large monopolist like Google taken down a peg.” (Ironically, many engineers reap wonderful lifestyles from working at the biggest monopoly players, whose names needn’t be emphasized, as well known as they are to all of us.)

So what do I think, as someone who, in principle, tends to be justice-driven (but also makes his money from working in the digital advertising game, with clients who rely on Google Shopping for growth and profit)?

A few pertinent and puzzling nuggets from the EU regulator’s judgment:

  • Google Shopping results are being referred to as a “comparison shopping engine.” When was the last time you, or anyone else, used a “comparison shopping engine” or called it that? Try to name a comparison shopping engine… hmm… e-something or shop-something…
  • Google is accused of having formerly had a subpar shopping engine (when it was called Froogle, etc.). Then, it improved, ostensibly because Google abused its dominant position. To anyone involved in technology or a marketplace, this is a bit rich. We all cheer for the day anyone’s technology passes a tipping point so that it becomes more useful. (When building out a new suburb, for that matter, we don’t ask Jerry the Homebuilder to build out one or two homes – we rely on deep-pocketed developers to build neighborhoods, retail, etc.; the government can then be assured that its role in building schools, culverts, and other infrastructure will not be in vain.) Some of what the regulator seems to be complaining about is literally a definition of how machine learning works. More valuable data in, more useful results and better outcomes for consumers. This is how all of Google Search works. (Would the regulator apply a similar logic to self-driving cars? Or would she prefer safety?)
  • The regulator, in noting how high on the page Google’s “comparison shopping engine” appears, seems to be describing search engine results in the outdated way (simple rank-ordering). Today, Search is a very sophisticated product that delivers a shifting recipe of content (including rank-ordered results, ads, local search, video, instant answers, and the list could go on) based on probable user intent. To say that Google has tested all facets of this and subjected them to the rigors of consumer preferences via Big Data would be an understatement! Google also strongly regulates the quality of ads/advertisers and the quality of organic search content vying for high rankings. (For better or for worse, this is why I have sometimes nicknamed Google The Guvernment.)
  • Consumers strongly demand Google Shopping results, and as a result, advertisers strongly demand them. It’s safe to say that all e-commerce advertisers we know wish to “max” their spend on Google Shopping – not because they get to spam consumers, but because of the high consumer intent associated with a certain percentage of search queries that translate into high conversion rates to online purchase. Microsoft, through Bing Ads, has mirrored the same functionality to roll out Bing Shopping. Prior to Microsoft doing so, pent-up demand from consumers and advertisers was strong.
  • “Compliance” is bound to be interesting. Should Google, or the regulator, go casting about for the now-defunct, or smaller and lesser (sub $100 million market valuation would likely be an understatement) rivals, to figure out how their shopping feeds should be displayed in Google Search results? How are advertisers going to like dealing with these outfits, including managing the ad accounts, keeping feeds compliant, etc. (has the regulator imposed a needless cost on thousands of advertisers)? Would it be good enough if these fledgling would-be shopping comparison juggernauts just ranked a bit higher on the rare occasions when a consumer wanted to “search for a comparison shopping engine”? Or will we all be forced to go through the exercise of having Google halfheartedly promote a carousel of “other” shopping results near the top of results, so that the less-optimized, data-bereft, poorly regulated advertisers get to annoy users when all users really want right now is Google’s SERP’s, complete with Shopping results when appropriate? (People do sometimes state that they “hate the ads” in search results, but writ large, consumer click and purchase behavior run massively contrary to that claim.)

I’m not claiming that Google or other companies should face less regulation. In Google’s case, I’ve been alarmed to witness Google’s power in trying to squelch competition – for example, getting into acquisition talks with Yelp and appearing to demote them in search results when talks broke down. Companies like Yelp and TripAdvisor have only thrived through very aggressive expansion, raising money through IPO, etc. There is no question Google has the capacity to kill a small rival by affecting that rival’s positioning in organic search or paid ads; by rolling out a competing product using its intelligence-gathering, hiring, and PR capacity; or through timely acquisition.

But it seems only fair that regulators need to up their game and dig deeply when they are engaged in an antitrust case. They should understand the evolving norms of the technology, consumer wishes, and the depth of any wilful attempt to harm a competitor. Sloppy judgments like this EU ruling don’t help consumers, and even more to the point, they do very little to change corporate behavior, or even show curious Googlers how they might behave better – short of curtailing operations in the entire EU.

Google Shopping is a successful product that has rapidly ascended due to advertisers’ mass willingness to supply their data to Google; due to rampant popularity among consumers; and on the back of rapid iteration, testing, Big Data, and machine learning. And yes, all in the context of Google’s dominance in search market share. Does this dominance come as a surprise to anyone?

The EU’s judgment, then, looks like petty protectionism, at best; politicized anti-American posturing at worst.

But clearly, to some European politicians, the issue is also a cultural one. Speaking in terms of social engineering (the likes of which are relatively rare in North America outside of urban planning and big-soft-drink-banning circles) is more acceptable in some circles than in others. Reportedly, some regulators don’t like Facebook’s “dominant role in social life.” Welcome to the club. But social engineering by government actors can casually creep into something far worse.

In a recent Wired piece about EU Competition Commissioner Margarethe Vestager, she comes across as an amateur metasearch product designer – likes Kayak, not Uber – and seems to muse about consolidation and competition in ways that would profoundly affect every industry, particularly in fast-evolving technology and digital media fields. Is this too much power to be handed to one appointed person? We all muse about such issues, but our judgments don’t run into the billions of Euro.

Anti-trust regulators are going to have to do a lot more research if they’re to convince me (and, evidently, North American courts) that Google has done significant wrong. If and when they do so, the results could be damaging to Google. But until that time, sweeping generalizations and lazy research hardly feel like the foundation for massive judgments about services millions of consumers rely on and embrace.

Finally, to be fair: all antitrust judgments can be baffling to laypersons, and even legal experts. Retail mergers and acquisitions in North America – by large firms like Amazon and Walmart – have been allowed to go through unfettered; similarly, some banks and insurance companies have consolidated significantly in spite of strict regulation. Meanwhile, potential mergers in office supplies and drugstores in the US have been blocked or discouraged by antitrust rulings.

Elsewhere: Valley-Friendly Coverage of EU Commissioner for Competition, Margarethe Vestager.