Why Google Is Again in the EU's Antitrust Crosshairs: QuickTake

Since 2007, Google has given away its Android mobile-phone operating system and a suite of free apps. That’s been a great deal for Google: With Android installed on 77 percent of mobile phones worldwide, vast rivers of data pour through those apps every day, powering the company’s lucrative advertising business. But has it been a great deal for everybody else? The European Union has apparently decided not. Its antitrust unit is expected in the coming days to levy a large fine and will likely require Google, a unit of Alphabet Inc., to change its business practices. Something Google gives away for free -- sometimes with strings attached -- is causing a lot of headaches.

1. How did Android get so big?

Google has a leg-up because its free Android operating software is an attractive choice for companies that don’t want to build or buy their own. But it requires makers of phones and tablets to preload Android devices with a bundle of Google apps if they want to license the Google Play Store, an important app supermarket for Android devices. For some of the largest device makers and telecom operators, Google also offers financial incentives to install its search service on their devices, according to the EU.

2. What’s Google’s leg-up?

Think of the screen on a mobile device as valuable real estate -- companies compete to convince users to download their apps and display the icons on device screens, where they can be easily accessed. That user traffic is how Google and other app makers get paid -- through subscriptions, in-app purchases or advertising. Google’s free Android software, combined with its app-bundling business model, will help it win a third of all global mobile ads in 2018, according to research firm eMarketer, giving it about $40 billion in sales outside the U.S. All of this contrasts with the method used by Apple Inc., whose operating system only runs on its own gadgets and devices.

3. What does the EU say Google has done wrong?

The EU outlined its case against Google in 2016, accusing it of strong-arming device makers into pre-installing its Google search and Google Chrome browser. Companies that want to license Google Play -- an important gateway to other non-Google products -- must contractually agree to add other Google services to their devices. This way, competing search engines and browsers have a harder time reaching users on mobile phones, the EU said, which also took issue with the financial incentives Google offers. And the EU said Google prevents manufacturers from selling mobile devices that run on competing operating systems based on the Android open-source code.

4. Who’s allegedly been hurt?

Google’s rivals for apps offering search, browser, mapping and Play store services all say it’s hard for them to compete on Android phones. That’s largely because there’s no incentive for mobile-phone makers or users to download alternatives if Google’s services are already on there. For Google competitors, it’s crucial to get visibility on mobile devices because people spend vast amounts of time on their phones and tablets these days.

5. How about consumers?

The EU said it’s concerned Google’s behavior harms consumers because they’re not given as wide a choice as possible. Google’s conduct has hurt the ability for rival search engines and mobile browsers to compete and hindered the development of new operating systems based on Android, according to EU antitrust chief Margrethe Vestager. Thwarting alternative versions of Android operating systems has held back opportunities for the development of new apps and services, thus hurting innovation, the EU said.

6. What does Google say?

It counters that Android has actually increased choice and lowered costs for consumers with its free operating system, which allows device makers to sell phones at much lower prices than Apple’s. The contractual agreements also help ensure a common, consistent version of the operating system so developers don’t have to build multiple versions of their apps, Google says. And if users don’t like the Google apps, nothing is stopping them from downloading others, the company argues.

7. What is the EU going to do?

Along with a fine, the EU appears set to order Google to change how it runs its mobile-phone business. The company would likely be required to remove or renegotiate contracts, paving the way for competing apps to be pre-installed on devices. That could erode Google’s vast revenue stream from mobile ads. When the EU settled with Microsoft Corp. in 2009 over the company’s bundling of Internet Explorer browser with the Windows operating system, Microsoft agreed to allow consumers to choose which browser to install. But it remains to be seen how effective any EU order can be in terms of boosting competitors given the lock Google has on many popular apps, like search and maps.

8. Wasn’t Google already in trouble with the EU?

Yes. It hit Google with a record antitrust fine of 2.4 billion euros ($2.8 billion) in June 2017. The EU said the search giant was favoring its shopping service over that of rivals. The EU told Google to grant other comparison-shopping services equal treatment in the product listing ads that appear at the top of the Google search page. Google set up an auction for those spots, sparking criticism from some competitors who complain the changes fall short of the EU’s requirements. The EU says it’s watching Google’s actions closely. The EU also continues to investigate the company for hindering competition for online ads over its AdSense for Search product. The search giant is challenging last year’s decision and is likely to challenge any new ones.

The Reference Shelf

Bloomberg News recently reported the EU’s decision could come next week.
A Bloomberg QuickTake explainer on tech’s new monopolies.
Bloomberg Businessweek looks at whether tech giants should be broken up.
The European Commission’s press release when it announced its formal Android charges in 2016.

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