Google: Will EU's $5B Fine Curb Its Dominance?

The European Union (EU) has imposed a record penalty of 4.3 billion euros (around $5 billion) on Alphabet Inc.’s Google (GOOGL​​​​​) unit on charges that the firm ues its popular Android mobile operating system to illegally "cement its dominant position in general internet search," the BBC reports.

The company has been given a period of 90 days to change its business model, or else it could face further penalties of up to 5% of its average daily turnover. Google said that it plans to appeal the European Commission's decision. CEO Sundar Pichai, in a blog post, supported Android’s development as a platform that “has created more choice, not less.”

Explaining the ruling during a press conference in Brussels, EU Competition Commissioner Margrethe Vestager explained the multiple points on which Google is fined. First: Google forced Android device makers to pre-install its Search app and Chrome browser to enable the necessary user access to its Play Store. Second: It made payments to large number of device makers for exclusively pre-installing the Search app on the devices. Third: It prevented device makers from selling any smart devices powered by alternative "forked" versions of Android.

Such practices amount to Google illegally limiting the user’s and manufacturer’s choice and abusing its dominant position at a time when mobile use was growing rapidly. While Vestager acknowledged that Google does not prevent users from downloading, installing and using other browsers or search apps, she claimed that only 1% of the users downloaded a competing search app and 10% used a different browser. "Once you have it, it is working, very few are curious enough to look for another search app or browser," she told BBC.

She justified the the massive fine based on the Google’s search-related earnings from Android devices in the European region since 2011.

Implications of this decision could lead to a variety of scenarios. Device maker can actually make money by “selling” the default apps space for search, browser or other services like maps to the highest bidder. It may also mean that a device maker will be free to install any other forked or old version of Android as they wish. If Google removes pre-installed apps due to this ruling, it may open the space for the end user downloading other suitable apps as necessary, making it a level playing field. If Google stops offering its variety of mobile apps as a pre-installed suite, it is set to lose out on the prime real estate of the handheld device from where it makes more money by showing ads than those shown through third-party apps.

The initial market reaction is that such developments may hit Google on its advertising revenues, as its mobile ads have seen a significant rise compared to its desktop ads.

The big question—is this heavy fine sufficient to deter Google?

With its cash reserves and short-term investments for the quarter ending March reported to be at $103 billion, the $5 billion dollar fine appears “affordable” for the tech behemoth. Where it may feel the pinch is the loss of future revenue if it decides to follow the EU ruling.

While app designers have welcomed this decision as it opens the door for a level playing field for them against the Google, activists and industry experts aren’t that optimistic about the ruling being followed verbatim by the company.

Citing example of a similar previous EU ruling of last year where a separate probe fined Google 2.4 billion euros pertaining to its price-comparison service, nothing much has changed. Google has failed to fix its shopping service as dictated in the ruling, and the company is in the process of appealing it. The case dragged on, as Google used every possible trick to delay the action, alleges the trade group Fairsearch, which had initiated the complaint against Google in April 2015. (See also: Google Slapped With $2.7 Billion EU Antitrust Fine)

“With any antitrust enforcement that goes to unilateral conduct, the remedy is not going to do much unless you fix the problem early,” said antitrust lawyer Gary Reback to CNBC. Barry Lynn, an antitrust advocate and the director of the Open Markets Institute, also believes that “there is little hope of Google making significant changes to its business in response to the EU’s decision.” However, he opines that it may force regulators in other areas, including the U.S., to rethink technology monopolies and enforce regulations more strictly, making room for fair and transparent market operations. Despite several rules, laws and decisions, nothing actionable has been achieved so far to break the monopolies enjoyed by the giants.

While China keeps its doors closed to Google, the case of Russia may provide a few good insights. Following complaints against Google in Russia, the company now offers Android device users a choice between Google, Yandex and Mail.ru as the default search engine when the user starts the Chrome browser for the first time, which has helped Yandex increase its mobile search share significantly, reports Statcounter. Regulators in other markets may also take cues from the developments where a large population is new to mobile use, including in India, Southeast Asia, Africa and Latin America.

Despite the ruling, it will be a long road to any actionable activity in the market. This ruling adds to existing challenges posed by the monopolies that were gradually built up by tech giants, making it hard to address later. Google may attempt to defer it with all possible efforts, though regional regulators can take necessary preventive actions in the future. (See also: The European Effect on Google's Bottom Line.)