The European Commission (EC) announced that it has issued a 2.42 billion euro ($2.73 billion) fine against Google because the company abused its search market dominance to give an “illegal” advantage to its Google Shopping product comparison service. Google will have to end the practice within 90 days or the EC will continue to fine it 5% of its daily global revenue per day.
Commissioner Margrethe Vestager, who is in charge of competition policy, said:
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.
Google Shopping was first launched in 2004 as “Froogle.” Google changed its name to “Google Product Search” in 2008 and to “Google Shopping” in 2013. The service wasn’t too successful, and the company must have thought that repeatedly changing the name would help.
According to the EC, this wasn’t the only thing Google did to make its product comparison service more successful. The Commission said that Google has used its search market dominance to promote Google Shopping ahead of competitors, even though as a search engine, its role should be a more neutral one.
The EC’s argument is that people expect to see “fair ranking” on Google search. Therefore, Google ranking its own services higher than those of competitors, even if it’s a worse service or not as popular, constitutes unfair ranking. It also goes against one of Google’s search engine mantras, which is that it’s the “algorithms” that decide which service ranks higher on the Google search page.
The EC also mentioned that Google went beyond simply ranking its own products higher--it also seems to have demoted competing product comparison websites via its generic search engine algorithms. The Commission’s evidence shows that Google Shopping’s competitors were on average ranked on page four of the search engine.
Meanwhile, the Google Shopping service is not subject to Google’s generic search algorithms, as stated by the Commission. This sort of treatment should drastically hurt competitors as page 1 of the search engine gets around 95% of the click traffic, with the first generic result obtaining 35% of that traffic. The first result on page 2 only receives 1% of the traffic.
The Commission said the following:
Since the beginning of each abuse, Google's comparison shopping service has increased its traffic 45-fold in the United Kingdom, 35-fold in Germany, 19-fold in France, 29-fold in the Netherlands, 17-fold in Spain and 14-fold in Italy.
Following the demotions applied by Google, traffic to rival comparison shopping services on the other hand dropped significantly. For example, the Commission found specific evidence of sudden drops of traffic to certain rival websites of 85% in the United Kingdom, up to 92% in Germany and 80% in France. These sudden drops could also not be explained by other factors. Some competitors have adapted and managed to recover some traffic but never in full.
Breaching EU’s Antitrust Laws
The EC noted that market dominance on its own is not illegal under EU rules. What is illegal is abusing that position to restrict competition either in the market in which a company is dominant or in other markets that can benefit from the dominance in the main market.
The Commission observed that Google’s search engine dominance benefits from network effects, because the more users a search engine has, the more advertisers will use it. This means more money go to Google, which can be used to improve the search engine.
The EC likely mentioned this to imply that it’s not as easy as some might believe to switch to another search engine if the users feel mistreated by Google.
For instance, to create a reasonable alternative to Google, Microsoft had to lose billions of dollars every year investing in its Bing search engine, and it still has nowhere near Google’s market share globally. This is with Microsoft having its own dominant position in the desktop operating systems market and being the developer of major web browsers, Internet Explorer and Edge.
Google disagreed with the EC's decision to fine the company, making an argument for why Google Shopping works the way it does:
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.
What Google doesn’t say here, though, is that the owners of shopping websites wouldn’t necessarily have to advertise their products on Google Shopping, if there was, for instance, a way for them to show their products directly on the search page. In other words, Google could improve its search engine in ways that could benefit both users and online shop owners, without the shop owners having to pay extra.
FTC Competition Unit Agreed With EC
Back in 2012, the U.S. Federal Trade Commission’s competition unit conducted its own investigation into Google Shopping, and it also concluded that Google was abusing its market position. However, the FTC leadership at the time declined to pursue charges against Google.
The Google Shopping investigation was just one of EC’s three antitrust investigations against Google. The Commission is also investigating whether or not Google has been abusing its dominance in the mobile market, and whether or not Google uses AdSense policies to ban third-party websites from using competitors’ ad networks. The EC also said that it will continue to look at Google’s treatment of its own services in other specialized markets.