Google's search proposals 'not just a moneyspinner', says Europe's competition chief

Google's search proposals 'not just a moneyspinner', says Europe's competition chief

Summary: Will Google's European antitrust proposals give it the right to run an 'extortion racket'?

TOPICS: Google, Legal, EU

Europe's competition chief has defended Google's antitrust search concessions, claiming they won't allow the company to earn additional revenue from rivals.

Europe's long-running negotiations with Google over the terms of a proposed settlement to address antitrust questions around its search business on the continent could become a legally binding agreement by the end of summer, according to Reuters.

In 2010, the European Commission opened an investigation into Google after accusations the company discriminated against its rivals' specialised search products. In February of this year, Google agreed to a five-year deal to include links to three rivals whenever it promoted its own specialised search services, such as local search for products or shopping. Currently, and until the agreement becomes legally binding, Google doesn't indicate when it promotes its own services.

While the concessions were enough for the commission to drop its investigation into Google, some didn't think the concessions went far enough.

Mathias Döpfner, CEO of German publishing house Axel Springer, said in April the agreement amounted to a right to extort rivals. His concerns stem from the auction that rivals will bid in to appear next to Google's own listings. They will pay at least three eurocents to bid for a spot on those pages. 

"The Commission is seriously proposing that the infrastructure-dominating search engine Google be allowed to continue to discriminate against its competitors in the placement of search results critical to success," he wrote in an open letter to Google's chairman Eric Schmidt.

"As 'compensation', however, a new advertising window will be set up at the beginning of the search list, in which those companies who are discriminated against will be able to buy a place on the list. This is not a compromise. This is an officially EU-sanctioned introduction of the business model that in less honourable circles is referred to as protection money — ie, if you don’t want me to kill you, you have to pay me."

Speaking at a conference in Switzerland yesterday, antitrust commissioner Joaquin Almunia defended the package, saying the issue of payment had been "misrepresented".

"Under the proposals, instead of just selling this space to its own customers, Google would have to give a part of it to its competitors," Almunia said. "To be selected, Google's rivals would compete in an auction which would be strictly reserved to providers of specialised search services."

Whether the proposal becomes a legally binding still hinges on feedback on the proposals from rivals that brought the complaint to the commission — including Microsoft, and more than a dozen other specialised search companies.

"We are in contact with complainants and will soon start to send them letters explaining why we consider that the concessions we have obtained can swiftly allay the competition concerns we have raised in this investigation," Almunia sais. "We will carefully look at what complainants say before deciding whether to make Google's proposals legally binding."

Read more on the antitrust case

Topics: Google, Legal, EU

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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  • Sounds like socialism BS

    "... ... to include links to three rivals whenever it promoted its own specialised search services"

    So instead of letting everyone compete on pure merits to earn their market share EU decides you can not win too much. You have to allow your rival to score. If you are Michael Jordan and you beat your opponent up by 100-10 then you commit an unfair play crime.

    What a load of bull.
    • To a degree your right

      But then all those left behind (MS) start moaning to the EU about how it's all unfair that Google has a 93% share of the search market in Europe, blah, blah, and they launch an anti trust investigation.
      Waste of time, if people want to use a different search engine they can.
      (PS: and I thought the case against MS for IE was rubbish too for the sake of balance)
    • No

      This has nothing to do with socialism. Socialism is about state planning of the economy, typically with state-owned monopoly producers. The basic idea here is the opposite: that markets are good and competition between profit maximising firms is good. Markets are a legal construct, however, and not a natural one, so competition law is needed to ensure that they exist and function.

      To take a simple example, imagine you had a monopolist who bought up all the major supermarkets, giving him a near monopoly of 90 per cent of shoppers. Suppose he further implemented a policy which required suppliers to sign a contract to the effect that they would sell only to him, and not to any other supermarkets (the other 10 per cent). If you were a (non-monopoly) supplier, would you accept the terms and reach 90 per cent of shoppers, or reject them and reach only 10 per cent? It's pretty obvious that suppliers would accept the terms, thereby allowing the near-monopoly supermarket to eliminate the remaining rivals, subvert the market and charge (high) monopoly prices to consumers.

      Basically, Google have over 90 per cent market share for web advertising in the EU (the situation is different in the US, where Google's market share is lower, but still dominant). The structure of the market means that if customers (advertisers) want to reach more than 90 per cent of web users, they have to advertise via Google. If they advertise via rivals, they will reach less than 10 per cent. So, if Google give preferential access to their own services against rivals' services, they have an advantage with 90 per cent of customers, which gives them the power to subvert the market and undermine any other web services.
  • Google's Monopoly

    The reason I use Google for search is because it works so darn well. That goes a long way to explaining the supposed monopoly.
    • True

      And that's why Google is in the dictionary now.
      To a boat load of people, Google is internet searching........
    • Web search is just one of many services

      This case isn't about Google's dominance in web search, it's is about leveraging Google's dominance in web search to create dominance in markets for other services, which is illegal. Since over 90 per cent of people in the EU use Google to search the web, if Google's results give preferential access to Google's other services, then competitors in the markets for these other services are at a disadvantage. Even if they offer better services than Google, Google's search engine dominance will enable Google to undermine them.
      • Example

        To use my supermarket example from above, suppose GoogleMart is the best supermarket in the world, and gains a dominant 90 per cent market share by being better than the others -- better service, better organisation, better prices, etc.

        With 90 per cent market share, there isn't much they can do to increase revenue and profit by capturing more of the market, but suppose GoogleMart management notice that milk is a highly profitable product. The milk market is dominated by TastyMilk, but GoogleMart enter the market with GoogleMilk. Most people who have tasted both prefer TastyMilk, but GoogleMart start putting GoogleMilk in prominent places in GoogleMart, sell it at or below cost, subsidised by the supermarket business, and gradually reduce the shelf space for TastyMilk.

        In a competitive market, consumers would choose TastyMilk. However, since milk is only one of many things supermarket shoppers want, they continue to shop at GoogleMart, and more and more of them start buying GoogleMilk, instead of spending extra time to find where TastyMilk is, and extra money to pay a price above cost. Owing to GoogleMart's dominant supermarket position, TastyMilk steadily loses market share, and eventually the producer exit the milk market. GoogleMart's dominant supermarket position has been leveraged into a dominant milk position, so GoogleMart can raise the price, offering a product that is inferior to TastyMilk and now priced as high or higher than it was, and then move on to the next product market.

        If you think of the web as a collection of information, and web search as a 'supermarket' in which you find it, then the above is pretty close to what Google are doing by promoting their own services over rivals'. This ruling kind of says, 'well, okay, you can keep the best shelf positions for GoogleMilk, but you have to auction off some other shelf space to the others.' It's clearly doesn't solve the problem, because the 'market' still isn't competitive -- there's still a huge inbuilt advantage for Google's non-search services over equal or better offerings from rivals.