Europe’s giant Google fine is too little, too late

(Source: www.theverge.com)

Google was hit with a $5 billion fine from the European Commission over Android app bundling yesterday. While the fine is the biggest the EU has ever levied against a single company, it’s the changes to Android that Google now has to make that are far more significant. But they’re probably too little, too late.

Google will now be forced to unbundle its Chrome browser and Google search apps from Android, meaning phone makers won’t have to ship Android phones with these apps preinstalled. Additionally, phone makers will be able to fork the open-source version of Android and still be allowed to also manufacture devices with Google’s Android software, so we could see more competitive variants of Android from big phone makers. Google would never do all of this of its own accord, of course, but it has no choice. It stands accused of using anti-competitive practices with Android to boost its own range of web services.

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Android comes in two flavors

The European Commission’s case is focused on the rules that Android phone makers are forced to follow by Google. And to better understand those, you need to know that Android comes in two distinct flavors. The first is the core Android software, better known as the Android Open-Source Project, or AOSP. This has few restrictions and phone makers can basically do what they like with it, installing whatever apps and services before shipping phones to customers.

But most phone makers don’t ship devices with AOSP outside of China because they want to get access to the Google Play Store (which is necessary for getting pretty much every popular app from Uber to Instagram). And if you want the Google Play Store, you have to follow Google’s own rules. These force phone makers to bundle 11 Google apps, including Google search, Chrome, YouTube, Gmail, and Google Maps. This bundling also means many top Android apps simply won’t work on AOSP as it doesn’t include the all-important Google APIs. Basically, there’s no such thing as a free lunch: if phone makers want to offer users the apps they expect from a smartphone, then they have to also include Google’s products.

Of the 11 apps Android phone makers have to preinstall, the EU is specifically worried about two: Google search and the Chrome browser. There’s good reason to focus on these. Google has more than 90 percent of the search engine market share worldwide and around 60 percent of browser market share. Android accounts for around 85 percent of the entire smartphone market, and Google’s bundling of Chrome and Google search into the OS is clearly designed to maintain those monopolies.

Google dominates in more than just search

Google also dominates with other web services, though. YouTube is the primary way web users consume video right now, more than 1 billion people use Gmail every month, and Google Maps is widely used to navigate the world. This means, despite the changes Google is being forced to make, the EU is only targeting a small section of the company’s massive power. Critics say these actions won’t have much of an effect now anyway.

“The EU stance is arguably six to eight years too late,” argues Ben Wood, chief of research at CCS Insight. “Android has already helped establish Google apps and services as essentials for consumers in the Western World. While the separation of apps from the operating system may help foster competition over the longer term, manufacturers will continue to need to offer Google services to be competitive and address consumer demand.”

Consumers will typically either stick to a reliable default app on a device or seek out a trusted alternative. Google’s services and apps are both reliable and trusted, and the EU is leaving it up to the company to decide how it will now change Android. “I have made no suggestions to how Google should solve this,” explained European Commissioner for Competition Margrethe Vestager in a press briefing yesterday. “I think a number of different choices can be made by Google and it is for Google to make these choices.”

This means, despite the frequent comparisons, Google is not facing a “Microsoft moment” with this judgment. While the similarities are obvious to Microsoft’s long antitrust battles both in the US and Europe, Google isn’t being forced to provide a ballot for browsers or search engines in Android. The EU will be closely monitoring how Google implements the changes, but it clearly recognizes the challenges involved in unbundling Chrome and Google search. The commission is leaving Google to figure it out.

“The EU must take a broad and pragmatic view of the complexity of the Android ecosystem, interdependencies, and the relationship to Google’s broader business model,” says Wood. “While Google’s strength is an understandable concern, overly arbitrary measures could ultimately hurt the consumer and only strengthen the position of a primary competitor in Apple.”

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Apple avoids EU scrutiny for many reasons

Apple has avoided the same scrutiny from regulators as Google, despite having its own ways of locking consumers into its apps and services on iOS. Apple famously removed built-in versions of Google Maps and YouTube with its iOS 6 update, and the company has been trying to build a worthy competitor to Google Maps ever since. Many have pondered why Apple hasn’t received similar complaints from the EU about its own restrictions. But even though Apple has an obvious dominance in premium phones as the single iPhone manufacturer, it still only controls 15 percent of the global smartphone market. It also doesn’t own a search engine or license iOS to other phone makers to produce low-cost devices, avoiding the business model of having to charge for an operating system or make up revenue from services. Apple could face some scrutiny in the future, thanks to its increasing services revenues. But for now, its business model relies primarily on selling hardware with lucrative margins.

It’s Google’s business model for Android that’s really at risk now. The $5 billion fine represents just over two weeks of revenue for Google, but it’s the changes to Android that are angering the web giant. Google has warned that the EU’s ruling could affect the core free nature of the Android model. Google gives away Android to phone manufacturers and monetizes users through ad-targeting powered, in part, by its bundled apps and services. If it can’t effectively bundle those apps and services or phone makers like Samsung start to bundle in search engines like Bing or rival web browsers, then that could challenge Google’s mobile ad revenues. Google makes more than 50 percent of its overall digital ad revenue from mobile ads, so it’s a massive market.

But Google’s stock price hasn’t plummeted on the news, which also reflects the fact that the changes Google is being forced to make won’t have an immediate impact. Google doesn’t need to push its apps to consumers anymore because consumers want them. They’re frequently the best available, and it’s hard to list solid competition for services like YouTube, Google search, or Google Maps. Even on iOS, Google’s apps are regularly in the top 20 download lists, demonstrating that consumers are willing to seek them out over alternatives.

It’s too early to say exactly how Google will fare from this judgment, but the EU’s current ruling does very little to challenge the many ways Google uses Android to promote its other dominant services like YouTube or Google Maps. Phone makers will now wield a little more power over exactly what apps are bundled on handsets, but Google has shown it’s willing to threaten Android licensing fees as an alternative.

The ruling is designed to encourage competition, and it’s possible we might see some from Chinese phone makers or even Amazon’s own devices. Amazon ships a forked version of Android, but the EU’s decision still means the Google Play Store is restricted to Google’s licensed version of Android. Amazon’s not likely to switch just because Google search and Chrome are no longer bundled, as the company’s Fire tablets are designed to be vehicles for Amazon’s own services. Likewise, other phone makers will still need to get access to the Google Play Store for consumers to even consider their devices.

Ultimately, it’s the consumer that could lose out if Google decides to pursue license fees for Android. Given Google’s dominance in web services, it’s unlikely that Android will change significantly from this single ruling, but the EU needs to now carefully manage exactly how Google unbundles Chrome and Google search from Android.

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