E.U. gets tough on Android with a $5-billion fine
Google’s strong-arm tactics have come back to haunt it. The division of Alphabet Inc. now likely joins President Trump in believing the European Union is its foe.
That’s because European regulators pounded Google with a record $5-billion fine for forcing its search engine on tens of millions of European users.
Along with the massive fine, E.U. regulators demanded that Google stop forcing smartphone makers, using its Android operating system, from installing Google as the default search engine.
Google said it would appeal the decision.
This is a huge blow to Google’s desire to collect massive amounts of data on Android phone users. It could also slice into Google’s revenues because of the way it targets Android users with advertising.
A mobile superpower, Google expected to generate more than $60 billion in revenue this year from mobile ads, according to eMarketer Inc. That would be 44 percent of Alphabet’s estimated overall revenue of $136 billion for 2018, according to S&P Global Market Intelligence.
The steep penalty marks the second time in as many years that the E.U. has found that Google wields its power in a way that harms competition and consumers.
In 2017, E.U. slapped the tech giant with a $2.7 billion fine for giving its shopping-comparison service prime real estate in search results over its rivals’ competing offerings.
The E.U. scrutiny stands in stark contrast to the United States where regulators probed Google but opted, in 2013, to leave the company intact.
Investors wondering why Google and its Android operating system is a target, but Apple is not, should understand an essential difference between the two mobile behemoths.
Google is different because unlike Apple, which is the sole manufacturer of iPhones and iPads that run its software, called iOS, Google mostly licenses Android to other hardware companies at no cost. It does sell its own phone – the Pixel – but that’s a tiny part of its business.
In some cases, Google also provides significant financial incentives for those outside device makers, so they’ll adopt Android and preinstall the search giant’s full suite of apps.
The ruling could prompt Google to begin charging a manufacturer such as LG or Samsung to license its operating system, which it currently provides free.
The ruling could pave the way for rival app makers in search and web browsing to gain new footing if Google apps no longer come pre-installed on Android devices.
Margrethe Vestager, the E.U. official in charge of competition, said that Google has turned Android into a “vehicle to cement the dominance of its search engine.”
Moreover, she added in a prepared statement, “These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere. This is illegal under EU antitrust rules.”
In response, Google charged that the E.U. has ignored the reality that Android device owners download and use apps made by a wide variety of other developers – while manufacturers are not prohibited from installing their own competing services.
Google CEO Sundar Pichai, in a blog-post rebuttal, wrote, “We’ve always agreed that with size comes responsibility. A healthy, thriving Android ecosystem is in everyone’s interest, and we’ve shown we’re willing to make changes.”
He added, “But we are concerned that today’s decision will upset the careful balance that we have struck with Android, and that it sends a troubling signal in favor of proprietary systems over open platforms.”
The decision had little effect on Alphabet’s shares, which were up slightly in midday trading.
The E.U. also faulted Google’s policy of prohibiting Android device makers from producing other smartphones or tablets that run on modified versions of the operating system, known as “forks.”
That includes Amazon’s Fire OS, a mobile operating system that is based on Android. The E.U. said it “found evidence that Google’s conduct prevented a number of large manufacturers from developing and selling” those devices.
While that may be true, Google is quick to note that its policies ensure uniformity in how Android looks, feels, and operates.
A benefit of that is that it makes it easier for developers, who have to create only one version of their app for a wide array of devices.
The Developers Alliance, an app-focused advocacy group that counts Google as a board member, said the E.U.’s decision would pose severe technical headaches for smaller companies and coders.
“Developers are not worried about competing with Google apps on the phone,” said Bruce Gustafson, the organization’s president. “Our worry is that Android becomes exactly like [Apple’s] iOS, and at that point, it is locked down. … There will be six, seven [or] eight versions of these closed ecosystems, which means we have to code” multiple apps, he said.