Google fined €1.49BN in Europe for antitrust violations in search ad brokering

The European Commission has just announced another antitrust fine for Google. The latest fine — €1.49BN (~$1.7BN) — relates to its search ad brokering business, which involves Google selling advertising space related to searches carried out on third party websites.

Speaking at a press conference today, EU competition commissioner Margrethe Vestager said the search giant — “by far the biggest” search ad broker in the region, with its AdSense platform taking a share in Europe of “well above 70% since 2006” — had engaged in illegal practices in order to “cement its dominant market position”.

“Today’s decision is about how Google abused its dominance to stop websites using brokers other than the AdSense platform,” said Vestager, noting that the Commission looked at more than 200 tailored agreements with major sites which use AdSense (aka “Google direct partners”) — finding at least one clause that harmed competition.

“There was no reason for Google to include these restrictive clauses in its contracts except to keep rivals out of the market,” she added, saying the Commission’s conclusion is that between 2006 and 2016 Google’s behavior was illegal under EU antitrust rules.

“It prevented its rivals from having a chance to innovate and to compete in the market on their merits.”

Vestager said the Commission found three types of anti-competitive restriction in Google’s contracts — including exclusivity provisions, which were included in contracts from 2006 and prevented “the most important partners from sourcing search ads from Google’s rivals on any of their websites”; and premium ad placement provisions which Google added to contracts from 2009 “to replace over time the existing explicit exclusivity provisions”, thereby not directly preventing partners from sourcing ads from Google but requiring they take a minimum of search ads from Google — “and put them in the most visible and most profitable parts of the page”.

The commissioner described the upshot as: “The best website space was still reserved for Google.”

The third Google contract clause restriction the Commission found put controls on how partner websites could display rival search ads.

“Under this clause website owners would have to get the written approval from Google before changing the way they displayed search ads of Google’s rivals — right down to the size, the color and even the font of those ads,” she explained, going on to emphasize the “strong network effects” that work in search advertising, as in many digital markets — requiring that “to compete effectively you need to build scale”.

Google’s “restrictive clauses” then worked directly against rivals scaling by creating “a vicious circle” of limited options for websites to sell ad space — forcing them “solely to rely on Google”.

“As a result from that, Google benefitted from network effects and became even stronger,” Vestager concluded.

While advertisers and website owners have “less choice and likely face higher prices that would be passed on to consumers”. 

The size of the AdSense fine — which Vestager said reflects the “serious and the sustained nature” of the infringement — was calculated based on the revenue Google generated from its AdSense business vs its overall revenue as a company but also factoring in exacerbating factors, such as the length of violations (i.e. around a decade).

She pointed out that any entities who believe they have suffered damage from Google’s behavior can claim compensation through national courts. So a spate of lawsuits could follow the ruling.

She also noted that Google removed the illegal restrictions from its contract around the time a formal Statement of Objections was issued by the Commission, back in 2016.

The Commission’s decision now requires Google to put a stop to illegal restrictions in contracts — or “any other restriction with an equivalent effect and not to reinstate them”.

Responding to the Commission’s decision in a statement, Kent Walker, Google’s SVP of global Affairs, said:

We’ve always agreed that healthy, thriving markets are in everyone’s interest. We’ve already made a wide range of changes to our products to address the Commission’s concerns. Over the next few months, we’ll be making further updates to give more visibility to rivals in Europe.

Third time unlucky…  

It’s the third Commission antitrust penalty for Google, following the $5BN fine for anti-competitive behaviors attached to Android last summer and a $2.7BN penalty for Google Shopping antitrust violations in mid 2017.

In recent years Vestager has also flagged concerns about several other Google products, including travel search, image search and maps. Though no more formal probes have been announced.

The latest EU antitrust decision against Google relates specifically to Google AdSense ads that appear on third party sites as a result of a search made on those sites. As noted above, the Commission made a formal Statement of Objections against AdSense in 2016, when it identified several practices it believed violated antitrust rules after investigating complaints.

Its objections included that Google required exclusivity in AdSense site search deals, mandating that third parties do not source search ads from its competitors; that Google required third parties to take a minimum number of search ads from it, with premium placement for them; and that Google required sites to seek approval from it before making any changes that might involve competing ads.

The Commission noted at the time that exclusivity practices had been in place since 2006, before being gradually replaced by Google from 2009 in most contracts — with the requirement of premium placement/minimum ads and the right for Google to authorise competing ads.

“The Commission is concerned that the practices have artificially reduced choice and stifled innovation in the market throughout the period,” it wrote then. “They have artificially reduced the opportunities for Google’s competitors on this commercially important market, and therefore the ability of third party websites to invest in providing consumers with choice and innovative services.”

You can read more on the background to the AdSense complaint (and Google Shopping) in our report from 2016 here.

Since being hit with a wave of antitrust scrutiny and action in Europe Google has been forced to tweak a range of product and make changes to its business practices.

Though it’s far from clear it’s done enough to stave off further regulatory intervention in all instances if the end-goal is to promote effective competition.

On that front Vestager gave an update on how changes Google has made to its business practices have impacted market conditions since the Google Shopping and Android antitrust decisions. 

On Google Shopping she said Google’s September 2017 decision to open its shopping unit by letting rivals bid for space has improved the visibility of shopping rivals — albeit slowly, with Vestager admitting: “It has taken time for this mechanism to show results.”

Back in June 2017, rivals were never appearing top of the Google shopping unit on the first page of search results because the company was systematically promoting its own service there — and burying rivals on average on page 4 of results.

In June last year the Commission found around 30% of shopping units included at least one Google rival. That’s now gone up to 75%, Vestager said today; with 40% having more than one rival appearing.

While the 6% of clicks in the Google Shopping unit going to competitors back in June 2018 is now around 40%.

After tweaking how it displays search results for products in Europe Google was later accused of creating a ‘fake’ price comparison site scheme — to create the allusion of a thriving market in Europe.

But Vestager said the Commission’s figures reflect the situation after Google made further changes to address criticism that “previous numbers where inflated by competitors that actually did not really compete in shopping comparison”.

“These changes now require all participants services to have a sufficient range of offers and a set of core comparison functions,” she said.

She also flagged an additional feature that Google has just announced, saying it will let users choose whether the shopping unit should show links to comparison shopping sites or directly link to products on merchants’ sites

“This means that users will be able to choose what kind of results they want to see,” noted Vestager, couching all the changes as “positive developments” — but adding: “Obviously we will keep monitoring the market.”

Asked whether she believes Google has done enough to stave off complaints in this area, she said the Commission should not be the final judge — and there’s no “magic number” which signifies job done and case closed.

“When I give you a number it is to say that this market has improved,” she said, adding that her hope is the market will develop. “It has developed a lot since we took the decision where these was no rival in the shopping unit. The point is that if a market is to develop consumers will have to use their opportunities to make choices.”

Margrethe Vestager announcing the Commission’s antitrust decision against Google AdSense

Referring back to last year’s Android antitrust decision, she said all Google’s restrictions in that case similarly aimed to ensure that search on mobile devices was directed to Google search — once again “cementing” its position in the market. And that obligation on device makers to pre-load Google services in order to get access to its popular Play Store has been removed.

Vestager suggested rival search and browser provides can now strike exclusive deals with device manufacturers to preinstall their products instead of Google products.

Although, as we’ve reported before, rivals still suggest the bar to entry is prohibitively high, given Google’s fee structures in the new licensing term it introduced last fall. And the commissioner too made reference to concerns that tweaks aren’t “sufficient to restore competition”.

Though she also welcomed moves by Google that — on the surface — could increase consumer choice. Google’s latest Android tweaks — announced just yesterday — attempt to address complaints that its default browser and search settings on the smartphone platform box out competition by preferring its own browser over rival browsers.

In a blog post dated March 19 Google said it will start asking Android users to choose which browser and search apps they wish to use, with the change slated as coming in the next months.

That move looks interesting in light of rivals potentially striking exclusive device deals to pre-load their own apps by default — as a hedging strategy for Google to create wiggle room so it could worm its way back onto any future Android-powered devices where rivals’ services have been preloaded as defaults.

How? By being ‘freely’ selected by the consumer as their preferred choice — relying on its brand power to drive their decisions. Hence the devil being in the detail of the incoming choice screens, as we reported earlier on those Android tweaks.

Choice is also a word competition regulators love to hear, of course.

And in later comments during the press conference Vestager said “the most important thing is to enable user choice”, adding that “the ability to choose also makes you feel that you’re in control”.

So opening up ‘choice’ does look to be the smart choice if, as Google now is, you’re a business desperately trying to stave off further regulatory interventions.

“We’ve seen in the past that a choice screen can be an effective way to promote user choice,” said Vestager today. “In the Google Android case it has the potential to give users a real choice about what search and browser they want on their Android device. This should also allow Google’s rivals to be chosen up front by users in cases where Google has been pre-installed on the phone.”

“It is welcome that Google is stepping up its effort in connection with the Google Android decision — and of course we will watch closely to see how the choice screen mechanism evolves,” she added.

In all these EU antitrust cases, complaints against Google have certainly not gone away (yet) though.

And some complainants continue to couch the company’s self-styled compliance ‘remedies’ as a joke.

French private search engine Qwant, a long time complainant against Google, told TechCrunch today that it’s sceptical about Google offering a search choice prompt — wondering aloud whether the company would be asking search rivals to pay it to be included in this list (as shopping rivals have to pay, via auction, to be included in its shopping unit; and as Android OEMs face fees for not preferring Google services as device pre-loads).

“Please do it really, don’t play around,” said founder Eric Leandri, discussing Google’s search choice announcement.

“I think it’s good, and I think it’s good from Google to start thinking about solutions. And I think that without the pressure put by the European Commission they don’t even try today, so I’m happy about the pressure, I’m happy about new ideas but please let’s do it really and not just for people who just see the surface of the problem and not the whole of the problem,” he added.

In a formal statement Qwant also said:

After years of abusing its dominant position, Google now has no choice but to make changes thanks to the action of the European commission. We take note of Google’s announcement, which is a recognition that its previous decision regarding the licensing scheme of Android and Google apps is not sufficient to restore fair competition on the mobile market. The priority should not only be to offer alternative choices where Google is still installed by default, but most of all to allow phone manufacturers to set up their Android phones with any search engine and browser that they feel best suited for their customers, with no overcost.

Because the ongoing Google Shopping and Android cases show how so-called remedies and announced changes can be designed to benefit Google with no positive effect for consumers, Qwant will very carefully analyze the details of the newly announced changes when they are available. Those details will be of the utmost importance when assessing wether it is a good-faith move by Google or mostly a PR stunt and an attempt to lower the Commission’s vigilance.

Leandri also told us that Qwant has itself attempted to install another search engine in Android, following the Commission antitrust ruling and licensing changes to Android in Europe which are supposed to unbundle Google’s own apps from the platform.

Only to be told by Google that the process to validate Android with another search engine “is not open yet”. (We’ve reached out to Google for comment on what’s holding up that process.)

The wider problem Qwant has run into trying to cut deals with OEMs to preload its search engine is that it claims Google’s licensing terms require the OEM to pay it $40 per device to do so — vs getting paid by Google if they pre-load Google. Aka the “overcost” referred to in its statement.

Nonetheless, Leandri told us Qwant will have an announcement on a device preload front with a Chinese company this week — and slated another announcement as coming “very soon”. And he’s certainly happy regulators have applied pressure to shift Google’s policies.

With antitrust and political scrutiny of Google and other tech giants stepping up internationally and domestically, any self-serving competition ‘fixes’ do look to be operating on borrowed time.

Moreover ‘figleaf’ solutions that blow away at the first breath of scrutiny will likely increase pressure for more radical regulatory intervention — such as a break up of Google. (Which is not, incidentally, Vestager’s preferred fix for big tech.)

It’s therefore likely no coincidence that — in another recent browser-related update — Google quietly expanded search engine choices in Chrome, adding privacy-focused rival DuckDuckGo’s search engine to the lists of options it promotes to users in more than 60 markets with the latest Chromium stable release, as well as French pro-privacy Qwant as an option in its home market.

This change was welcomed by both DuckDuckGo and Qwant. (Though the latter told us it still recommends its users use Firefox or Brave, rather than Google’s Chrome browser.)

Asked about other areas of antitrust concern vis-a-vis Google’s business today, the EU’s competition commissioner said it has “strong complaints” in local search and job search, and is still looking into those markets.

But she suggested travel search is less of a concern, describing it as a developing market and noting that Google is also changing its behavior there.

On jobs and local search Vestager said that while the Commission’s 2017 Google shopping decision gives it a framework to work with there are still important differences to consider — “so we need to look individually at those services”.

“We have noted that Google is rolling out certain changes to its product in these areas and this is of course something that we will look at closely,” she added.

Discussing the key role platforms play in digital markets, Vestager made a concluding point of emphasizing how consumers and businesses alike depend on them — “to get the best out of digitization” — stressing therefore that it makes illegal behavior by dominant platforms “a very serious affair”.

Last year the commissioner also tasked three special advisers with looking at the challenges competition law faces as digital technology worms its way into all industries and areas, disrupting everything.

She said she’s looking forward to receiving their report “very soon”, adding: “We’re thinking very carefully about the future of competition. Because everything becomes digitzed.”

But, at bottom, she said the fundamentals will not change.

“In our reflection for the future, as well as our enforcement work, our aim will of course remain the same: To make sure that the market works well, so that European consumers have choice, innovative products and fair prices.”

This report was updated with a correction after we incorrectly stated Google had been fined 1.49BN dollars. The Commission fine is in euros — making the dollar fine around 1.7BN


Source: TechCrunch

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