On Wednesday, European officials handed Alphabet Inc (NASDAQ: GOOGL), the owner of Google, a $US5 billion ($6.8 billion) fine because it believes the software and advertising company broke competition laws.
“Today, mobile internet makes up more than half of global internet traffic. It has changed the lives of millions of Europeans,” the European Commission’s Margrethe Vestager said. “Our case is about three types of restrictions that Google has imposed on Android device manufacturers and network operators to ensure that traffic on Android devices goes to the Google search engine.”
Basically, the regulator said Google’s Android mobile software shouldn’t come pre-installed with Google Search and Chrome browser because it creates an uneven playing field for rival search and browser apps.
“Google has used Android as a vehicle to cement the dominance of its search engine,” Vestager added.
Google creates Android software but it’s open source, free and is often modified by the likes of Samsung and other non-Apple device makers.
However, European officials say that Google’s influence over smartphone makers may be improper. According to the Commission, Google requires phone makers to have the Google Search and Chrome apps pre-installed on Andriod devices in order to license the Play Store. Google also paid manufacturers and network operators to exclusively pre-install Google Search.
Google disagrees with the decision and says it will appeal it.
“Android has created more choice, not less”, Google CEO Sundar Pichai said in a blog post. He believes that if anything, the fact that Android is free, many other apps come pre-installed on Andriod, and many more can be added or removed, has stimulated competition — not reduced it.
“The decision ignores the fact that Android phones compete with iOS phones, something that 89 percent of respondents to the Commission’s own market survey confirmed,” Pichai said.
“Today, because of Android, a typical phone comes preloaded with as many as 40 apps from multiple developers, not just the company you bought the phone from.”
Google has 90 days to correct the ‘error’, regardless of its intent to challenge the decision.
Summary
This is not the first — and it’s unlikely to be the last — challenge to Google’s dominance in Europe and elsewhere by regulators. For years, many large technology companies such as Google, Amazon, Facebook and Microsoft have been a focal point for regulators looking to stymie their dominance and cash in on their huge profits. The key risk to Google, of course, is not the $US5 billion fine (it has over $US100 billion of cash available) but its advertising model. Will it be adversely affected? Or is its dominance set to continue?
I think it’ll be the latter.
Owen is the lead adviser of Rask Invest. Click here to download his free investing ebook.
Disclaimer: Owen Raszkiewicz is the founder of The Rask Group. This article continues general information only and should not be relied upon. The information does not take into account your needs, risk profile or objectives. Please consider consulting a licensed and trusted professional before acting on the information. Please refer to The Rask Group’s financial services guide. Owen Raszkiewicz owns shares of Alphabet and Apple.
