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Google shares drop in Frankfurt against Facebook and Yahoo in shadow of possible European mega-fine

Wed 15 Apr 2015

The Frankfurt stock market listings for Google dropped against better performance from Facebook and Yahoo in the run-up to today’s statement from European Competition commissioner Margrethe Vestager regarding pending EU anti-trust action against the search engine giant.

The Statement of Objection (SO), released at 11am, asserts that Google has abused its dominant position (90%) in European search engine results to its own products and those of its affiliates, instead of providing an agnostic view of market availability. It says:

“The preliminary conclusion of the Commission’s investigation opened in November 2010 is that Google gives systematic favourable treatment to its comparison shopping product (currently called ‘Google Shopping’) in its general search results pages, e.g. by showing Google Shopping more prominently on the screen. It may therefore artificially divert traffic from rival comparison shopping services and hinder their ability to compete on the market,”

The second plank of the investigation will concentrate on whether Google’s open source Android operating system has similarly stifled EU competition and breached EU antitrust rules by hindering the development and market access of rival mobile operating systems, applications and services to the detriment of consumers and developers of innovative services and products,”

In a memo leaked to ReCode yesterday Google provides internal guidance to its staff not to engage in public debate on the SO, and outlines several reasons why Mountain View has a strong answer to any preliminary antitrust accusations. Regarding the expected investigation into the Android OS, the memo stated:

“Android has lowered prices and increased choice for consumers (there are over 18,000 different devices available today); It’s an open-source operating system that can be used free-of-charge by anyone…We paid out over $7 billion in revenue over the past year to developers and content publishers…Consumers decide which apps they use and download on Android devices. Apps that compete directly with Google such as Facebook, Amazon, Microsoft Office, and Expedia are easily available to Android users…Many of these apps come pre-loaded onto Android devices. Google apps, like Search, Maps, Gmail, and Google Play, are also available out of the box on many handsets. The recent Samsung S6 is a great example of this — there are pre-installed Facebook, Microsoft, and Google apps.

“All told, consumers have a lot of choice — and they are exercising it. And many, many other companies have very successful mobile businesses – including Apple, the most valuable (mobile) company in the world.”

Today’s SO is the first direct action to emerge from the competition commission in five years of studying complainants’ contentions that Google uses its dominant position in European search results to leverage its own products instead of providing a level playing field in the EU.

The specific objections that Vestager is aiming at Google today regarding lack of competition in the online shopping environment are:

– That from 2008 Google began to favour placement of its own products and services over non-Google equivalents in search results, regardless of appropriateness to the search term.
– Google excludes its own shopping partners from the same system of penalties which it applies to other commercial entities (i.e. The ‘Google Dance’).
– That Google’s own comparison service Froogle did not benefit from the same partner-oriented preferential treatment as core search, and that its comparative lack of success may be an indicator of search result bias in Google searches
– That Google has systematically favoured its own comparison shopping searches, which are alleged to have experienced higher growth compared to non-Google equivalents
– That Google’s policies have had ‘a negative impact on consumers and innovation’, stifling innovations from rivals who are said to perceive that ‘however good their product, they will not benefit from the same prominence as Google’s product’

The leaked memo provides numerous charts which it contends illustrate a diverse ecostructure of competition in the EU online shopping market, and declares “Competition online is thriving — despite what many of the complainants in this case allege. Indeed if you look at shopping, it’s clear that there’s a ton of competition (including from Amazon and eBay) that has not been harmed by Google’s own shopping service,”

EU action against Google would rank in scope with previous antitrust actions against Intel in 2010 and Microsoft in the 2000s, with the possibility of the imposition of a 10% fine on Google’s turnover – equivalent to $6.4bn (£4.3bn).

One of the competitors cited in the leaked Google memo as evidence of a strong competitive environment in Europe is Amazon, itself the subject of an EU investigation into the company’s ‘sweetheart tax deal’ with Luxembourg.

Facebook rose by 1.3 per cent today in the German stock market this morning, with Yahoo up 1.1 and Google 0.1 lower.

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