Google expected to face formal European antitrust charges tomorrow

Update: the EU Commission has now filed its complaint

It doesn’t sound good for Google in Europe where the company has faced continued criticism, some comical and some less so, for using its dominant 90+% search share to give advantages to its other properties and squash competitors. FT:

Google will on Wednesday be accused by Brussels of illegally abusing its dominance of the internet search market in Europe, a step that ultimately could force it to change its business model fundamentally and pay hefty fines. Margrethe Vestager, the EU’s competition commissioner, is to say that the US group will soon be served with a formal charge sheet alleging that it breached antitrust rules by diverting traffic from rivals to favour its own services, according to two people familiar with the case.

The NYTimes:

Europe’s competition chief, Margrethe Vestager, is expected to make an announcement that Google has abused its dominant position on Wednesday in Brussels, according to two people who spoke on Tuesday on the condition of anonymity…

“The E.U. competition commissioner, Margrethe Vestager, will decide what steps they want to go,” Günther Oettinger, a German politician who is charge of Europe’s digital economy, told Die Welt am Sonntag, a German newspaper, on Sunday. “I think that they will be far-reaching.”

Google has yet to comment on the matter but if Google fails to rebut any formal charges, Ms. Vestager could “levy a huge fine that could go above 6 billion euros, or $6.4 billion, amounting to about 10 percent of Google’s most recent annual revenue”.

Google stock is off 2 points today.

Image via TNW

Re/code has acquired a copy of the internal memo Google sent to employees today following the Financial Times report. According to this document, the company is expecting the EU to open an investigation into Android as well as its search rankings. However, such a case wasn’t mentioned by FT.

Googlers —
As the Financial Times has just reported, the European Commission will tomorrow issue a Statement of Objections (SO) regarding the display and ranking of certain search results, in particular shopping. This is obviously very disappointing news, especially for the search team that has worked so hard to create a great experience for our users over the last 16 years.

First, a few facts about the SO process. An SO is not a final finding. It’s a document in which the Commission staff sets out its preliminary arguments so that the company in question can respond. Expect some of the criticism to be tough. But remember, it’s also an opportunity for Google to tell our side of the story. The back-and-forth over an SO can take some time (even a year or two), and in a number of cases has resulted in the Commission modifying their claims or settling the case. If the two sides cannot settle their differences, the Commission issues an infringement decision, which can be appealed in court.

We have a very strong case, with especially good arguments when it comes to better services for users and increased competition:

Better services for users: Google Search has improved tremendously since the days of ten blue links. We can now answer many queries directly, saving users huge amounts of time and effort–whether it’s the weather, directions to the local pharmacy, flights, or where to get the cheapest camera.

Increased competition:

The competition is just one click away — and it’s growing. People can use Bing, Yahoo, Quora, DuckDuckGo, and a new wave of search assistants like Apple’s Siri and Microsoft’s Cortana, as well as more specialized services like Amazon, Idealo, Le Guide, Expedia, or eBay. In addition, users increasingly turn to social networks like Facebook and Twitter to find news and suggestions — where to eat or which movies to watch.

Mobile is changing everything — with the explosion of apps taking people directly to the information they want. Today 7 out of every 8 minutes on mobile devices is spent within apps. Yelp, for example, has said that over 40% of its traffic comes direct from its mobile app.

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. Just look at the following graphs compiled using comScore data:

Shopping Sites in Germany (unique visitors, ‘000s)

Shopping Sites in France (unique visitors, ‘000s)

Shopping Sites in the UK (unique visitors, ‘000s)

It is the same story with travel–another very competitive vertical:

Travel sites in Germany

Source: ComScore MMX and Google data (for Google), desktop traffic, unique visitors (‘000s)

We believe that the Commission will also open a formal investigation into Android tomorrow. This is just the start of a process and does not mean the EC will necessarily take action (for example they opened and closed an inquiry into iTunes a few years ago). We have a very strong case on Android as well:

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; and

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.

Finally, we know the upcoming announcements will be distracting. But you can help in two ways. First, by not commenting on pending legal issues, internally or externally. And second, by focusing on what you all do best … building great products that serve our users and customers.