European Union Slaps $2.7 Billion Fine on Google

The European Union has slapped a $2.7 billion fine on Google for abusing its search engine market dominance in building its own online shopping service.

The EU has found that Google has been denying “consumers a genuine choice” by manipulating its search engine results and steering customers to its own shopping platform. It’s alleged that Google has been artificially and illegally promoting its own price comparison service in searches and thus has been denying customers opportunities of making genuine choices. It’s also alleged that Google has thus been denying rival firms the ability to compete on a level playing field.

This decision by the European Union, which can be termed “dramatic”in all respects, would definitely have far-reaching implications for Google. Google would now have to stop its “illegal activities” within 90 days and to explain how it will “reform” its ways or else the company would have to face fine of up to €10.6m a day. This amount would be equal to 5 percent of the average daily worldwide turnover of Alphabet Inc., the parent company of Google and several former Google subsidiaries.

Detailed Statement from the EU

Commissioner Margrethe Vestager, in charge of competition policy, has made this statement that shows that EU is unbiased in its decision against Google– “Google has come up with many innovative products and services that have made a difference to our lives. That’s a good thing. But Google’s strategy for its comparison shopping service wasn’t just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors…What Google has done is illegal under EU antitrust rules. It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation.”

In her detailed statement, Commissioner Margrethe Vestager has explained how Google entered the separate market of comparison shopping in Europe with “Froogle”, which was later re-named “Google Product Search” and then came to be known as “Google Shopping”. Commissioner Vestager also explains that Google started to give its own product a significantly better treatment than rivals and started systematically giving prominent placement only to its own product in search results. Vestager also states that Google has demoted rival comparison shopping services in its search results.

Commissioner Margrethe Vestager’s statement says- “The evidence shows that even the most highly ranked rival appears on average only on page four of Google’s search results. Others appear even further down. This means that Google Shopping is much more visible and other comparison shopping services are much less visible to consumers. As a result, competitors are much less likely to be clicked on. The Commission found evidence of sudden drops in clicks on certain rival websites of more than 90%, after Google applied demotions. Some of them adapted and managed to recover some traffic, but never in full.”, and adds- “Google’s practices have therefore allowed Google Shopping to make significant gains in traffic at the expense of its competitors.”

It’s following this that the European Union decided to take action against “Google’s violations of EU antitrust rules”.

The Google Side of the Story

Shares in Alphabet have reportedly fallen 1.5 percent in pre-market trading in New York, following this move by the EU.

Google, however, has rejected the EU’s findings and is likely to appeal. Google has clarified that Google shows shopping ads and connects users with thousands of advertisers in ways that are useful for both just because advertisers want to promote the very same products that people want to find quickly while shopping online.

In a detailed blog post, Google Senior Vice President and General Counsel Kent Walker says- “We believe the European Commission’s online shopping decision underestimates the value of those kinds of fast and easy connections. While some comparison shopping sites naturally want Google to show them more prominently, our data shows that people usually prefer links that take them directly to the products they want, not to websites where they have to repeat their searches…We think our current shopping results are useful and are a much-improved version of the text-only ads we showed a decade ago. Showing ads that include pictures, ratings, and prices benefits us, our advertisers, and most of all, our users. And we show them only when your feedback tells us they are relevant. Thousands of European merchants use these ads to compete with larger companies like Amazon and eBay.”

Adds Kent Walker- “When you use Google to search for products, we try to give you what you’re looking for. Our ability to do that well isn’t favoring ourselves, or any particular site or seller–it’s the result of hard work and constant innovation, based on user feedback…Given the evidence, we respectfully disagree with the conclusions announced today. We will review the Commission’s decision in detail as we consider an appeal, and we look forward to continuing to make our case.”