Editorial comment: A Google Gesture

July 24, 2012 9:30 am

Google is facing charges of unfair business practice.

Search engine Google has offered to settle an ongoing antitrust investigation by the European Commission in an attempt to end possible proceedings against the web giant.

Google’s chairman, Eric Schmidt, has sent a letter to European Commissioner Joaquin Almunia, expressing his hope that a deal could prevent a fully-fledged and in-depth antitrust investigation, which could lead to hefty fines of up to 10% of the search giant’s annual revenue.

Google’s move does not come as a surprise, since Almunia urged Google in May to ‘make concessions’ and ‘offer remedies’ in order to avoid an all-out antritrust investigation. The US search giant did not have many other options than to respond to Joaquin’s request swiftly, since the Commissioner had made it clear that if the internet company failed to respond Almunia would take that as a refusal to adjust its business practices and the Commission would not shy away from sending a formal antitrust complaint to the US-based company.

Eric Schmidt will work hard to avoid massive fines.

Although Schmidt’s letter was not made public, Google said Schmidt addressed the ‘four areas of concern’ that the Commission had singled out last month. Almunia had said it would look into the unequal treatment of third-party vertical search links; search engines specialised in particular queries, such as travel searches. He would also consider investigating whether Google is systematically copying content – without authorisation – from those vertical search engines (such as travel and restaurant reviews). Furthermore, Almunia believes that Google’s AdSense unfairly excludes competing ad networks through exclusivity requirements in the agreements with its partners. Finally, the Commission is alarmed by Google AdWords’ terms and conditions, which impose contractual restrictions on software developers, preventing them from offering search terms across other platforms for search advertising.

For Google, three of the four issues should not be too difficult to address but a fair placement of the vertical search links in its search results is more problematic. It goes to the heart of Google’s ability to control its search experience and algorithm. And for a company that controls 90% of Europe’s search traffic it will be hard to amend its business model in such a way that competitors and other search engines will not top the list without satisfying the European Commission.

Furthermore, Google’s success can be partly explained through a practice called ‘predatory pricing’; offering products at a price that is below their cost of production. In many countries, such as France, this is outlawed, unless it can be objectively justified. Google is offering many of its products free of charge so it is therefore not surprising that many smaller web companies – such as Expedia and Trip Advisor – are eagerly awaiting the EC’s response to Google’s letter. Their case will be that Google is not really prepared to make any sincere and fundamental changes, since that might mean the beginning of the end of the company’s European success.

However, Google surely has not forgotten what happened to computer giant Microsoft in March 2004: the EU ordered Microsoft to pay a fine of £381 million for abuse of its dominant position, the largest fine ever handed out by the EU to one single company. So far that is, because should the settlement offer fail, Google could face a fine up to $3.79 billion: the maximum of 10% of its global revenue last year.

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