The European Union has handed Google a record-breaking €2.42bn (£2.14bn) fine for abusing its dominance of the search engine market in building its online shopping service, in a dramatic decision that has far-reaching implications for the company.
By artificially and illegally promoting its own price comparison service in searches, Google denied both its consumers real choice and rival firms the ability to compete on a level playing field, European regulators said.
The Silicon Valley giant has 90 days to stop its illegal activities and explain how it will reform its ways or face fines of up to €10.6m a day, which equates to 5% of the average daily worldwide turnover of its parent company Alphabet.
On the back of the finding that Google is the dominant player in the European search engine market, the EU regulator is further investigating how else the company may have abused its position, specifically in its provision of maps, images and information on local services.
The commission’s decision, following a seven-year probe into Google’s dominance in searches and smartphones, suggests the company may need to fundamentally rethink the way it operates. It is also now liable to face civil actions for damages by any person or business affected by its anti-competitive behaviour.
As the EU official in charge of competition policy, commissioner Margrethe Vestager, spelled out the case against Google, she denied accusations that Brussels had a bias against US firms, claiming the tech giant had been guilty of an “old school” form of illegality.
“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 the wake of the announcement, shares in Alphabet fell 1.5% in pre-market trading in New York. Vestager brushed off suggestions that the move could harm transatlantic relations, adding that the EU was not willing to give Google a “free pass”.
She confirmed, however, that the EU regulator had stopped cooperating with the US Federal Trade Commission when it decided not to pursue charges in 2013.
Google immediately rejected the commission’s findings, and signalled its intention to appeal, in an indication of the gruelling legal battle to come between the two sides. A company spokesman said: “When you shop online, you want to find the products you’re looking for quickly and easily. And advertisers want to promote those same products.
“That’s why Google shows shopping ads, connecting our users with thousands of advertisers, large and small, in ways that are useful for both.
“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.”
Vestager told reporters that Google had entered the shopping comparison market in 2004 with a service called Froogle which allowed its users to compare products and prices online.
“Google has come up with many innovative products and services that have made a difference to our lives. That’s a good thing,” Vestager told reporters, as she announced the fine, the largest ever made in an antitrust case. “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.
Within two years the company knew it was struggling, she said. One internal document from 2006 discovered during the investigation stated: “Froogle simply doesn’t work.”
From 2008, Vestager said, Google began to implement, initially in the UK and Germany, and then further afield, a fundamental change in strategy to push its comparison shopping service, and break EU law.
According to an analysis of around 1.7bn search queries, Google’s search algorithm systematically was consistently giving prominent placement to its own comparison shopping service to the detriment of rival services.
The placement of Google’s product well ahead of its rivals was pivotal to the shopping service’s success as, even on a desktop, the 10 highest-ranking generic search results on page one generally receive approximately 95% of all clicks on generic search results. The top result receives about 35% of all the clicks and the trend is exaggerated further for searches on mobile phones.
The commission found that Google was dominant in general internet search markets in all 31 countries in the European Economic Area, with a market share of about 90%.
As a result of Google’s illegal practices, traffic to Google’s comparison shopping service increased significantly – 45-fold in the UK, for example – while rivals suffered very substantial losses of traffic on a lasting basis, Vestager said.
The commission found specific evidence of sudden drops of traffic to certain rival websites of 85% in the UK, up to 92% in Germany and 80% in France. Some competitors have adapted and managed to recover some traffic but never in full, Vestager said.
The commission’s fine of €2,424,495,000 was said to take into account the “duration and gravity of the infringement”, and was based on Google’s revenue from its comparison shopping service in the 13 countries where the illegality occured.
If Google fails to comply with the commission’s decision, it would be liable for non-compliance payments of up to 5% of the average daily worldwide turnover of Alphabet, which boasted of a turnover of €80bn last year. Any payment would be backdated to when the non-compliance started, Vestager said.
The commission has already come to the preliminary conclusion that Google has abused a dominant position in two other cases, which are still being investigated. The first cases involve the Android operating system, where the commission is concerned that Google has “stifled choice and innovation” in a range of mobile apps and services by “pursuing an overall strategy on mobile devices to protect and expand its dominant position in general internet search”.
In a second investigation into AdSense, a Google service that allows websites to run targeted ads, the commission is concerned that Google has reduced choice by preventing sites from sourcing search ads from competitors.