As thoughts turn to remedies in the European Commission’s Google Search Case, today we are publishing our latest thoughts on the topic.
Today we are publishing our Response to Google’s 3 November 2016 Blog Post. In it, we describe the unusual and often counterintuitive business model underpinning Google’s anti-competitive search manipulation practices, and we provide a point by point deconstruction of Google’s misleading arguments.
At first glance, Google’s latest blog post appears to be a straightforward rehash of Google’s previous public arguments in the European Commission’s Google Search case. But this appearance is deceptive. The reality is that Google knows it has already lost the battle over those arguments. Google’s blog post is actually a tentative segue into a new line of argument—based on the pretence that the Commission’s formal anti-trust charges are about advertisements rather than search results and on the false notion that these two things are interchangeable.
Today’s Supplementary Statement of Objections to Google, reinforcing the Commission’s preliminary conclusion that Google has abused its dominant position by systematically favouring its comparison shopping service in its search result pages, is another decisive step towards restoring the level playing field required for competition and innovation to thrive.
While we understand and respect the Commission’s thorough, step-by-step approach, Google’s unprecedented power and proven track record of exploiting every delay to further extend and entrench its immensely harmful anti-competitive practices creates a particularly strong imperative to act swiftly in this case.
While the Commission is clearly heading towards a robust Prohibition Decision, we are concerned that if it does not act conclusively in the near future there may be little competition left to protect.
Many have been puzzled by Microsoft’s recent agreement with Google to cease all legal and regulatory hostilities at a time when it seems that Google has more to gain from this unlikely entente than Microsoft. While details of the agreement have not been disclosed, it appears to prohibit either company from instigating, participating in, or even commenting on the legal or regulatory disputes of the other.
Microsoft’s 28 April Blog post might provide a clue to Microsoft’s motivation. It reveals that a recent Windows 10 update closed the loopholes that had allowed its Cortana digital assistant to use non-Microsoft browsers and search engines. But doesn’t this bear an eerie resemblance to the anti-competitive practices at the core of both Microsoft’s and Google’s antitrust woes with European and US regulators?
Windows 10 represents a dramatic shift in Microsoft’s business model. It is Microsoft’s first multi-platform operating system, its first to be given away as a free upgrade, and its first to require users to allow Microsoft to push updates without further consent. Given that Microsoft expects Windows 10 to be installed on more than a billion active devices within the next two years, surely any move that ties its integrated Cortana assistant to its own search engine and browser risks inviting accusations of anti-competitive leveraging from Bing and Edge’s rivals? You know, rivals such as Google, and…well…Google.
So what has Google had to say about the recent Windows 10 update? When asked by the Wall Street Journal, “Google declined to comment”. The penny drops?
Given that Microsoft’s withdrawal from the various investigations into Google’s anti-competitive conduct is unlikely to have any material impact on their outcome, particularly at this late stage, is it possible that Microsoft has more to gain from this pact than we, or even Google, first realised?
It’s taken us a while to get around to it, but here is our analysis and rebuttal of Google’s public response to the European Commission’s Statement of Objections.
Click on the Screenshot below to open the interactive presentation.
We welcome today’s announcement by Commissioner Vestager that she has issued a statement of objections to Google, which is a decisive step towards restoring the level playing field required for competition and innovation to thrive.
Foundem’s November 2009 Competition Complaint to the European Commission was the first to document Google’s insidious search manipulation practices and to highlight their devastating impact on competition, innovation, and consumer choice.
Google is not just a monopoly; it is probably the most powerful monopoly in history. As the gatekeeper to the Internet, Google plays a decisive role in determining what the vast majority of us read, use, and purchase online. Today’s announcement isn’t about the potential size of any eventual fine; it is about ending Google’s ability to manipulate its unprecedented power to its own financial ends and to the detriment of consumers and innovation.
As the company that first brought Google’s anti-competitive search manipulation practices to the attention of regulators on both sides of the Atlantic, Foundem is uniquely placed to shed light on the vital background and context of the ensuing Google investigations. To this end, we are today publishing a Timeline of some of the significant events that brought Google to this point.
Dear Commissioner Almunia,
CC: Commissioners of the College and the President of the Commission
In a recent interview with the Global Competition Review, you mentioned that you were “very interested in reading” Complainants’ responses to the Commission’s recent Letters in the Google case. Please find a copy of our 11 July Response attached.
We very much hope that you will find the time to read it, because it unambiguously demonstrates that all of the Commission’s key arguments for adopting Google’s proposals are erroneous. More importantly, it shows that these arguments directly contradict the fundamental conclusions of the Commission’s own Preliminary Assessment: having correctly concluded in March 2013 that Paid Search traffic “cannot be a substitute” for the free, natural search traffic Google is illegally diverting, the Commission is now proposing to do precisely that.
Our Response also reveals that many of the spurious arguments the Commission has been making in defence of Google’s proposals (including many of those in your 11 June 2014 letter to your fellow Commissioners) have been adopted from Google arguments and submissions that the Commission seems to have made no attempt to validate. As we demonstrate, had the Commission sought such validation, the fatal flaws in these arguments would have been revealed some time ago. For example, contrary to the Commission’s claims, the proposed Paid Rival Links will consume the majority of rivals’ profits; will not be selected according to "relevance", "merit", or "quality"; will not be less expensive than existing advertisements; will not ensure that innovative new entrants can participate on non-disadvantageous terms; and most certainly will generate billions of dollars of additional revenue for Google that will come at the direct expense of the European businesses and consumers the Commission is duty bound to protect.
For you to continue to claim that auction-based Paid Rival Links are a substitute for the free, natural search traffic Google is anti-competitively diverting, you would now need not only to argue against the overwhelming evidence and analyses from Complainants, market participants, and consumer groups, you would also need to argue against your own DG—directly contradicting the fundamental conclusions of its Preliminary Assessment. Clearly, this is not a sustainable position—particularly in a case with such far-reaching and potentially catastrophic consequences.
In February, you announced your determination to accept Google’s proposals, despite overwhelming and unprecedented opposition to them from all of the parties they are ostensibly intended to help. Whatever sequence of events led you to accept Google’s misleading arguments without displaying any of the healthy scepticism that would normally be applied to “evidence” from a defendant in a competition case, we trust that the attached comprehensive rebuttal of these arguments will persuade you to think again and change course. If not, the future of the European digital economy may well depend on the acumen and resolve of your fellow Commissioners.
Adam and Shivaun Raff
The following letter was sent to Commissioner Almunia, President Barroso, and the College of Commissioners on 11 March 2014:
Dear Commissioner Almunia,
CC: Commissioners of the College and the President of the Commission
As the company whose November 2009 Competition Complaint first brought Google’s search manipulation practices to the Commission’s attention, we were troubled by some of your statements recorded in the minutes of the 2075th meeting of the Commission (held on 12 February 2014 and published on the 25 February).
In response to questions about how Google’s proposed transition from natural, relevance-based search results to a pay-for-placement, auction-based system could hope to restore a level playing field or ensure access to innovative new entrants, the minutes record the following:
"As regards the importance of ensuring that SMEs could enter specialised online search markets, Mr ALMUNIA cited a number of technical parameters of the auction system which would ensure that this type of company would have access on non-disadvantageous terms and that the same arrangements, with or without fees, would be applied to both Google’s services and those of its competitors.” (Emphasis added)
If these official minutes provide an accurate account of the exchange, then we must respectfully point out that your answer to this crucial question was misleading on both counts.
First, as anyone who has studied Google’s proposals could readily confirm, Google’s services are not subject to “the same arrangements” as those of its competitors. As you must be aware, under Google’s proposals, only Google’s rivals would pay for placement in Google’s Universal Search box. Google would pay nothing; it would continue to insert links to its own services (together with monetised links derived from those services) in prime positions and entirely free of charge in all cases. In other words, Google would remain the sole beneficiary of the traffic it anti-competitively hijacks (diverts) from rivals, and would now also become the main beneficiary of any traffic it sends to them. If the Commission were to adopt these proposals, Google would gain sole possession of the free, natural search traffic that has hitherto fuelled the Internet revolution, and the Commission will have unwittingly granted Google a five year mandate to increase substantially the anti-competitive advantage Google already affords its own, often inferior, vertical search services.
Second, the proposed auction system does not contain any technical parameters that ensure “non-disadvantageous terms” for innovative SMEs; in fact, the minimum traffic threshold alone would almost entirely exclude new entrants.
As the overwhelming consensus from the two previous market tests made clear, the adoption of Google’s proposals would cause additional grave and irreparable harm to hundreds of European businesses and millions of European consumers.
Google’s proposals offer nothing to end the search manipulation practices it was tasked with remedying, and nothing to restore competition to the vertical search domains that these anti-competitive practices have already devastated, such as product price comparison. But, remarkably, Google’s proposed transition from free, relevance-based listings to pay-for-placement listings for all services except Google’s own introduces an entirely new form of abuse that will, if adopted, directly destroy competition in many verticals that have not yet been devastated, such as travel search, financial search, property search, and job search. As used to be the case with product price comparison, these are currently innovative and highly profitable industries, employing many thousands of people and contributing many millions in tax revenues across Europe. That most of these businesses are currently unaware of the damage that is about to be inflicted on them is not surprising; who could have anticipated that the Commission might allow a dominant company to settle a competition case by substantially increasing the anti-competitive abuse it had been instructed to remedy?
If Google’s proposals were adopted, consumers would not only be harmed by the ensuing lack of competition and consumer choice, they would also be directly and immediately harmed by the transition from relevance-based ranking to auction-based pay-for-placement. In what might be the mother of all unintended consequences, this transition would all but eradicate the considerable value that vertical search services provide to consumers; services that direct users to merchants with the best prices or products cannot compete in an auction against rivals that direct users to merchants that pay them the most. Not surprisingly, studies have already shown that the recent transition of Google’s own product price comparison service from relevance-based-placement to pay-for-placement has led directly to European consumers paying significantly higher prices for products purchased through this service.
It is difficult to imagine a Competition case where the stakes for consumers, businesses, and innovation could be any higher. As the gateway to the Internet, Google plays a decisive role in determining what the vast majority of us read, use, and purchase online. The importance of ending Google’s ability to manipulate this unprecedented power to its own anti-competitive ends cannot be overstated. It is no exaggeration to say that the hopes of a digital-led economic recovery may depend on the outcome of this case.
We are struggling to understand why you seem so determined to ignore the overwhelming empirical evidence and consensus of opinion from complainants, market participants, and consumer organisations. We urge you to reject Google’s proposals and pursue a Prohibition Decision that will end, rather than escalate, the abusive practices the Commission has identified.
 For details, see our Response to the Commission’s RFI regarding Google’s second set of proposals: http://www.foundem.co.uk/Foundem_Comments_Google_Revised_Proposals.pdf.
Today, we are publishing Foundem’s Comments on Google’s Revised Proposals (PDF).