In a long-awaited judgment, the European Commission has this week imposed a staggering fine of $5 billion on Google, a record by any regulator on any firm, for alleged violations of anti-trust laws.
In a long-awaited judgment, the European Commission has this week imposed a staggering fine of $5 billion on Google, a record by any regulator on any firm, for alleged violations of anti-trust laws. This has overshadowed its earlier $2.7 billion fine imposed on the firm. This has immediately stirred a hornet’s nest, and evoked sharp reactions, ranging from adulation to outright condemnation. Some feel that the EC has boldly taken on the tech giant for its “illegal practices regarding Android mobile devices designed to strengthen dominance of its own search engine”; several others have felt that this will only go to further chill innovation in Europe, dampen the technology start-up ecosystem and ultimately not really help consumers. Some of these argue that excessive regulations in technology and innovations are always counter-productive. Across the Atlantic, this has evoked a sharp retort from US president Donald Trump—“I told you so! The European Union just slapped a five billion dollar fine on one of our great companies, Google. They truly have taken advantage of the US, but not for long!”
The EC decision has come at a time when the US is engaged in a trade war with many countries. Former president Barack Obama had also called EU’s actions protectionist, “[Americans] have owned the internet. Our companies have created it, expanded it, perfected it in ways that [European companies] can’t compete”. Recently, president Trump, during a trip to Brussels, reiterated his complaints that US businesses were at a disadvantage in EU, and that this ruling will only escalate tensions.
What are the allegations against Google? The European Commission has held that Google has abused its dominant position in three major areas. Firstly, Google has been compulsorily bundling Search and Chrome with its Play Store and operating system. It has blocked phone manufacturers from running forked versions of Android. Finally, it has paid phone manufacturers (like Apple) and service providers to “exclusively pre-install the Search app on their devices”. The Commission has ordered Google to bring a stop to these violations within three months, and ordered another fine of 5 % of Google’s average daily revenue, in case it does not comply with the decision.
Google has strongly denied the allegations and said that it will appeal against the decision. It says, “Android has created more choice for everyone, not less. A vibrant ecosystem, rapid innovation, and lower prices are classic hallmarks of robust competition”. According to Google CEO Sundar Pichai, the Commission has overlooked “how much choice Android provides” to phone makers and service providers. According to them, it is for the users to choose their apps; they can “easily disable or delete them and choose other apps instead”. In contrast to an open platform which is far more welcoming to third parties, a closed platform offers their creators much more control.
They argue that Google licenses its Android software to phone makers free of cost in the free business model of Android, and that EC’s decision may force its review. Today, Android, which is the most popular and open-source operating system, offers a broad and competitive mobile platform, with more than 24,000 devices, and 1,300 different brands, giving new breadth of choice, flexibility and opportunity. As regards to bundling, Google says they only want Android users to select from amongst its more than a million various apps on the Play Store. In this trade-off, manufacturers get a free operating system, consumers get cheap phones and free apps and Google gets the advertising revenue. They argue that this does not in any way inhibit competition but enhances it, and helps the new app-developers as well as the consumers.
Without going into the legal technicalities of the EC decision, it is to be recognised that, in an era where there are no barriers to entry or technological innovation, it is the consumers’ choice and experience which determine their preference. The last two or three decades of “disruptive innovations” have seen famous companies, like Kodak and dozens of other majors going under to become history, and the gale of new technologies sweeping aside many well-known giants. The new big companies too may have uncertain and short lives, until replaced by others. The only constant is fast-changing consumer preferences, based on ease of experience, for which companies continuously compete. We are in era of cloud computing, artificial intelligence, big data, internet of things and disruptive innovations, and it is no coincidence that the top three wealthiest are from the tech world.
It is well known that the approach of anti-trust laws in EU is different from the US. In the EU, anti-trust laws consider harm to both competitors and consumers, while in the US, it is mainly the consumer harm. In a dynamic economy, constantly spurred by innovation and technology, businesses will try to win customers by superior service, lower costs and better products, and competitors will always be harmed. To that extent, anti-trust regulations should be more concerned with enhancing consumer welfare rather than protecting competitors. To stay on top of competition, many companies also come up with different innovative business models, but the focus should always remain on consumers.
There are several other differences between approaches to innovation between EU and the US. The way Silicon Valley grew from a desert to an oasis of innovation, with the likes of Facebook, Apple, Google, Microsoft, and Amazon disrupting the established big businesses and creating new multi-billionaires, mainly in the technology space (the top three wealthiest persons are from the tech world), is a study relevant for emerging economies—on what should be the ecosystem between regulation and innovation and accompanying government policies. When an innovation requires a change in regulation, even consumer groups lobbied for it. In the digital world, ideas and capital must flow freely, and emphasis must remain on creativity. There is no fear of failure—global experience shows that around 90% of start-ups fail.
With India’s numbers of educated youth, bubbling with excitement and energy, supported by government policies, it should be possible to have its own constellations of Sillicon Valleys in various spaces, and the regulatory ecosystem must sub-serve to the needs thereof.
Former chairman, CCI, & executive director, World Bank