By Dhruv Shekhar
Europe has again proved to be a tough jurisdiction for Google. It has lately been on the receiving end of antitrust fines of $7.8 million by Russian authorities along with a myriad of penalties from French, German and Italian privacy authorities. What follows now appears to have surpassed all this as the European Commission has imposed a fine of € 2.42 billion ($ 2.7 billion) on Google. The Commission’s decision wraps up a seven-year probe into complaints made by many big and small enterprises alleging that Google abuses its powers as the world’s largest search engine to outmuscle its smaller shopping rivals.
The charge against Google
Google uses a variety of algorithms to assist a user in their search. The EU’s accusation is that Google has used these algorithms to promote its own comparison shopping service. For instance, if one is trying to look for sports shoes, Google tailors its algorithms to promote its sponsored shopping content. Since the usage of such an algorithm, the traffic to its shopping service has increased exponentially. In the UK alone, there was a 45-fold increase in the traffic on Google’s shopping services. Where the competition loses out is that Google’s standard algorithm is still applicable to them due to which they only appear on the fourth page in search results and crucially, far away from the first page. Thus, they are losing out on prospective customers for the goods and services that they offer.
Moreover, EU’s Competition Commissioner, Margrethe Vestager, has made it clear in her judgment that Google’s actions are disruptive towards ‘innovation’, an aspect which has received an immense push from the EU in recent years. Equally important is the fact that consumers lose out because of not being aware of the entirety of options available in the market.
The significance of EU’s decision
While Google has contended this decision by stating that they are only helping users in making their search easy, it is possible that there might be transatlantic politics at play. For alongside Google, other Silicon Valley giants such as Amazon and Intel have been on the receiving end of antitrust penalties from the European authorities. However, what is significant is the perseverance shown by the EU antitrust authorities for pursuing a matter for over seven years and levying the fine.
Many may dismiss the amount as a mere fraction of the $90 billion worth turnover of Google’s parent company, Alphabet Inc. However, the EU’s order (unlike on previous occasions) is more in the nature of a cease-and-desist order. Irrespective of whether Google appeals the order, it is required to change its algorithm arrangement within a period of 90 days and give evidence for the same within 60 days. In the absence of compliance with the EU regulations, it will be charged up to 5% of the average daily worldwide turnover of Alphabet Inc., which is approximately € 10.6 million.
What the Commission has indicated to Google is that if they wish to continue doing business in the EU digital economy, they would have to play by their rules.
Lessons for India
This decision serves as a big learning principle for the Indian online retail space which has grown by leaps and bounds in the past one decade. Online sales in India are projected to reach 48 billion USD by 2020 and 64 billion USD by 2021. Furthermore, along with a rise of domestic giants like Flipkart and Snapdeal, the entry of Amazon has made the market more competitive. The recent layovers of key personnel at Snapdeal and Flipkart as well as the discussion regarding their potential merger to combat Amazon are reflective of this struggle.
Moreover, this raises questions about whether there will be space for the continued emergence of new e-commerce companies in the wake of competition from the likes of Google and Amazon. While there is an increasing emergence of new companies like Tata Cliq, their financial health and longevity are by no means certain.
The European Commission’s decision is significant for it seeks to (at least on paper) create a level playing field, not just for the smaller companies, but also for any future e-commerce companies that may emerge. It also brings to notice that while the design of such disruptive technologies is taking place in one part of the globe, their largest consumer base lies in another part. Thus, consideration has to be shown to the larger e-commerce markets of such countries and the potential impact on them.
While at present the regulators of emerging economies like India and Brazil may not be in a bargaining position to deal with the likes of Google, the EU takes this question forward. With two further antitrust inquiries pertaining to Google’s Android operating system and Adsense, this decision only serves as the beginning of what may prove to be an evolutive series of cases on how e-commerce is regulated. Developing economies like India would do well to take note of it.
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