Is Europe’s Googlephobia Justified?

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Robert Scoble’s Flickr, CC BY

Google has been targeted by the European Commission. The IT giant has been accused of prioritizing its price comparison services in search engines. To illustrate, when comparing prices from two dealers, Google Shopping comes out on the screen. At the same time, another investigation into Google’s Android operating system has been initiated to explore whether the market has experienced any distortions and other developers have been prevented from bringing new mobile apps into the market. Formally, one can of course justify an investigation as a potential abuse of the dominant position by Google, but what is the real cause? Politicking?

The entire Googlephobia, which had engulfed the whole of Europe, eventually took shape of the European Parliament’s resolution of 27 November 2014 on Supporting Consumer Rights in the Digital Single Market. Among other issues, the European Parliament proposes “unbundling search engines from other commercial services” as a means of combating any possible abuse of a dominant position. The Parliament, on its own, doesn’t have such power and this requires an investigation by the Commission. However, the resolution seems to impose a clear obligation on the new Commissioner for Competition Margrethe Vestager to unbundle the giant.

Is Google such a serious issue that it cannot be solved without combining forces of the Parliament and the Commission? Yes, it is, and at the same time no, it is not. Competition law 101 stipulates that specific obligations shall apply to a market-dominant entity. Google’s dominance is indisputable – its share of the Europe’s internet search market exceeds 90% of the total and as much as 31% of the revenues from online advertising is cashed in by the company. The figures are indeed impressive and it seems that a formal legal basis exists. But is there any economic basis?

Firstly, one has to consider that the digital sector is exceptionally dynamic. The market entry is undeniably much easier compared to other markets such as the metalworking industry. What’s App, Instagram, Snapchat and Spotify are perfect examples of that phenomenon. Therefore, a new competitor may show up at any time, not to mention the existing smaller competitors in the search engine market that are just one click away from the consumer.

However, it is the consumers who choose which of the search engines, maps, dictionaries, electronic mails and cloud hosting services they want to use. Naturally, people opt for free and user-friendly Google services particularly when the allegedly deprived market players offer paid services. The dominance of Google is about meeting the needs of the consumer rather than violating market regulation.

You may take it for granted and claim that Google’s enormous profits allow it to provide services free of charge. But then again, here we come across the openness of the digital sector. It allows any market player to introduce simpler and more user-oriented innovations. If a smaller market player can come up with an innovation like this, no competitor will beat it regardless its capital and market concentration.

Social networks are an excelled example of this. Google is not entirely successful in this field. Google’s social network Orkut which was developed in the pre-Facebook internet era in Brazil has been literally wiped off the face of the earth by Facebook. The same happened to the predecessor of all social networks MySpace as well as any other regional networks such as the Lithuanian One.lt. Shortly after, Google tried its luck in the field of social networks once again by introducing G+ but it ended in another fiasco. What does it mean? However large Google’s profits, this will not do the job if a competitor provides internet users with a smarter service or product.

We have seen and heard it before. Due to its dominant position, Microsoft has been the target of competition authorities in the past. Today the company is facing a dramatic fall in its market share and this has been caused by the popularity of smart phones and tablet computers. At the same time Google’s income from online advertising has dropped significantly because of Facebook, Twitter and Amazon – all of which started from scratch. Therefore, it is not the Commission but the market that makes sound and free competition possible.

So what’s the point of Googlephobia? Regulations, investigations and allegations that attempt to protect the European market. However, the question we must ask is not how to protect Europe but why such IT giants have originated in Europe? The digital market is unique and distinctive, its bargaining chips are dynamics, innovation and no borders. The more rigid regulation of competition is, the deeper the trump cards in a deck. Ultimately, it will be both Google and consumers who will suffer in this game.

Dominykas Sumskis