Google will allow rivals to bid on coveted advertising spots that it previously reserved for itself at the top of product search results in Europe, but there are widespread doubts that the move will create meaningful competition.
Google announced the change Wednesday in response to a June ruling by the European Commission that Google had abused its dominance in search to illegally advantage its comparison-shopping service. The case is one of three pending against Google in Europe, as regulators around the world more closely scrutinize the search giant’s business practices.
In a letter to European regulators, however, the European Consumer Organization wrote that Google’s plan to auction space at the top of search results could increase costs for consumers and won’t provide “results based on merit or consumer relevance.”
Maurice Stucke, a law professor and cofounder of Konkurrenz Group, which advises companies on competition issues, says “behavioral” changes like Google’s planned auctions typically are not effective at curbing monopolistic behavior. “Merely telling them ‘You can’t do this in the future,’ ” may not be sufficient, Stucke says. “Now they have such an inherent advantage that even if they don’t engage in this behavior, they still win.”
European Union competition chief Margrethe Vestager said her office would “actively monitor” Google’s compliance, the Wall Street Journal reported.
In its June ruling, the commission also ordered Google to pay €2.42 billion ($2.8 billion) in fines, but demands to change to its business practices are considered a bigger threat. Paul Gallant, an analyst with the research group Cowen, says Google is likely concerned that the order to give competitors equal treatment in its shopping service could also be applied to other verticals such as travel and local search. In addition, Gallant says the European shopping case could influence government regulators around the world on issues as varied as taxes and privacy. Google, he says, is playing a game of “5-D chess.”
Google said Wednesday that Google Shopping, the service that sells ads to merchants that was at the center of the EU case, would begin operating as a standalone unit in Europe, and bid against other companies for the featured spots on a level playing field.
Prior to that change, if consumers in the EU searched for Nike shoes, they would see ads for Nike shoes, placed by merchants through Google Shopping, at the top of the page, above search results and other ads. Starting Thursday, Google said other comparison-shopping services can also bid on the top-of-page ad slots. None of the changes affect Google’s business in the US.
Thomas Vinje, spokesman and counsel to FairSearch, a coalition of Google’s rivals, says Google’s periodic reports to the Commission will help reveal whether its changes are effective in restoring competition. “We will be watching closely to see if this remedy ends the abuse so that consumers get the best prices and most relevant results, and competitors have an opportunity to innovate,” he says in a statement.
Stucke, the professor and adviser, says it will be difficult to craft a remedy, given Google’s dominance in search. “Imagine if a company became a monopoly by burning down all the warehouses and factories of its rivals,” he says. If regulators instruct the company to stop burning things down, “The monopoly will say, ‘Fine I can live with that. I promise not to burn down any more factories.’”
Still, Stucke says he’s noticed a shift in Google’s behavior over the past year, as the European investigations deepened and government officials elsewhere, including the US, looked more critically at Google’s business. “In the past year, you’ve seen a greater sensitivity on Google’s part towards some of the antitrust implications,” of its business practices, says Stucke. “They absolutely could be a good corporation. They’re moving closer, but they’re not there yet.”
Correction, 10:20 am: European commission officials will monitor Google’s compliance with their June ruling but do not have to approve Google’s plan to comply. An earlier version of this story incorrectly said the commission had to approve the plan.