Android will never be the same: what will a record fine of $5 billion change for Google?

The European Union has fined Google €4.3 billion ($5 billion) for abusing its monopoly position in the operating system market to promote its search and apps. The amount will be a record for antitrust fines, but not fatal for Google - last year the company earned such money in 16 days. However, the EU requirements could "shake the entire mobile industry and lead to serious difficulties for Google," warns the Wall Street Journal.

Details

• “Google has used Android as a tool to promote their search engine. These practices make it impossible for competitors to compete,” said European Commissioner for Competition Margrethe Vestager. Google has 90 days to opt out of "illegal practices".
• The commission concluded that Google illegally imposes its own applications on Android device owners. For example, users are forced to install the Google Chrome browser in order to use the Google Play app store.
• The size of the fine is comparable to the amount that the Netherlands pays annually to the EU budget, Bloomberg cites the example, stipulating that in 2017, the parent company of Google, Alphabet, earned such an amount in 16 days.
• Quotes Alphabet did not react to the fine: in the first hour of trading on the NASDAQ, they fell by only 0.6%.
• Google denies the allegations and will appeal. “The opinion of the commission is based on the idea that Android does not compete with Apple iOS. We look at it differently, Apple, we think, too. And phone makers, or developers, or users,” said Kent Walker, chief legal counsel for Google.

Consequences

• "Today's decision rejects the Android-enabled business model that gives everyone more choice, not less," said in a statement. Sundar Pichai, CEO of Google,
• The Android operating system is installed on more than 80% of smartphones in the world. Google has created a huge profitable system of banners and video advertising primarily thanks to Android, notes Bloomberg: the search engine occupies a third of the entire global mobile advertising market, which brings the company $40 billion outside the US. According to S&P forecast for 2018, Google will earn $60 billion from advertising on smartphones — 44% of Alphabet's total revenue of $136 billion.
• Google's dominance in the market is also due to a simple scheme, writes the Wall Street Journal: Google provides smartphone manufacturers with the Android system for free, and in return requires them to sell smartphones with the company's services - YouTube, Gmail and Google Maps - already installed. This allows the company to collect a huge amount of data and use it in advertising.
• The new requirements of the European Commission could "shake the entire mobile industry and lead to serious difficulties for Google," explains WSJ. Google may be forced to offer vendors new terms—allowing them to install their own apps before selling them, make similar deals with Google's competitors, and even charge Google to install search engine services.
• What's more, the European Commission's decision also forces Google to allow smartphone makers to offer their own versions of Android-based operating systems. This will make it difficult for the search engine to create a single version of the software that runs all applications on Android.
• “All of this will give manufacturers and operators more leverage to pull payouts from Google,” said RBC Capital Markets analyst Mark Mahaney.

Context

• Last June, the European Commission fined Google €2.4 billion for abusing its dominant position in the search engine market to promote its Google Shopping service; thus, the total amount of fines is €6.7 billion ($7.8 billion).
• The EU launched an investigation into Google in 2015. The Commission continues to consider another case - about the online advertising service. You can read more about the antitrust investigation here .
• In 2015, Google - also for abusing its dominant position in the Android device market - was found guilty by the Russian Federal Antimonopoly Service (Yandex filed a complaint). Last year, the parties entered into a settlement agreement, Google paid 438 million rubles in fines.

What do I get from this?

If the mobile app market changes in the way the European Commission proposes, this could be a case where antitrust regulation is not beneficial for the consumer. On the other hand, in the long run, the monopoly has not yet led to anything good.

Artem Gubenko