13 Jul

Google to face $1.17 billion antitrust fine in the coming weeks

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According to EU sources, search engine giant Google will potentially face a record fine of $1.17billion in the next few weeks for ‘abuse of market position’ in shopping search. According to the EU, the company has been abusing its market dominance in search, using its near monopoly in online search to unfairly steer customers to its own Google Shopping Service.

The fine has been expected for some time due to Google’s inability to settle the case with EU regulators. The case was raised in April 2015 when the EU Competition Authority accused the company of distorting internet search results in favour of its shopping service, harming both rivals and consumers.

Although the company made several unsuccessful attempts to settle the case with the former European Commission Competition Czar Joaquin Almunia, his successor Margrethe Vestager has taken a tougher line against the company.

Whilst the EU could potentially fine Google up to 10% of its annual revenue, which in 2016 was over $90 billion, recent reports have suggested that the figure will be closer to $1.17 billion. This will still break the abuse penalty record set in 2009 when EU officials fined Intel $1.12 billion for anti-competitive practices.

And it doesn’t stop there, this is just the first of three potential fines the company faces. The other two anti-trust cases focus on exclusivity provisions in AdWords agreements and Anroid-OEM contracts.

 

What is Google Shopping and how does it work?

 

Google Shopping is a service that allows users to compare products between online stores. Formerly known as Google Product Search, Google Products, and Froogle, the service originally listed products that online retailers submitted free of charge, making its money from the AdwWords based ads that appeared on the side of the page. However, when the service rebranded as Google Shopping in 2012, this changed and payment must now be made.

Google shopping is powered by Google AdWords and Google Merchant Centre. It is managed using product and category level bidding, rather than keyword bidding. Product bidding is done through an AdWords login, whilst data feeds are sent through the Google Merchant Centre login.

Google Shopping operates on a Cost per Click model, but unlike other platforms working in this way, there is no minimum Cost per Click rate in place. Instead, the platform determines its rankings based on bids. So, if you place higher bids, you will potentially rank higher than your competitors. Like other Google search services, rankings are also determined by product relevancy and the Google Shopping algorithm.

 

Why are Google being fined?

The fine is being imposed in response to Google’s alleged abuses in shopping search. According to the official EU Statement of Objections, the fine relates specifically to the following points:

  • Google systematically positions and prominently displays its comparison shopping service in its general search results page, irrespective of its merits.

 

  • Google does not apply to its own comparison shopping service the system of penalties which it applies to other comparison shopping services on the basis of defined parameters, and which can lead to the lowering of the rank in which they appear in Google’s general search results page.

 

  • As a result of Google’s systematic favouring of its subsequent comparison shopping services, Google Product Search and Google Shopping, both experienced higher rates of growth, to the detriment of rival comparison shopping services.

 

What does Google have to say about the claims?

Google has hit back at the claims, stating that regulators have ignored competition from online retailers Amazon and eBay. They have also recently issued a statement stating that the evolution of its search pages has always been about improving the user experience and the quality of results.

The company stated: “Google has always worked to improve its services, creating new ways to provide better answers and show more useful ads. We’ve taken seriously the concerns in the European Commission’s Statement of Objections that our innovations are anti-competitive. The response we filed today shows why we believe those allegations are incorrect, and why we believe that Google increases choice for European consumers and offers invaluable opportunities for businesses of all sizes.”

What happens next?

According to reports, the fine is likely to be imposed in August.

Of course, assuming that the fine is imposed, it’s likely that Google will appeal to the European Court of Justice against the ruling.

In addition to the fine, the EU Commission will also instruct Google to stop any practises that are deemed to be anti-competitive, although it is not currently clear what measures it might order the company to adopt in order to ensure that rivals get equal treatment in internet shopping results. It is thought that they will either set out some general principles or lay down specific instructions for Google to follow.

 

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