Ever since the European Union launched its antitrust case against Google’s Android two years ago, Silicon Valley insiders and tech pundits have been scratching their heads.
They are alternately bemused and puzzled by the same questions: How can something that a company gives away for free possibly be the source of an antitrust complaint? How can Google’s Android be used for leverage when the company makes the source code available for anyone? How can Google really control the phones when users can download any app they want?
In presenting the details of the antitrust case that led to a $5 billion fine, European Commissioner for Competition Margrethe Vestager drew a number of parallels to the behavior that Microsoft was accused of years ago in requiring PC manufacturers to install its media streaming player and its browsers with Windows.
“The principal in Europe is that companies must compete on the merits,” Vestager said at a press conference. “Any company is welcome to do business in our Single Market. But they need to play by the antitrust rules. And these rules are in place for the specific reason to protect consumers and foster competition.”
So how does the EU think Google used Android to stomp out competition?
Vestager said internal Google documents indicate that the company recognized early on that mobile computing would pose a threat to its leadership in desktop search, a fear that motivated the company to acquire Android in 2005 and push its development. Later, Google would tout it as an open source alternative to Apple’s closed iOS ecosystem. But Vestager said that the cost of Apple products, along with the difficulty of switching between iOS and Android, means the iPhone is not a viable choice for most Android users.
Further, Vestager said the notion that Android is open source is somewhat misleading. She said when Google releases a new version of Android it only releases some of the source code. Technically, anyone can make their own version of Android, or a “fork,” but the problem is that the source code does not include critical features, like the Google Play app store.
Vestager said the device makers considered the Google Play store a “must have.” But Google’s licensing requirements bundle the Google Play store with its search app and Chrome browser. The result is that nearly all Android devices come with all three.
While users can switch to other search and browser apps, the reality is that they don’t, Vestager said. She said in Europe, 95 percent of all search queries on Android go through Google’s services. By comparison, on Windows Mobile devices, 75 percent of searches go through Microsoft’s pre-installed Bing search engine.
While Google argued that such deals were critical to allow it to monetize its Android investment, the EU ruled that the company’s arguments were not “well founded.” Vestager noted that the billions of dollars the company makes from the Google Play store, the data it collects, and other advertising would still generate a big stream of revenue.
The EU also ruled that between 2011 and 2014 Google paid significant financial incentives to handset makers to pre-install its apps over those of competitors. Vestager said that these payments ran afoul of EU competition law, and noted that the company began phasing them out after the EU launched its investigation.
Perhaps most interesting, Vestager claimed that Google helped kill off competing forks that were developed, including Amazon’s Fire OS for smartphones. How? Vestager said Google told handset makers they couldn’t sell any devices running other such forks if they wanted full access to services like the Google Play store on their other Android devices.
“In doing so, Google has also closed off an important channel for competitors to introduce apps and services, in particular general search services, which could be pre-installed on Android forks,” said the EU press release. “Therefore, Google’s conduct has had a direct impact on users, denying them access to further innovation and smart mobile devices based on alternative versions of the Android operating system. In other words, as a result of this practice, it was Google — and not users, app developers, and the market — that effectively determined which operating systems could prosper.”
Again, the EU was not convinced by Google’s arguments that such restrictions were necessary to ensuring functionality and interoperability of different Android versions.
“Market dominance is not a problem under EU rules,” Vestager said at the press conference. “But with market dominance comes responsibility. When one company dominates a market, obviously competition can be harmed. They must not deny a chance to others to compete on the merits. That would be to the detriment of further innovation, and that would therefore harm consumers.”
It is important to again note that Google continues to disagree and has said it will appeal.