The Economist

Europe v Google: Android attack

by Editor

April 26, 2016 | 8:12 pm
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IN 2001—aeons ago in internet time—the European Commission sent a sternly worded missive to Microsoft. It accused the software maker of having illegally extended its dominance in operating systems for personal computers (PCs) into adjacent markets, for instance by tying Windows to programs that play music and videos. The legal action lasted more than a decade and took many turns, but Microsoft eventually had to unbundle its Windows monopoly from other software, in particular by giving consumers the choice of which web browser they want to use.

On April 20th the commission presented Google, one of the brightest stars in the modern tech firmament, with a similar “statement of objections”, as the charge sheet in European Union (EU) antitrust cases is called. Google, it argues, has followed a strategy to “preserve and strengthen its dominance in internet search” by tying this service and some of its popular apps to Android, its mobile operating system, which powers around 80% of all new smartphones (see chart). As in the Microsoft case, Google may ultimately be forced to unbundle its package of software and services.

This is not the only bit of Google’s business that is facing antitrust scrutiny. Last year the commission accused it of having harmed consumers by using its dominance in the internet-search market to steer them away from rival offerings and towards its own comparison-shopping service. Also in the pipeline are probes into Google’s behaviour in other online services, digital advertising and Google’s use of content from other sites (for things like Google News). On April 18th News Corp, a media giant, filed a second complaint against such “scraping”, alleging that this keeps consumers from visiting its sites and strengthens Google’s search dominance.

But the Android case stands out. It is particularly timely: the action in the tech industry has long moved from PCs and online search to mobile computing and apps. It is more of a threat to Google: Android is a key part of the firm’s money-making machine. And the case is more straightforward from the trustbusters’ point of view. In terms of remedies, Google wouldn’t have to rewrite its software, but simply change its conduct. It is also harder to accuse the commission of once again picking on American tech firms, since the Federal Trade Commission in Washington, DC is also looking into the matter.

On the face of it, putting Android at the centre of an antitrust case seems silly. It faces competition from iOS, Apple’s mobile operating system. It is also “open-source”, meaning any hardware-maker can adapt the program as needed and install it on its devices for nothing. Yet since Apple doesn’t license its software to other smartphone and tablet brands, they are stuck with Android. And to be able to offer commercially viable products, it helps to pre-install some of Google’s popular apps, particularly Google Play, which is the dominant app store for Android.

The problem is that these add-ons are not open source and come with strict licensing rules. The commission focuses on three of these: handset-makers that wish to pre-install Google Play must, among other apps, also add Google Search and make it the device’s default search service; if they want to share in Google’s ad revenues they have to exclusively pre-install Google Search; and if they pre-install Google’s apps on any of their models, they must commit to install only Google’s standard version of Android on each and every one of their models.

The case hinges on whether such restrictions are deemed legitimate. It is easy to see why Google would want to promote its search and other apps. They are a vehicle for advertising, help the company to make money from Android, in which it has invested billions, and let it collect all sorts of data about users. The licensing terms, the firm argues, also serve to keep Android from fragmenting into incompatible versions and “make sure that people get a great ‘out of the box’ experience with useful apps right there on the home screen”, in the words of Hiroshi Lockheimer, who is in charge of Android at Google.

The commission begs to differ. The licensing conditions, it argues, limit the freedom of manufacturers to choose the apps they want to pre-install, and make it hard for rivals to compete on their merits. This stifles competition and harms consumers, especially by limiting innovation, according to Margrethe Vestager, the EU’s competition commissioner. “A strong incentive for innovators is that they can present their product to consumers,” she said this week. “If that isn’t possible, why bother?”

The case won’t be decided soon, unless Google opts to settle, which seems unlikely. The firm has 12 weeks to respond, after which Brussels could take several months to come up with a final ruling and a remedy (it still has to issue a decision in the search case, which is now expected to come before the summer break). This ruling can be appealed to the European Court of Justice, meaning that a final decision may be years away. If Google loses, it would presumably have to drop the licensing restrictions. It might also have to pay a fine, although it is unlikely to be anywhere near the theoretical limit of $7.4 billion, 10% of the firm’s 2015 revenue.

Google has a point when it says that it needs to keep Android from fragmenting. If that happened, life would get a lot more complicated not only for app developers, but smartphone users. And it would become harder for Android to compete with iOS. But it is difficult to see, for instance, why Google Search needs to be the default search service. What harm would be done, other than to Google, if Android phones came with Microsoft’s Bing as the default for search? China shows that competition is livelier without such licensing conditions: because Google Play is not available there, most handsets are powered by modified versions of Android and come with different app combinations.

Antitrust sceptics see the Android case as yet more proof that such legal action is just not worth it in the fast-moving tech world. Even if a decision comes soon, it will take time for a remedy to change things on smartphone screens. And by then the market for mobile software may have changed completely: instant messaging apps are growing into application platforms of their own and text-based services called “chatbots” are poised to become an alternative to apps. But it is easy to forget that although in the Microsoft case, too, the remedy came late and was of limited relevance, being under antitrust scrutiny forced the company to offer competitors more room. One of the main beneficiaries was none other than Google.


by Editor

April 26, 2016 | 8:12 pm
  |     |     |   Start Conversation

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