Competing with Apple and leading innovation: Google’s world replies to EU on android charges

From Google's corporate blog.

From Google’s corporate blog.

It was not a surprise or an unexpected twiddle, when last week Google like a fine-tuned clockwork delivered its formal reply to the European Commission, regarding the Android antitrust case. With a blog post on Thursday, the US tech giant has officially dismissed the third set of formal charges by the European Commission, saying that Android operating system “hasn’t hurt competition”, as widely expected. Google’s statement follows its formal response about ten days ago, to allegations in two other cases related to its shopping search service and advertising products, and represents the latest chapter of a story, where the risks for the US firm are still very high.

Background

Last April, the European Commission accused Google of using its dominant Android mobile operating system to block competitors. The preliminary view by the European Commission was that the Mountain View, California-based company had abused its dominant position and unfairly restricted competition by pre-installing Android apps on smartphones. “The commission is concerned that Google’s behaviour has harmed consumers by restricting competition and innovation”, Margrethe Vestager, the EU competition Chief, said at those times. “Rival search engines and mobile operating systems have not been able to compete on their merits”. Google was then given a 12 week time frame to respond to the Commission’s charge sheet, a deadline that was ultimately extended by the European watchdog to last week.

Google’s voice

Kent Walker, senior Vice President and general counsel for Google, once again was Google’s voice, and once sounded pretty clear. “Android ecosystem carefully balances the interests of users, developers, hardware makers, and mobile network operators”, he said. “Android hasn’t hurt competition, it’s expanded it”. According to Mr. Walker, Android operating system has worked indeed like a stimulus to competition, rather than being a threat to it, given its flexible nature. “Android has unleashed a new generation of innovation and inter-platform competition”, he said. “By any measure, it is the most open, flexible, and differentiated of the mobile computing platforms”, he added.

Competing with Apple

In his response to the European Commission last Thursday, Mr. Walker objected to basically all of the EC’s premises, but mainly he focused his analysis on the scheme of competition in Europe itself. Indeed Walker argued that Brussels accusations are based on the idea that Android doesn’t compete with Apple. “The Commission’s case is based on the idea that Android doesn’t compete with Apple’s iOS. We don’t see it that way. We don’t think Apple does either. Or phone makers. Or developers. Or users”. Walker said. “In fact, 89% of respondents to the Commission’s own market survey confirmed that Android and Apple compete. To ignore competition with Apple is to miss the defining feature of today’s competitive smartphone landscape”, he added.

The right balance?

The Californian firm also claims that the European Commission doesn’t take into consideration the weight of Android apps that are pre-installed on smartphone on the whole of them. Google’s post on the company’s official blog offered an intuitive comparison between a typical Android smartphone and products from rivals Apple and Microsoft. According to Google, 11 out of 38 pre-installed apps on a Samsung Galaxy S7 smartphone with Android 6.0.1 operating system are from Google. The same post by Google showed that 39 out of 39 pre-installed apps are from Apple on iPhone 7 carrying iOS 10.0.2 , and 39 out of 47 pre-installed apps on the Microsoft Lumia 550 are from Microsoft.

“The Commission argues that we shouldn’t offer some Google apps as part of a suite. No manufacturer is obliged to preload any Google apps on an Android phone. But we do offer manufacturers a suite of apps so that when you buy a new phone you can access a familiar set of basic services”, Mr. Walker declared. “Android’s competitors, including Apple’s iPhone and Microsoft’s Windows phone, not only do the same, but they allow much less choice in the apps that come with their phones”, he also added.

Risky changes

The Android probe is a very thorny one for Google, not only because is the third of three that the US tech giant facing in the European Union, but actually because it may involve radical changes to the way it does business in the Old Continent. If Brussels upholds the complaint, Google could be fined up to $7.4 billion (€ 6.8 billion), the equivalent of 10% of its global revenue, but, as crazy as it sounds, this could be not the worst for Google.

Android’s numbers are astonishing, and the Android spin-offs are an immensely lucrative business for Google. Around 24,000 devices from over 1,300 brands run on Android, and some 75 percent of the phones in the EU already use Android. Moreover, its share of the market keeps growing year after year. The risk of being forced to change the way smartphones are equipped with Android, and to lose a preferential contact with millions of potential new consumers would be something unthinkable for Google. According to the Wall Street Journal, there’s also evidence that the Californian tech giant would likely also face costs associated with years of legal battles not only against the EU, but also against private litigants seeking compensation for damages.

Settling the dispute

Although there’s rumours a decision would have already been taken by the Commission, trying to settle the cases with the European watchdog could be a solution for Google. Gazprom case, just a few weeks ago, where the Russian giant managed to find an agreement with the EU to end a five-year antitrust case, represents a robust example of coming to terms. Of course Google would have to apply some changes to the way business is delivered in Europe at the moment, but risks could be substantially lower. Natalia Drozdiak and Sam Schechner by the Wall Street Journal have a point here, and believe that Google would have to pledge for changes and would only get hit with a fine if it goes back on its promise. Although this is still very hard to see, finding an agreement with the Commission would surely absolve Google from admitting guilt, and would also make it harder for anyone to claim damages and reparations in the future.

The EU must now weigh Google’s responses to its allegations against AdSense, Android and all other online advertising services by the US firm, before it comes out with a response that could bring a complete change to the face of current business. And the object is definitely not only Google’s, but indeed the face of competition in the European digital market.

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