Google And Europe: What A Settlement Would Mean For Competitors And Advertisers

European search market share

Photo: StatCounter

The European Commission has sent a letter to Google Chairman Eric Schmidt outlining four areas where it thinks Google may be abusing its dominant search position, and inviting Google to propose remedies.The EC did this without filing a formal Statement of Objections. This gives Google a chance to help define a settlement before the EC takes unilateral action.

One historical precedent for this action is the EC’s 2009 dispute with Microsoft over browser choice in Windows 7. After some back and forth, the two parties settled on a “browser ballot,” where European consumers are presented with a choice of browsers to install the first time they start Windows 7. Microsoft was motivated to settle the case after losing an earlier fight with the EC over digital media and communications protocols between Windows and related products. That fight cost the company more than $2 billion in fines, and set a legal precedent that Microsoft had dominance in desktop operating systems, paving the way for further investigations and sanctions in other areas.

Google has a similarly dominant position in search in Europe as Microsoft does in desktop operating systems, with more than 90% share for at least the last four years, according to StatCounter (see chart).

Therefore, Google will be under pressure to reach a settlement before the investigation escalates.

The EC outlined four specific areas of concern. We analysed each of them, with some help from Harvard Business School professor and researcher Ben Edelman, who has looked extensively at Google’s search practices in the light of fair competition law.

Google favours Its Own Verticals

Problem: In search results, Google often links to its own vertical-specific sites more prominently than competing sites.

For instance, a search for “Chinese restaurants in East London” will include links to Google reviews that are part of Google Maps. (See a sample here.) In this case, users are not presented with links to competing reviews sites until they get to the bottom of the Google reviews.

The EC is concerned that this hurts competing vertical search services. Examples might include TripAdvisor for travel, Foundem for shopping, or Yelp for restaurant reviews.

Possible remedy: Offer direct links to competing vertical search sites on the first page of results, in a similarly prominent position as Google’s own vertical results.

Beneficiaries: Vertical search engines in areas like shopping, product comparison, travel, and local business reviews.

Google Has Presented Content From Other Sites As Its Own
Problem: Google appears to be copying content from other sites and displaying that content in its own vertical search results. For instance, Yelp has complained that Google has taken some of its user reviews and displayed them as Google reviews, within Google local pages.

The EC is concerned that this reduces the incentive of third-party sites to invest in original content.

Possible remedy: Stop embedding content from other sites directly within Google vertical search results pages, and instead link to those sites. Possible fines for past behaviour.

Beneficiaries: Vertical search sites and sites with user-generated content.

When Other Sites Use Google Search, They Must Buy Google Search Ads
Problem: Google allows third-party sites to embed a site-specific search box for users. Google sells ads against those search results. The EC is concerned this closes off a potential market for intermediary services — companies that would help publishers get the highest price for search ads.

Possible remedy: Allow other search ad providers to sell ads against Google search results on third-party sites.

Beneficiaries. Publishers could potentially benefit by getting more money for search ads on their own site. The main competitor in search advertising, Microsoft, would get a new market for its search ads.

Most interesting, a new market could be created in intermediary services for search ads. This would be similar to how the display ad market works today, where networks and exchanges use real-time bidding to match available inventory on publisher sites with the highest-bidding advertiser.

Google Makes It Hard To Automate Search Ad Campaigns
Problem: Google forbids search advertisers from using automated tools to export campaigns they’ve created for AdWords (Google’s search ad platform) into other search platforms. (Edelman has written about this in some detail.)

Possible remedy: Eliminate this restriction.

Beneficiaries: Advertisers and SEM companies, who would find it easier to automate ad campaigns on multiple search engines at the same time. Microsoft could draw more advertisements to its AdCenter platform.

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