Google was fined a massive $US2.7 billion by the European Commission earlier this year and, according to a recent note from Morgan Stanley, it might actually be a good thing for the company.
Admittedly, Google loosing $US2.7 billion is not great for its bottom line. But, the changes Google had to make as a result of the EC ruling could provide a boost to Google’s product advertising business, Brian Nowak, an analyst at Morgan Stanley, argued.
The company was fined in June because it was found by the European Commission to be unfairly favouring its own comparison shopping services. The fine came after smaller comparison shopping sites complained about Google’s placement of its own services higher in search than the competition’s. The EC ruled in favour of the smaller sites and gave Google 90 days to change its search results or be fined further.
On Wednesday, the details of how Google would change its search results to comply with the EC’s ruling were reported. Google said it will allow third-party companies to buy spots in its comparison shopping service and will bid for its own ad spots like other companies will have to. Google will create a separate comparison shopping unit of the company that will operate independently, and the unit will use revenue it generates to bid on the ad spots, according to a Bloomberg report. This solution only applies to search results in Europe.
“(Ironically) Google being forced to show these higher bids on equal footing with product listing ads could be a modest tailwind to near-term European retail revenue growth,” Nowak said.
Nowak argues that because companies will be placed on equal footing in the product search results, there could be a new incentive for companies to bid on spots that previously didn’t make economic sense to bid on. Product listing ads only represent about 5% of Google’s global gross revenue, according to Nowak. He said it’s hard to tell exactly how the changes will affect search advertising revenue for Google, but there should be an upside.
Google is currently fighting the EC ruling. The submitted an appeal after Intel won an appeal on a similar case earlier this month. Intel’s appeal win sent the case sent back to lower courts to be retried.
Google’s parent company Alphabet is up 17.95% this year.
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