EU Ruling May Be Too Little, Too Late to Stop Google's Mobile Dominance

EU Ruling May Be Too Little, Too Late to Stop Google's Mobile Dominance

On Wednesday, the European Union is expected to rule that Google illegally used the market dominance of its smartphone software, Android, to stifle competition, hitting the Alphabet-owned company with a hefty fine and aiming to change some of its business practices.

Although the EU is reportedly considering a record fine -- higher than the $2.4 billion penalty it issued last year related to Google’s comparison shopping service -- the money isn’t the real problem for Alphabet.

The maximum punishment the EU could issue is roughly $11 billion, or 10 percent of the company’s annual revenue, but the penalty is not expected to hit the high-end of that range. Plus, while $11 billion is a lot of money by any objective measurement, it's still only a fraction of the $102 billion in cash and short-term investments Alphabet had on hand last quarter.

The real challenge for Google will come if the EU forces it to change its behavior.

Google lets phone makers use the open-source Android software for free, but the EU has accused it of using restrictive licensing practices to benefit its own services, including forcing phone makers to bundle Google products like Search, Maps and Chrome with its app store, Play. The EU was also investigating agreements Google made with other companies to exclusively pre-install its search app and preventing them from selling other phones that run modified versions of Android.

In theory, this decision could give other apps more room to compete with Google's. Phone makers could auction off specific app categories to other app makers, and they'd be more likely to pay a high price if they didn't have to compete with similar Google apps installed. Users might also be more likely to download third-party apps since they wouldn't have a pre-installed option.

The ruling could also hamper the growth of Google's advertising business, where growth is being driven by mobile rather than desktop ads. If Google is forced to stop offering its apps as a suite, it would lose that automatic phone real estate, where it can sell more far ads than through third-party products.

Too little, too late?

While some app makers have cheered this potential outcome, Gary Reback, the antitrust lawyer known for spearheading the efforts that led to the suit against Microsoft, is less hopeful that much will change.

He says that issues highlighted in last years’ ruling on Google’s shopping service haven’t been fixed, in part because the decision was too little, too late, and that he doesn’t expect this decision to have meaningful effect either.

“With any antitrust enforcement that goes to unilateral conduct, the remedy is not going to do much unless you fix the problem early,” he says. It's already been more than two years since the EU first issued its objections against Google and it will likely appeal any decision that comes on Wednesday, drawing the process out further.

At this point, consumers in the EU may already be too entrenched in Google services to start using other apps even if Google's options are not preinstalled. The situation is the same in the United States, where Google owns five of the top 10 most used apps in America. The biggest opportunity for could be in emerging markets like India, Southeast Asia, Latin America, and Africa, where many people are new to mobile. (There isn’t the same potential for following the EU’s lead in China, another huge emerging market, since Google’s services are currently blocked there anyway.)

Barry Lynn, director of the Open markets Institute and antitrust advocate, also has little hope that Google will end up making significant changes to its business in response to the EU’s decision, though he thinks it could possibly make the U.S. government take regulation more seriously. In the last year there has been an increased call for investigation of the tech monopolies, though there has been no action yet.

"I think that the immediate effects on Google will be pretty insubstantial," he tells CNBC, "But that the larger expectations will be on our government to regulate these platforms."

Google declined to comment on the impending EU decision.

Source: CNBC