EU Protectionism on the Rise

For two decades, Google has focused tightly on improving its prowess in Internet search.  It is very good at search, and while it dominates search (worldwide about 88%) it is not the only player.  Microsoft’s Bing (4.5%) also produces excellent results, along with other rivals Yahoo (4.3%) and Baidu (0.6%).  When consumers choose among these or other free search engines, they will likely do so based on factors such as how useful the results are, how the results are displayed, or tracking cookie burdens.  Dollars are not the issue.

Google’s search service suggests which search results are most relevant, and may give prominence (by positioning or display treatment) to services in which it has an interest, including those which pay for placement – a lot like a normal newspaper. When assessing a free, non-government service, we should expect the use of a quid pro quo tactics that help keep the service operating.  But, alas there is usually a free lunch crowd willing to repress no-charge search engines’ ability to emphasize some results. France prefers that search be treated like an old telecom monopoly; regulated like a utility and with equal access obligations for all.

Google’s share of the search market in Europe is better than 90%.  Google’s high popularity among Europeans and its results placement tactics led to a simmering anti-trust process by the European Commission starting in 2010.  No one expected that a competing European search engine would be a viable answer to competitive concerns.

The Commission was mostly concerned with results placement for services such as a shopping service or a travel bookings service, where Google affiliates offer competing services and get preferential placement.  Complaints such as these are very similar to what the US Federal Trade Commission (FTC) investigated in 2012.  It concluded the complaints were often genuine issues, but not worth litigating because the FTC might lose and anyway they had bigger fish to fry with their limited budget.  It reached an agreement with Google which has been honored ever since.

Part way through 2014, the European Commission also drafted proposal that would settle their anti-trust concerns with Google.  Their proposal would presumably be acceptable to Google and its European services competitors.

The European Commission misjudged.  European service providers reacted vehemently and offered more evidence of the alleged damage they suffered.  The European Parliament, despite its uncertain authority to regulate Google, voted to break up Google by separating the search business from advertising and its other services.  Shortly after, the architects of the “break up Google” legislation began backpedalling and mumbling about other ways to address the issue.

Early in May 2015, the European Union announced a plan to take advantage of digital commerce. The plan would “unify Europe’s fragmented digital market and crack down on potential abuses of market power by U.S. Web giants.”  The crackdown targets were already mentioned for anti-trust scrutiny.  According the Wall Street Journal, “the hope is that by curtailing the likes of Google Inc. and Facebook Inc. [and Amazon] through anti-trust and data protection laws, Europe can make the space to create its own versions of those Internet giants.”  The unification part of the plan entails reconciling the telecom, copyright, and other regulations of the 28 nations.  Good luck with that.

The European Commission is backed into a corner.  It now faces strong pressures from European Internet-based services and from the Parliament.  Again, it started drafting a resolution.  It will require Google’s response to the fresh evidence from its detractors.  But the European Commission’s eventual regulations are unlikely to be carefully considered principles applied to Google.  Instead the regulations are most likely to be whatever to takes to gets the European Parliament and European service providers settled down.  In other words, it seems Europe’s anti-trust regulation may be shaped by a noisy popularity contest.

Unfortunately the US shows no moral superiority in crafting regulations. The so-called independent Federal Communications Commission let itself be bullied by politicians demanding it toss Internet Service Providers under the Title II bus.  Likewise, the European Commission has begun caving in to Google’s competitors and parliamentary sentiment.

Regulatory rules and treatment for the digital industry in Europe appear headed for decades of uncertainty and protectionism.

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