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London,
30
January
2013

ICOMP files Article 101 complaint

On 30 January 2013, ICOMP made a formal complaint to the European Commission that Google, Inc. has infringed the prohibition on anticompetitive agreements found in Article 101 of the Treaty on the Functioning of the European Union (TFEU).

While many of the antitrust complaints against Google that are currently being examined by the Commission’s DG Competition relate to Google’s alleged abuse of its dominant position in various markets (under Article 102 TFEU), ICOMP’s complaint focuses on the unlawful means by which Google achieved dominance in the first place.  The ICOMP complaint points to Google’s broad-ranging and illegal network of agreements with partners from across the IT sector, and explains that Google has reached its current size through anticompetitive practices, rather than because of any inherent technological superiority over its rivals. 

ICOMP’s complaint covers three main concerns: Google’s practices in online search, Google’s practices towards advertisers (its customers in online search advertising), and Google’s practices towards the content publishers (who use its search intermediation services to lease space on their websites to advertisers).

In all of these areas, Google has huge market shares in Europe (well over 90% on most measures).  There is a general misconception that it achieved its massive dominance through competition on the merits, but this is not the true picture. In reality, Google reached its current size mainly by illegally blocking rival search engines’ access to customers and consumers. 

Because Google is in the unique position of being able to access almost all internet users in Europe, rival advertising platforms have become less attractive to the advertisers and publishers they typically depend on for income.  Google also forces its advertising and publishing partners to work with it exclusively, compounding these effects.  Over time, rival search engines and advertising platforms have found that they cannot compete with Google, and many have been forced to exit the market. 

Scale is essential to success in online search and also, therefore, to success in search advertising and search intermediation.  Search engines are most effective when they have access to as many internet users’ search queries as possible.  The more searches a search engine performs, the more data it has to analyse when evaluating which results users perceive to be most relevant, and the more sophisticated and accurate search algorithms can become.  This is especially important in returning useful and relevant results for tail queries, i.e., the uncommon search terms that make up the majority of users’ search requests.  A search engine that is good at tail queries will become popular with users.  This establishes a vicious circle: once established, internet users’ loyalty is hard to shake, as users are more likely to change their search terms than try a different search engine if they are unhappy with particular results. 

Google realized the importance of scale to search early on, and based its commercial strategy around reaching out, exclusively, to as many internet users are possible.  Google partnered with computer manufacturers to ensure that every new computer they manufactured would have a search-enabled Google toolbar exclusively pre-installed.  It agreed with web-browsers that Google would be the exclusive default search engine offered to their subscribers.  Google paid computer manufacturers to make it the exclusive default search engine for Internet Explorer.  It also agreed with major software providers that the Google toolbar would be bundled into their most popular consumer software products. 

Google is currently pursuing a similar strategy in mobile search.  Partnership arrangements with major mobile internet providers gave it massive coverage in the early days of mobile internet.  Google capitalized on this by developing its own mobile handset operating system, Android.  Android is now offered to millions of European users through exclusive agreements with manufacturers, carriers, input manufacturers, and software developers.  Google has even moved into handset manufacture, by acquiring Motorola (and its key patents).

By creating an illegal network of exclusive relationships with these important partners, Google achieved its key objective: gaining scale for itself while preventing its rivals from doing the same.  As a result, rival search engines do not have access to the data that they need to improve their algorithms and attract more users. 

Google has leveraged its success in online search into the revenue-generating areas of search advertising and search intermediation.  Its advertising platform brings together advertisers that have products to sell and publishers that have advertising space on their websites.  AdWords allows advertisers to place individually-targeted search-based adverts on Google Search and to display them to users in other online contexts.  AdSense search intermediation allows publishers to lease space on their websites.  Both publishers and advertisers tend to prefer search-based advertising campaigns to simple display campaigns because they are user-targeted and their success rate is much higher.  Google therefore has a unique appeal on both sides of this equation because of its access to a vast number of consumers and a vast pool of consumer data. 

But Google is not content with attracting the maximum possible number of advertisers and publishers to its platform as possible, on account of its scale in search; it also prevents its customers from dealing with rival platforms.  Google prevents interoperability between its platform and other advertising platforms, which discourages advertisers from maintaining campaigns on multiple platforms.  At the same time, Google generally requires exclusivity from content publishers, meaning that Google is their only provider of intermediation services.  Furthermore, in the past, many publishers whose sites incorporated a search tool offered users a drop-down menu choice of search providers, but Google now forbids this.  Google actively enforces the exclusivity clauses in its contractual agreements, and it reinforces this message through marketing materials, advice and recommendations to customers.

Google is already reaping the benefits of its anticompetitive network of agreements.  It overpays its key partners for the privilege of exclusive access to as many users as possible, but it tends to underpay smaller customers (both advertisers and publishers) who have little bargaining power and no real choice of provider.  Things will only get worse if Google is allowed to consolidate its current position as the quasi-monopoly gateway to the internet.  In due course, consumer welfare as a whole will also deteriorate.  Innovation in search and online advertising will be stifled, and the European digital economy will suffer. 

Accordingly, ICOMP believes that these concerns need to be remedied by the Commission obliging Google to end its anticompetitive practices going forward, and to unwind the effects of its anticompetitive practices to date. 
In ICOMP’s view it is essential that the Commission gives careful attention to Google’s unlawful network of agreements as it continues to consider the ongoing complaints that Google has abused its dominant position.  Unless the Commission addresses the underlying Article 101 problem, any remedies agreed for Article 102 will be ineffective at restoring competition.  They would only treat the symptoms, not cure the underlying disease.

 

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Ben Maynard
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