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EU slaps Google with record $2.7 billion fine

29-June-2017
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EU slaps Google with record $2.7 billion fine


In a major setback for search engine giant Google, the European Union has slapped a record fine of 2.7 billion Dollars for favouring some of its own services over those of its rivals.


Google’s shares fell for a second day on a run as it declined 2.5 per cent on Tuesday, which is a steeper decline than the NASDAQ. Google currently holds more than 90 per cent of the market share in online search in Europe and the fine may just shake up that trust a little.


According to various media reports, several other antitrust complaints related to search results are pending against Google by companies like Oracle, News Corporation and Yelp.


The European Commission (EC) has given Google 90 days to stop unfairly favouring its own shopping services else it would have to face a fine of up to 5 per cent of Alphabet’s average daily global turnover.


The EC found that Google had tactically given prominent placement in searches to its own shopping services while demoting its rivals.


In a press statement, Commissioner Margrethe Vestager, in charge of competition policy said, “Google has come up with many innovative products and services that have made a difference to our lives. That’s a good thing. But Google’s strategy for its comparison shopping service wasn’t just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of its competitors.


What Google has done is illegal under the EU antitrust rules. It denied other companies the chance to compete on merit and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation."


According to the evidence by EC, it further showed that consumers click far more often on results that are more visible, i.e. the results appearing higher up in Google's search results. Even on a desktop, the ten highest-ranking generic search results on page 1 together generally receive approximately 95 per cent of all clicks on generic search results (with the top result receiving about 35 per cent of all the clicks). The first result on page 2 of Google’s generic search results receives only about 1 per cent of all clicks. This cannot just be explained by the fact that the first result is more relevant, because evidence also shows that moving the first result to the third rank leads to a reduction in the number of clicks by about 50 per cent. The effects on mobile devices are even more pronounced given the much smaller screen size.


This means that by giving prominent placement only to its own comparison shopping service and by demoting competitors, Google has given its own comparison shopping service a significant advantage compared to rivals.


Given Google's dominance in general internet search, its search engine is an important source of traffic. As a result of these practices, traffic to Google’s comparison shopping service increased significantly, whilst rivals have suffered very substantial loss of traffic on a lasting basis, claim reports.


For example, it is said, Google’s comparison shopping service has increased its traffic 45-fold in the United Kingdom, 35-fold in Germany, 19-fold in France, 29-fold in the Netherlands, 17-fold in Spain and 14-fold in Italy.


Following the demotions applied by Google, traffic to rival comparison shopping services, on the other hand, dropped significantly. For example, the Commission found specific evidence of sudden drops of traffic to certain rival websites of 85 per cent in the United Kingdom, up to 92 per cent in Germany and 80 per cent in France. These sudden drops could not be explained by other factors. Some competitors have adapted and managed to recover some traffic, but not in full.


In combination with the Commission’s other findings, this shows that Google’s practices have stifled competition on merit in comparison shopping markets, depriving European consumers of genuine choice and innovation.

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