5 Things To Know About Google's $2.7B Dispute With The European Commission

I s Google Unfair, Or Just Savvy?

On Tuesday, the European Union's antitrust regulator, the European Commission, issued a blistering take-down of a key tenet of Google's search advertising business -- the Google Shopping service. After an investigation, the European Commission determined that Google is unfairly favoring its own service's results in its market-dominating search engine. The commission slapped Google with a $2.7 billion fine, which is a record high amount for an antitrust case (Intel, the previous record holder, was fined $1.4 billion in 2014).

What do these actions mean for Google? In the following slides, we've summarized the key details of the case and how Google is responding.

What Google Is Accused Of Doing

The case centers on Google's Shopping service, which shows comparisons between products and can be found through one of the tabs in the Google search engine (along with News, Images, etc). The service itself isn't the issue. The problem, according to the European Commission, is that Google prominently displays results from the service when users do search queries. For instance, when you Google "laptop," the search engine will typically display "Shop for laptops on Google" at the very top of the results, and underneath it will show links to sponsored products. Clicking on "Shop for laptops on Google" will take you to the Google Shopping service and a list of laptops on the market.

Other comparison shopping sites -- none of which are named specifically by the European Commission -- are displayed much further down in Google search results, typically on the fourth page or later, according to the commission. These other comparison shopping sites are ranked using Google's search results algorithm, while the company's own Shopping service is not, the commission says. As the search engine leader in Europe (by far), "Google has abused this market dominance by giving its own comparison shopping service an illegal advantage," the European Commission wrote in a news release.

The Alleged Impact Of Google's Practices

The European Commission says it has gathered "very significant quantities of real-world data" to back up its accusations against Google, including data on how Google's practices have hurt other comparison shopping sites. "As a result of Google's illegal practices, traffic to Google's comparison shopping service increased significantly, whilst rivals have suffered very substantial losses of traffic on a lasting basis," the commission wrote in its news release. Again, the names of specific comparison shopping sites are not mentioned, but the European Commission alleges that it found "specific evidence of sudden drops of traffic to certain rival websites of 85% in the United Kingdom, up to 92% in Germany and 80% in France" in the wake of Google's prominent display of its own comparison shopping service. Ultimately, the commission says it's acting on behalf of European consumers, as Google's practices are "depriving European consumers of genuine choice and innovation."

What The European Commission Is Demanding

Apart from levying the $2.7 billion fine against Google, the European Commission is also threatening to bring additional fines unless Google ceases its "illegal conduct" within 90 days. Essentially, the commission is saying that Google must stop prominently displaying its Shopping service in its search engine results -- and, presumably, must subject its comparison shopping site to the same search result algorithm as competing sites. "Google has to apply the same processes and methods to position and display rival comparison shopping services in Google's search results pages as it gives to its own comparison shopping service," the European Commission wrote in its news release.

The commission is threatening to bring fines of up to 5 percent of parent company Alphabet's daily revenues if Google doesn't properly comply with the commission's demands. However, a determination of non-compliance by Google would require a separate decision from the European Commission.

How Google Is Defending Itself

Google isn't denying the practices claimed by the European Commission, per se -- the company is just saying that they shouldn't actually be seen as illegal. "We think our current shopping results are useful and are a much-improved version of the text-only ads we showed a decade ago," Google Senior Vice President and General Counsel Kent Walker wrote in a blog post. "Showing ads that include pictures, ratings, and prices benefits us, our advertisers, and most of all, our users. And we show them only when your feedback tells us they are relevant. Thousands of European merchants use these ads to compete with larger companies like Amazon and eBay."

Walker goes on to argue that the massive success of Amazon -- rather than Google's Shopping service -- is a more likely cause of woes among comparison sites. "Amazon is a formidable competitor and has become the first port of call for product searches," Walker wrote. "And as Amazon has grown, it’s natural that some comparison services have proven less popular than others."

Google Has Many Aspirations -- But Still Mostly Makes Money From Ads

Alphabet is famous for its wide breadth of products and R&D efforts -- from self-driving cars to life sciences to smart devices. One notable aspiration is to make Google's Cloud into a major player in the enterprise, and the company has been accelerating its efforts at working with channel partners to that end. But as the European Commission points out, Alphabet's business is still hugely dependent on advertising revenues. For the company's quarter that ended March 31, for instance, advertising contributed 86.5 percent of revenue. Google Cloud, hardware and other Google-branded businesses generated 12.5 percent of revenue, while "other bets" (such as Nest thermostats and Internet/TV services) produced just 1 percent of Alphabet's overall revenue. One key reason that Google has the ability to pursue so many different avenues is that its search advertising business is such a continuing success -- so an argument could be made that the European Commission's actions could have implications for the rest of Google's business as well.