The European Commission Picks a Fight with Google Android over Business Models

Competition Policy and Antitrust, Networks, the Internet, and Cloud Computing, Internet and Search and Advertising

Article Snapshot

Author(s)

Randal Picker

Source

ProMarket, July 23, 2018

Summary

In 2018, the European Commission (EC) ordered Google to change the way its Android software was licensed. The EC’s decision pressures Google to change its business model to mimic Apple.

Policy Relevance

Competition policy should not discourage innovative new business models.

Main Points

  • In July of 2018, the European Commission (EC) fined Google 4.34 billion Euros and ordered Google to change its Android software licenses.
     
  • The EC was concerned that Google had insisted that Android handset makers pre-install the Google Search app and Chrome in order to get Google Play, possibly extending Google's dominant position in desktop computer search markets into mobile markets.
     
  • Google acquired Android in 2005, as smartphones threatened to diminish the importance of personal computers.
     
  • Google offered the Android software for free to handset and software developers, planning to make money by extending its advertising business into the smartphone sector.
     
  • Google's Android business model was new and innovative, an alternative to the business models supported by Apple and by Microsoft.
     
    • Apple offers vertically integrated hardware and software.
       
    • Microsoft offered smartphone operating systems for a licensing fee.
       
  • The EC's decision shows that it undervalues the business model competition between Google, Microsoft, and Apple.
     
  • The decision pressures Google to pay for distribution of its search software on Android handsets.
     
    • As an alternative, Google might begin to charge fees to license Android, or switch to an integrated hardware and software business model like Apple’s.
       
    • Customers show they prefer Google's current business model.
       
  • The EC's decision is likely to be an empty remedy, altering cash flows without addressing Google's dominance of Android or desktop search markets.
     

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