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The Commission’s 3rd decision against Google
Today, the Commission has decided to fine Google 1.49 billion euros, for breaking the EU antitrust rules. Google has engaged in illegal practices in search advertising brokering to cement its dominant market position.
This is the third antitrust fine that we’ve imposed on Google. In June 2017, we fined Google for its illegal behaviour in comparison shopping services. And in July 2018, we fined Google for its illegal behaviour relating to the Android mobile operating system and mobile apps and services.
I’d like to address what Google has been doing to comply with those two earlier decisions. But before I do that, let me start by explaining the decision we took today.
What is Google AdSense?
As you know, when you type a query into Google’s search engine, you not only get the results, but also ads based on the words you typed in. In fact, that sort of advertising is by far Google’s main source of revenue.
Google sells advertising on its own search page. Google also has a business of brokering advertising space on other websites that also include a search box like newspapers, or blogs, or travel sites. This allows the owners of those websites to make money in much the same way Google does on its own site – by selling space next to search results.
These other websites rely on an advertising broker. And Google is by far the biggest of those brokers, with its platform “AdSense for Search”.
This market is important because it could serve as an entry point for competitors, including other search providers and online advertising platforms. By gaining a foothold in online advertising brokerage, they could grow their business and try to challenge Google in the general search advertising market.
Google is dominant when it comes to online advertising brokerage market, with market shares in Europe of above 70% since 2006. And there are high barriers to entry, which make it hard for new competitors to come in.
Despite that, competition should be possible in this market. Different websites can choose different brokers – and the same website could use more than one broker, to provide different ads. Indeed, our investigation showed that many websites had an interest to use more than one broker.
Today’s decision is about how Google abused its dominance to stop websites using brokers other than the AdSense platform.
What did the Google Adsense investigation find?
For the most important websites – which Google calls “Direct Partners” – Google provides brokerage services through tailored agreements. Our investigation looked at more than 200 of these agreements. They contained at least one of three types of restrictions that harmed competition. These different types of restrictions often overlapped in time.
The first type is an exclusivity provision, which Google began including in its contracts from 2006. It meant that the most commercially important Direct Partners were prevented from sourcing search ads from Google’s rivals, on any of their websites.
The second type is called “Premium Placement”. Google began including it in its contracts from 2009 to replace over time the existing explicit exclusivity provisions.
These clauses didn’t completely stop Direct Partners sourcing ads from Google’s rivals. But they meant that Direct Partners had to take a minimum number of search ads from Google, and put them on the most visible – and most profitable – part of the page. So the best webpage space – where users were most likely to click – was still reserved for Google.
The third type of restriction even allowed Google to control how websites displayed the search ads of Google’s rivals. Under this clause, website owners had to get written approval from Google before changing the way they displayed the search ads of Google’s rivals – right down to the size, colour and even font of those ads.
As in many digital markets, search advertising is a market with strong network effects. So the more users you have, the more valuable your service becomes to each of them. That means that to compete effectively, you need to build scale.
These restrictive clauses lead to a vicious circle. Google’s rivals were unable to grow and compete. As a result, owners of websites had limited options for selling advertising space on these websites and were forced to rely solely on Google. And, as a result of that, Google benefited from network effects and became even stronger.
There was no reason for Google to include these restrictive clauses in its contracts, except to keep its rivals out of the market.
This is why we’ve concluded that, between 2006 and 2016, Google’s behaviour was illegal under EU antitrust rules. It prevented its rivals from having the chance to innovate and compete on the merits. Advertisers and website owners had less choice and likely faced higher prices, that would be passed on to consumers.
Consequences of the Google AdSense decision
The fine of 1.49 billion euros reflects the serious and sustained nature of Google’s infringement. And anyone who has suffered damage because of Google’s behaviour can also claim compensation from Google in national courts.
Google removed these illegal restrictions from its contracts in 2016, around the time we issued our Statement of Objections. At a minimum, our decision requires Google to put a stop to those restrictions – or any others restriction with equivalent effects, and not to reinstate them.
Update on other Google cases
Let me now go back for a moment to the Google Shopping and Google Android decisions and address the information we have about the changes Google has made to the way it does business.
I’ll start with Google Shopping case. Back in June 2017, when we took our decision, Google systematically put its own comparison shopping service at the top of the first page of search results, in the “shopping unit”. No competing comparison shopping service was able to appear in a shopping unit. They were on average demoted to page 4 of the search results.
Our decision requires Google to treat rival comparison shopping services the same way that it treats its own. And it’s up to Google to find an effective way to do that.
Google has chosen to open up its “shopping unit”, which was previously reserved exclusively for Google’s own service. Since September 2017, rival comparison shopping services have been able to bid for space in the shopping unit.
It has taken time for the mechanism to show results.
The data we shared in June last year found that around 30% of shopping units included at least one of Google’s competitors. The latest data shows that this 30% has now increased to 75% of shopping units that include at least one of Google’s rivals.
Our June 2018 data also found that only above 6% of clicks in the Google shopping unit went to competitors. Now this 6% has also increased. Around 40% of clicks on product results now go to competitors to Google.
These numbers reflect the situation after Google made changes earlier this year to address criticism that previous numbers were inflated by competitors that did not really compete in comparison shopping services. These changes now require all participating services to have a sufficient range of offers, and a set of core comparison functions.
Google also just announced a feature that will let users choose whether the shopping unit shows links to comparison shopping sites or directly to those sites where your find the merchants and products, as it used to do.
With this new feature, users will be able to switch or toggle between the current window that shows links going directly to merchants, and a window that will show links going to competitors’ sites. This means that users should be able to choose what kind of results they want to see.
All these are positive developments. Obviously, we’ll keep monitoring the market.
Shopping is just one part of the specialised search services. Google also offers services of this kind when it comes to jobs and local search. The decision we took in June 2017 gives us a framework to look also at other services, exactly like jobs or local search.
What we’ve found is that those different specialised services have some things in common – but they also have important differences. So we need to look individually at each of those services. We have noted that Google is rolling out certain changes to its products in these areas, and this is something that we will look at closely.
I’d now like to turn to our Google Android decision of July 2018. . This case was about three types of restrictions that Google imposed on mobile device manufacturers and network operators that used Android:
First, Google de facto required manufacturers to pre-install the Google search and browser apps.
Second, Google paid manufacturers of phones and network operators to make sure that only the Google search app was pre-installed.
Third, Google obstructed the development of competing mobile operating systems.
These restrictions all aimed to ensure that search traffic on mobile devices was directed to Google Search, cementing Google’s position in the market.
The Decision means that Google can no longer oblige device manufacturers to take Google’s search and browser products if they take the Google Play Store. It also means that rival search and browser providers can strike exclusive deals with device manufacturers to pre-install their products instead of Google’s products.
While this creates commercial opportunities that did not exist before, there were concerns that this was not sufficient to restore competition.
Google has now announced that it intends to provide a choice screen for Android users in Europe, for Android phones that are already in the market and also for new Android phones where Google is pre-installed. This should let consumers choose which search and browser provider they want on their Android phone.
We’ve seen in the past that a choice screen can be an effective way to promote user choice. In the Google Android case, it has the potential to give users a real choice about what search provider and browser they want on Android devices. This would also allow Google’s rivals to be chosen upfront by users in cases where Google has been pre-installed on a phone.
It is welcome that Google is stepping up its efforts in connection with the Google Android decision. And we will be watching closely to see how the choice screen mechanism evolves.
Platforms like Google play a vital role in digital markets. Businesses and consumers depend on platforms to get the best out of digitisation. So the illegal behaviour in these cases is very serious.
We’re thinking very carefully about the future of competition because everything becomes digitised.
Last year, I appointed three special advisers to look at the challenges that competition policy faces, as digital technology changes every industry we know. And I’m looking forward to receiving their report very soon.
In our reflections for the future as well as our enforcement work our aim will, of course, remain the same: To make sure that markets work well, so European consumers have choice, innovative products and fair prices.