Business | Europe v Google

Nothing to stand on

Europe is right to worry that it lacks big digital platforms. But reining in Google is no solution

“GIVE me a place to stand on, and I will move the Earth.” So Archimedes explained the power of levers in the physical world. The digital realm has levers of its own: “platforms”, the technological fulcrums upon which many businesses can be built. Control of an important platform is a source of economic power. Microsoft used the power of its Windows operating-system platform to shape the destiny of an entire industry—and to capture an outsized share of its profits. Some worry that Google’s dominance of the web-search business lets it perform a similar trick today.

Europe is taking no chances. On April 15th the European Commission sent a “statement of objections”, an indictment of sorts, to Google, accusing it of abusing its dominant position in the internet-search market and reviving an antitrust case that has dragged on for five years. A day earlier Günther Oettinger, the European Union’s digital commissioner, gave a speech arguing that it was necessary to “replace today’s web search engines, operating systems and social networks.”

In Europe Google handles more than 90% of web searches, making it the place to be for many advertisers. Whether it has harmed consumers by using its dominant platform to steer them away from rival services and towards its own, such as Google Shopping, is at the heart of the case. In contrast to the previous competition commissioner, Joaquín Almunia, the new one, Margrethe Vestager, clearly thinks it has.

Instead of getting bogged down in negotiations with Google over how exactly it should redesign its search-results pages to give rival services more prominence, Ms Vestager wants the case to set broad principles of fairness that Google would have to adhere to. For now she has narrowed the scope of the case to the firm’s shopping service: if the outcome is that Google has to abide by certain principles over this matter, these could then be applied in others, such as whether Google makes it hard for advertisers to take their data to other platforms. She has also launched a separate formal investigation of Android, Google’s mobile operating system, amid allegations that it forces device-makers to give its smartphone apps preferential treatment.

Google (whose executive chairman, Eric Schmidt, sits on the board of The Economist’s parent company) told staff in an internal memo that it has a “very strong case” to make against all the allegations.

In the search case the statement of objections may not become public for many months, and even then it will only appear in a redacted form. But an inadvertently leaked report from America’s Federal Trade Commission, which ultimately decided not to sue Google, suggests the firm has a case to answer: it says that Google purposely demoted rival sites. But the statement is not a final decision. And if the European Commission limits what Google can do, and especially if it imposes a fine (it can levy up to 10% of annual revenues, or $6.6 billion), the case may go to court and drag on for years.

The commission’s move against Google is not overtly political and protectionist. However, it is part of a broader trend. As Mr Oettinger’s speech shows, Europe is belatedly discovering its failure to develop many of the platforms underpinning the online economy. Much of the world’s digital territory has in effect been ceded to America without a fight. “Our online businesses are today dependent on a few non-EU players,” said Mr Oettinger. “This must not be the case again in the future.”

Are enormous digital firms a threat to competition?

The big danger, Mr Oettinger warned, is that as the world relies ever more on platforms operated by Google and other American firms, they may be able to repeat this trick in areas that have hitherto been Europe’s forte: fashion, energy and luxury vehicles, for instance. “We might invest in producing wonderful cars, but those selling the new services for the car would be making the money.”

That worry is understandable. But rather than trying to rein in American firms, European politicians should focus on fixing what is holding back the old world’s most promising platforms: the lack of a common digital market. Today only 15% of consumers shop online across borders within the EU. To set up Europe-wide operations, an e-commerce firm has to jump through numerous bureaucratic hoops, from tax rules to labour laws, in each country. Alas, the digital strategies recently outlined by Andrus Ansip, another commissioner, are so far short on substance. If Europe wants to be America’s equal in the creation of new technological platforms, it needs to recognise the importance of scale. America, with its large and open domestic market, has it. Europe does not.

This article appeared in the Business section of the print edition under the headline "Nothing to stand on"

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