Alphabet – In the soup.

Reply to this post

The EU kicks off a lengthy war with Google over Android.

• Google has been formally accused by the EU of abusing its dominant position in Android to the detriment of its competitors and EU based users in general.
• The accusation takes the form of a Statement of Objections following an initial investigation but is not in any way a final judgement of guilt.
• That finding comes later (potentially years) once the commission has deepened its investigation and Google has had an opportunity to respond to the allegations as well as take remedial action.
• The complaint that has been made is very similar to the one made against Microsoft which managed to kill off browser competition by bundling Internet Explorer in with its Windows OS on PCs.
• This time around, Google is being accused of obstructing competition for Google Play and its Digital Life services by effectively forcing handset makers to put its services front and centre on its devices in order to get access to Google Play.
• It is alleged that it does so in three ways.
  • First: The Mobile Application Distribution Agreement (MADA).
  • This agreement requires anyone wanting to use Google Play to also include the key Google services such as search, mail and maps and to display them prominently in a folder on the home screen.
  • RFM research indicates that it also requires these services to be default on the device such that a request from an app to open a map always defaults to Google Maps.
  • This ensures that it is Google’s Digital Life services that are predominantly used and it is this bundling that the EU objects to
  • Google will truthfully argue that no manufacturer is forced to sign the MADA, but the reality is that it is almost impossible to sell an Android device in the EU without Google Play installed.
  • Google will also correctly argue that users can install other app stores after purchase, but this is not easily done and without doubt it will make the bad security situation much worse.
  • Second: The Anti-Fragmentation Agreement (AFA).
  • This agreement is required for a handset maker to deploy Google Play and prevents the manufacturer from producing other devices that use non-Google versions of Android.
  • This prevents any handset maker from providing any alternative to Google on any Android device anywhere in the world.
  • I suspect that this has been a factor in Google’s ability to dominate the Indian market where it is now almost impossible to sell a device without Google Play on it.
  • Google has effectively seeded the Indian market with its services and the game may already be over for the home grown alternatives.
  • The EU’s concern here is that Google has prevented competition and stifled innovation through the use of the AFA.
  • Third: Payment of Traffic Acquisition Cost (TAC).
  • Google pays the handset makers for the traffic that is generated for its services but only if the Google Services are pre-installed and no competing services are preinstalled.
  • Pre-installation ensures that the service or app will function optimally and can be set as default.
  • As I have argued before, being set as default is an extremely powerful way to ensure that almost all users will use one’s service even if it is inferior (see here).
  • The EU’s concern is not with the payments per se, but with the fact that TAC is not paid if competition services such as search are also pre-installed on the device.
• The good news for Google’s competitors is that the EU has accepted that Google has a dominant position in search, smartphone operating systems and Android app stores.
• This has been of concern to me because the EU’s definition of dominance requires 70% market share and it is not difficult to argue that Google’s position falls below this threshold even in the EU.
• However, the EU complaint against Microsoft was simple compared to this multi-faceted and complex situation that exists in Android devices.
• I fully expect that Google will vigorously defend its position and I suspect that it has a much better chance of winning than Microsoft did.
• This case also has far reaching and global implications because I am pretty sure that if Google ends up being forced to relax the AFA and MADA requirements for the EU, then the rest of the world will quickly follow.
• This is mainly because the AFA is a global agreement and if it is relaxed then handset makers will be free to make and sell devices with competition ecosystems in other parts of the world.
• However, time is on Google’s side as the longer this battle takes, the more time it will have had to build loyalty to its store and services with users.
• Once that loyalty has been established, users will be inclined to use Google services, even if there are alternatives easily available.
• On the other hand, RFM research indicates that the Amazon App Store is almost as good as Google Play and I believe that there is scope for high quality alternatives assuming a level playing field.
• Internet Explorer’s steady market share loss on Windows PCs is a good example of how it is not always impossible to overturn a hugely dominant position with a good quality alternative.