Google's Big European Fine Could Be Just the Start for Silicon Valley

By Sam Schechner Features Dow Jones Newswires

The Google shopping-ad business targeted Tuesday by the European Union's antitrust cops is a relatively small business for the search giant's parent, Alphabet Inc. But the implications of the case are anything but puny for Google and other tech giants.

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The European Commission fined Google EUR2.42 billion ($2.71 billion), a larger penalty than many had expected but one Alphabet can easily afford, considering its $92 billion in cash and liquid securities on hand.

The sting may come more from what the ruling means for current and future cases in Europe targeting Google and other large tech firms--most of them hailing from Silicon Valley or thereabouts. Antitrust experts and tech executives say the ruling, in particular, could be precedent-setting in instances where tech giants have become gatekeepers for our digital lives.

Google's search engine is one such gateway, opening for users a seemingly endless path to goods and services. The EU maintains, however, that the deck is stacked and by taking advantage of this popular gateway, Google gave its own businesses--selling shopping ads to merchants--a big advantage.

How Google ends up changing its business model to comply with the EU ruling in this case "could eventually apply to any way that Amazon, Facebook or anyone else offers to search for products or services," said Michael A. Carrier, a law professor at Rutgers University.

That could change how those companies develop a host of different products for Europe and globally, one tech executive said Tuesday.

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Google, which has been wrestling with EU complaints of deck stacking for the better part of seven years, said Tuesday it is considering an appeal. Its general counsel, Kent Walker, said, "We respectfully disagree with the conclusions announced today."

Another possible gateway that the ruling could upend: the voice-enabled assistant, which many tech executives are betting will replace the search engine. Silicon Valley executives regularly talk about a future of "ambient tech," where digital assistants slowly replace all of our devices, and answers come from Google's digital assistant, or others like Amazon.com Inc.'s Alexa or Apple Inc.'s Siri.

At issue in Tuesday's decision is the EU's contention that the company must give "equal treatment" in its search results to businesses that might compete with Google in other ways. Because Google's search engine is dominant, according to the EU, the bloc argues that Google hurts shopping competitors by putting Google's own product ads for, say, new barbecue grills, on top of any search results from their sites for "propane grills."

Now, imagine a world where relevant grills come not atop a written list, but as suggestions in users' ears.

In the U.S., Amazon has more than 25 million users for its voice-enabled Echo speaker devices, giving it more than 70% of the smart-speaker market, ahead of Google Home, which has 23%, according to research firm eMarketer. Earlier this month, Apple announced its own smart speaker device called HomePod. Including smartphones with voice assistants, research firm Ovum predicts that there will be some 7.5 billion digital assistant devices in use globally in by 2021, up from 3.5 billion in 2016.

A spokesman for Microsoft Corp., which operates the voice assistant Cortana, declined to comment. Spokesmen for Facebook Inc., Amazon and Apple didn't immediately respond to requests for comment.

There are big hurdles to subjecting digital assistants to antitrust scrutiny. In particular, even in the EU, antitrust regulators would have to determine that one of them is dominant in a certain market for them to be able abuse that dominance. But it is clear the EU is thinking that way with this decision.

"We're on the brink of doing more oral search, which of course poses new challenges, when it comes to enabling people to have a choice, when it comes to search results, to make sure they get the right answer to their queries," said EU competition chief Margrethe Vestager in a March interview. "Which is why, instead of being specific on page design or screen design, I think it's very important to focus on how to allow competition. How to enable that to happen."

The EU has already charges against Google in three cases in the past two years, ranging from complaints that it has abused the dominance of its operating system Android to force phone makers to promote Google's mobile applications, to complaints it restricted how a website that offers a Google search function can show advertisements sold by other companies. Google is fighting or responding to all these charges and complaints.

Complainants in Tuesday's decision, including Yelp Inc., are hoping the shopping case will have broader implications for Google. Complainants also say the precedent should extend to technologies from other companies.

"The principles in this decision are likely to be employed in the digital-assistant context," said Thomas Vinje, a lawyer for FairSearch, a group of complainants against Google. "These technologies seem likely to be an important part of our lives going forward, and the application of these principles to results delivered by voice assistants is extremely important."

Unaffiliated experts also believe the questions raised in this Google case will be sticking around for some time, too.

"Software platforms with functions attached to them are going to be the future of every kind of product," said Keith Hylton, an antitrust professor at Boston University. "This whole issue is going to multiply."

Natalia Drozdiak contributed to this article.

Write to Sam Schechner at sam.schechner@wsj.com

(END) Dow Jones Newswires

June 27, 2017 09:19 ET (13:19 GMT)