Google Offers to Auction Off Shopping Ad Spaces to Rivals -- 3rd Update

By Natalia Drozdiak Features Dow Jones Newswires

Alphabet Inc.'s Google has proposed overhauling its shopping search results so that rivals can bid for space to display products for sale, as part of the tech giant's efforts to comply with the European Union's antitrust order, according to people familiar with the matter.

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Under the proposal, Google would bid against rivals to display products for sale in the space above its general search results, according to the people. Google would set itself a price cap that it wouldn't be able to bid above, but competitors could do so if they wished.

Rival shopping sites have hit back, saying an auction-based remedy wouldn't assuage the EU regulator's demands that the company treat its competitors' offerings and its own shopping service equally.

The European Commission ordered Google to make the changes to its search results by late September as part of its decision to fine Google a record EUR2.42 billion ($2.89 billion) in June for discriminating against rival comparison-shopping sites in its search ranking. The remedies would have to apply in all European countries where Google offers its shopping service.

Google submitted a plan to the EU in August that sketched out how it would amend its search results to comply, but declined to provide more details at the time.

A Google spokesman couldn't immediately be reached for comment Monday.

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"The [European] Commission can confirm that, as required by the commission decision, it has received information from Google on how the company intends to ensure compliance with the commission decision by the set deadline," a commission spokeswoman said Monday.

Should Google's proposed remedies fall short, the EU could hit it with penalties of up to 5% of average daily global revenue for the period it is deemed to be not complying.

The proposal is similar to one offered by Google several years ago as part of settlement talks with the previous EU antitrust chief, Joaquín Almunia. Those talks crumbled under pressure from complainants and politicians in France and Germany, paving the way for EU regulators to fine the company and demand changes.

Google's final binding offer in February 2014, which the EU made public, would have meant results pages that displayed Google shopping ads would also include shopping results from rivals. Those results would have appeared in a shaded box next to Google's shopping ads, according to screenshots the EU published at the time. Complainants at the time objected that Google would make them bid for the space via an auction mechanism, essentially making money from the settlement.

Now, complainants are again objecting to Google's proposed remedies for similar reasons.

"While we have yet to see details of Google's proposal, it seems unlikely that Google could have devised an auction-based remedy that does not fall far short of the equal treatment standard stipulated by the [commission's] decision," said Shivaun Raff, chief executive of Foundem.co.uk, a comparison-shopping website that was the first company to file a formal antitrust complaint about Google to the EU.

The auction-based remedy could force Google's competitors to bid away the majority of their profits to Google, Ms. Raff said. Google could set a high price cap for its own bids, pushing the bids of competitors higher.

Google and the commission are still discussing the level of the company's self-imposed price cap, according to one of the people familiar with the situation.

Google already competes with advertisers for space in its shopping results, often with great success. A Wall Street Journal analysis last year found that ads for products sold by Google and its sister companies appeared as the top shopping result in 91% of 25,000 searches related to such items. Google pays itself for those ads, yet the company said it still subjects itself to a marketing budget -- and charges advertisers as if it weren't bidding in the auction.

Rivals can still file complaints to the EU if they find Google's remedies to be insufficient. Should the commission agree with their concerns, it could then penalize Google for not complying.

Last week, Google announced it would appeal the EU's decision, though the company still has to comply while any legal action is ongoing.

Reuters was the first to report the details of Google's latest proposed remedies.

Write to Natalia Drozdiak at natalia.drozdiak@wsj.com

(END) Dow Jones Newswires

September 18, 2017 13:55 ET (17:55 GMT)