Google Rolls Out Search, Shopping Ad Changes In Europe -- 2nd Update

By Sam Schechner Features Dow Jones Newswires

Google has started overhauling millions of search results in Europe -- and neither the search giant nor its detractors are happy about it.

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The Alphabet Inc.-owned search engine on Wednesday said it has started allowing rival shopping-comparison services to bid for and resell advertising space at the very top of Google search results in Europe. The new ads appear alongside similar product ads from Google's own shopping-ad unit, which Google said is bidding independently in the same auctions.

The changes are part of the tech company's effort to comply with a European Union antitrust decision that fined the company 2.42 billion euros ($2.71 billion) for using its dominant search engine to favor its own shopping ads at the expense of competitors'--and ordered it to start treating itself the same as its competitors as of Thursday.

Google is appealing the decision, but is implementing its order to avoid noncompliance fines that can reach total 5% of its global daily revenue, or more than $12 million.

Google says it thinks the remedy is unwarranted. Rivals say it doesn't go nearly far enough.

Richard Stables, chief executive of Kelkoo, a shopping-comparison engine that is an interested party in the shopping case, says that Google's remedy will likely force his firm to pay the company high rates to win auctions for ad space -- an outlay that would leave him with little if any profit from selling those ads in the first place.

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"The damage has been done. The industry is on its knees, and this is not going to put it back," said Mr. Stables, who has decided to participate in Google's new auctions despite misgivings. "I'm sort of shocked that they've come out with this," he added.

Google promised Google Shopping, the unit that sells ads to merchants, would be run as a stand-alone business, and would participate in auctions in an arm's-length capacity. It said it would operate the unit profitably, which means it wouldn't be able to bid so much that it posts losses. The company has committed to providing whatever information regulators request to monitor its commitments, according to a person familiar with the company's thinking.

A spokesman for Google said the company is giving rivals the "same opportunity to show shopping ads from merchants" as Google gives itself. "Google Shopping will compete on equal terms and will operate as if it were a separate business, participating in the auction in the same way as everyone else," a company spokesman said.

The European Commission said it would be "premature at this stage" to comment on whether Google's moves would be sufficient to avoid fines. EU antitrust chief Margrethe Vestager on Wednesday said her office would "actively monitor" Google's compliance with the order, adding that the company would have to report on its compliance every fourth month. "It is for Google to show that they live up to the decision," Ms. Vestager said.

The search giant's change to how it displays millions of results in one of its biggest markets demonstrates how the EU decision, and other cases pending against Google, could have far reaching impact on the company's sprawling business -- even if courts end up striking them down years down the road. The changes won't affect users in the U.S.

The EU's "equal-treatment" order could be repeated against other parts of Google's business, such as maps and travel search, some antitrust experts say. In the most prominent pending case, the EU alleges that Google has used the dominance of its Android operating system from mobile phones to promote, among other things, its search engine as a default on mobile devices. Some analysts and antitrust experts say a decision against Google could order an "unbundling" of Android from services like search where Google makes money.

"We believe investors may be under-appreciating the regulatory risk," said Mark Mahaney, an analyst at RBC Capital Markets, in a research note earlier this month.

People close to Google have said that the facts of each case make it hard to apply one to the other.

At issue in the shopping case are ads that appear at the top of Google's search results when someone searches for a particular product, or a type of product, that the search engine thinks they want to buy. For instance, a search for "baby cribs" or "patio furniture" could bring up display ads at the very top for those products, with links to merchants who sell them. Until now, Google sold those ads exclusively.

The EU contends that the company, by putting those Google-sold ads on top of search pages, disadvantages other companies that sell shopping ads. Product pages on those other companies' websites, which also sell placement to merchants, often appear much further down in a search. The EU said that Google's behavior gave it a 45-fold traffic increase in the U.K. and a 35-fold increase in Germany, with drops of traffic to rivals of 85% in the U.K. and 92% in Germany.

Laurence Norman contributed to this article.

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

(END) Dow Jones Newswires

September 27, 2017 13:08 ET (17:08 GMT)