With its long history of fines and sanctions on big companies for violating European competition rules, any pronouncement from Brussels on the US tech giants is capable of stopping Silicon Valley and the financial markets for a moment. Yesterday was no exception. There is hardly any precedent for the two words with which the European Commission concluded its findings on Google’s conduct in the lucrative online advertising business: “compulsory divestment”.
“There is no alternative”, said the vice-president of the European Commission and holder of the Competition portfolio, Margrethe Vestager, at the press conference in which she announced the results of two years of inquiries motivated by complaints from third-party companies. Only if Google divests itself of a “part of its services” in the online advertising business “can the detected problems be resolved” and new abuses avoided. “There is very little precedent,” Vestager admitted, but “the inherent conflict of interest” in this case, since Google is the dominant company in two key areas of the business, makes the “mandatory divestment” only solution
At the moment it is a suggestion, but if Google’s response does not satisfy the Commission, which yesterday sent a statement of charges to the Alphabet subsidiary with its inquiries and proposals to remedy the situation, it can become an order. According to the preliminary findings of the investigation, Google is abusing its dominant position in the online advertising sector, which “unlawfully distorts” for the benefit of its own ad technology services, the tools and programs used by advertisers to expand audiences and measure the impact of campaigns, known as adtech, which “cross” demand and supply.
“In the milliseconds it takes to load a website, several algorithms are produced” that decide which of all the available advertisements are presented to the user at that moment. Often, companies turn to intermediaries to achieve the best results; some work for advertisers, others for those who offer online space on websites and apps. And there is still a third actor involved in these operations, the platforms where they occur. “Google offers these three services”, detailed Vestager. It sells services for advertisers (Google Ads and DV360), also for those offering advertising space (DFP), and has its own exchange platform, AdX. According to Brussels, the company has a dominant position in both the supply sector (advertisers) and the demand sector (publishers) and has abused this situation to favor “the online display of its own advertising technology services to the detriment of rival providers”.
“Google has strong market positions at both ends of the advertising market,” because it represents both ad buyers and sellers, “and that creates an inherent and pervasive conflict of interest” that, as long as it continues, will allow the company maintain these practices or create new versions that can be very complicated to detect, argued Vestager, whose team has worked in collaboration with the competition services of several member states.
The investigation is not over and Google will be able to defend itself against the accusations. If the explanations or proposals for changes do not solve the detected problems, the European Commission could not only impose a multimillion-dollar fine on the company, but, as it warned yesterday, reach the extreme decision of ordering it to withdraw from ‘a “part” of the business in the sector. Google would always have the option to contest the punishment before the European courts, as it has done, with uneven success, in the past. So far, Google has received fines totaling 8 billion euros in Europe for anti-competitive practices, but has never been ordered to divest part of its assets to comply with EU competition law.
The news, which comes months after the US Department of Justice accused the company of corrupting legitimate competition in the online ad industry with its “illegal monopoly”, was welcomed by companies that try to compete with the American company. “As the lead plaintiffs in the Google Shopping case, we have experienced first-hand how they assume the cost of fines as part of the cost of doing business and how the remedies proposed by Google do not lead to true competition,” said the online sales platform Kelkoo Group.
