5 things to know about Margrethe Vestager’s Google probe

Nicholas Hirst

The European Commission opens a new front in the transatlantic tech wars. Now, Android is the target.

After a one-year investigation, European Competition Commissioner Margrethe Vestager on Wednesday is expected to take on Android, the world’s No. 1 operating system.

As mobile devices replace personal computers, nothing less than Google’s business model is at stake. Android ran on 81 percent of the 1.4 billion smartphones shipped last year, according to Strategy Analytics, a research firm.

The stakes are high for Vestager too: She needs to show Commission regulators can wield power over the giant disruptors of the new economy. She must also avoid getting bogged down in the never-ending tussle that has typified the probe into Google’s search engine.

And yet she must do so without alienating Washington, where politicians allege Europe is using competition law to catch up on the digital economy and protect its own industries.

Here are five things you need to know as the European Commission gears up for a major transatlantic fight:

1. What is the Android case about?

To regulators, it is about limiting the ability of Google to dictate what hundreds of millions of smartphone users in Europe can or can’t access. For Google, it wants to ensure the Android experience, keeping consumers within the Google universe rather than head to Apple or Amazon.

A decade ago, Google bought a small start-up called Android, which was struggling to compete with Nokia’s Symbian operating system and Microsoft’s Windows for phones, not to mention Apple’s forthcoming iOS. Google brought its genius for engineering to the software, but also its penchant to give things out for free.

Fast-forward a decade and Android runs on four out of five smartphones sold globally and its Google Play app store has some 1.5 million apps, more than the iStore and four-times more than Amazon.

Such success bring serious power: Apps account for an ever-growing share of the Internet economy. If a consumer spends an hour online, on average more than half will be via apps, according to comScore, an Internet analytics company.

2. But has Google abused a dominant position?

“Don’t be evil,” has been Google’s slogan. Vestager, however, is skeptical.

In a speech Monday, she tipped her hand: “Our concern is that, by requiring phone makers and operators to pre-load a set of Google apps, rather than letting them decide for themselves which apps to load, Google might have cut off one of the main ways that new apps can reach customers.”

Translation: Android has harmed innovation.

But the concerns are wider. The Commission has said it suspects Google may pay phonemakers to exclusively pre-install Google’s own apps. Rivals talk of contracts that prevent phonemakers from using other apps or operating systems.

For its part, Google defends its practices, saying it does not prevent any apps from being installed on Android phones but simply asks that if phonemakers that also want to use Google’s apps install a suite to ensure consistency across phones.

3. Who are these rivals?

Some companies have stepped forward to directly challenge Google, but many big beasts are watching from the wings.

A Portuguese app store called Aptoide, which has 50 employees, filed a formal complaint with the Commission in June 2014. It alleged that Google prevents phonemakers from installing Aptoide.

Disconnect, a privacy app, joined the fray one year later and accused Google of abusing its control of the Play Store to chase out an app it disliked.

Last November, Russia’s search engine Yandex also filed a complaint, saying Android’s conditions prevented it from being pre-installed on new phones.

Then there are the companies who have avoiding open confrontation.

Foremost among them is lobby group called FairSearch, which in 2013 petitioned the Commission to investigate Android. Its members include heavy-hitters like Microsoft, Tripadvisor, Oracle and Nokia (although Microsoft left the group earlier this year).

But the real big guns are the phone makers, which stand to gain the most from using Android without the terms and conditions attached. Finally, their apps could get center-stage on the Android home screen.

4. Everybody seems to have an iPhone, so why is Commission going after Android?

Apple’s iOS runs on 15 percent of smartphones globally, compared to Android’s 81 percent share. But Apple’s users tend to be wealthier and spend more using their mobiles. That means that Google, despite having the lion’s share, generates half the revenues from apps as Apple.

Not only that, Apple makes its own operating system, sells its own phones, exercises complete control over what apps it pre-installs and is much more restrictive than Google.

So why isn’t Apple in Vestager’s sights? Its market share in Europe, estimated at around 30 percent, makes it less of an antitrust target.

5. Where could this all end?

European antitrust enforcers can extract fines of up to 10 percent of a company’s global revenues. In Alphabet’s case, that would work out as several billion, although European antitrust enforcers have yet to top the €1 billion fine they imposed on chipmaker Intel in 2009.

But it doesn’t have to come to that.

“FairSearch believes that the effects of Google’s anti-competitive behavior can be resolved through remedies,” said the organization in a statement Monday, arguing Android should stop forcing phonemakers to install a suite of apps if their want to get the Play Store.

Yet such negotiations can be difficult to close: Google and the Commission spent years trying to settle a 2010 probe into Google’s search engine. That fight continues, and now the Commission is opening a second front.

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