Google and Antitrust

It came as no surprise to me that the EU ruled, and fined Google for monopolistic practices. Antitrust situations are always tricky, especially when the two biggest in the tech industry have involved relatively open operating systems in Windows and Android. The nature of the open model is good for consumers by keeping costs of hardware low and allowing for a vast diversity in hardware choice. In both cases, the crux of the argument for antitrust behavior is around default apps and default services. And when you dig into the root of the issue, while it is true the open-ness of Windows and Android allows for diversity and choice for consumers, it hinders choice for a key player in the ecosystem–the hardware companies.

The Choice Paradox
The more I’ve analyzed open platform models, the more it seems clear there is a choice paradox. Consumers generally win because hardware companies can choose to compete on a range of different vectors, mostly around hardware decisions, and thus create a wide-range of hardware options in design, specs, prices, and more. This is the crux and strongest part of Google’s counter-argument to the EU ruling. While a portion of the post deals with the ability to not choose Google services and use competing apps and services, the intro paragraph sets the tone, which is mostly a point about hardware.

If you buy an Android phone, you’re choosing one of the world’s two most popular mobile platforms—one that has expanded the choice of phones available around the world.

It is very easy to make the consumer choice argument from a hardware perspective. It is not as clean of an argument to do so software and even more so with services.

It also seems a strong point of the argument for antitrust is around search. As I was thinking about this case about the Windows case, you could make a point that search is the new browser of the Internet. Where Microsoft got hit was because of the prominence of Internet Explorer and not allowing other browsers to be pre-installed onto Windows. Google similarly, features Google’s search prominently and in some cases made it difficult to impossible to change the default search choice in Chrome. Note this series of tweets from DuckDuckGo, a competing search engine to Google.

If we buy the argument that search is the modern day browser, and we should since search is a predominant daily use case for many consumers, then looking at a platforms willingness to encourage competition within search services would be an important part of the analysis. Certainly, consumers were not locked out completely of using DuckDuckGo, only that it became more of a challenge to do so with the way Google’s search was implemented from a default perspective into Android.

Two other great points, both I found on Twitter to add to this discussion.

Just for fun, let’s take this argument written by Pichai, and modify it in light of the EU’s case. Below is my attempt to contextualize Pichai’s argument from 2009 to make the same point against Google today.

“The EU believes that the search market is still largely uncompetitive, which holds back innovation for users. This is because Google’s Search is tied to Google’s dominant smartphone operating system, giving it an unfair advantage over other search engines.”

Holds up pretty well if you ask me.

Consumer Choice vs. Hardware OEM Choice
Looking at this argument of choice, not from the consumer perspective which we already know is a strong argument, but from the point of view of the OEM is relevant as well. Open systems like Android and Windows, open the floodgates of hardware innovation but are both a blessing and a curse for hardware companies. The biggest challenge facing hardware manufacturers who ship someone else’s open operating system is that all their competitors get to ship the same operating system. Meaning hardware differentiation is the only strategy they have to employ. It is for this reason, costs are generally driven down in open platform ecosystems and thus the line I coined many years ago becomes the true strategic challenge for hardware OEMs participating in said ecosystems, which is you are only as good as your lowest priced competitor.

In open systems, price rules the day. And the smartphone market has become a margin bloodbath in hardware. Which forced many OEMs to look to software or services to try and make a few extra bucks. This is where Google’s licensing practices limited what hardware OEMs could embed, change, or customize, to bring in their own services revenue. Say an OEM like HTC, wants to do a deal with DuckDuckGo or Microsoft with Bing, and set it as the default search within the Android devices they ship, Google’s licensing agreements made this very difficult to impossible. While it’s true, they could pre-install said featured Apps or services, setting them as the default was the more tricky proposition.

Another fascinating factor of Google’s licenses was the limitation of Android licensees to ship Android forks. It is a little-known fact that Amazon tried to sell a few hardware OEMs on FireOS and was willing to make revenue share deals for OEMs when it came to commerce on Amazon. The way the licenses for Android were at the time, was very restricting on an OEMs ability to own an Android license and ship a competing Android fork. Meaning said OEM would violate their Android certification if the same OEM wanted to also sell a competing Android OS like FireOS. Here again, the OEMs choices to do deals and customize Android in a way that would benefit them financially, and not necessarily Google as much, were extremely limited.

So yes, Android allowed for a great deal of consumers choice, but not nearly as much choice for OEMs when it came to ways that benefited their software and services business model over Google’s.

Google Would Have Won Anyway
I know this is impossible to prove, but if this was debate class and I was assigned the defend Google argument, I’m certain I can make a strong case that had Google allowed more true “openness” from the start their platform and their services would have won and become the dominant ones anyway. Google had a dominant position before they were truly dominant.

I have zero doubt in my mind that Android would have become the dominant mobile OS, and thus Google services willingly chosen by most consumers regardless of any level playing field from an alternative OS like Windows Mobile or any Android fork. As mobile was starting to scale, every OEM we worked with at the time (and it was all of them) desperately wanted an alternative platform to Microsoft. They were burnt out by Microsoft from the PC era and wanted an alternative. Google sensed this and was willing to bend over backward for their hardware partners and concede everything they wanted in all the ways Microsoft would not. I hear over and over again in the 2009-2010 timeframe that Google was a much better partner than Microsoft. It became clear every OEM would go all in with Android on mobile for the sole reason of being a Microsoft alternative. Couple that with the fact that Google search was already the dominant search platform willingly chosen by most consumers and you lay the foundation for dominance by default, not because of lack of competitive environment. OEMs choose Google/Android, and consumers choose Google’s services willingly.

One could certainly argue, the competitive environment did not get better because Google didn’t allow it, but I don’t think their lack of letting OEMs bundle services that made them money instead of Google. However, that is the same dynamic that led to bloatware, security breaches, hampered performance, inconsistent user experience, and more on Windows PCs. So one could technically argue the bloatware world, consumers don’t win, but instead, they lose all so OEMs can make a few extra bucks beyond hardware. Given that, I can find it easy to defend Google because, in the interest of consumer experience, I would make all the same decisions they did. But, in retrospect, I do think some of their licensing restrictions could have been made more friendly to the OEM in ways that allow them to embed some default services more easily into the core Android experience.

In the grand scheme of things, nothing is going to change. ~5 billion Euro’s is a years worth of revenue from Android to Google, and Google has already vastly benefited from Android beyond a monetary perspective for the whole of their business and machine learning/world organizing of data mission. So while it sounds like a big win, nothing will change, and Android will be fine.

What I do think is a fascinating observation is that the two largest antitrust cases slapped against technology companies have the same theme. They were both horizontal/open platforms. I love the open vs. closed debate, but this observation is a stark criticism of what feels like the inevitable conclusion of any company who licenses their platform to hardware companies but has a business model tied to the mass proliferation of the scale which follows.

This raises all sorts of interesting questions about future computing platforms like ones coming around voice, or augmented reality, and whether we see anything like Windows or Android again in the future. I also firmly believe this observation challenges many of the previous assumptions about open vs. closed platforms, particularly in consumer markets. Both things worth digging into in future analysis.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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