The road to monopoly is littered with good intentions: how the EC let Google win the search war

Three years ago, European Commissioner Neelie Kroes was a ‘Prosumer Champion’, defending European Internet users from Microsoft’s abusive behaviour as the dominant European – and global -  PC operating system vendor. She forced Microsoft to permit choice of Web browser for end users, as well as search. European prosumers – those who rip, mix, burn, blog, tweet or just update their Facebook status - were saved from monopoly. Or so some thought.

The browser war over, Ms Kroes explained that she was instituting a new European Interoperability Framework to ensure that “we do not have to fight an epic antitrust battle every time we want interoperability”. The idea was to bias government policy and law towards openness, to ensure that users were not locked into proprietary standards. Interoperability would stop a world where you have to ask permission to innovate. Together with the enforced openness of networks through the Citizen Rights and Better Regulation Directives, and their accompanying Declaration of Network Neutrality, which were passed on 18 December 2009, the Teenies were to be the decade when interoperability and openness won out over corporate control and segregation. How is that working out so far?

We know that net neutrality has been abandoned as a policy by Ms Kroes personally, with pesky Netherlands and Slovenian legislators (who passed net neutrality laws in 2012) the only champions of the open Internet so far amongst the 27 member states. Microsoft for 10 months refused to allow browser choice by default in Windows 7 in 2011, resulting in a massive fine of €561m levied in March 2013, a further skirmish in the browser wars in which it had previously been fined €497m in 2007 and €860m in 2012. For a company as massive as Microsoft, a total of almost €2,000,000,000 is peanuts. Even today, Internet Explorer is the most widely used browser, though the promise of free software Firefox is gaining ground while data-harvesting Google Chrome languishes far behind, alongside walled garden enthusiasts Apple’s Safari.

Google is involved in the new war, for control not of the desktop but of our personal data. While Facebook has since 2008 outstripped MySpace in social networking, a market which has grown tenfold in 5 years, Google now dominates Internet advertising, and is extending that lead into other sectors, notably e-commerce, video advertising and mapping for location-based commerce. Extending your monopoly, hard-won with innovative products, excellent engineering, well executed alliances and fortuitous timing, into downstream product and service markets shows that Google is copying Microsoft’s strategy from the 1990s. So has the European Commission learned its lessons from the decade of Microsoft investigation and then five years of litigation? Can we achieve interoperability without an epic antitrust case? Google was first complained of in 2008 – how far have we got?

The answer is almost nowhere, though we have so far avoided an epic antitrust case because Google gave voluntary undertakings rather than being forced into a formal settlement (Article 9 not Article 7 in the legal jargon). Google has apparently agreed – subject to formal closure of the case – that it will flag up clearly when it is inserting non-neutral Google-affiliated links that appear before what you asked for – the Internet’s most popular results. That is most of the settlement – an alleged abusive monopolist will flag up where it is abusing that dominance. Does that sound like a consumer victory?

The EC has caved in on interoperability and preventing abuse of a vertical monopoly, just as it earlier did on net neutrality (almost as soon as the Commissioner recovered from her mauling by rightly suspicious Parliamentarians at her confirmation hearing in March 2010, for failing to guarantee consumer protection from network operators trying to block rival content). Why has it caved in? To avoid a fight, and because Google achieved an even more overwhelming victory in the United States, gifted to it in January this year by Obama’s outgoing first term appointed Federal Trade Commissioners in the wake of the 2012 general election, that multi-billion dollar lobbyist festival of political backscratching sand backsliding.

Why does the European Commission want to achieve that Pyrrhic victory without a fight? It is in partly political – Google is seen as a greater innovator than the copyright and patent maximalist European corporates, so European defeat for Google on these grounds would threaten the home teams too. This betrays the Commission’s shaky grasp of digital innovation, unless one attributes darker motives to their support for big corporates over smaller true innovators and creators, not to mention prosumers. The political also figures in the need to be seen to be besting the US regulator, in a piece of pure theatre, Google pretending to feel the pain of the EC solution, and US commentators pretending to be outraged at EC interference. Even worse, the suggestion is that Commissioner Almunia wants his part in history not only as a member of Barroso’s austerity Commission, but as the quasi-regulator of Google, yet without extracting a binding settlement or any settlement at all outside the European Economic Area.

But the argument also goes to law and economics, and a view of regulating software code. How can Google discriminate? Because it writes both the best algorithms for searching across the Internet for most popular – i.e. most linked – pages, and also because it intersperses these with its own links, to its affiliated e-commerce or features such as maps. The former is what we can call its neutral public service function, which is why it became the search leader. The latter is its attempt to extract economic rents form users based on its neutral search reputation. Think of it as the distance between BBC and BBC World, its more commercial arm. The difference is that Google has no rules separating its two functions, and no requirement to be neutral, nor auditing of that neutrality.

As prosumers, we “believe” that its code (i.e. search result) is neutral, not because it used to claim a decade ago to “not be evil” before its legal obligation became that of maximising publicly traded shareholder returns. No, we “believe” because we have no option. It is the Sky Electronic Programme Guide without even the minimal regulation that European law imposes on Sky. If it is to become neutral, we need to take seriously that public service function.

That is the challenge for the new Commission in its ‘Europe2020’ agenda, to create an environment in which we prosumers are able to trust our famously lucrative eyeballs, and content provided as neutral is demonstrated to be that – to the advantage of advertisers (who would have a more transparent view of trusted providers and their audiences) and the poor bloody infantry, the prosumer, whether small business, sole trader, eBay buyer or web surfer.

Professor Chris Marsden is Law Professor at the University of Sussex and author, with Ian Brown (Oxford) of Regulating Code (MIT Press, 2013).