Google faces life under regulators' gaze

For Google, Wednesday's announcement of a competition complaint in Brussels marked the end of a drawn-out, five-year investigation. But it also signalled the beginning of something that could be much more painful: an adjustment to life under regulators' watchful gaze that could have a profound impact on its culture and processes.

The experience of Microsoft, which was under the supervision of regulators in Brussels and Washington for more than a decade, shows how hard it is for a company in the fast-moving tech world to remain innovative in such circumstances, according to people who worked at Microsoft in that period.

But the nature of Brussels' new stipulation on Google could leave it in a very different position to its software rival. Microsoft was subjected to close regulation of specific parts of its business. By contrast, Margrethe Vestager, Europe's competition commissioner, has laid out only a broad requirement that Google give the same treatment to rivals in its search results that its own services enjoy.

That could give Google more latitude to respond, say lawyers, but also leaves the evolution of its services under a cloud of uncertainty.

"There will always be a dispute about whether what they do going forward is discriminating or not," said Paul Lugard, at Baker Botts, a law firm not involved in the case.

Internally, the search company tried to rally the troops this week with a call to focus on the job at hand: "Building great products that serve our users and customers."

But the broad nature of Ms Vestager's ruling suggested that it would have far-reaching effects on how Google's products are designed.

Google's problem will start with finding a way to interpret the new stricture from Brussels while leaving its engineers free to innovate. The remedy that Google tried to negotiate with Joaquin Almunia, Ms Vestager's predecessor, would have had a precise but limited effect. This led to complaints from rivals that it would quickly have become irrelevant as technology moved forward, particularly with the shift to smartphones.

"She's done the right thing by not proposing a remedy," said Gary Reback, a Silicon Valley lawyer who represented several comparison shopping sites. "It's up to Google to fix this, and [the commission] will continue to fine Google until they fix it."

If Brussels later rules that Google has not done enough to satisfy its demands, the penalties can be steep: Microsoft ended up paying more than €2bn in fines, most of it for non-compliance.

Google might have more freedom to manoeuvre than Microsoft but will be left with the dilemma of showing that it has acted forcefully enough to prevent a later fine, and a new barrage of complaints, for dragging its feet.

The company could consider two approaches as it rethinks its product strategy in the light of the commission's complaint, according to lawyers for Google's rivals. Both could have profound effects on the future evolution of its products as well as how it monetises them.

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Applying the same principle to search would give users the option to decide which "specialised" services they saw in their search results - for instance, whether they received maps from Mapquest rather than Google Maps when searching for an address.

"I don't think a ballot would be sufficient for rivals - Google would stuff the ballot box," Mr Reback said.

A second approach would force Google to treat its own services in exactly the same way as rivals, one search at a time. That would involve passing its product listings, maps or other services through the same search algorithm to let the best results float to the top.

Some of Google's rivals have already built a test service to show how this could work, forcing Google's results back through its own search box to see how they would rank. Yelp and TripAdvisor, the US companies that built the demonstration, called Focusontheuser.eu, say users of its altered results are 23 per cent more likely to click on them, proving their superiority.

Although the test was limited to local search results, which are not covered in this week's complaint, a lawyer representing another Google rival said it had showed that there was a straightforward solution which would achieve the result Brussels is pushing for.

Yet curbing its developers in this way could tie the company's hands in far-reaching ways. Product search has been a fast-changing area for Google, from the days of its little-used comparison shopping service, Froogle, to the more recent, mobile-centric display of product pictures in a "carousel" appearing prominently in search results.

Commercial self-interest has played a big part in the shifting strategy. Evidence uncovered by the Federal Trade Commission, which carried out its own investigation into Google's search business but did not bring charges, revealed divisions inside the company over how to handle such results.

When Google began to give prominent display to its own product results to win more traffic from rival services, for instance, the company's own advertising team complained that their paid listings were losing business. That prompted Google eventually to change course and start charging for all its product listings.

When such decisions are made in future, the company will have the eyes of European regulators at its back.

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