By Amir Efrati
On Tuesday, the European Union’s antitrust regulator said it was nearing a settlement with Google over whether its Web-search engine disadvantages rivals. Many observers cast the announcement as a major victory for the Silicon Valley titan.
But some important details have been overlooked. If a deal is approved by the EU, it will mark the first time that Google has agreed to demands by antitrust authorities that it make legally binding changes to the way it presents many types of search results. It could also hit the company’s revenue growth by crimping the lucrative category of search results tied to consumer products.
The details are complex but boil down to this: Google has proposed allocating prominent real estate on its search-results pages to promote competing search sites, like travel site Kayak or shopping site Nextag. Such companies will be able to include links to their websites next to links for Google’s own special search sites. Those sites include Google Shopping for product searches, Google Flight Search and many others.
Turning over such real estate to competitors will eat into the space that Google currently uses to display some of the highest-priced ads it sells on its search site, according to a person who has been involved in the EU’s discussions with Google.
For example, today, people who search for terms like “digital camera” see results that prominently feature Google Shopping as well as advertisements from shopping sites like Amazon.com, which appear next to the regular search results for PC users. Under the proposed new EU-Google deal, in European countries, Google will dedicate a “larger space” of its search-results page to show links to rival price-comparison services like Nextag or Shopping.com if a person is searching for certain products. The space will include company logos and “dynamic text…to better inform the user of its content,” European Commission’s antitrust chief, Joaquin Almunia, said Tuesday.
Details of what that will look like will be made public in the coming weeks, according to the person who has been involved in the EU-Google negotiations.
This person says the changes would hurt the revenue growth of AdWords, Google’s primary money-making machine, though it’s difficult to say by how much. AdWords allows any website to bid electronically to display website links alongside regular search results. The revenue hit would be partially offset by a smaller, less-lucrative AdWords-type auction among Google’s search rivals for the new promotional space next to Google Shopping results, for instance. But the auctions won’t be open to a wide variety of advertisers.
Because the EU-Google deal is intended to drive more Web traffic to rival search sites, it will lead to fewer people clicking on Google’s own specialized services. It also would be a hassle for Google’s engineering teams, which would have to create a new advertising-auction system for the rival search sites and overhaul the way results are display on its European search sites, from the U.K. to Greece.
The deal attempts to placate Google’s rivals who have long complained that the search company promotes its own specialized search services like its flight and local-business search above other search results.
Google’s concessions, which include an agreement to let an “independent monitoring trustee” oversee the changes, also set a precedent that antitrust authorities in other parts of the world could use in the future.
Of course, for Google, a settlement is probably preferable to a protracted legal battle that would hurt its reputation and potentially result in major fines, the kind its longtime nemesis Microsoft has faced time and again in Europe.
Google got tangled with EU antitrust authorities in late 2010. After outlining several “concerns” over Google’s practices, EU authorities have been close to settling the matter several times over the past year and aim to wrap things up by next spring. This summer, the EU told the company that its initial proposed concessions didn’t go far enough. Its biggest concern was Google’s heavy promotion of its specialized-search sites in search results.
Google avoided such a dispute in the U.S., where it resolved a multi-year federal antitrust probe by making some non-binding, minor changes to some aspects of its search business in the beginning of 2013.
It’s much too soon to tell whether the revenue impact will be “material” to shareholders, especially because the changes will only affect the European market and not the U.S. But they shouldn’t dismiss the pending EU-Google settlement as a mere slap on the wrist.