According to the Reuters, Google has agreed to pay Rbs439m (roughly $7.8m, or 9% of Google’s turnover in Russia) in fines and “rewrite its contracts with smartphone manufacturers” under a settlement agreed with the Russian competition authority on Monday April 17th.
The Russian authority had found in September 2015 that Google had abused its dominance in the smartphone operating system (“OS”) market by concluding agreements with smartphone manufacturers that prevented downstream competitors in app development from reaching the market through pre-installation on the Android OS. The authority also found that Google had forced manufacturers using Android that wanted to preinstall some of Google’s apps to in fact pre-install all of Google’s apps (also known as illegal bundling or full-line forcing). Manufacturers were also forced to place Google’s apps in prominent positions in the Android interface and to set Google Search as the default search engine.
Yandex, a Russian search engine, had complained that Google’s requirements were excluding it from the market for general internet search by ensuring that Google Search was the exclusive search engine on the Android home screen and the default option on the Chrome web-browser.
Under the settlement, Google has agreed that manufacturers will in future be able to install other search engines on the home screen and that users will have the option of changing the default option on both the home-screen and in the Chrome browser. Google will no longer insist on its apps being preinstalled exclusively on Android, nor will it insist that its own apps are given pride of place on the Android home-screen.
Interestingly, it seems that Google will still be able to force manufacturers to take “all or none” of its apps under the settlement, so long as those apps can be positioned anywhere within the Android interface, potentially alongside competing third party apps. This is a heavy blow to the European Commission’s case against Google, where this forced bundling forms a primary allegation of abuse. However, as several authors have noted, the “all or nothing” requirement is justified because it a) gives users a consistent out-of-the-box experience; b) enables Google to monetise the Android platform, where it would otherwise have to be licensed to manufacturers at a price; c) gives developers a consistent set of apps with which to integrate and call upon when developing new apps for the Android OS.
Google has also agreed to include a “choice screen” with the next update of the Google Chrome app, prompting users to change their default choice of search engine. Google has already confirmed that it has signed a deal with Yandex, a Russian search engine, to include it in the choice screen. This is reminiscent of the remedy Microsoft agreed to when the EU accused it of illegally tying Internet Explorer to the Windows OS. There, Microsoft agreed inter alia to push an update to Windows users prompting them to select a new default web-browser from a list of 12 competitors. The Commission stipulated that the choice screen was to be presented to users such that there would be no expression of bias for “Internet Explorer or any other web browser.”
The settlement highlights competition authorities’ growing hostility towards platform monopolists that promote their own downstream products by harnessing consumer default-bias. The European Commission has famously applied this notion of foreclosure in two cases, both concerning Microsoft’s practices of bundling its downstream applications with the Windows OS. The theory also applies to the Commission’s ongoing investigation into Google’s prominent placement of its comparison shopping service in general search results. However, default-bias is a prevalent strategy in competitive markets. For platforms, it often constitutes the optimal balance between promoting vibrant downstream competition (which in turn increases the attractiveness of the platform itself), while monetising the platform’s own downstream offerings. For example, Apple preinstalls a plethora of its own apps to enhance the attractiveness of the iOS platform, while at the same time aggressively advertising third party applications (recall the “There’s an app for that” campaign). Back in 2007 (pre-Android’s explosion onto the scene), Apple did not facilitate any downstream competition. All in all, default-bias can act as both a facilitator and inhibitor of competition. Authorities will need to pay heed to the actual effects of such a strategy on competition.
I have written a paper about the European Android case, which delves deeper into the issues raised above. It is forthcoming in the European Competition Journal.