Sometimes There Are Only A Few Seconds To Adapt

Michael Hedges July 3, 2017 - Follow on Twitter

Seekers of economic wisdom watch for turning points, moments when trends become reality. Technology almost always points the way. Steam engines effectively powered the Industrial Revolution, replacing horse-drawn power. Steam gave-way to diesel, then lighter fuels which, in turn, allowed aviation, forever changing transportation and, arguably, communication. Through this transition rules, conventions and laws changed to facilitate the new and accommodate the old. Horses have survived, their tasks reaching that turning point.

After seven years of investigations the European Commission’s competition office threatened a €2.42 billion (US$ 2.73 billion) fine last week (June 27) on US technology company Alphabet for the anti-competitive behavior of its internet search provider subsidiary Google. A big fine was expected, maybe not that big. Alphabet has 60 days to answer the complaint and change its ways or 90 days to pay up or appeal while placing that big number, or something approaching it, in escrow.

The chief complaint charges that certain Google search results favor paid listings appearing in the Google Shopping box at the top of a search page. “This means that by giving prominent placement only to its own comparison shopping service and by demoting competitors, Google has given its own comparison shopping service a significant advantage compared to rivals,” said the EC Competition statement. Evidence of misconduct provided in the official statement articulated by Commissioner Margrethe Vestager were conspicuously vague.

While the DG Competition decision focuses almost entirely on disadvantage to rival websites, Google’s rebut refers to users. “We believe the European Commission’s online shopping decision underestimates the value of those kinds of fast and easy connections,” wrote Google general council Kent Walker in a blog post (June 27). “While some comparison shopping sites naturally want Google to show them more prominently, our data shows that people usually prefer links that take them directly to the products they want, not to websites where they have to repeat their searches.” Damage to online shopping rivals like Amazon or eBay, he said, are not proven.

Reactions were divided predictably; traditional publishers elated and hoping for more punishment. "The Commission’s decision is a signal that the abuse of a very dominant market position as a utility doesn’t pay off in the long run," said Axel Springer chief executive and German News Publishers Association (BDZV) president Mathias Döpfner in a BDZV statement (June 27)."Next, we have to constructively build a fair and healthy ecosystem between technology platforms and content companies. In that sense, perhaps this decision marks a turning point towards the positive.”

Herr Döpfner’s legendary open letter to Google executive chairman Eric Schmidt set the tone of traditional publishers struggling, as they say, to get the digital genie back into the bottle. “We are afraid of Google,” he said, quoted by Frankfurter Allgemeine Zeitung (FAZ - April 17, 2014), after Google threatened to shutdown its German search portal, as it had in Spain, unless publishers waived provisions of an ill-conceived copyright law. The threat and consequence informed, largely, thinking at the European Commission.

As Google’s competitors - and the politicians who love them - moan about monopoly and barriers to entry, its supporters grouse about punishment meted out for success, being American or grasping the intricacies of the digital age. Since 2012 Google’s (now Alphabet) annual revenue has doubled to US$ 90 billion. A similar investigation by the US Federal Trade Commission (FTC) was dropped in 2013. Digital innovation online has a breathlessly short life-cycle.

“It’s easy for users to go elsewhere because our competition is only a click away,” said Google co-founder Larry Page in an open letter to users on the company website (April 12, 2012). Those attempting to re-draft the rules based on industrial-age thinking are conceptually disadvantaged.

The best joke circulating on social media, seriously illuminating differences between yesterday and today, appeared shortly after online retail (and more) giant Amazon recently moved to acquire US brick-and-mortar food retailer Whole Foods.

Jeff Bezos (Amazon principal): “Alexa, buy me something from Whole Foods.”

Alexa (the voice-activated personal assistant developed by Amazon): “Sure, Jeff. Buying Whole Foods now.”

Jeff: "WHA- ahh go ahead.”

Amazon and eBay have virtually replaced comparison shopping websites, including Google Shopping.

Following Commissioner Vestager’s announcement, the DG Competition website advertised, reported politico.eu (June 29), for an outside consultancy to monitor “processes and methods determining the display and positioning of generic search results” and “visual appearance of comparison shopping services, including the type and granularity of information on the results of the comparison shopping services available to users and the possibility of interaction with the user.” The tender offers a €10 million contract.

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