Google’s regulatory burden may be stiffening at home

Google’s antitrust problems in Europe are mounting. But now the search giant could be facing an even bigger concern: Scrutiny at home.

Officials from the U.S. Federal Trade Commission have met with multiple Internet travel and hospitality companies in the last couple weeks to talk about Google and gather information about the company’s potentially anti-competitive practices on mobile, according to sources familiar with the matter.

The discussions center around issues the FTC has long considered but never acted upon with enforcement, said the sources, who asked not to be named because the talks are confidential. Specifically, the agency is asking for evidence proving that Google favors its own listings in mobile search to the detriment of consumers and competitors. Also, regulators want to know whether sellers of Android phones are forced to bundle in Google apps, giving them favorable treatment over rivals.

A spokesperson for the FTC declined to comment as did a representative from Google.

To date, the U.S. has been safe ground for Google and its parent Alphabet. The FTC has investigated Google in the past, closing its previous probe in early 2013 after Google agreed to change certain practices but was cleared of any claims that search results were biased.

Across the pond, it’s a different matter. As part of a five-year investigation, the European Commission, the executive body of the European Union, sent two statements of objection to Google on Thursday saying the company has “abused its dominant position.”

The Commission reinforced the EU’s position that Google has favored its own results in shopping searches. Separately, it said that Google has restricted third-party sites from placing search ads from competitors.

“The FTC is probably feeling pressure to look at Google again, even though they gave Google a clean bill of health on search in the past,” said Michael Carrier, a professor of antitrust law at Rutgers University in New Jersey. “This is a high-profile issue in terms of the money at stake and the amount of time we all spend on search.”

Google and Alphabet have 10 weeks to respond to the European Commission.

In a blog post regarding the Android complaint, Google said that it’s built an operating system to give consumers choice at affordable prices, while also letting manufacturers choose which outside apps to pre-install.

“We take these concerns seriously, but we also believe that our business model keeps manufacturers’ costs low and their flexibility high, while giving consumers unprecedented control of their mobile devices,” the company said.

In Canada, an investigation was brought to a close in April. The country’s Commissioner of Competition found Google was generally not engaged in anti-competitive practices and that consumers there can change the search engine on their device “if they prefer a different one to the pre-loaded default.”

Even before the latest announcement out of Europe, U.S. regulators were showing more interest in the matter. Politico reported in May that FTC officials were talking to one company about Google’s dominance in search. That followed an April story in the Wall Street Journal, which said that FTC staffers had met with companies about Android-related tactics.

Last month, Senator Elizabeth Warren (D-MA) gave a speech in Washington, D.C., slamming Google’s practices and saying that Europeans may “soon enjoy better protections than U.S. customers.”

Google has long been preparing for a fight in Washington. The Mountain View, California-based company spent $5.5 million in congressional lobbying in the first quarter, more than any other technology company. And Recode reported in April, citing the Campaign for Accountability, that Google’s head of public policy Joanna Shelton has met with White House officials 128 times during President Barack Obama’s administration, topping all visits from the telecommunications and cable industries combined.

The issue facing Google in mobile search is pretty straightforward.

The company has increased the number of ads on the top of some pages from two to three. Now, if you do a search on “hotels in San Francisco,” you’ll see ads occupying the whole first screen. After that, there’s a map, followed by three listings, all with Google reviews. Not until scrolling down to the third page is there an organic result from another provider. In this case, it’s Hotels.com, which is owned by Expedia, followed by Kayak, a property of Priceline Group.

Type in “doctors in San Francisco,” and you may see two ads, followed by three options from Google before getting to a result from ZocDoc, an independent medical booking site.

Priceline, which also owns Booking.com and OpenTable, spends an estimated $2 billion-plus annually on Google ads, and Expedia is also a major Google customer. They can still pay for placements, but those companies and others can no longer count on organic search results for prime mobile visibility.

Yelp, the local review site, has historically been the most vocal Google critic, with founder and CEO Jeremy Stoppelman repeatedly attacking the company for monopolistic behavior in search and even for scraping Yelp’s reviews to use as its own.

In 2014, Yelp teamed up with TripAdvisor and a few other companies to create a web tool designed to remove the Google bias from search and see how results differ. More recently, an academic paper from Columbia Law School professor Tim Wu (a former FTC adviser) and Michael Luca of Harvard Business School showed that Google’s search tactics “sacrifice product quality in the pursuit of the exclusion of its competitors.”

Yelp’s data science team worked with Wu and Luca on the report.

Representatives from Expedia, Priceline, Yelp and TripAdvisor declined to comment. ZocDoc didn’t respond to a request for comment.

The emergence of Android as the most popular smartphone operating system in the world has added a new wrinkle to the antitrust story against Google.

Android controls two-thirds of the global market on phones and tablets, according to NetMarketShare. In the U.S., Android isn’t quite as dominant, capturing 53 percent of the smartphone market in January, compared to 44 percent for Apple’s iOS, according to ComScore.

The operating system is open source, giving hardware manufacturers the ability to customize their devices. But to what degree? Google has separate apps for services like maps, email, videos, messaging and books, with each facing competitors in the market.

Whether Android is forcing manufacturers to bundle and pre-install Google apps is a big question the FTC is exploring, the sources said.

Not that we should expect a formal investigation in the immediate future, at least not before the presidential election in November.

FTC Chairwoman Edith Ramirez, who has served under Obama since early 2013, has repeatedly referred back to the Commission’s unanimous decision that year not to take action against Google.

As recently as March, in a Senate Judiciary subcommittee hearing on antitrust, Senator Al Franken (D-MN) asked Ramirez about Google’s preferencing “of its own products and services in search results.”

Ramirez responded by reminding Franken of the 2013 decision and said, “We continue to be watching the marketplace vigilantly and if we see a problem we are going to take action.”

Source: CNBC