What's going on?
The European Union (EU) fined Alphabet Inc., the parent company of Google, a record €2.42 billion on Tuesday for abusing its dominant position in internet search – and it matters for other tech giants too…
What does this mean?
The judgement against Alphabet relates specifically to Google favoring its own price-comparison shopping service over competitors in search results (e.g. search the term “grill” and you’ll find Google’s price comparison ads at the top). But the principle at heart of the matter is potentially game-changing: the EU is saying that a company cannot use its dominance in one area to market its own services in another area at the expense of other competitors. For example, that could apply to other types of Google searches (like for locations / maps). Companies like Amazon or Facebook could also be affected (e.g. perhaps it means limiting the promotion of Alexa devices on Amazon’s ecommerce platform).
Why should I care?
For markets: The news wasn’t a big deal for investors.
While Alphabet’s stock sold off more than 2% on Tuesday, it was part of a wider selloff of big US tech companies. €2 billion is little more than a drop in the bucket for Alphabet, which currently has $90 billion in cash. The bigger challenge could be longer term since its business practices in Europe may have to change. With a lengthy court battle to refute this charge looming, it’s unlikely to materially affect Alphabet’s performance in the near term.
The bigger picture: The EU has a history of challenging big US tech firms.
A decade ago, the EU fought an epic battle with Microsoft concerning its Windows product. More recently, the EU ordered Apple to pay €13 billion of back taxes to Ireland. These are two of the more prolific examples, but there are various others. American competition authorities have taken a much less aggressive line, leading to calls that the EU is treating American tech companies unfairly.