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Confused EU Regulators Slam Google

Does anyone else find it even mildly ironic that Google was just fined $2.7 billion in the EU for dominating an area that it doesn’t dominate? Karen Webster does, and she says that the European Commission was so focused on the online search for products over the last seven years that they failed to see that consumers increasingly don’t start their product searches there. Missing that forest for the trees, she says, has some sobering lessons for all innovators.

Nobody can pinpoint the exact origin of the phrase “Can’t see the forest for the trees,” but that hasn’t stopped countless people all over the internet debating its proper citation, grammar and philosophical interpretation.

Where there appears to be common ground, however, is in what the phrase means: Being so focused on the details of one thing can cause people to lose perspective and miss a much more important and relevant bigger picture — often at their peril.

It’s also a great metaphor for what we just witnessed last week when the European Commission found Google guilty of anti-competitive practices over its Google Shopping product and levied a record $2.7 billion fine on them.

This ruling comes seven years after an investigation was opened into these alleged “anticompetitive practices” (November 2010) and two years after Google was formally charged (April 2015).

The saga is well-documented, so I’ll spare you the lengthy narrative. The Cliff Notes version is that a bunch of tiny websites convinced the Commission that Google’s Shopping product put them at a disadvantage when consumers were searching for products. Google Shopping is the little carousel of product images that consumers see at the top of Google’s search results page and for which marketers pay to be there.

These little guy sites, who pushed the Commission to open an investigation in the years leading up to 2010, had some big help — Microsoft.

Suspend disbelief for a minute, if you will, that Microsoft is anything but a little guy, but they do operate a little guy search engine, Bing. In 2010, Bing had just rebranded from Live Search and was being criticized in Europe for not doing much to upgrade the user experience aside from having a new logo on the search results page. It was reported in the news at the time that consumers who might have been persuaded to try Bing after hearing of its rebranding were left disappointed — and might never come back. Analysts said that it lacked basic features that searchers wanted. Back then, Bing held less than a few percentage points’ share of the online search market across Europe.

The little website guys, egged on by big guy Microsoft with its little search engine Bing, managed to convince the European Commission in 2010 that there was reason to believe that Google was manipulating its search algorithms to provide favored placement via Google Shopping. It claimed that Google did that because it made money when it did. Little guys without the budget to pay for such a favored position on Google, they said, never had a shot at getting anyone’s attention — and that was a very bad thing for little guys, since there was no other competition for product search.

Ignoring the fact that there was competition for online search — it just wasn’t very good, and consumers didn’t want to use it.

And since no one used Bing to search for much of anything, little guy websites found Bing generated no traffic for them. Since the little guys didn’t really generate that many clicks on their sites — period — they never had much of a chance to rise in the rankings on Google. And, as a little guy, they said they were unable to afford to buy ads to drive clicks to improve their position — so they were stuck.

Big rich tech giant Google smashing poor little guys (and one big rich guy with a little guy search engine and a grudge). It was music to the European Commission’s ears.

It didn’t take long for everyone else to pile on.

Five years later, there were formal charges filed against Google and four more investigations opened — including a pending case on Android and its bundling of Google apps in exchange for the free use of its mobile operating system.

Culminating in the record $2.7 billion fine, which Google says it will appeal.

Good luck with that, since that Commission hardly ever gets reversed.

The trees in the Google Shopping case that the European Commission saw were online searches conducted by general search engines like Google and Bing. Looking at those trees, they saw that if consumers only used search engines to find new products — and since Google has a dominant share of online searches and since they charge money for advertisers to appear in Google Shopping — they must be doing something harmful to consumers.

But they missed a pretty big forest when they did that: the emergence of other aggregators that have become the starting point for consumer product searches that are increasingly not via Google (or Bing).

In 2015, the year that formal charges were filed, we asked 2,000 consumers where they started their product searches. Search engines came in third.

Who do you think came first? (And your first two guesses don’t count).

Amazon.

Amazon drove nearly 60 percent of the product searches for our consumer sample and for several good reasons: It was easy to buy from Amazon (one click and free shipping for Prime members), and Amazon had amassed a massive roster of products thanks to the addition of Marketplace sellers to the mix.

Merchant sites posted second at 48 percent — consumers who bought stuff at a merchant went back to that merchant when they needed more. Search engines came in third at 40 percent, and many of those 40 percent may have used Google to locate an item, only to click over to Amazon to buy it. Social media posted fourth at 25 percent.

Google Shopping is Google’s attempt to blunt the Amazon effect on their business and to compete with Amazon for the product searches that it has been losing over time. It also appears to be getting the attention of brands, who, themselves, have their own worry beads out over the Amazon Effect on their businesses. According to Google’s Shopping Benchmark study, 2016 was the first year that marketers spent more on shopping ads then text-placement ads; representing about half of their marketing ad budgets.

But the forest that the Commission missed is much thicker than that.

It includes Facebook who, with Google, are now the two big dogs in the mobile advertising dollar game — some 85 percent of all mobile ad dollars are now divvied up between the two of them. Facebook would like very much to be the consumer’s first stop for news and content, shopping and even that occasional friend update every now and then. It’s actively courting businesses, brands and publishers into their walled garden of two billion active users.

Then there’s all the messaging apps who, too, would like to become the one-stop shop for their users for everything, including the products they buy. Messenger has more than one billion active users and hundreds of thousands of commerce-enabled chatbots all there for the searching. WeChat has nearly one billion active Chinese consumers who spend an average of an hour and six minutes a day inside the app — talking, sending money and buying products. Snap with Stories and Sponsored Filters hopes to make product searching — and buying — contextual; Instagram with hashtags and shoppable products has the same ambitions.

The forest also includes a growing roster of vertical aggregators.

Houzz is the go-to for home remodeling and decorating ideas, Airbnb for hotel room alternatives and now airfare and other travel options, Seamless and Grubhub for food ordering and delivery, StubHub for tickets, OpenTable for restaurant reservations, Farfetch for designer fashions from boutiques everywhere in the world, Thumbtack for household repair services. The list goes on.

The forest in 2015 — the year the charges were filed — had also seen a new green shoot: the voice-activated speaker.

That development ushered in a whole new era of search for products and everything else — via an intermediary named Alexa delivered by a voice-activated speaker named Echo. Since then, we’ve seen Google with Google Home, Microsoft with Cortana and Apple with HomePod, enter the market and have heard rumblings that Alibaba and Samsung will give the voice-activated speaker game a go too.

One could argue that in 2010, when the investigation was initiated, seeing this forest wasn’t very easy. But five, six years and seven years later, it is — and was — as crystal clear as the ocean off Turks and Caicos any day of the week.

With its ruling, the European Commission made it clear that they were so focused on the online search engine tree that they missed a dense, green forest of product search alternatives and the perspective that would have provided. A perspective that, if they had cared to look, might have delivered a different outcome, including initiating formal charges in the first place.

As is often the case in situations like these, there are many ironies.

Any hope Microsoft had of this helping Bing was dead before it started. The game to win in 2010 or 2015 wasn’t desktop search, it was mobile. Talk about not seeing the forest for the trees. There, Microsoft and Bing are nowhere, and it’s unlikely that Cortana will save the day either.

There are the regulators.

The commerce space is moving fast, and regulators are the first to acknowledge that. Yet, in this case, they were the first to apply decades-old rules and definitions to the market dynamics for which those rules have long since outlived their relevance. Seven years in tech is a lifetime, and the job of the regulator used to be about standing watch over consumers to make sure they weren’t being harmed by all the innovations that were blasting their way into the market. It’s hard to find the consumer harm in 2010, in 2015 and today, when consumers, if anything, have many more options to find products, many more access devices to help them do it and factual evidence that online search doesn’t have the hold on product searches that the regulators claim it does.

For Google, does anyone but me find it ironic that it’s being fined for being dominant when it isn’t for online product searches anymore? 

Google is the go-to for online searching — it’s why it’s vaunted to the status of a verb. Google’s business model — make search free to the user and charge advertisers who want the certainty of favorable placement — is no different than how any other platform business model makes its money: One side gets services for free, and the other side pays to reach them. Consumers search for free — brands that want certainty about getting those eyeballs on their product pay for those eyeballs. There are strategies that brands can do to get noticed, but it isn’t just about rankings on search engines anymore — it’s about being all the places where consumers are looking for *that* thing and making sure that you’re there.  That’s Google, but a whole lot of other places now too.

Then there’s Yelp, whose CEO had a grin ear-to-ear upon hearing the news. Yelp was also one of the big “little guys” (at two billion annual unique visitors) who claimed to be hurt by Google Shopping’s practices. In a letter to the Commissioner, in June before the verdict was rendered signed by Yelp and several other U.S. companies, the company wrote: “We have watched Google undermine competition in the United States and abroad. Google operates on a global scale and across the entire online ecosystem, destroying jobs and stifling innovation.”

Is now a good time to talk about the Google/Yelp deal that fell apart in 2009 and the bad blood that’s been brewing ever since?

There’s nothing like a jilted suitor — and, it appears, the inability to find a buyer ever since, to make things touchy. The Wall Street Journal reported in May of 2015 that Yelp had retained a banker and was looking for a suitor, given its high operating costs, declining users and revenue and an anemic stock price. But why do that when you can invest in complaining to regulators that might pay out better than investing in innovation and providing a good product? Yelp might get make some money from suing Google for damages based on the Commission’s findings.

For the tech innovators or any big company that’s invested billions in building a company, watch out.

It might not take anything more than a couple of cranky companies to complain about what you’ve built after years of blood, sweat, tears and billions of dollars that they say has kept them from being just like you. It might take a while, but five, seven, ten years later, you might get your shot, since the regulators will break up or break those big guys down to look just like you. Exhibit A — Uber — as I wrote last week. And in the EU, look no further than PSD2 and the regulators’ push to allow licensed innovators access to the billions of dollars of infrastructure that the banks have invested in over the years for chump change so that those innovators can now get access to their customers and their data and compete against them.

Competition used to be about the best (wo)men winning by coming up with great ideas, working their butts off, convincing investors to give them money to expand and dreaming of becoming the next Uber or Facebook or Google or Stripe or Square by giving it everything they’ve got. Now, it seems to be about making sure everyone gets a trophy — and, in the EU at least, the regulators giving out the prizes.

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