Google’s $2.7 Billion Fine: Why This Could Hurt More Than It Helps

Pat Kreidler
By Pat Kreidler

As you’ve probably read in any number of major news publications by now, Google was recently fined $2.7 billion for violation of antitrust laws by European regulators. Margrethe Vestager, who is the Competition Commissioner for the European Union is spearheading this effort, and is also well-known for taking similar action against Apple for owed back-taxes to Ireland, the sum of which was approximately $14.5 billion after assessing interest fines.

What happened with Google is significant, because the EU asserts that Google is using its dominant market position as a search powerhouse to repress other retailers and price comparison sites. This is detrimental to competitors as this is obviously very effective and desirable advertising real estate.

The EU argues that by limiting the visibility of Google’s top search or price comparison competitors like Bing or Amazon, it limits competition. This, Vestager argues, damages the user experience and does the consumer a disservice by limiting their choices and ability to accurately compare and assess pricing options.

Now Google has 90 days to correct its algorithm to open their shopping marketplace to the competition or else they risk being sanctioned to pay out 5% of their daily revenue until this takes place.

While levying this fine makes a statement about Google’s marketplace monopoly, does it really help the consumer as much as people think? Additionally, is this a good or bad thing for advertisers that use Google as their primary channel?

While this fine is intended to open up marketplace competition, there are two primary consequences that can arise that may not be beneficial to advertisers. Here are a few of those shortcomings to keep in mind as we see things unfold.

Increased Competition – Beneficial Or Detrimental?

As Google advertisers are well aware, CPC fluctuation is dependent on varying levels of competition. Due to the real-time auction bidding, the greater the competition, the higher the CPC, and vice-versa.

The intention of this antitrust action by the EU is to increase marketplace competition by limiting Google’s ability to repress or neglect to show results for other big providers like Bing or Amazon. This makes sense right?

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In actuality, this has the potential to further repress competition among smaller retailers in a major way. Companies like Bing or Amazon not only will dominate shopping results when price-comparing, which limits other retail visibility, but they also possess an immense amount of purchasing power, enabling them to bid highly on CPCs across the board. And because CPC is determined on an auction basis, advertisers will likely see CPCs increase significantly. The more businesses that are willing to pay $.01 more than the competition, the higher CPCs will go.

This poses a potential threat to the small to mid-sized online retailer, who doesn’t have those kinds of financial resources or leverage. If they can’t keep up with rising CPC costs, their ad position will slip, which decreases their visibility and thereby their potential transaction volume and value.

Should this occur, it becomes harder for that small retailer to meet a high enough revenue threshold to break even with their ad dollars spent, which then causes Google to be a hard channel to continue investing their ad spend in.  If those smaller and mid-sized retailers should act on this and pull out of Google due to lack of revenue return, this will leave only the big players in the space that can afford it.

In this instance, increased competition actually hurts the advertiser, and provides even more limited price comparison options for the consumer, which is the exact thing this EU action is intended to mitigate.

How Will This Affect User Shopping Experience?

As mentioned, this antitrust action brought about by Vestager and the EU aims to increase user shopping experiences by providing more visible options for price comparison and vetting. That being said, another aspect of UX that is hugely important is the ease of user path to purchase. In that respect, allowing other price comparison sites, or eventually even Bing and Amazon, into the Google shopping auction adds a new layer of convolution to the online buying process.

Essentially, open auctions for Google shopping would allow other online retailers and marketplaces to show their Product Listing Ads on Google’s shopping results. Some of those retailers and marketplaces, using Bing and Amazon as examples again, are 3rd party marketplaces like Google. So, in effect, should a user feel compelled to click on an Amazon or Bing ad, they will be taken to an avenue that has a whole other layer of clicks that need to occur before checkout.

Think about the user intent here – people type in transaction and product-related queries to Google not because they are seeking additional information about just any product, but because they are likely looking for a specific product and are ready to buy.

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Search Engine Land’s internal data demonstrates that 80% of shopping ads convert within the first 5 days, and that they bring in twice as many conversions. This isn’t necessarily because they are more effective, but because the user intent represents someone who has progressed farther along the buyer’s journey and is more qualified to purchase.

The more clicks you add to the checkout process, the higher the drop-off rate will be with each successive click. This will hurt advertisers and online retailers, but will also hurt the very consumer that this action is intended to protect by elongating the process. Down the line, this has the potential to cause people to stop using Google as their service, which hurts Google, the consumer, the advertiser and the retailer all at the same time.

What Will Happen Next?

So, all that being considered, what will happen from here? As mentioned, Google has 90 days to correct this aspect of its search algorithm at the risk of Alphabet Inc. (Google’s parent company, estimated to have spare cash assets of $90B in total) being fined 5% of their daily revenue. That being said, Google’s General Counsel has issued a statement stating that it is reviewing the EU’s decision, and may be waging an appeal.

In the case of the back-taxes owed by Apple, the appeal process was used as a filibuster to exhaust the EU’s lawyers in court. The situation with Google is far different than that, in that the EU issued Google the equivalent of a cease-and-desist order. Further, according to an article byBloomberg, Google will have to change these business practices within 90 days, and demonstrate tangible progress in that effort by the end of 60.

There could also be more trouble for Google coming down the pipeline. Vestager noted that Google’s rivals can now attempt to claim compensation for this in national courts. This opens the door for much smaller price comparison sites and search engines from around the world to go after Google when it’s down. The EU also has two more pending antitrust cases open against Google for both it’s Android software, and Adsense (an online advertising service they provide.)

As an advertiser, but more importantly as a digital marketer, these are all factors that could potentially affect not only how you do business, but the manner in which you conduct it in Google’s marketplace. As we’ve seen, while the intention of this case is to increase competition and facilitate positive shopping experiences, therein lies the potential for negative consequences to come about that affect retailers, price comparison sites, advertisers, and consumers simultaneously.

An algorithm change is nothing of small consequence, as we’ve seen specifically with SEO over the years, and it will be very interesting to keep a pulse on how the impending change affects PLA’s and the overall product shopping landscape from the perspective of both the advertiser and consumer over the next 60-90 days.

 

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Pat is a Paid Media Specialist and Digital Account Manager at Power Digital. Having graduated from SDSU with a Marketing degree, he loved the fact that digital marketing incorporates both your business savvy, as well as your creativity. He has extensive knowledge in Google Search, GDN, YouTube, PLA's and Cross-Channel strategy, and has a passion for getting great results for his clients.