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What the EU's Record Fine of Google Will Really Mean for Big Tech

By Motley Fool Staff - Jul 20, 2018 at 1:20PM

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The $5 billion penalty stems from its use of the Android operating system's dominance to crush potential competition.

In this segment from MarketFoolery, host Mac Greer and Motley Fool senior analyst Matt Argersinger disucss the extraordinary fine the European Commission just levied against Alphabet ( GOOGL 1.27% ) ( GOOG 1.23% ) subsidiary Google for anti-competitive behavior.

Google has put some effort into keeping the Android operating system the unchallenged leader in the mobile universe, with Apple happily controlling the only other significant share of the market. But when it comes to monopolies in a space where the product being "sold" is free, regulatory matters get more complex -- and there are other tech giants out there in similar positions.

A full transcript follows the video.

This video was recorded on July 18, 2018.

Mac Greer: Let's start with Google. E.U. antitrust regulators slapping Google with a record $5 billion fine on Wednesday. The issue here is Google using its Android mobile operating system to squeeze out rivals. Google says it will appeal the fine.

$5 billion for Alphabet, which is the parent company, translates to just over two weeks' worth of revenue, so let's not cry too much. No Kickstarter campaign needed. But going forward, what does this mean?

Matt Argersinger: I think it's a really interesting dilemma. In corporate history, we've never had the situation, until the last ten or 15 years, where a company makes a product that's not just free but also pretty good. If users are using it and enjoying it and it satisfies their needs, why mess with that, why hurt the company that's providing that service for free? We can go back several years ago, when the E.U. also fined Microsoft, if you remember, for Internet Explorer. That came as the default search engine for Windows, therefore, they felt it was squeezing out other potential search engines, it's not fair to the competition, users don't know what they're getting and they're just using it because it's there.

I don't know how to solve this problem. I know the E.U. has taken a very strong position on it. We in the U.S. and elsewhere have been laissez-faire with this. We're saying it's a great product. Alphabet is making it free to these phone makers who obviously like having a good, quality operating system on their phones that users can use and enjoy.

The key is, I'm not only getting the operating system as a user. I'm also getting Gmail, Google search, maybe Google shopping, things like that. It's all these bundled things that Alphabet is providing that maybe I'm getting sucked into because I'm using the operating system, therefore I'm using these other apps, and it's crowding out potential competition.

Greer: When we pull back a bit and think about the E.U. and the regulatory landscape there, you have Google, Alphabet, Apple, Amazon, Facebook. Do you think one of these big companies is more at risk going forward, in terms of regulation?

Argersinger: That's a good question. I think they're all at risk because of their dominance. I'm not surprised at Google initially. If you look at Android, roughly 90% of the smartphone users in the E.U. use Android. That's an incredible amount of dominance. Apple is a bit player, if you think about it. That makes me understand why the E.U. is starting there.

But it's the natural step to say, "If Facebook is going to do something," Facebook, by the way, which owns WhatsApp, which is really popular in Europe, "look at the network they have, look at the users they have, and the potential control over that ecosystem that they could have." So, I think all of them are going to be, at some point, susceptible to more fines and more regulation. I think part of it is, it's wonky because we're still figuring out how to regulate big tech. There's not a good answer.

Greer: In Google's defense, when I hear you say all that, in the E.U., there's still 10% of the market they don't have, right? [laughs]

Argersinger: Hey, there you go! Still room to grow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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