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Google Inc's Android Gets Hit By An Antitrust Probe

By Leo Sun - Sep 30, 2015 at 1:00PM

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Is Google intentionally locking out competition in Android?

The U.S. Department of Justice and the FTC have launched a new antitrust probe into Google's (GOOG -1.29%) (GOOGL -1.34%) Android operating system, according to Bloomberg. The regulators launched the probe after meeting with several tech companies that claimed that Google limited their access to Android to promote its party apps. EU regulators launched similar probes into Google's business practices earlier this year.

Source: Google.

If Google is found guilty of these charges, it might need to unbundle certain apps from its OS -- which would be similar to Microsoft (MSFT -0.23%) being forced to unbundle Internet Explorer from Windows back in 2001. Let's discuss whether the charges against Google are justified, and how they could cripple its ability to fend off Facebook's (FB 1.18%) growth.

Does Google have an unfair advantage?
Over 80% of smartphones worldwide run on Android, according to IDC's latest numbers. Yet the actual number of Android devices which come bundled with Google services is significantly lower. Certain countries like China block Google services. In these markets, devices are "forked", which means that they run a version of Android stripped of Google services. Other companies, like Cyanogen, create forked versions of Android that appeal to smartphone makers that don't want to be tethered to Google.

According to ABI Research, nearly 30% of Android devices shipped in the fourth quarter of 2014 were forked. This means that Google services are probably installed on less than 60% of all smartphones worldwide.

But that's still a massive market share, and Google has kept baking in more services with each new version of Android. The newest version, Android Marshmallow, tightens Google's grip on third-party apps with features like Now on Tap and Chrome Custom Tabs. The former lets Google scour the content of an app to pull up relevant Now cards, while the latter turns Chrome into the default "web view" browser inside apps. Those new features might be helpful, but they are also tether apps, and their user data more tightly to Google's ecosystem.

Android Marshmallow. Source: Google.

Google's rivals previously complained that it intentionally prevents their apps from gaining prominent positions on Android devices, and blocks their ability to become pre-installed default apps for certain services. FairSearch, a coalition of tech companies including Microsoft, told the Wall Street Journal that Google "used a range of anticompetitive tactics," and "made it more difficult and expensive for fresh, innovative companies to reach the market."

This isn't the first time the FTC has taken aim at Google. Back in 2012, the FTC investigated Google after its competitors accused it of scraping rival sites for content and favoring its own shopping, local, travel, and other sites over competing sites in search rankings. The FTC eventually dismissed those charges in 2013 due to a lack of clear evidence.

Bad news for Google
If U.S. and EU regulators kneecap Google and force it to unbundle its first party apps from Android, it would gather less data from its users for its targeted ads. Those gaps will help out Google's top rival, Facebook, which generated more mobile display ad revenues in the U.S. than Google last year.

Facebook tethers third-party apps to its News Feed with single sign-ons (SSOs). As long as Facebook's SSOs remain active, it can mine data from those apps and leave Google out in the cold. With Marshmallow, Now on Tap and Chrome Custom Tabs can piggyback off third-party apps and help Google mine data regardless of which SSO is active. But if regulators put those features under the microscope, they could decide that they abuse Google's position as an OS provider to mine data from third-party apps.

A ruling against Google could help rival services -- like HERE Maps, Dailymotion, Bing Search, OneDrive and Cortana -- gain ground against Google's first-party apps on Android. That could hurt any Google strategy that relies on the different parts of its ecosystem to work in unison.

The key takeaway
Microsoft didn't escape its antitrust reckoning unscathed, and neither will Google, in my opinion. Google will likely need to make some compromises with its rivals, and those changes could make it easier for third-party apps to compete against Google's most important apps on Android. That change could also make it much harder for Google to fend off evolving challengers like Facebook.

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