Google: innovation and monopoly

The statement of objections the European Commission has brought against Google for alleged breaches of competition law over its management of the Android operating system once again highlights the Jekyll and Hyde nature of one of the planet’s most valuable companies, which on the one hand is able to create platforms that encourage innovative ecosystems, while at the same time struggles with everyday problems in planning its longer-term growth.

Google’s Android strategy is well known and differs little from those used in the past by giants such as IBM: create an open platform that any manufacturer can adopt free of use, and then use it to sell its machines, and using competition as a stimulus, create a continuing process of improvement. That’s how Apple lost its lead in the PC market in the 1980s, and then again in the smartphone segment which it redefined in 2007 with the launch of the iPhone.

Google’s initial response to the European Commission was to highlight the role it has played in creating a smartphone ecosystem through Android.

“Android has helped to create a notable and sustainable ecosystem based on open-code software and that drives innovation. We hope to continue working with the European Commission to show that Android is good for competition and for users.”

But there can often be a large gap between a good idea and its execution. It would appear that the development of Android reflects a genuine desire to promote innovation, to expand the ecosystem and to lower prices for consumers, while driving competition, all things the European Commission accuses Google of not doing. Therefore, the argument seems not to be about ideas and intentions, which are all obviously good, but about execution.

Google defends itself by saying that Android is an open platform and that there are any number of cases where other manufacturers have taken the core of an operating system and created forks, new versions of Amazon’s Fire OS or CyanogenMod, which work independently of Google, and that the company has no problem with. It’s free, somebody takes it, they modify it, and they make money from it. So far, so good.

Needless to say, most people with an Android terminal lacking all the apps Google loads it up with such as Gmail or Google Maps, wouldn’t head for their nearest app store to install them ASAP. Google apps are generally very good and a lot of people use them. What’s more, anti-monopoly legislation cannot punish a company for being successful and creating products people want. Once again, everything seems above board.

In which case, what’s the problem here? According to the European Commission, and the Russians, which is probably where it got the idea (and maybe even the template) from, Google has been up to the following:

• Oblige manufacturers to preinstall Google, its Chrome navigator and set Google as the default search engine.
• Prevent manufacturers from selling phones based on systems like Chrome. OnePlus, a Chinese manufacturer, decided to stop using CyanogenMod in its OnePlus One and use Android with a simple additional layer, OxygenOS, on its subsequent models, the OnePlus 2 and the OnePlusX was presumably the result of these kind of pressures.
• Offer financial incentives to makers of terminals and to operators that preset Google as the default search engine on them.
• Condition access to certain apps, particularly those related to Play Store to the use of the Android operating system on versions approved by Google. In the case of FireOS for example, used by Amazon on its Kindles, Play Store is not there, which led Amazon to develop its own apps store (although the decision could have been made by the company itself).

The question is more complex than it might initially seem. On the one hand, Android is free, meaning comparisons with the United States vs. Microsoft Corp. in 2001 are not appropriate. This is an operating system that is financed through advertising, or through the apps that can be bought in its Play Store, which leaves it open to accusations of bundling.

This would clash with the Apache licensing clause that Google chose for Android and that allows for its modification. This business-friendly license is an integral part of Android, and is what allows manufacturers to come up with arguments based on differentiation. An argument along the lines of: “You can’t just have the bit that interests you and ignore the stuff that makes us money,” is invalidated by the terms of the license. And as we all know, licenses are like marriage: in sickness and in health.

At the same time, people do want Google Maps, Gmail, or even Play Store on their phones. The idea of selling a smartphone without this stuff doesn’t make much sense if people like it. Therefore, even though the presence of these apps can be explained, Google’s monopoly hold on the market would allow it negotiate with manufacturers about not installing its apps as default in return for accepting its restrictive conditions.

As said, squaring the circle on this one isn’t going to be easy. If it makes no sense to punish Google for having got where it is by creating things people want, it might make some sense to do so on the basis of the restrictive contracts it imposes. What’s more, it’s clear that these restrictions are going to cause problems down the line: given Google’s monopoly, most people will download its products anyway.

The decision seems clear enough: ask to see the contracts Google makes manufacturers and operators sign, establish whether there are restrictive clauses, and fine on that basis. In Russia, the courts decided to invalidate contracts, requiring Google to reformulate its restrictive clauses. Once again, Google is behaving like Dr. Jekyll and Mr. Hyde: by day creating things people want, and by night forcing restrictive contracts on manufacturers.

(En español, aquí)