Roughly a month ago European Commission (EC) competition chief Margrethe Vestager said that Google’s efforts in shopping search were making progress and that the company would likely be able to avoid additional antitrust penalties. However in a new open letter to Vestager, EU shopping comparison rivals argue that things are actually getting worse for them.
The backstory. In June, 2017 the EC fined Google roughly $2.7 billion for alleged abuse of market position in vertical (shopping) search. Following that decision, which Google is in the process of appealing, Google implemented a number of changes to provide “equal treatment” for rival Comparison Shopping Engines (CSEs) in Europe.
The major change Google made was to treat Google Shopping as a separate business unit with its own operating budget that would compete with other shopping sites to appear in Google Product Listing Ads (PLAs). It also said the business unit would operate at a profit. All parties would now theoretically compete on equal footing to appear in PLAs.
‘Harm continues unabated.’ According to the letter’s signatories, that’s not how things are playing out. Signed by the leaders of 14 CSEs, the letter states, “It has now been more than a year since Google introduced its auction-based ‘remedy’, and the harm to competition, consumers and innovation caused by Google’s illegal conduct has continued unabated.”
The letter argues there’s no material difference between the new approach and the previous system, which was found to violate EU antitrust rules, except that Google has to compete to appear in PLAs. However, the CSEs dismiss that change as “meaningless.”
The shopping sites object to the PLA auction itself, saying it compels them to “bid away the vast majority of their profit.” They dismiss Google’s participation in the auction, as an independent unit that has to achieve a profit, as “meaningless internal accounting.” They also argue that because users who click on their PLAs go directly to merchant sites and not the CSEs themselves, they have no opportunity to “derive value from the process.”
Rejecting the auction entirely. They also argue that the auction harms consumers because it is “all but eradicating” a “thriving [online] comparison shopping market in Europe.”
The letter concludes that, “As long as placement is determined by auction rather than relevance, it makes little material difference whether competitors occupy none, some, or even all of the available slots. In all cases, Google is the main beneficiary of any profits derived from these entries, and consumers are the main losers.”
Without specifying a desired alternative approach, beyond implying it should be based on “relevance,” the group encourages the EC “to enforce its Prohibition Decision by rejecting Google’s non-compliant ‘compliance mechanism’ and demanding an effective remedy that adheres to the principle of equal treatment set out in the Decision.”
Why it matters. The outcome of Google’s appeal in Europe could still be a couple of years off. In the interim it will have to comply with the EC’s decisions. And while Google and its stock have mostly been impervious to even multi-billion-dollar fines, the CSEs’ letter could put pressure on the EC to compel additional changes in shopping search results or an entirely new approach in Europe, which would certainly impact everyone across that 28 country market.