Europe Could Learn From Russia's Google Ruling

This article originally appeared at Bloomberg View

As the European Union presses its antitrust case against Google, Russia has already completed its own.

Paradoxically, the Russian case was successful because Google doesn't have anything close to a monopoly there. In fact, it is where the company faces its strongest local competition outside of China.

On Monday, the Russian Federal Antimonopoly Service gave Google until Nov. 18 to redraw its contracts to conform with those for mobile device manufacturers that sell in Russia. A FAS investigation established that the U.S. company required Android mobile phone and tablet makers to preinstall Google applications and use its search engine by default if they wanted the devices to have access to the Google Play app store.

Russia isn't the only country where Google makes such demands. The tech news site The Information reported late last year that the company had asked gadget makers such as Samsung and Huawei to preinstall 13 of its apps, prominently display them, provide access to Google search from their home screens and make their engine the default in browsers.

Google gives away its operating system, which is why it dominates the market: In the three months that ended in June, 82.8 percent of all smartphones sold ran Android. Google gets revenue from Android phones by getting users to use Google services and see Google ads. Google shares ad revenue with some of the bigger manufacturers to sweeten the pill.

This has triggered antitrust proceedings against the company in the EU. The European Commission has been investigating since April, but hasn't reached a conclusion. Google is now fighting other charges from the European antitrust authorities that have to do with its prioritization of its own comparison shopping service in search results. 

In Europe, Google is a monopoly. It has more than 90 percent of the search market in most member countries, so the attention from antitrust regulators makes sense. In Russia, Google's  search share is just 32 percent. Yandex, the Russian search engine (which preceded Google by a year or so) has 57 percent.

Google has never liked being second, and it has used each of its new products to gain some share. For example, unlike in other countries, it didn't ask Russian users of its Chrome browser to select their default search engine. Still, the Yandex brand was so powerful that the local company managed to retain market share. It fought back, creating its own version of open-source Chrome and advertising aggressively.

The advent of Android, however, changed things. As Yandex founder Arkady Volozh explained to the business daily Vedomosti last year: "It's impossible to create an ecosystem around you if you're a local player. Yandex has 3 percent of the global market. It's impossible to persuade developers to write applications for your platform."

He said successful platforms were "natural monopolies" and conceded that Yandex had a weak position in its dealings with equipment manufacturers: It offered the same services as Google -- maps, free e-mail, search. The Russian company's business model so closely resembled Google's that it had nothing to offer when Google decided to play hardball, using its platform advantage. Yandex's search market share sank as Google gathered strength:

Then, in February, Yandex complained to the Federal Antimonopoly Service. Given the political climate in Russia and the government's distrust of all things Western, especially regarding companies that work with Russians' personal data, justice was quick.

Last month, FAS declared Google in violation of the Russian antitrust law. FAS's head, Igor Artemyev, said Google had committed "one of the scariest violations possible," not merely demanding preferences for itself but also a "boycott" of analogous Yandex services.

Yandex shares spiked after the decision was announced but then fell to their lowest level in five years. News that Google has been ordered to amend its contracts has caused another modest rise, but it's not likely to be sustained, even if Google follows the FAS decision to the letter.

Russian users, however, could get more choice: Phone manufacturers will be allowed to preinstall Yandex apps and remove Google services from their phones. They also also will see a more blatant prompt to choose their preferred search engine on a new phone. 

Google also will pay a fine -- 1 percent to 15 percent of application sales through Google Play, up to a maximum of $10 million. Neither that nor the required contract changes will really hurt its business in Russia: Android users are loyal to Google, the U.S. company has far superior resources, and Yandex is probably destined to watch its market share erode unless the Russian government intervenes in a more heavy-handed way. 

The Russian case, however, is bad news for Google in Europe. The company needs to change its global contracts to the model required by FAS, otherwise the financial penalties will be heavier once the EU bureaucratic machinery finally gets into gear and produces formal charges. Google doesn't have to be evil to make money, and imposing services on consumers is a bit evil, in authoritarian Russia as in European democracies.