IMD International

EU vs. Google is misguided and politically motivated

IMD Professor Reacts: Mike Wade says the internet giant is being unfairly targeted in Europe

December 3, 2014 

The European Parliament recently passed a non-binding vote urging anti-trust regulators to break up Google's various businesses. Europe has had Google in its sights since 2010 and the tech giant has had to deal with privacy issues, the erasing of "right to be forgotten" search results and other controversies on the continent.

The recent attempts by the EU Parliament to censure and control Google's activities are misguided and possibly politically motivated.

Google is successful largely because it offers a good product for free. The vast majority of people use the Google search engine by choice and find the results to be helpful. Users are not forced to use Google search in a monopolistic manner. They have the choice to use other free-of-charge competing services like Bing or Yahoo.

Competitors exist, but they are simply not as good as Google, which has an estimated 90% internet search market share in Europe.

The EU's suggestions to force 'neutral search' results – an attempt to stop Google from manipulating the results to its advantage – are completely misguided. Google uses an algorithm to predict the most relevant results. Of course this is biased – towards Google's interpretation of the most relevant results. But the vast majority of users agree with what a Google search presents. What would a neutral search yield? Random results? It is difficult to see how this could be at all helpful to internet users.

Advertisers are also free to use competing services, although Google does have a huge market share in advertising. However, Google's prices are not unreasonable. Its largest revenue source – adwords – is based on a series of auctions. Google does not set fixed prices. Demand and supply determine the prices paid. When it comes to Google's second largest revenue source – Adsense – the company gives back a healthy 70% of all revenue to clients.

From a business perspective, Google is in trouble in the long term due to its high reliance on clicks to advertisers' websites. No clicks mean no revenue, and people are clicking ads less often. Google knows it needs to innovate to survive. Governments should be encouraging companies like Google to innovate, not trying to stifle them.

Apple is a much more dangerous potential monopolist. Google's Android is open but Apple's iOS isn't. Apple's ecosystem is largely closed and tightly controlled.

All in all, the action against Google seems not to be coming from the grass roots of the EU population, but from legislators wishing to protect local interests and score points by bashing an easy target.

Michael Wade is a Professor of Innovation and Strategic Information Management at IMD. His interests lie at the intersection of strategy, innovation, and information management. He is co-director of the Orchestrating Winning Performance (OWP) program and teaches in Leading the Global Supply Chain (LGSC) and the Breakthrough Program for Senior Executives (BPSE).

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