Brussels takes aim at Google’s mobile strategy: what the Android antitrust case is about

Some initial reflections on the landmark decision  

19 July 2018 (Hania, Crete, Greece) – In the global regulatory battle with Big Tech, mark that Europe: 2, Google: 0.

Margrethe Vestager, Europe’s competition chief, announced a record €4.3 billion ($5 billion) antitrust fine yesterday against Android, the search giant’s popular mobile software. It comes just over a year after she announced a separate €2.4 billion ($2.8 billion) financial penalty linked to some of the tech giant’s search services. Google denies wrongdoing and is appealing both charges.

Google’s Android mobile operating system is based on open-source software, but some of the most useful parts of it – Maps and Search, for instance – are proprietary, and the company makes sure that anyone wanting to use those features has to use other services that make it money too. And for Europe’s competition chief, Google’s iron grip on Android meant controlling open source by any means necessary. That behavior constitutes abuse of a dominant market position. And while the fine won’t have much effect on Android users, device makers or service providers, the legal remedies that usually accompany such findings could mean bigger changes to the way Google licenses Android, and in particular access to its search tools and Play store. As Andrew Orlowski noted in his overnight blog post in The Register:

What convinced the European Commission that it had a Microsoft-scale competition problem on its hands with Google isn’t a mystery. Google engaged in a carbon copy of ’90s Microsoft-style tactics. Google leveraged its platform dominance in Android to promote its own services and apps, at the expense of third-party services. It was Internet Explorer and Windows Media Player all over again.

Well, not quite. Google today is much bigger than Microsoft was when the U.S. found the company was breaching antitrust law. Google yields Alphabet $95bn in revenue from ads; Microsoft raked in $22bn in 2000 – $32bn in today’s money – when the first judgements were handed down. There are billions more devices. And Google technology is far more pervasive than Microsoft’s ever was. [Note: I am talking mobile here. Granted, Microsoft is everywhere … on almost every desktop and across all enterprise companies. As McKinsey noted in a recent report “probably 87% of white collar workers are forced to use Windows PCs”]

And for those of you saying “what about Apple?” — well, different story. Apple has less than 20% share in EU so it is not a monopoly, And they only sell their own hardware. The Commission’s view is that Google is abusing because it forces it’s search and other apps on all equipment manufacturers using its app store, hence anti-competitive.

As Jack Mambry said in his Politico column this morning “by focusing on Android, which is free to use and powers more than three-quarters of the world’s smartphones, the European Commission is taking direct aim at Google’s aspiration to be central to people’s digital lives increasingly run through mobile devices”.

In yesterday’s announcement, the commission objected to three practices (which I will detail at the end of this post) in particular:

1. the requirement to preinstall Google Search and Chrome,
2. payments to phone makers to make Google Search the default, and
3. restrictions on creating “forks” of Android.

Quoting a few snippets from Vestager’s press conference which I recorded and watched in its entirety:

Google has used Android as a vehicle to cement the dominance of its search engine. These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere. This is illegal under EU antitrust rules.

Android is locked down in a Google-controlled ecosystem [she detailed how manufacturers were interested in licensing Amazon’s FireOS Android. But by making even one FireOS phone, the OEM would have lost the ability to include Google Play Store on its other devices]

Google cannot have its cake and eat it. Google has been breaching European competition law since 2011. It dominates licensable mobile operating systems [over 95 per cent], app stores [over 90 per cent] and mobile search [over 90 per cent in most European countries].

The fine reflects the seriousness and the nature of the violation of Europe’s antitrust rules. At a minimum it requires Google to stop and not re-engage in the three types of restrictions I have described.

Google’s initial response late yesterday:

Android has created more choice for everyone, not less. A vibrant ecosystem, rapid innovation and lower prices are classic hallmarks of robust competition. We will appeal the Commission’s decision.

Understanding the history of the Android smackdown

I have been involved in the technology, media, and telecom (TMT) sector … sometimes also referred to as the technology, media, and communications (TMC) sector … for well over 20 years. This industry segment covers a broad range that breaks into sub-sectors such as semiconductors, hardware, software, mobile, Internet, networking, etc. My e-discovery unit only handles the TMT/TMC sectors.

There has been a stream of articles and analysis over the last five years (the best from The Register and arstechnica) reporting on the EU competition authority homing in on Google’s MADA (Mobile Application Distribution Agreement) contracts. These specify what a phone maker is and isn’t allowed to bundle with the phone, right down to the placement of icons on the home screen. The carrot is access to Google Play Services, nominally administered through third party compatibility tests. The stick is non-compatibility. As one Google executive admitted in an email: “We are using compatibility as a club to make them [OEMs] do things we want.”

Although the Android AOSP base is open source, Google moved more and more key functionality into the ever-growing GMS (Google Mobile Services) stack: into proprietary middleware. As noted in one article in The Register:

Android GMS is a big binary blob that you must integrate. Google has ratcheted it up over the past year. When you sign a MADA, you know it will change. Google added 5,000 new calls to Android L alone. A phone without access to GMS struggles even to get an accurate location fix.

And there have been some theatrics. Spending a fair amount of time in Brussels, I heard a lot of the “backroom chatter”. When the EU commission’s initial inquiries were met with an unusual silence, the Commission had to get tough. Phone makers weren’t talking, and it had to remind them it had the power to fine them if it suspected they were withholding information. The information then flowed.

And when the new competition commissioner, Margrethe Vestager, came on board she made it quite clear she wasn’t impressed by the “cosy chats” her predecessor (Joaquín Almunia) had been having with Alphabet chairman Eric Schmidt, and the glacial progress over the Android investigation. In 2016 she threw out his deal with Google and slapped a $2.9bn fine on Google for abusing its search dominance to squeeze out verticals.

In April that same year she sent out a formal Statement of Objections on Android, alleging it uses Android to kill competition. It identified the three areas of abuse I outlined above.

Oh, gimme some of that Old Time Religion of Closed Source Creep!!

So let’s climb into the Waaaaaaay Back Machine to November 2007, when the Android Open Source Project (AOSP) was announced. The original iPhone came out just a few months earlier, capturing people’s imaginations and ushering in the modern smartphone era. While Google was an app partner for the original iPhone, it could see what a future of unchecked iPhone competition would be like. Vic Gundotra (at Google he was the brains behind Google’s social networking, and widely credited for his major contributions to Google Maps) had made a huge pitch to buy the mobile operating system Android (invented by non-Googlers but modified and further developed by Google). He argued (as described in a released email) that if Google did not act, “we faced a Draconian future, a future where one man, one company, one device, one carrier would be our only choice”. Google was terrified that Apple would end up ruling the mobile space. So, to help in the fight against the iPhone at a time when Google had no mobile foothold whatsoever, Android was launched as an open source project.

Now, in that era, Google had nothing, so any adoption — any shred of market share—was welcome. Google decided to give Android away for free and use it as a trojan horse for Google services. The thinking went that if Google Search was one day locked out of the iPhone, people would stop using Google Search on the desktop. Android was the “moat” around the Google Search “castle” — it would exist to protect Google’s online properties in the mobile world.

Ah, how things changed.

Android went from zero percent of the smartphone market to owning nearly 80 percent of it. Android has arguably won the smartphone wars, but “Android winning” and “Google winning” are not necessarily the same thing. Since Android is open source, it doesn’t really “belong” to Google. Anyone is free to take it, clone the source, and create their own fork or alternate version.

As we’ve seen with the struggles (and collapse) of Windows Phone and Blackberry 10, app selection is everything in the mobile market, and Android’s massive install base means it has a ton of apps. If a company forks Android, the OS will already be compatible with millions of apps; a company just needs to build its own app store and get everything uploaded.

NOTE: you will hear a lot about “forking” in this antitrust case. In software engineering, a project fork happens when developers take a copy of source code from one software package and start independent development on it, creating a distinct and separate piece of software. The term often implies not merely a development branch, but also a split in the developer community, a form of schism. Free and open-source software (i.e. Android) is that which, by definition, may be forked from the original development team without prior permission, without violating copyright law. However, licensed forks of proprietary software (e.g. Unix) also happen.

In theory, you’d have a non-Google OS with a ton of apps, virtually overnight. If a company other than Google can come up with a way to make Android better than it is now, it would be able to build a serious competitor and possibly threaten Google’s smartphone dominance. This is the biggest danger to Google’s current position: a successful, alternative Android distribution.

And a few companies were taking a swing at separating Google from Android. Quoting from a piece in arstechnica:

The most successful, high-profile alternative version of Android is Amazon’s Kindle Fire. Amazon takes AOSP, skips all the usual Google add-ons, and provides its own app store, content stores, browser, cloud storage, and e-mail. The entire country of China skips the Google part of Android, too. Most Google services are banned, so the only option there is an alternate version. In both of these cases, Google’s Android code is used, and it gets nothing for it.

It’s easy to give something away when you’re in last place with zero marketshare, precisely where Android started. When you’re in first place though, it’s a little harder to be so open and welcoming. Android has gone from being the thing that protects Google to being something worth protecting in its own right. Mobile is the future of the Internet, and controlling the world’s largest mobile platform has tons of benefits. At this point, it’s too difficult to stuff the open source genie back into the bottle, which begs the question: how do you control an open source project?

Google has always given itself some protection against alternative versions of Android. What many people think of as “Android” actually falls into two categories:

 1. the open parts from the Android Open Source Project (AOSP), which are the foundation of Android, and

             2. the closed source parts, which are all the Google-branded apps

While Google will never go the entire way and completely close Android, the company seems to be doing everything it can to give itself leverage over the existing open source project. And the company’s main method here is to bring more and more apps under the closed source “Google” umbrella.

And boy can they play games.

There have always been closed source Google apps. Originally, the group consisted mostly of clients for Google’s online services, like Gmail, Maps, Talk, and YouTube. When Android had no market share, Google was comfortable keeping just these apps and building the rest of Android as an open source project. Since Android has become a mobile powerhouse though, Google has decided it needs more control over the public source code.

For some of these apps, there might still be an AOSP equivalent, but as soon as the proprietary version was launched, all work on the AOSP version was stopped. Less open source code means more work for Google’s competitors. While you can’t kill an open source app, you can turn it into abandonware by moving all continuing development to a closed source model. Just about any time Google rebrands an app or releases a new piece of Android onto the Play Store, it’s a sign that the source has been closed and the AOSP version is dead.

I also think that Google’s own Project Treble may have been designed with this decision in mind: it offers users the prospect of receiving updates more timely but also cements the role of Google Play Services even as it makes AOSP more attractive to some manufacturers.

Payments to phone makers to make Google the default? Well, depends on whether you’re a monopoly, right?

For those of us who work in antitrust law, a common story. Corporation undertakes “Behavior A”. Perfectly legal. But then Corporation becomes a monopoly and the same “Behavior A” is now no longer legal.

When you become a monopoly, many behaviors that you may have engaged in previously, or that other corporations currently engage in, become illegal for you to engage in now, but those other non-monopolies can continue to engage in those behaviours now forbidden to you. So as a monopoly provider of phone operating systems, it is illegal for Google to pay handset makers to make Google search their default search. However, since Microsoft, Yahoo and DuckDuckGo are not monopoly phone operating system providers, and also are not monopoly search providers, it would be perfectly legal for them to pay handset providers to set their search engines as default.

I don’t think that’s a  difficult concept as it’s brought up frequently whenever a company gets fined for “anti-trust activity” for doing what seems reasonable or that other companies are doing. It’s perfectly straightforward: once you become a monopoly the rules change, your behaviors become more constrained than when you aren’t a monopoly.

The focus on those big fines

As always, the bureaucrats focus on monetary fines. In reality, a more effective sanction would be to freeze important elements of a company’s commercial activity. Yes, I know: we can’t just go around and invent funky, crowd-pleasing new punishments. There are “rules” … I think.

But this past May at the annual Global Competition Review conference in Brussels (the journal is the world’s leading antitrust and competition law journal and news service) we had a riveting discussion of “What if …”

1. For example, work out the penalty, but rather than extract it in cash, impose a ban on new customer sign up or new product sales to create a similar financial impact. It’s much more embarrassing for the offending companies to have sales call centres “frozen”, or explaining to prospective customers that they’re legally prevented from doing business for a period.

2. Another alternative in the present case would be to prohibit commercial data transfers into Google for a given date range, creating a hole in their time series data aggregation (including a ban on “backfilling” the gap in future).

I suppose competition authorities could invent some “funky punishments” (not knowing the exact terms I am just throwing this out there) under the title of “remedies”. These can be “structural” such as breaking up a monopoly, or they can be “behavioral” in which case it is a measure imposed to persuade a company to change its ways. And short of corporal and capital punishment, perhaps very little is ruled out.

But if the authorities deem any action to be an appropriate means of changing anti-competitive behaviour, surely they can impose it, or negotiate it under threat of a more conventional but even less welcome alternative. I think of how Microsoft had to put in a browser choice screen. That was at the time a “funky remedy”. At the Global Competition Review conference I noted above, one presenter noted the UK had done a similar thing by imposing a sales ban under the terms of energy supplier licences as punishment for misdemeanours, and while that’s rather separate from competition law, it shows that the concept of a retributive temporary ban on commercial activity has been used by the state to change behavior.

Some detail on the present case

EU law is markedly different from U.S. law. Due to a change in legal thinking and practice in the 1970s and 1980s, antitrust law in the U.S. now assesses competition largely with an eye to the short-term interests of consumers, not producers or the health of the market as a whole; antitrust doctrine views low consumer prices, alone, to be evidence of sound competition. By this measure, for example, Amazon has excelled at gaming the U.S. antitrust system (fodder for another post).

The EU approach is more about being anti-competitive against other companies through abuse of monopoly position and going from dominance in one market into another market through a company’s monopoly, much like how Microsoft used its lawfully obtained monopoly in PC operating systems to enter the browser market and deny companies from using Netscape which harmed consumers.

This is the background/context of the EU Commission’s complaint about Android. So just a few words based on the Commission documents and my own history of the industry:

1. Android became a lawful smartphone monopoly almost at its inception when all major cellular carriers and phone manufactures in the world created the Open Handset Alliance with Google to adopt Android as a 100% open source platform which it called the Android Open Source Project (AOSP). Cellular carriers and phone manufactures agreed to abandon or significantly reduce their non-Android phones and related services.

2. Google used the term “Project” and not “Product” in AOSP so that naive technology executives, the press, and tech enthusiasts would believe that you can take the AOSP source code and create a mobile operating system and therefore all that the device manufacturers would only need to develop a custom look or “skin” to differentiate between a Samsung built Android device and a Motorola developed Android device.

3. Of course a mobile operating system also needs a core set of apps and cloud services including the phone app for telephony, a calendar app for appointments, a camera app for photos and videos, an SMS app for sending and receiving text messages, an browser app for surfing the web, a search app for web searches, and a mapping app for directions. Since Google had the best email system in GMail, the best search engine in Google.com, the best map software in Google Maps, and the best Android app market, it knew that it could make money from the free and open source Android operating system because it was impossible for any single device manufacturer or cellular carrier to provide these vital apps and services.

4. So what happened was cellular carriers such as Verizon would then partner with ODMs (original device manufactures) such as Motorola to create the “Droid” brand of Android devices to distinguish the same Motorola Android phones and tablets which it sold and which AT&T sold. NOTE: Verizon even when so far as to license the mark “Droid” from the creators of Star Wars.

5. But these cellular carrier branded devices contained specialized apps aka “bloat-ware” which could not be removed from the consumer’s device. The ODMs were also required to add hidden software which allowed the cellular carriers to manage and monitor the use of “their” devices because those devices where connecting to their cellular networks. Though these types of “management” software were used to diagnose network and device problems, they were also known as spyware because they could be secretly activated by a any number of companies. This was exposed in 2011 when Carrier IQ hidden software was identified and ODMs admitted that they were required to install Carrier IQ by the cellular networks in addition to other apps such as photo storage apps and address book apps.

6. As I noted above, those apps interfacing with Google cloud services were packaged “as big blob of closed source software” and contained the Gmail app, Google Maps, and other apps and services are are collectively known as the Google Mobile Services (GMS). Cellular carriers would require each ODM to use the Google Mobile Services.

7. In 2009, Motolora partnered with SkyHook to swap out the immature Android location software component and use the then industry standard SkyHook software allowing map apps and other location-based apps to be more accurate that Google’s built-in apps. Google allegedly threaten to pull the Google Mobile Services GMS license from Motorola if it partnered with SkyHook. In 2010, SkyHook sued Google  for “violations of Massachusetts law prohibiting unfair and deceptive trade acts and practices stemming from Google’s anticompetitive conduct and Google’s bad faith, knowing and intentional interference with plaintiff Skyhook’s contractual and business relations with Motorola, Inc. and other current and potential customers”.

8. After allegedly strong arming the ODM Motorola, Google then modified Android to remove the open source location component and moved that into the Google Mobile Services (GMS) layer.

9. In 2011, the Chinese cloud provider Alibaba created a new mobile operating system for China based on Linux and its own cloud services called Aliyun much like Google created Android based on Linux which is connected to Google’s cloud services. The Aliyun operating system provided a virtual machine in which some Android apps could run much like Google’s Chrome operating system can also run Android apps. Acer was an established licensee of Android and days before Alibaba could announce it’s development and deals, Google allegedly threaten to pull Acer’s license to use the Google Mobile Services GSM if it supported Aliyn and Alibaba. Alibaba stated that Google actions against Acer was “clearly unfair to consumers and we are concerned about the impact on customer access to competitive products”. 

10. But after 10 years of Android, core apps for search, maps, camera, calendar, email, SMS, etc are available from dozens of app developers and would allow an ODM and cellular carrier to install alternative default apps and services so Google mandated that its apps in closed source Google Mobile Services (GMS) layer had to be the default much like Microsoft required Windows licensees to have make Microsoft’s browser and search engine the default.

11. So even after “weaponizing” the Android open source operating system though the contractual imposition of the Google Mobile Services (GMS) layer, Google still continuing to miss its goal of leveraging its Android monopoly to benefit its cloud services. So in 2016, Google announced that it was building a replacement to Android called Fuchsia though pro-Google bloggers claim that the fundamental purpose of Fuchsia is to mitigate Android’s inherent security problems ensuring all mobile devices in the future would receive timely security updates and new features much like how Apple does with iOS.

 

CONCLUSION

I will revisit this case as it progresses. But three points:

1. Europe’s stance is arguably six to eight years too late. The commission is shutting the stable door after the horse has bolted. A related problem is that there is no clear alternative to Android. Apple’s iOS is an alternative from a consumer perspective, but Google has definitively beaten any licensable alternatives. Had the commission’s determination been made even five years ago, it would have opened a door of opportunity for others such as Microsoft. Today most contenders are themselves built on an Android code base.
2. And although a move to separate apps from the operating system (a suggested remedy) may help foster competition over the longer term, Android has served its purpose in cementing Google services in consumers’ minds. Even if devices are shipped without these apps, users will seek them out. Any move to unbundle Google apps from the platform is likely to have limited impact on competition, at least in the short to medium term. I suspect that, given a choice, many users will happily install and use Chrome, GMail, Google Maps, etc.
3. The comparison with Microsoft and Internet Explorer isn’t perfect but still interesting: Microsoft had largely stopped working on the browser and was actively attempting to prevent the development of HTML; even though it’s market leader, Google is still actively developing Chrome, which it hopes at some point will become the runtime of choice.