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Google Inc’s Android’s operating system has come to dominate the world’s smartphones. Now, regulatory pressure could chip away at that leadership.
The Federal Trade Commission is investigating new concerns about whether the company is violating antitrust laws by stifling competitors’ access to Android, according to people familiar with the matter. European regulators are also probing Google’s operating system, which holds more than 80% of the global market.
The FTC reached an agreement with the Justice Department to spearhead an investigation of Google’s Android business, said two people familiar with the matter. FTC officials have met with technology company representatives who say Google gives priority to its own services on the Android platform, while restricting others, added the people, who asked for anonymity because the matter is confidential.
The inquiry is in its early stages, and it could end without a case against the company. Regardless, it shows the FTC is again turning its attention to one of America’s biggest companies, two years after it closed a separate investigation into Google’s Internet search business. The FTC’s handling of the earlier probe left some technology companies sceptical of the agency’s willingness to bring a case, according to the people.
Spokesmen for the FTC and Google declined to comment.
The Android mobile platform ties together several Google products, including search and maps, into one bundle, echoing the even more dominant Microsoft Windows platforms of nearly two decades ago. In 1998, the US claimed Microsoft unlawfully protected its Windows monopoly by keeping computer makers from promoting Web browsers that competed with its Internet Explorer. Microsoft agreed, in a settlement four years later, to end the anticompetitive conduct.
The practice of bundling products and services together may violate antitrust laws if a company dominates the market for a product that customers need, and then forces them to buy a complementary product or service, said Harry First, a law professor at New York University. If consumers can go to other manufacturers to avoid the bundled product, there’s likely no antitrust violation, First said.
“The question for Android is do they really have sufficient market power, particularly in a world where there are other mobile-phone operating systems?” he said.
With its latest Google probe, the FTC returns to the arena of one of its most bruising battles of the past half-decade.
The FTC reached a so-called clearance agreement with the Justice Department to review the Android platform, said the two people familiar with the matter. That decision was made in the past few months, according to one of them. The FTC and the Justice Department, which both have mandates to enforce antitrust laws, use the clearance process to decide which one is best suited to lead a particular investigation. The Justice Department declined to comment.
While there’s no guarantee the FTC will even bring a case, much less find wrongdoing, a ruling against Google could hamper its ability to compete with Apple Inc and Microsoft Corp for advertising dollars. Google could be forced to let smartphone and tablet makers swap out core applications such as search, maps and YouTube for others. That would mean forfeiting reams of valuable data the search giant uses to target consumers and sell ads, which account for the bulk of its business.
“It makes zero sense business-wise,” said James Cakmak, an analyst at Monness, Crespi, Hardt & Co. “It’s all about data, and without data, you are nothing.”
Google spokeswoman Gina Scigliano declined to comment.
Android ties several Google products, including search and maps, into one bundle, much the way Microsoft did with Windows almost two decades ago. That means if you buy an Android phone, you automatically get Google maps and the Chrome browser, among other services.
While manufacturers are allowed to hide Google apps and put their own forward, they can’t delete some of the Google ones, said Frank Gillett, an analyst with AT Forrester Research.
In Europe, Microsoft was eventually forced to unbundle Internet Explorer from its operating system and then watched its share of the browser market plummet to 22% from 54% in the space of about four-and-a-half years, according to data compiled by StatCounter GlobalStats. Something similar could happen to Google’s Gmail, Maps and Chrome if the company is forced to unbundle those and other services.
Under pressure, Google could make moves to appease regulators, according to Harvard Business School associate professor Ben Edelman. One might involve rewriting contracts with manufacturers to remove language that requires the bundling of services.
“One natural response would be to remove the offending provision from the contract and tell everyone ‘we had these rules and we’re taking it out because we thought about it and thought it was a bad idea,”’ said Edelman, who has worked for Microsoft.
Another possibility is to give phone and tablet buyers more choice - letting them download the apps they want when they first buy the phone and delete the ones they don’t. That would be painful because Google’s whole business model depends on using its free apps to grab as many people as possible and mine their data.
“Maps and Chrome would be a huge deal,” Cakmak said. “If you can’t target, then you’re in trouble.”
The EU’s European Commission, which has the power to levy fines, has been gathering information by sending out a series of requests for information to original equipment manufacturers, application providers and network operators, said people familiar with the probe. Regulators are still going through the information, said the people, who requested anonymity because the matter isn’t public.
The Brussels-based EU regulator declined to comment on the US probe when asked on Friday. The commission’s own “investigation is ongoing,” said spokesman Ricardo Cardoso in an e-mail.
If the commission moves ahead with the case, it would have to lay out its main concerns in a so-called statement of objections, which gives the company an opportunity to respond.
The regulatory probes could hinder Google’s efforts to improve the consistency of the software that runs on multiple devices made by multiple manufacturers. For years, developers have complained that making applications for different hardware, all with different size screens and processors, is much harder than developing apps for Apple’s more orderly universe of iPhones and iPads.
“I have to say that increasing the coherence or consistency of experience would be a good thing for Android,” Gillett said.
Given the regulatory scrutiny, however, Google will probably move more carefully with Android - hampering its ability to bring fresh innovations to market.
“I have no doubt these things are being discussed in Googleplex hallways,” said Al Hilwa, an IDC analyst. “This is just an ongoing issue for Google.”