How Google found itself ‘on the wrong side of history’

The private lunch in Brussels, a week before Christmas Day in 2012, had an almost celebratory air. Google chairman Eric Schmidt and then-European competition commissioner Joaquín Almunia had come to an understanding.

Mr Almunia had voiced misgivings earlier in the year about how Google was wielding its search engine dominance — particularly, how it promoted its own specialised services over rivals. Normally, regulatory concerns like these lead to formal charges. But in Brussels that day, he and Mr Schmidt believed they had reached a mutual understanding that would head that off.

Barely two weeks later, the search giant had a second victory to celebrate as the US Federal Trade Commission suddenly dropped its own antitrust investigation without issuing a complaint.

But the good feelings didn’t last. The tentative personal accord reached in Brussels turned out to be a misjudgment on both sides. By last year, the tide had turned: in the wake of the Snowden revelations about US internet surveillance, and with a wave of anxiety spreading in Europe about American dominance of the internet, there was little political appetite for an accommodation.

This week, the results of that failure were apparent as Mr Almunia’s no-nonsense Danish successor, Margrethe Vestager, unveiled a formal complaint against Google, marking the most significant tech case since Brussels took on Microsoft a decade ago.

The decision could result in billions of euros in fines for Google — not to mention a web of legal and regulatory strictures that could constrain executives and product engineers for years to come.

Google’s critics in the internet industry say that things would not have come to this if the search company had been prepared to offer real concessions. But one person close to the company countered that no single company could have withstood the profound change in the transatlantic digital climate that has taken place. According to this person, Google has simply found itself “on the wrong side of history”.

Lessons from Microsoft

Mr Schmidt seemed the ideal person to fight Google’s corner in Brussels. A longstanding opponent of Microsoft from earlier in his career, he claimed to have learnt from that company’s antitrust problems and was determined to make sure Google’s growing power did not lead to a similar regulatory car crash.

The two found enough common ground to start a dialogue. The relationship was cordial and businesslike rather than particularly close, according to one person familiar with the situation. The acquaintance was renewed at a subsequent meeting at Davos.

He first met to discuss the case with Mr Almunia on neutral territory, in the rarefied air of the World Economic Forum early in 2011, soon after Brussels had announced its formal investigation of Google.

The personal touch disheartened some of the Google rivals who had lodged complaints with Brussels. One said he had originally been confident of formal charges: “Then we got Davos,” he grumbled.

Both Mr Almunia and Mr Schmidt, however, made serious miscalculations. Mr Almunia’s critics said that the relationship forged in the Swiss Alps left him overconfident that he could negotiate a fix based on a redesign of Google’s search pages that would give rivals a better showing.

A socialist politician who once ran to be Spain’s prime minister, Mr Almunia was proud, strong-willed, and intensely focused on detail. There were meetings where he would take a computer and google things himself to check issues being discussed. Yet he neglected personal relationships with some other commissioners — something that was to come back to haunt him.

After the FTC had given Google a clean bill of health, he became confident his own efforts to constrain the US search group would be seen in a good light. At the time he mused that the commission had received “a gift from the American authorities, given that now every result [we] will get will be much better than the conclusions of the FTC”. Some people involved say this tempered commission demands in the early settlement talks.

Mr Almunia was also allergic to heavy lobbying and grew convinced the anti-Google campaign was largely driven by arch-rival Microsoft, leading him to discount some complaints. Colleagues recall him grumbling: if Steve Ballmer of Microsoft has a problem, why is he sending proxies to see me?

Once the extent of Google’s proposed concessions became apparent, the Spaniard discovered he had a fight on his hands. Under European rules, the proposal had to be released for “market testing” — a process that allows rivals to kick the tyres to see what its impact will be. They did so, and quickly shot back with detailed analyses claiming to show the supposed remedies would be worse than useless.

Undeterred, Mr Almunia went back to Google again — and then, after more complaints, a third time — to extract further concessions. As a result, the process dragged through 2013 and into 2014, just as the political winds in Europe were shifting in a way that would make it harder to get the full 28-member Commission to back a deal.

One reason Mr Almunia dithered was the doubt among some staffers about the strength of their case. Commission economists, in particular, raised concerns about the draft complaint, while lawyers worried the legal arguments advanced were too novel.

If Mr Almunia misjudged what it would take to reach a settlement, then he was not alone. Rather than move fast to close an agreement while he had the chance, Mr Schmidt overplayed his hand. Through an unprecedented three successive offers, Google gave just enough to keep Mr Almunia at the negotiating table — but not enough to tip the commissioner into brushing aside the remaining complaints and moving to close a deal. It was a costly delay.

Mr Almunia’s own agency first suggested the outline of a deal — dubbed “the Dutch solution” — based on a design spotted on Google’s Dutch website. The idea was to guarantee Google’s rivals — in markets such as travel or product search — more prominent links on the company’s search pages.

But Google’s rivals worried the commissioner was ill-equipped to negotiate with Google over the minutiae of search-page design: the tech giant was far better positioned than the commission to anticipate how the changes would affect user behaviour. As the case dragged on, the suspicion spread that Google was merely playing for time and toying with the commission.

Had Google shown a greater sense of urgency about reaching a deal — for instance, by making its third and most far-reaching offer at once — it might have carried the day. But it was confident Mr Almunia had the authority to carry the rest of the commission along. As one person close to the settlement talks observed: “Google bet on Almunia and lost”.

Impact of Snowden

The writing was on the wall by the spring of 2014, as unease in corners of Europe about the growing power of US internet companies began to harden into popular anger.

The Snowden revelations prompted particular outrage in Berlin — and even reminders of East Germany’s Stasi intelligence service — after citizens discovered the extent to which the NSA was using the internet to conduct surveillance.

Google’s own failure to build stronger partnerships in Europe had left it exposed to this backlash, says one person close to the company. Old enemies were lining up to attack: telecoms carriers unhappy about the terms on which they were required to carry internet traffic, news publishers anxious about losing their influence and media companies sore at what they saw as a lack of respect for copyright all had deep grievances.

The extent of Mr Almunia’s isolation finally became clear over the summer. Without strong allies among other commissioners, his chances of mustering enough support for a vote to back his proposed settlement with Google faded. The inevitable came in September: with his own term of office about to expire, he publicly rejected Google’s third offer.

The poisonous legacy of Mr Almunia’s attempted settlements left Ms Vestager no option but to change course when she succeeded him in November, says one close observer of the case.

The daughter of two Lutheran ministers — and an inspiration for the hit Danish television thriller Borgen — was preceded in Brussels by a reputation for steely determination beneath homespun charm.

She took the podium amid a packed press conference on Wednesday to announce formal charges over concerns that the US company’s search engine unfairly promoted its own retail services over those of its competitors.

Facing sharp questions about the decision at an event in Washington on Thursday, Ms Vestager was at pains to project herself as the model of the dispassionate antitrust enforcer, someone stirred into action “exclusively on the evidence before us and our rules”.

Left unsaid was how much had changed in Brussels — and Europe — since Mr Schmidt had come to lunch three years earlier.

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