EKIP– Expert Club for Economics and Politics A Different Opinion
Author: Georgi Zayakov
On June 27, the European Commission (EC) imposed an unprecedented fine of 2.4 billion euros on Alphabet, the parent company of the internet giant Google. The reason – according to the EC, Google’s search engine favors its own “Google Shopping” platform and harms smaller independent shopping platforms, pushing them significantly further back in the results (often as low as the fourth page, which few users reach). In short, the EC views the supply of an internet search engine and the supply of a shopping platform as two vertically integrated markets. According to them, Google’s dominance of the “search engine market” harms competition in the “goods market”. Even if we assume that there is reason in this, it seems as if the EC has completely ignored other stakeholders in its analysis – end users and all the companies using Google’s shopping platform.
What is Google's algorithm?
Both the Internet search engine and the shopping platform offered by Google have one main feature – it is completely free for the end user. If he had to go from store to store to compare prices in the era before the advent of shopping platforms, now he can relatively quickly find the most suitable and cheapest offer for himself with a few clicks. The Google shopping algorithm is designed in such a way that the platform favors the products with the lowest price in the results. If the same product, for example sneakers, is offered by several companies, then the one offered at the lowest price will be shown to the user first.
At the same time, every day Google's robot indexes the page where the specific product is located and in case the price differs from the one the merchant has announced on the shopping platform, the product is temporarily suspended until the merchant updates the information. In this way , Google ensures two things – 1) merchants will always have an incentive to offer the cheapest products possible, 2) consumers will not be fooled by cheap prices in advertisements that do not correspond to more expensive offers on the company's website.
Does it really harm competition?
The platforms of Google's two biggest competitors in the shopping segment – eBay and Amazon – operate in a similar way. The difference is that with them, merchants pay high commissions, which are subsequently included in the price of the product. For this reason, end users regularly buy a given product for about 15% more. If merchants decide to support their offers on these two platforms with additional advertising, the market process becomes even more expensive.
From this perspective, Google Shopping allows for much more competition between merchants and higher margins for them.
It is worth mentioning here that smaller platforms, such as Foundem (the company that complained to the EC about Google), PriceGrabber, Shopping.com and Nextag offer less variety to users. They also regularly contain links and advertisements that ultimately lead to the big three – Amazon, eBay and Google. It is worth mentioning that even if 90% of the “search market” is dominated by Google, these platforms have many different ways to reach end users on the Internet – advertising on TV, advertising on Facebook, flyers, etc. Google is not obliged to give them Internet traffic. Last but not least, users are autonomous individuals and decide for themselves which offer is the best for them and how much it is worth searching for. If the majority of them currently decide to make a purchase by clicking on the top results, then the deal is worth it and the current system is functioning well.
Google algorithm change would hurt small businesses
Since competition is the main concern of the EC, it should not be overlooked that if Google changes its algorithm and more internet traffic starts going to independent shopping platforms, then small traders will suffer. The reason is simple – most of them have a small number of employees. If we assume that every company with up to 50 people has 4 employees in the marketing department, we can easily see how overwhelming the task will be to optimize advertising across multiple channels.
Google alone offers 4 different advertising platforms (search engine, display ads, shopping platform and email platform). If we add its major competitors Bing (2 channels – search engine and shopping platform), Amazon and eBay, we see that the capacity can hardly be reached even for them. What if marketers have to chase traffic on 3-4 more platforms? The biggest problem in the field of digital marketing is data collection, and the more unconcentrated the traffic, the less and poorer the data for optimization. This will lead to a greater consumption of resources, less efficiency, lower profits and fewer users who ultimately find the product they need.
In conclusion, the concentration of the “search engine market” or the “shopping platform market” is not a bad thing. At the moment, both merchants and end users benefit from the dominant position of Google and its other major competitors. It is best for the EC not to interfere and not to artificially impose changes that satisfy the lobbying interests of a few companies. In this way, it sends a signal to them that instead of looking for better innovations, they can wait for politicians to do their job and give them profits for nothing. In the end, everyone loses from such wrong incentives.
Източник на изображенията: Google
First, the article does not get to the heart of the problem: the promotion of Google's own service - i.e. it is antitrust. The arguments put forward do not distinguish the fact that one Google product promotes another product, without giving equal treatment to other platforms. There is no evidence for the hypothesis that "The Google Shopping algorithm is designed in such a way that the platform mainly benefits the products with the lowest price in the results. If the same product, for example sneakers, is offered by several companies, then the one offered at the lowest price will be shown to the user first."
To top it off, we also reach contradictions:
"It is worth mentioning that even if 90% of the "search market" is dominated by Google, these platforms have many different ways to reach end users on the Internet - advertising on television, advertising on Facebook, flyers, etc." - what does this argument have to do with anything???
Finally, if anyone has been involved in digital commerce, they would know that small merchants generally use only one, maximum two platforms. Their equal positioning in the search engine would give them a better market outlet than the obligation to use Google Merchant.
What I claim that the cheapest products are promoted on the shopping platform is true and has been proven with reverse engineering, done with a large database coming from the shopping accounts of several large European companies. There is no contradiction that despite this, users could find a cheaper product somewhere for the simple reason that the internet is huge and a good offer can pop up from anywhere. However, this does not mean that it will be on a competing shopping platform. It could be on a page that ranks well in organic search or does not rank there at all. However, this is not a problem with Google Shopping. And precisely because I have been involved in digital commerce for several years, I know well that small merchants deal with exactly 1-2 shopping platforms - Google and eBay/Amazon. No one has time to look for cheap alternatives that cannot bring a lot of quality traffic. In this case, you clearly do not differentiate between someone being a merchant and selling something and someone being an intermediary / shopping platform. De facto, you want to bring another intermediary into the deal, who will collect another commission.
Georgi Zayakov,
Again, you don't comment on the problem of Google using the dominance of its search engine to promote its platform.
Microsoft was similarly fined for imposing its web browser on Windows.