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When the first Android phone was put on sale a decade ago, Google made a bet: its free operating system would hook smartphone manufacturers, allowing it to run apps and boost its business online advertising.
Now, this business model may require an upgrade.
On Wednesday, the European Commission found that Google was abusing its power over the industry, fining it $ 5 billion and calling on the internet giant to rewrite contracts with dozens of partners. The regulator ordered Google to stop forcing these partners to bundle its Search and Chrome apps on devices that also include the Google Play Store for third-party apps.
Google, who said he would appeal the ruling, rejected the block issued formal charges more than two years ago. Google claims that Android, which is free for manufacturers to use, has increased competition among smartphone manufacturers, lowering prices for consumers. Google also claims that the allegation that it blocks competing applications is false because manufacturers typically install many competing applications on Android devices and that consumers can download others.
"Today's decision rejects the commercial model that supports Android, no less,"
Sundar Pichai,
The general manager of Google, said in a blog following the decision.
Brussels gave Google just 90 days to make changes that could threaten the mobile industry. They could also present significant challenges for Google.
The company, owned by
Alphabet
Inc.,
is a mobile superpower that is expected to generate more than $ 60 billion in revenue this year through mobile advertising, according to eMarketer Inc. This would represent 44% 's Alphabet & # 39; s According to S & P Global Market Intelligence, the total business figure is estimated at $ 136 billion in 2018. This domination is partly due to a mere compromise: in exchange for Free supply of Android to smartphone manufacturers, Google asks them to offer preloaded devices. such as search, YouTube, Gmail and Google Maps. This allowed the company to collect vast amounts of smartphone data from these popular apps, then design and target ads for users.
In its decision, the EU concluded that Google's bundling of search and navigation applications "reduced incentives for manufacturers to pre-install competing search and navigation applications, as well as user incentives to download such applications. " the EU found that this "reduced the ability of competitors to compete effectively with Google".
Therefore, Google may be forced to offer new terms that would give more freedom to phone manufacturers and telephone operators for their own applications. with Google's rivals or even instruct Google to pre-install its apps.
"This could give mobile phone companies, or carriers, a better way to extract payments from Google"
Mark Mahaney,
an badyst at RBC Capital Markets, said before the decision of the EU.
The decision also forces Google to allow phone makers to offer their own custom operating systems based on the open source version of Android. This requirement could make it harder for Google to offer a single, standardized version of its mobile software on which all Android apps can be used
Android can be installed by any manufacturer without Google apps. But to access Google's Play Store, which hosts thousands of applications created by external developers, Android device manufacturers must sign a "mobile app distribution agreement" with Google.
Google does not publicly disclose such agreements. Two of these documents were however admitted as exhibitions at a patent and copyright filing in 2012 between Google and
Oracle
Corp.
, stipulated that a dozen Google applications must be "preinstalled" on the devices. The agreements require that Google be set as the default search provider and that the search and the Play Store appear "immediately adjacent" to the home screen, while the other Google apps are not over. 39, a screen.
the agreements no longer require manufacturers to make Google the default or exclusive search engine on their devices.
The impact of any change imposed by the EU's decision on Google's ability to target ads and its profitability is an open question. The two targeted apps in the EU's decision, namely Google's search and its Chrome browser, are extremely popular in themselves. Consumers are likely to search them from an app store even if they were not pre-installed on the phone, said
Tarun Pathak,
An Analyst from the Counterpoint Research Firm
Today, Android phones come with 11 apps, each of them generating different revenue for Google. YouTube displays ads. Google Drive sells 100 gigabytes of storage for $ 2 a month. Last May, Google sent a push notification to some Google Photos users, suggesting that they buy a photobook for Mother's Day.
And Google has its own influence on smartphone manufacturers, if the EU opened Google's door for the placement of the application. The Internet giant could counter by demanding payment for Android. Mr Mahaney of RBC notes that there are not many competing options.
The last decade, Google was struggling to compete as a mobile player. Its leaders thought that owning the largest mobile operating system would be the key to the future of computing, said
Sumit Agarwal,
A former head of mobile product management at Google
"Owning the OS was a matter of owning destiny," says Agarwal.
In 2005, Google paid $ 50 million to acquire Android, a small startup behind a new touch-screen phone operating system. The original plan of the Android team was to provide free basic software to mobile operators, but to charge them for additional features.
This was abandoned when the company started discussing a sale with Google executives. They saw a different business model, said
Nick Sears,
one of the co-founders of Android. "The idea that they launched us was:" If you come to Google, we could have a different business model and we could make Android free for everyone, "said Mr. Sears.
Google wanted to collect data and show ads to millions of people who were considering conducting searches or watching videos on Android-powered phones, a Google spokesman declined. to comment on the characterization of negotiations.
The first Android phone, manufactured by
HTC
Corp.
, delivered in 2008. Within two years, Android has surpbaded the iPhone in sales of new phones. Dozens of handset manufacturers have adopted the operating system to push back
Apple
.
-Sam Schechner contributed to this article.
Write to Douglas MacMillan at [email protected]
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