Google fined $5 billion – not that bothered
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Google fined $5 billion – not that bothered

The European Union (EU) has broken new ground by levying the largest ever fine on a technology giant. The fine in question stands at $5 billion, and the company in question is Silicon Valley heavyweight Google. But - while there's no doubt that the fine is considerable, and that it sets a precedent, and that it may give Google's competitors a little more wiggle room than they previously had - analysts, investors and the company itself don't seem all that bothered.

Alphabet's share price has appreciated by 14% so far this year

graph 2007 google

SOURCE: Yahoo Finance

Google has the mobile operating system market sewn down, with Android OS holding 77% of the market. It’s software is “open source” meaning any developer can use it, which is how it managed to get such a massive lead over Apple’s iOS and other competitors (although Apple, with 19% of the market, is the only other operating system worth discussing for these purposes). There’s only one catch with Android: Google’s core services have to come pre-installed if users want access to the Play Store (which includes over a million programs).

EU regulators think this (admittedly lucrative) agreement between Google and smartphone makers is anti-competitive. They told Google to “cease its behavior” and renegotiate contracts with manufacturers. The three services they took aim at were, unsurprisingly, Search, App Store and Web Browser. This is a direct attack on the most lucrative element of Google’s Android: it’s a way to get its most powerful products into people’s hands without them actually having to seek them out themselves.

The EU hasn’t strong-armed Google into any particular requirements, but Margrethe Vestager, the bloc’s antitrust chief, suggested that an “obvious minimum” is that the “contractual restrictions disappear.”

There’s no doubt that this might open a window for some of Google’s competitors to see more installation on mobile phones. After all, not everyone who buys a smartphone is going to choose Chrome to browse the web, are they? Well… they might, actually. Google has become so ubiquitous, and its software is so much more powerful than most of its competitors, that compliance with the EU’s ruling might not have much of an impact – certainly, even at $5 billion, the fine won’t dent Google’s immense balance sheet.

Credit Suisse analyst Stephen Ju seems to have spoken for most of the market in a note he wrote shortly after the ruling. Saying he expects “minimal impact” he advised investors that: "The consumer is likely to just simply download the apps for Google’s services if and when they get new Android phones – much as they already do when they get new iPhones."

Disclosure

Dominion holds Alphabet, the parent company of Google, in its Global Trends Managed Fund.


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