by Justin Grensing, Esq., MBA
Google has not had a great couple of years in Europe. In March, the company was fined 1.5 billion euros—roughly $1.7 billion—for antitrust violations in the online advertising market. This represents the third such fine against the tech giant since 2017. “With the announcement on Wednesday, the European fines against Google total roughly €8.2 billion, or $9.3 billion,” says an article by Adam Satariano for the New York Times. “But the bloc has not received any of the money yet; Google is appealing the earlier decisions, and is mulling whether to appeal the most recent ruling.”
These fines provide some interesting business lessons relevant to any industry.
Barriers to Entry
Barriers to entry is one of Porter’s Five Forces. It’s pretty self-explanatory. It refers to factors that make it difficult for other companies to enter an industry or industry segment. The more barriers to entry, the more attractive an industry is to those already operating there. Barriers to entry might come from access to limited resources (i.e., mining), privileged government protection (think of electric utilities) or, in the case of Google, a large player using its power to block out competition.
According to Satariano, the most recent fine against Google, “centers on contracts that license the use of Google’s search bar on websites run by newspapers, blogs, travel services, and other companies. European regulators said the operators of the third-party websites using Google’s search bar had been required to display a disproportionate number of text ads from Google’s own advertising services over competing digital advertising companies. The practice, regulators said, undercut competitors, such as Microsoft and Yahoo, that were trying to challenge Google in search.”
Regulatory Risk
Businesses face a wide range of potential risks every day. These risks can be placed into categories, such as economic risk, operational risk, competitive risk, etc. Google provides a great example of the manifestation of regulatory risk, which is also frequently called compliance or legal risk. As noted above, Google is fighting to avoid over $9.3 billion in regulatory liability fines in the EU alone. Even for a company that rakes in over $100 billion in revenue per year, that’s an enormous amount of money and represents over a quarter of Google parent Alphabet’s 2018 net income.
While the vast majority of companies aren’t likely to ever see such massive fines, the costs of regulatory penalties as well as the costs of hiring professionals to avoid those penalties in the first place can be a huge financial burden for many businesses.
International Growing Pains
Google’s European woes exemplify the primary pros and cons of expanding internationally. While this expansion allows companies to tap into new markets – hundreds of millions of EU citizens, for example – it also exposes them to the jurisdiction and regulations of the governments overseeing those markets. Google has found out the hard way that the EU has been much more aggressive in policing what it sees as anti-competitive practices than the government of Google’s native country, the U.S.
Google is an outlier in so many dimensions that it’s hard to draw comparisons between its experiences and those of small and midsized businesses around the country and the world. But the media attention its ups and downs generate provide ample material to review real-life applications of fundamental business strategy concepts.
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Tags: consumer privacy, EU, European Union, GDPR, Porter's Five Forces, privacy, regulatory risk, Strategy