The best way of defending competition is not attacking competent players to enable incompetent ones to succeed, but rather allowing the emergence of new and more competitive business models than the ones already in existence. Modern regulations in defense of (non) competition are not based on the latter principle, but on the former: from its inception, they weren’t designed to protect consumers from the ‘exploitation’ of large enterprises because these were successful; they were designed to protect small businesses from the superior competition of large enterprises that were successful.
Since then, little has changed: policies to defend competition do not revolve around the need to remove legal barriers to enable free competition, but rather on sanctioning competent players because of the better management implementation of their business model. The sanctioning proceeding initiated by Brussels against Google for abuse of its dominant position in Android is the latest and most notorious example.
According to the European Commission, the iconic US company would be abusing its market position (80% of operating systems on mobile devices are Android) essentially for three reasons. The first one is that Google ‘imposes’ on mobile and tablet manufacturers that, to pre-install some of its apps (for example, Play Store or Google Maps), they must configure Google as the default search engine. The second, which is also imposed on mobile and tablet manufacturers, is that they must not install Android versions developed by third parties in any other of their devices. And the third is that Google pays manufacturers large sums of money for them to include Google’s search engine exclusively. In short, according to the European Commission, Google is preventing apps, operating systems or search engines from other companies to compete on a level of absolute “equal opportunity” to Google’s and, therefore, it deserves to be punished with a fine that could be set at over 6 billion euros.
Competition among ecosystems
What eurocrats don’t seem to understand in their continuous tirades against Google—or, worse, they do see but they choose to “disregard” in order to continue with their own state inquisition— is that the business model of any company —also Google’s— is composed of a series of different strategic decisions and competitive variables designed to generate on the client a perceived added value to other competitor offers and at a reduced price. Competing is not marketing a homogeneous product at an identical price; it’s not even placing a somewhat different product in stores at a lower price. Competing is continuously offering consumers more value for a lower price in all the elements comprising the user’s experience. This implies that any company should be free to design a business model aimed at preserving or improving their competitive position within the limits only set by civil law.
For example, the Apple operating system, iOS, is installed on all iPhone mobile phones and all iPad tablets, and, in addition, it has several Apple apps pre-installed—on a privileged and inflexible position—such as the Safari browser or their online music store, Music. Is Apple undermining competition by preventing their highly desired iPhones or highly desired iPads to have any operating systems other than iOS installed or by preinstalling certain apps on them? It is preventing the development of other operating systems for iPhones and iPads, perhaps better than their own system?
Looking at the poor arguments of the European Commission, if Apple is not running anti-competitive practices it is only because its market share is quite low (about 15% of the total share). That means, according to European authorities, that if Apple maintains its current business model and consumers begin to value it enough to give it market dominance on mobiles or tablets… then Apple, having done nothing new, would be considered as abusing their dominant position and undermining rivals with anticompetitive practices! Competition, apparently, means that Apple must destroy its digital ecosystem: it must allow iPhone to have any operating system installed or for iOS to not include any preinstalled apps.
Absolute nonsense. If Apple does not infringe competition rules for manufacturing and selling only iPhones and iPads with iOS operating systems which, in turn, have certain Apple apps preinstalled, this is because this is, precisely, its differentiated business model: iPhone and iPad buyers value —among other features such as design or reliability— the fact that Apple offers a comprehensive experience for the user that bears its distinctive imprint (the Apple ecosystem). Therefore, Apple controls the ‘whole’ product (from hardware to software) received by the user to guarantee its quality, functionality and consistency. Preventing Apple from developing this business model—whether they have a 10% or a 90% market share— would be the same as killing Apple as it exists today. And if consumers prefer the total product offered by Apple to any other offered by another provider, why should it be killed? Why should consumers be forbidden to buy it?
The same reasoning used for Apple is also applicable to Google. If we would deem as nonsense for Brussels to force Apple to manufacture iPhones or iPads with operating systems other than iOS, why do we not consider as nonsense that it sanctions Google for ‘negotiating’ with manufacturers of other mobile phones or tablets to preinstall their Android version or their apps (without even preventing the user from ultimately installing any other apps)? Why should Apple be able to opt for a business model that is totally closed to intra-competition (except for app developers authorized by Apple itself) and Google cannot opt for a semi-open architecture? That’s just the bottom line.
Android is an open source operating system—and this is because Google decided so —, which means that anyone can develop their own Android version: this broad availability has many advantages (much more decentralized innovation to improve the operating system and the apps), but also disadvantages (fragmentation of Android versions and difficulty to design applications compatible with all of them).
Therefore, Google has been trying to limit the fragmentation of the operating system for years: first, among app developers and, then, among manufacturers and distributors. It is not that Google wants to eradicate any version of Android that does not go through them… after all, Google itself was the one to make Android open-source (in fact, Amazon tablets or mobiles use an Android version developed by Amazon itself and it has no Google apps preinstalled); this is, rather, a case of ensuring that whoever works with Android within the ‘Google ecosystem’ must respect certain internal consistency rules to guarantee the quality, functionality and consistency of that Google ecosystem. If others want to develop, based on Android, ecosystems different to Google’s (for example, Amazon), they are absolutely free to do so; but what Google does not want—and reasonably so and it has every right to try to prevent it— is for the Google ecosystem to fragment beyond recognition against all its competitors.
Thus, Google has never stopped competing: however, its competitive strategy for mobiles and tablets is the ‘Google ecosystem’ developed on Android: a Google ecosystem which aims to compete against the Apple ecosystem (based on iOS), against the Windows ecosystem (based on Windows Mobile) or against the Amazon ecosystem (also based on Android). What is completely absurd is to force Google to introduce competitors within the Google ecosystem thereby undermining its ability to define the features of said ecosystem: in other words, to force it to not include preinstalled Google apps in the ‘Google ecosystem ‘ or to prevent it from being able to differentiate itself from other Android versions installed on mobile devices or tablets in which the Google ecosystem is installed. If, as we’ve established, by claiming to be defending competition it would be absurd for Brussels to destroy the ‘Apple ecosystem ‘, it is just as nonsensical for it to destroy Google’s.
In short, Google does not destroy competition, but rather exercises it. Brussels is the one that slices this competition by arbitrarily limiting the set of variables that define the business model of the US company. And the reason? Well, purely and simply because the European Commission cannot stand the fact that companies that have succeeded globally in this digital era are US companies: this is why it is obsessed with poking them in the eye, de-capitalizing and hyper-regulating them any chance it gets: “If you can´t fairly defeat the enemy, destroy it”.
However, the competitive weakness of European technology companies against their US counterparts should make Europe rethink what it is that it’s doing wrong: instead of destroying Google, Uber or Facebook, they should try to emulate them. And what are Google, Uber or Facebook? In essence, Silicon Valley. And what is Silicon Valley? Educational freedom, financial freedom and regulatory freedom. If Europe wants to compete with the US, it needs to stop undermining our companies’ competitiveness with planned education, high taxes on savings or stifling regulations: far from defending the incompetence caused by their own interventions, they need to promote internal competitiveness.