A Blog by Jonathan Low


Jul 25, 2018

Google Is Making So Much Money the EU's $5 Billion Fine Is A Rounding Error

If governments really want to break the hold that Google, Facebook and Amazon have on the digital world, they are going to have to summon the will to break them up.

But to do so will require support from all those consumers who also happen to be voters - and it is not yet clear that they would endorse such a move. JL

April Glaser reports in Slate:

That Alphabet has been able to maintain high profitability despite new regs speaks to the company’s dominance. Google holds 31% of the world’s online ad business. Android powers 80% of the world’s smartphones. YouTube is the world’s largest video site. Chrome is the most popular browser, and if you want to search for something, you Google it. The increase in ads on its own platform could (be due to) GDPR privacy rules which require more consumer opt-in than smaller companies (can) handle. “One of the unintentional consequences of GDPR is the strengthening of the duopoly.”
Alphabet was hit with a record $5.1 billion fine by European regulators this month, but that’s kind of like saying a Hummer drove over the world’s least annoying speed bump. How do we know? Because in the second quarter of 2018, the company took in $26.2 billion in revenue, up 25 percent from the same time last year, according to the Wall Street Journal. Regulators are scrutinizing the search and internet giant more and more closely, and yet the Google parent keeps making more and more money.
On a quarterly earnings calls with investors and analysts on Monday, the company said its profits would have been 9 percent higher had it not been for the EU fine, which the company was hit with as punishment for what regulators charged were anti-competitive practices by its Android division. Alphabet plans to appeal.
That Alphabet has been able to maintain high profitability despite a raft of new regulations in the European Union this year speaks to the company’s immovable dominance. Google holds 31 percent of the world’s online ad business. Android powers 80 percent of the world’s smartphones. YouTube is the world’s largest video sharing site. Chrome is the most popular browser on the planet, and if you want to search for something online, you Google it. Even if there was a better search engine out there (which there isn’t), Google would probably play a role in helping you find it. And the more we continue to port every aspect of our personal and professional lives online, the more profitable Alphabet becomes. All of which is why even in the face of the most severe regulatory environment the company has ever navigated, a record-breaking multibillion-dollar fine and the introduction of the most comprehensive privacy laws in the world via the General Data Protection Regulations from the EU, Alphabet continues to flourish. And that means regulators will always face an uphill battle trying to curb what they see as its excesses.
To better understand how Google’s size cushions the company from new data regulations, consider one area of Google’s ad business, the ads it sells on its own properties. That segment is up 26 percent, from $18.4 billion to $23.3 billion, a huge uptick that Bloomberg reports can be attributed to recent efforts by Google to sell across its various advertising products. But the increase in sales of ads on its own platform could also have to do with the new GDPR privacy rules, which require more consumer opt-in than many smaller companies may be equipped to handle. In response, advertisers may be relying more heavily on the larger companies with teams of lawyers and sophisticated advertising infrastructure, like Google and Facebook, that have ensured the GDPR rules are being followed. “One of the unintentional consequences of GDPR is the strengthening of the duopoly,” Gil Elbaz, a former Google executive and current CEO of the online marketing company Factual, told Bloomberg. “If Google continues to go unchecked, their dominance will be extreme.” Alphabet also saw growth in its cloud, app store sales, and hardware division. But the company lost $732 million this quarter in its “Other Bets” category, which includes the experimental division X, where projects like Alphabet’s drone program, Wing, and Google’s self-driving car initiative, Waymo, were incubated.
Clearly, tremendous fines and sweeping data-privacy regulations aren’t enough to make a company like Alphabet a little less powerful. And there are myriad reasons for consumers and lawmakers to be weary of Google’s dominance, including the inability for a new, innovative app developer to meaningfully compete with any of Google’s successful products. And then there’s the question as to whether Google truly has cleaned up its act with YouTube, which has struggled to surface reliable results for people looking for news, like in February shortly after the massacre at a high school in Parkland, Florida when YouTube elevated a video entitled “DAVID HOGG THE ACTOR….” to its No. 1 trending spot.
YouTube has also been on the tail end of criticism over the past year for playing host to thousands of violent and obscene videos marketed to children, as well as hundreds of thousands of videos that were removed or demonetized for featuring young children in abusive and exploitative situations. Many of these issues appear to be resolved. Though Alex Jones, one of the key peddlers of the conspiracy theories—like the allegation that Parkland shooting survivors were “crisis actors,” that Sandy Hook was a hoax, and “Pizzagate,” as well as more recent untruths about a second Civil War that he claimed was scheduled for July 4—still has a verified channel. None of this has caused Alphabet to stop minting money and dominating the internet economy. Short of antitrust action that would break the company up, it’s hard to imagine what will.


jagbir singh said...

Usually, I never comment on blogs but your article is so convincing that I never stop myself to say something about it. You’re doing a great job Man. Best article I have ever read

Keep it up!

Jon Low said...

Thanks! I appreciate your taking the time to comment

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