Google's Dangerous Monopoly-Based Foreign Policy

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Today I’m going to write about Google’s exceptionally dangerous decision yesterday to de facto cut off Turkey’s access to Android phones.

Google has told its Turkish business partners it will not be able to work with them on new Android phones to be released in Turkey, after the Turkish competition board ruled that changes Google made to its contracts were not acceptable…

The regulator had asked Google to change all its software distribution agreements to allow consumers to choose different search engines in its Android mobile operating system. The probe was triggered by a filing by Russian competitor Yandex.

What is interesting about what Google did to Turkey to stop an antitrust suit is that it’s exactly what the U.S. government ordered Google to do to Chinese giant Huawei to address national security concerns.

So why did Google do what it did? And why is it so dangerous?

In July, I noted that the most effective antitrust enforcers in the world in the tech sector are Russian. This is, in part, because there’s an existing search engine in Russia - Yandex - that indexes Russian language content as well or better than Google does. So there is existing competition already to protect. Google tried to kill Yandex using an explicit strategy to leverage desktop search dominance into mobile search dominance

Here’s how I described it.

In 2008, Google experimented by building its first Android phone. The company eventually settled on a strategy of having original equipment manufacturers (OEMs) like Samsung use Android as the brains of their phones. The price was irresistible: zero. Google gave away Android, and starting in 2012, gave away their app store known as Google Play. This pricing strategy was wildly successful. Global Android phone usage hit 1 billion users in 2014, and 2 billion by 2017. Android and Google Play are immensely valuable parts of the phone. Android offers the phone function, and Google Play and its service layer lets third party apps operate on a phone. The ‘free’ price and high functionality of the operating system was a compelling pitch. Google rapidly gained share everywhere. In Russia, at the beginning of 2011, Google had less than 20% market share of the phone operating system market. By 2012, it had over 50% market share, reaching 80% by 2013.

It worked. Here’s a chart showing how Google was able to gain on Yandex using this tie.

The Federal Antimonopoly Service of Russia could have let competition die, which is what competition enforcers tend to do these days. Instead, the enforcers made Google stop tying its Android mobile operating system to its search engine. The result was… competition. Google’s market share gains stopped, because they were about a tying regime and not quality or pricing improvements.

One might be skeptical of the Russian antitrust enforcers, except the Europeans found Google guilty of the same violation. It’s just that the European remedy didn’t work because the EU was slower at reaching a verdict, there really wasn’t a similar Yandex-style competitor, and EU competition chief Margarethe Vestager allowed Google to design its own remedy. (Vestager has acknowledged this failure and says she’ll try to be more aggressive, which is good.)

What’s interesting is that Yandex isn’t just good at indexing Russian language content, it can also index the Turkish language. This means it could be a strong competitor in the Turkish market. And what do you know, Yandex filed a complaint with the Turkish antitrust authorities over anti-competitive tactics.

Google’s response wasn’t just to use the legal system to fight for its rights, but then ultimately obey the law. Instead, Google said it was willing to ‘work with’ Turkey, but as a partner and not as a corporation working within a sovereign nation. It simply said it doesn’t like Turkey’s law, and so it will stop providing Android phones for an entire country. In other words, Google has a private sanctions regime against smaller countries.

There’s something of a parallel to what Google is doing to Turkey, and it’s in China. The U.S. government ordered Google to stop delivering apps to Huawei, and the result is a catastrophe for any attempt to build phones for use outside of China. Here’s one review of one of Huawei’s new phones that works without Google’s apps:

The Mate 30 Pro is an exceptional piece of hardware. Its quad-camera setup shoots outstanding photos, a dazzling 6.53-inch waterfall display is the centerpiece of an inspired design, and its 4,500-mAh battery goes and goes and goes. But the fiasco that is Android without full Google support makes it impossible to recommend. 

This isn’t such a problem in China, which has a parallel tech ecosystem of apps like Weibo and WeChat. But it’s a huge problem everywhere else, including in Turkey. I don’t know what happens at this point, but it’s very obvious that if I’m a foreign official anywhere in the world I’m going to realize that Google wants to run my legal system and that I better get access to some sort of tech ecosystem that can support a modern economy.

Google is making a call to use leverage that should only be resolved for very serious foreign policy disputes by the U.S. government, and doing so to protect itself from having to obey an antitrust law in a foreign country. Pulling this kind of stunt is like using financial sanctions recklessly. It works if you’re the dominant network, but every time you use sanctions you create the incentive to build an alternative. To put it differently, it’s like overusing antibiotics. Turkey’s response will in the long-term mean leaning more on China, or Russia, or both. Or the EU and the U.S. could step in, and find ways of demanding that Google obey Turkish law.

Maybe the U.S. government is fine with this decision to prioritize Google’s monopoly and forgo leverage by the government it might need in a genuine national security crisis. But somehow I doubt anyone's really thinking this through, except the officials who used to work at the State Department and now work at Google, like Jared Cohen. And Cohen didn’t do a great job when he worked at State.

In other words, I hope a grown-up steps in, but I fear there are no grown-ups, anywhere.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, buy my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller