This piece assembles the evidence that Google’s benign PR explanation and stock-enhancement justification for its Alphabet holding company restructuring — may be the truth, but apparently is not the whole truth and nothing but the truth, about the structural antitrust and privacy risks ahead that it clearly foresees, but is not disclosing.
What we have learned in the last two months is that Google is much more worried than it says about the risks it faces from a variety of real structural changes it may have to make in its core business overseas in the months and years ahead — where the vast majority of Google’s users are, and from where over 50% of its revenues come.
Google apparently foresees a coming brand winter of antitrust/privacy structural enforcement actions hanging over Google around the world. In preparation, Google has stockpiled some new investor goodwill by shrewdly mega-goosing its stock price in its July 2Q15 earnings by respecting key investor concerns for the first time, and by breaking out the financials of Google’s big “moonshot” investments to try and garner some of the high-valuation pixie-dust that hot innovation startups attract in Silicon Valley.
Think about this. If a global brand faced no real reputation or growth risks going forward, what company would rationally consider risking the world’s #2 brand (worth $120 billion) by confusing and distracting users, investors, and the media — with a new superseding “Alphabet” brand that will never be a verb? What CEO or brand expert would choose this enormous “Alphabet-Google” brand name dissonance over “Google” alone… unless they were sure that they needed to get ahead of, and mitigate, a big upcoming, uncontrollably-bad, global risk to the Google brand?
Let’s consider what the new evidence tells us.
About two weeks after announcing Alphabet, Google submitted its legal defense against the EU’s search bias antitrust charges, in which it said the EU’s conclusions, that Google was dominant and abusing its dominance, “are wrong as a matter of fact, law, and economics.”‘ Effectively Google’s antitrust legal argument is that Google is not an “essential facility” and thus cannot be unbundled. This concede-nothing-stance is indicative of a defendant that knows it faces a difficult protracted legal battle and that it expects no EU interest in a fourthround of settlement negotiations with Google.
Google must have learned privately months ago what the EU’s Antitrust Chief Margrethe Vestager signaled publicly at an American antitrust conference October 2nd: “What I can say is this: The more structural the remedy, the better,” [Other types of concessions] “generally present more risks…can be particularly difficult to monitor [and] are also in place only for a defined period of time… [The preference for structural remedies for antitrust concerns applies] “across all sectors,” per WSJ reporting.
Since negotiated settlements are for “a defined period of time,” this indicates that the EU is on path to some sort of structural/unbundling remedy involving permanent EU supervision. Also remember last November, the European Parliament passed a resolution 384-174 that called “on the Commission to consider proposals aimed at unbundling search engines from other commercial services…”
In April, the EU also opened a formal investigation into whether or not Google-Android has “illegally hindered the development and market access of rival applications and services bytying or bundling certain Google applications and servicesdistributed on Android devices.” If Google is found guilty of abuses of dominance here as well, the remedy would likely be mandating Google unbundling of apps from Android.
On privacy, last week the EU’s High Court invalidated the fifteen-year-old U.S.-EU Data Safe Harbor, and France, taking the lead for the EU, rejected Google’s implementation of Europe’s High Court ruling requiring Google to allow for a European Right to Be Forgotten. In addition to those major privacy actions, top EU member countries are also seeking to enforce that Google offer an opt out from consolidation of their private data across services, and to potentially require storage of European private data on European soil under clear European legal jurisdiction.
The EU is far from the only source of international structural antitrust/privacy risks for Alphabet-Google.
In Russia, last month Russian antitrust authorities found Google-Android guilty of abusing its dominant Android licensed operating system dominance by tying/bundling search and other apps with Android, and this month the same authorities ordered Google to unbundle Google apps from Android by removing contractual tying arrangements by next month. In June, Russia mimicked the EU and proposed a strict Russian Right to be Forgotten. In addition, this October the Moscow City Court banned Google from using bots to read Russian users’ personal emails – i.e. effectively illegal wiretapping.
In China, we learned last month that China’s Internet czar is requiring Google and other top American tech companies to provide “secure and controllable” backdoors/encryption key access to their systems and even potentially hand over source code – if they want to provide products and services in China.
In sum, Alphabet-Google knows it faces a difficult gauntlet of antitrust investigations into search and Android, in addition to many investigations into privacy violations that could pressure Google to localize data in different countries.
All of this presents ongoing risks to the Google and Android brands with a large percentage of Google and Android users overseas, over a long period of time. Being branded by antitrust authorities as dominant and abusing its dominance to harm consumers and innovation could threaten to devalue the Google global brand, explaining in part why Google has been demoted to just an Alphabet company, albeit its largest.
As I have written for a couple of years, the Snowden NSA revelations marked the peak of America’s dominance of the Internet. Since then the rest of the world has been actively de-Americanizing the Internet with the unwitting help of U.S. policymakers. For Alphabet, the company formally known as Google, this means that much of the rest of the world will be increasingly sovereign-izing Alphabet-Google in requiring it to respect their varying sovereign rules of law.
In a nutshell, Alphabet-Google apparently foresees that its former maximally-efficient, unencumbered, infrastructure and operating model, is going to become less efficient and more encumbered due to its serial and systemic abuses of its dominance and data protection.
If the Google Era was largely about the world submitting to Google’s dictates to others, apparently the Alphabet Era may become more about Alphabet-Google increasingly submitting to sovereign nations’ rule of law – at least outside the U.S.
Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an emergent enterprise risk consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.