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EU’s Android Ruling Is the New King of Unintended Consequences

· July 27, 2018

For more on this topic, please see my new paper with Matthew Lane analyzing the competitive impact of Android.

The EU’s digital economy is best described as a tale of two operating systems – one closed and extremely profitable; the other open and popular, but far less profitable. While Google’s Android has a majority of users, Apple’s iOS-based smartphones rake in 87% of global smartphone industry profits and its App Store makes over three and a half times more revenue than Google Play. Apple has a far greater impact on consumers’ pocketbooks, and yet it is Android that stands alone in facing punishment from EU antitrust regulators. Indeed, given how EU regulators characterize Apple’s business model, it seems Apple need not worry about facing the same scrutiny.

The EU’s latest shot at Google’s bow comes with a heap of unintended consequences. What the EU seems to be telling industry is to be more like iOS and less like Android. For competition, encouraging two closed operating systems is peak silliness.

First, it is hard to understand why this is necessary. Android, along with its competitor iOS, is a big success story for the software development industry. Last month, a report by the European Parliamentary Research Service described the app industry as a vibrant and growing market where consumers are in charge. The report stated that mature markets see users with 90 to 100 apps installed on their devices with about a third of them used on a monthly basis. The app economy has created almost 1.9 million jobs, with many more in related support and marketing positions, and has generated estimated revenues upwards of €60 billion. Clearly, app developers are getting their products in front of consumers, and consumers are getting the products they want.

Second, the antitrust decision ignores the effect of Apple and the competitive pressure that iOS places as a rival to Android. Ignoring Apple as part of the market seems to be openly contradicted by the European Parliament’s own report. If anything, the report describes Apple’s iOS and Google’s Android as part of the same mobile operating system market. EU antitrust enforcers excluded Apple from its market analysis because it is not available for license on competitors’ hardware. But this is more a function of the closed nature of iOS than it is competitively relevant. Consumers, developers, and even the researchers at the European Parliament see their key choice as between an Apple ecosystem product or an Android ecosystem product, and both put competitive pressure on each other. The choice of products from rival handset makers is a competitive feature of Android, not a mark of a completely different product market.

Third, Android presents a far more open and competitive ecosystem than that offered by Apple. Android has been the basis for competing Google-free offerings like Amazon’s Fire OS and Barnes & Noble’s Nook. Android is permissive in allowing users to change defaults, something that Apple in many cases bars. Microsoft has taken advantage of this to develop a competing launcher to Google, giving Android users the option of having a Microsoft experience on their Android phone. And while a big part of the EU’s case revolves around Google’s deals to pre-install a suite of 11 free Google apps, which can be replaced and removed from the home screen by users, this is an industry-standard practice that allows Android to compete with an out-of-the-box experience (Apple pre-installs 36 apps). Google’s Play Store also provides developers with an easy path to consumers, with over 94 billion downloads in the last year.  Developers use many other paths to users in addition to PCs, Android, and iOS, given the rise of connected products like Alexa, gaming consoles, and more.

Finally, the EC’s complaint regarding limitations on “forking” the Android OS seems to disregard a major ongoing issue in open source software development. Namely, when an open source operating system’s code is greatly changed from the original version (or “forked”), it significantly decreases the chances that an app developed for one version will work on the other. This is a problem that creates much confusion and frustration among users. It also causes headaches for developers, who can create a product that works fantastic in the lab only to find that users are facing a number of breakdowns due to variations in their products. Google’s anti-forking agreements can just as easily be explained as an effort to reduce consumer issues and confusion instead of a nefarious scheme. Google has had this policy since the beginnings of Android, and the existence of the successful Fire OS fork proves that these agreements have not prevented rivals from using the Android ecosystem to create a competing operating system product.

In 2011, the U.S. FTC looked at the Android ecosystem and found no problem. The EC’s different course is ill-advised. The EC seems to be telling the market that closed source is the way to go by punishing attempts by Google to produce a profitable and consistent open platform that consumers can rely on. The actions the EC cast as unlawful may also be necessary to produce a successful open product. Google has provided much needed open competition to Apple’s closed ecosystem and has been punished for it.

David Balto is a public interest antitrust attorney based in Washington, DC. He previously served as policy director at the Federal Trade Commission, as an attorney in the Justice Department’s Antitrust Division, and as a senior fellow at the Center for American Progress and the New America Foundation. David advises Google and has advised a number of small business and consumer advocates, and tech companies such as Broadcom and Asus, and is an expert in antitrust, consumer protection, financial services, intellectual property and healthcare competition. His views are his own.

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.