Android phones might become much more expensive thanks to Google's $5 billion fine from the EU
- There's a strong chance that Android phones are about to become more expensive.
- That's because Google was fined $5 billion by the EU and told to stop bundling its search and Chrome apps on Android.
- Google offers Android for free and predominantly relies on search advertising to make money.
- A legal expert said it's possible Google will counteract the risk of lost revenue by charging phone makers like Samsung or Huawei to use Android.
One of the main reasons Android fans really love their phones is that they are cheap.
There's a whole host of flagship phones on offer from well-known phone makers, such as Samsung, and most are cheaper than the newest iPhone.
That might be about to change thanks to the European competition watchdog's decision to fine Google $5 billion for abusing its dominance in mobile. The European Commission said Google had to stop its anti-competitive practices within 90 days, or else face more fines.
"It's possible this might actually make phones more expensive, depending on how Google decides to comply with the decision," said University of Leeds law professor Pinar Akman.
Professor Akman has been involved in a previous case involving Google and the EU, conducting some research commissioned by Google, but was not involved in the Android case.
The potential impact of the European Commission fine on Android boils down to two issues: The fact that Google offers Android for free, and the fact it makes most of its money through search advertising. It also hinges on the fact that Android is the dominant mobile software, with more than 2 billion active devices.
Phone makers can license Android for free, reducing software costs and passing those savings onto the consumer with cheaper phones. But a key problem, according to the EU, is that Google also requires manufacturers to pre-install Google apps such as Search and the Chrome browser, in order to access the Play store. The Play store is Google's app store, and essential to the Android ecosystem.
The European Commission noted that Google makes the majority of its money from search ads, so forcing phone makers to pre-install its search app is one way to ensure it keeps making money from an operating system that it makes available for free.
"Because Google provides Android for free... [It] has to make money from somewhere else. One of the main ways Google makes money out of Android is from traffic from Google Search," said Akman.
Search is indeed crucial to Google's profitability. According to the company's earnings for the first three months of 2018, Google made $31 billion in revenue. Some $27 billion of that came from ads.
Now the commission has ruled Google has to alter or end its contracts with phone makers that require bundling its apps. That should leave manufacturers free to ditch Google's Search app entirely, in favour of their own products or rival offerings.
Google couldn't ever guarantee that Android users would use its Search app as their search service of choice. But now that looks even more uncertain, and it can't guarantee to shareholders that it can dominate mobile search and continue to make money. The logical next step would be to start charging for its hugely popular operating system.
"If [this] gives manufacturers total freedom to use or not use [Google] search, what is Google's interest in developing Android for free?" said Akman. "What it may decide to do is start charging for Android, which will increase costs for manufacturers, and then lead to an increase in price for handsets."
But, she added, Google "may find different ways of complying." She didn't elaborate, saying it was difficult to guess the different outcomes because the European Commission hasn't yet published its full decision, which would lay out its legal position and remedies.
Google chief executive Sundar Pichai hinted at the possibility of charging phone makers for Android.
In a blog post contesting the European Commission's fine, he pointedly wrote that Google "chose to offer Android... for free" and that there are "costs" involved in maintaining the software.
"[Google] has invested billions of dollars over the last decade to make Android what it is today," he wrote. "This investment makes sense for us because we can offer phone makers the option of pre-loading a suite of popular Google apps (such as Search, Chrome, Play, Maps and Gmail), some of which generate revenue for us."
He added: "This means that we earn revenue only if our apps are installed, and if people choose to use our apps instead of the rival apps."
It isn't clear what the outcome will be. Google has said it will fight the commission's decision but, at the same time, if it doesn't comply within the next 90 days, it faces considerable ongoing penalties.
Perhaps the days of really good, inexpensive Android phones are over.
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