The European Union’s antitrust regulator fined Alphabet Inc.'s (GOOG, Financial)(GOOGL, Financial) Google 2.42 billion euros ($2.7 billion) last week, claiming the search engine prioritizes its own services ahead of competitors services, and ordered Google to change search results from its online shopping tool within 90 days or face additional fines.
According to Wired.com, “The commission analyzed the results of 1.7 billion real Google search queries—around 5.2 terabytes of data—and concluded that, on average, the company placed results from competing online shopping services only on the fourth page of its results.”
Since it is an order from the European Commissioner for Competition, it only affects the company's operations in Europe. But how much will it impact Google’s future in the region and elsewhere?
The monetary aspect of the fine is a drop in Alphabet’s cash bucket. Google is a cash-generating machine that is growing its revenue at double-digit rates; at the end of the most recent quarter, Alphabet was sitting on a $92.44 billion cash pile. The $2.72 billion has a marginal impact on its balance sheet, and even the additional penalty Google faces if it fails to abide by the EU’s ruling is not a big pain point for the company.
The key problem for Google is the EU is now asking the company to tweak its algorithm and change the way it generates search results.
Source: Wall Street Journal
The problem for Google is certainly not money. Its global brand image is what is at stake. The ruling will also expose Google to further lawsuits as the entire world watches the proceedings unfold.
Google will most likely appeal the decision, and it might take a long time for the issue to move toward a final conclusion. On the other hand, the company could address the issue, realign its results and get it over with.
But either way, the current ruling will certainly attract more cases against Google in the future as more attention will now be paid to how and where the search results are appearing. Google’s brand image is what is at stake here. Whatever direction this case takes, some damage to that brand has already been done.
Disclosure: I have no positions in the stock mentioned above and have no intentions of initiating a position in the next 72 hours.
