Google argues that a pre-installed Android app can be replaced within 30 seconds. (Credit: Google)

In the wake of the European Union fining Google over $5 billion for antitrust violations, company CEO Sundai Pichai took to the company's blog to warn that this may mean higher prices for Android phones and tablets, because Google uses its now-sanctioned pre-installed apps to subsidize distributing Android for free. The EU argues that Google illegally stifles competing apps, operating systems, and manufacturers.

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How much is $5 billion to Google?

While Google and its parent company Alphabet make billions of dollars a year, the EU fine represents a huge percentage of Alphabet's net income, which is the amount of money left over after you've calculated expenses.

In 2017, Alphabet recorded $6.8 billion in net income, if you don't count a one-time charge of $3 billion. If you do, then the fine actually exceeds Alphabet's net income for last year. Alphabet's total revenue in fiscal year 2017 was $110.8 billion.

It's a relatively thin profit margin, but such things can represent heavy re-investment, rather than just overhead. Amazon regularly reports quarterly losses, but market confidence in them remains strong because that company is known for pouring its revenue right back into product development. So those losses don't indicate (to the market, at least), that Amazon is struggling to make money.

The upshot is that, if Google is a heavy re-investor (and platforms like Duplex and Google Maps show that they are), then those funds can be moved over to pay a big fine, but something may have to be sacrificed. In this case, Google's CEO Sundar Pichai says that this cost may come in the form of a price tag for the Android operating system.

Why does the EU consider Google's pre-installed apps to be anti-competitive?

In his blog post, Pichai argues that mobile device makers are free to modify Android to their liking, and that this helps to create an open app ecosystem where dozens of third-party apps may come pre-installed.

But the EU argues that the company still mandates the inclusion of a set of Google apps, particularly a Google search app and the Chrome web browser. The EU also contends that Google paid certain manufacturers to make Google search the only search function available on a given device. Lastly, the EU says that Google "has obstructed the development of competing mobile operating systems" that could otherwise have become rivals.

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The EU positions Amazon's Fire OS as one such rival. According to EU commissioner Margrethe Vestager, Amazon attempted to license an alternative version of Android to various manufactures in 2012 and 2013, but they did not get on board because the company's Fire OS didn't pre-install Google's core apps.

In a context where pre-installation is necessary to get approval, you don't want to mess with Google's legal team. As a result, only Amazon's in-house "Fire" devices run Fire OS, and its Fire Phone came and went.

Apple doesn't get in trouble for putting Safari or iMessage on iPhones and iPads because it makes all of its own iOS devices. There are no third-party manufacturers to compete with. How it handles competing apps isn't as clear-cut, but Apple has started to let iOS users replace the virtual keyboard with Google's GBoard, and Google Maps and Waze are apparently coming to Apple CarPlay.

The EU has given Google 90 days to end what it perceives to be anti-competitive practices. If Google does not comply, it may face further fines or other legal maneuvers. The maneuvers could range from additional fines to outright prohibitions on the distribution of Android within EU territory.

The takeaways

  1. The European Union has fined Google $5 billion for antitrust violations, arguing that the company illegally stifles competing apps, operating systems, and manufacturers.
  2. Google CEO Sundar Pichai said that the revenue generated from its free pre-installed apps are what let it give away Android for free, and that this fine may force them to start charging for their operating system.

Also see

Tom is the senior editor covering Windows at Download.com.