The European Commission’s (EC) recent antitrust case against Google for alleged anti-competitive behavior regarding the Android operating system raises important issues. It also raises questions. Here are three:
Does Apple not compete with Android?
The EC apparently does not believe that Android competes with Apple’s iOS operating system because Android is free for device makers, while Apple’s operating system and app store are not available outside of its devices. But it’s clear that the two operating systems compete for users and developers. Apple CEO Tim Cook routinely brags of converting “Android switchers” to iPhone users. And developers frequently eschew Android for iOS’s more lucrative platform, forcing Google to match Apple’s approach to developers. This is competition by any measure, and even Google critics like News Corp and Oracle have acknowledged that Android competes with Apple.
The iPhone captures 87% of global mobile profits and 45% of the U.S. device market (25% in EU), a material market share by any standard. By assuming away Apple as a competitor to Android, the EC is able to argue that Android has market power and commits antitrust violations while ignoring the actual competitive nature of the mobile ecosystem. How does this analysis of the market reflect actual consumer behavior?
Is an open platform anti-competitive?
Despite the EC’s claims, Android provides considerable freedom to device makers, developers, and users. Android users can easily download competing apps and app stores, remove preloaded apps from their home screens, and change defaults. Rival developers are free to forge preloading partnerships with device makers and carriers, and many like Amazon, Microsoft, Yelp, and Firefox have done so.
Device makers that choose to make Android-compatible phones can make wildly different products, including products running rival operating systems, with no requirement to include any Google app.
Manufacturers that prefer not to make Android-compatible devices can still modify Android for free to create their own customized system, without any Google app or service.
In the end, Android gives device manufacturers — Samsung, Motorola, HTC and LG to name a few — a free high-quality operating system that allows them to focus on the hardware innovation necessary to compete with Apple.
Why does the EC not view this as pro-competitive in the markets for devices and services, rather than anti-competitive?
Aren’t lower prices good for consumers?
Antitrust enforcers, including the EC, typically weigh consumer benefits in deciding whether a company is behaving anti-competitively. Data shows that Android smartphones cost much less than their Apple counterparts. The average price of an Android smartphone is $208, compared to $651 for Apple. Some Android smartphones sell for as low as $50.
iPhone users on average earn 40% more than do Android users. Not surprisingly, low-income consumers tend to choose Android over Apple by wide margins. Low-income consumers disproportionately rely on smartphones to access the internet, so Android’s lower prices help more people to access the internet.
Normally, antitrust enforcers would view such lower prices as a product of competition. Did the EC’s analysis give enough weight to such consumer pricing benefits?
To live up to its image as a pioneer of antitrust enforcement and a protector of competitive markets, the EC must root its conclusions in objective legal and factual reasoning. So far, the EC’s case against Google/Android raises some fundamental questions about how conclusions were reached.