Technology policy

The EU's Ironic Dependence on Big Tech

Europeans want the best of America's online services, even as the government keeps soaking them for billions.

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European Union and binary code
Butenbremer1965 / Dreamstime.com

What's your favorite European tech company?

I'll wait.

There's a good chance it's Sweden's Spotify, which is indeed a great service. But it might be the winner by default for lack of other European tech successes. We could throw Skype into the running, which was founded in Estonia before ballooning into the Microsoft-owned household name that it is today. Unless you're an engaged corporate manager with a passion for enterprise software, it's probably not the German software giant SAP.

You get the picture. The EU is one of the largest global markets, housing some of the world's brightest and most creative minds. Yet it has not produced a titan on the scale of an Apple or an Amazon or a Google.

We use American technology products every day; living without them is probably harder than you think.

It would be especially hard for the EU, despite its leadership's antagonistic posture towards U.S. tech companies.

Europe has set its sights on Silicon Valley in recent years, issuing antitrust rulings, privacy regulations, and copyright mandates that mostly target companies across the pond. Still, the EU would hardly benefit if their supposed antagonists were to disappear. In a way, the EU is quite dependent on them.

Consider a recent antitrust case against Google's Android phone operating system. Last year, the EU slapped a record €4.3 billion fine on the company for bundling its open source Android platform with other Google products like search and Chrome. The Commission believes this is anti-competitive, just like Microsoft's retrospectively doomed Internet Explorer was said to be unjustifiable as the Windows default by US antitrust enforcers.

Google is trying to appease while they appeal. It recently announced that it would ask European Android users which software products they want to use when they first set up their phone. It won't be Chrome and Google search by default, although most people will probably choose those anyway, but they will be able to pick from a range of their competitors' offerings, much like the EU forced Microsoft to provide a "browser ballot" of alternative browsers to IE users.

Presumably, this will include products offered by European competitors. It will probably give a boost to EU-based search alternatives like Startpage (which incidentally might be my favorite European tech venture). The Norwegian-built Opera browser enjoyed a big lift in downloads after being prominently displayed on Microsoft's old browser ballot. The companies that are featured on Google's alternatives list could get the greatest traffic bump in their existence. This would not be possible without the reach of a giant like Google.

There are straightforward public choice reasons why the EU benefits from big tech more than many realize, too.

Think about the revenues. Just last week, the EU announced a €1.5 billion fine on Google for its third party search practices (more on that in a bit). Adding in the Android fine and another €2.4 billion for an antitrust case involving shopping search results brings the total to €8.2 billion from Google alone.

The EU is not shy about imposing billion dollar fines on foreign technology companies. The largest was the 2016 decision to hand Apple a €13 billion unpaid Irish tax bill. More are on the horizon.

The EU spends about €137 billion a year. The €8.2 billion from Google in recent years makes up roughly 6 percent of that, which about covers the body's administrative costs. For frame of reference, the UK contributes around €9 billion net to the EU budget each year. Who's afraid of Brexit? It's as if the EU gained another wealthy revenue-paying member state, but without all the fuss of having to pay it forward in expenditures.

The EU's most recent antitrust fine provides a case in point. The Commission on Competition took issue with Google's contracting with third parties who used Google's search engine. When you look something up on most websites, the search bar is actually powered by Google. Google would sell ads for these results and share the proceeds with site owners. One requirement was that websites could not display ads from competitors.

This was never a big money maker, which is partly why Google started winding down the practice in 2009. Google scrapped it entirely in 2016, the year the EU announced its investigation. The conduct was corrected, yet the fine is still grand. Why wouldn't it be?

It's worth noting that for all of its saber-rattling against foreign technology companies, the EU does not seem interested in stronger antitrust actions beyond fines and finger-wagging.

Last week, EU Competition Commission Margarethe Vestager, a top critic of foreign technology companies, drew heat from other antitrust hawks. During an interview at SXSW, Vestager shot down Sen. Elizabeth Warren's proposal to break up big tech companies, calling it a "far-reaching" extreme that would "break up private property."

Such regulatory restraint may seem surprising. But breaking up big companies would mean less potential loot.

There's also the simple fact that Europeans seem to, well, like these companies' networked products. If most people didn't find them valuable, there would be no "antitrust" issue in the first place. Does anyone think Europe would be better off without, say, U.S.-provided cloud computing? In the current arrangement, Europe gets to put some controls on foreign companies while still largely enjoying the technological fruits of their efforts. They can have their Google search and fine it, too.

None of this is to say that big technology companies don't bring big problems with them. Even technologists struggle to understand how the consumer welfare antitrust standard can best be adapted to the digital age. And many times, large technology firms show themselves to be plain bad actors.

But the best way to topple a commercial titan is usually in the marketplace. Indeed, antitrust scholars recognize that timing is a perpetual enforcement challenge. By the time that anti-competitive activity has been identified and charges work through the courts, yesterday's giant may already be obsolete.

The EU does not lag behind in technology because American companies are too good. It struggles to produce their own Google partly because their policies and attitudes towards failure are so bad.

They can change. They can embrace risk and entrepreneurship, and peel back the precautionary policies that discourage them. But until EU leaders stop seeing foreign competitors merely as cash cows and piggy backs, their own competitiveness will remain dulled. Ironically, it is the EU's policy environment that ultimately makes it so dependent on foreign technology firms.

NEXT: The Trump Administration Now Wants All of Obamacare Struck Down

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  2. “the EU does not seem interested in stronger antitrust actions beyond fines and finger-wagging.”

    It’s all about the Benjamins.

  3. I’m so tired of European freeloading; national defense, pharmaceuticals, technology, etc. It’s well past time to cut them off.

    1. +10

  4. Eventually, some company will grow a pair, and just stop servicing addresses in a country that passes a really stupid internet restriction. Instead of internet access, the population will see a landing page that says “Until law number such and such is repealed, this service is not available to residents of this country. Please check back after the next election.”
    When that happens, buy VPN stocks.

    1. The irony is that only large tech companies like Google would have the impact that you’re seeking and Google is on board with Socialist policy of Europe. The fines are part of being a good Socialist, redistribution of wealth and all.

      Moving money from American advertising to EU coffers.

  5. This is why part of me thinks American tech companies should pull out of the EU.

    The EU is too stagnant on innovation to create great search engines and Apple tv type technology that people want to use. Europeans would just use VPNs and other means to access American websites blocked by the EU.

    This way, EU fines would have no effect since American tech companies are not located there.

    Furthermore, the USA should take control of internet protocol again. It was a mistake to give that up to Socialists of the World.

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    1. Better not be in the EU.

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