Why I applaud EU's Anti-trust investigation of Google

Last year, Europe opened an investigation into Google's practice in favoring its own content over its rivals like Yelp, in its attempt to extend its dominance in general search to specialized search. (see WSJ). Recently, Europe started a new investigation into Google's monopolistic behavior. This time, the concern is on Android, and whether Google unfairly uses its dominance in smartphone market to unfairly promote its mobile search business. The practice flagged including bundling the Google Play Store with Google search, Google Map and other Google's own services (See WSJ, NYT, Guardian and Reuters).
From my observation, there has been much hostility towards' Europe's investigation. They felt that Europe is acting aggresively because Google is an American firm. Maybe. Regardless of the motivation, I think Europe did a great thing. Not just for Europe, but for consumers around the world.

What is so unfair about Giving things away for Free 

Many people point out that Google is offering Android for free so why complain? When DOJ charged Microsoft of anti-trust behavior, one central concern is Microsoft's unfair competition in the "browser war".  Microsoft was giving away Internet Explorer for free as well. Giving things away for free does not mean no unfair competition exists. In fact, software does compete for the limited hardware space on the desktop then, and the tablet today. To the extent that many apps are willing to pay to get their apps pre-installed by OEM or set as the default app, Google's behavior now, and Microsoft's behavior then, hurts consumers in the form of higher hardware cost.

It is another mistake to think that we should be gratified that Google made a great product like Android and give consumers a choice other than iOS. Without Google, there would be other products. Ubuntu (like Android, is also based on Linux), and Microsoft, or even Blackberry could come up with feasible alternatives. One might point out that these products suck now. Yes, that is precisely because Android's dominance. Due to the network effect, the smartphone market could only support a couple of operating systems. Other OS, would not command enough users to attract app developers and would have a hard time taking off. If Google had not made Android available, one of the aforementioned OS would take off, though it might take them a bit longer to figure out the smartphone market.

The Long term concern

I think what really concerns me is the long term trajectory of Google. Everyone thinks of Google as an innovative firm now. There is lots of active PR behind this perception, but there are lots of truth as well. However, we should not take this for granted. AT&T in the 19th century was an equally, if not more innovative firm. (See a list of achievements). Eight Nobel prizes were awarded for works done at Bell Labs, AT&T's subsidiary. It developed a wide range of revolutionary technologies including radio astronomy, the transistor, the laser, information theory, the operating system Unix (to which Android owes), the programming languages C and C++. Its record would make many fund-eating state universities ashamed. 

It did not end well. The government was not willing to be aggresive toward the monopolistic behavior of AT&T. Its anti-trust act was relatively weak (see Kingsbury Commitment). But AT&T's (or Bell Ma, as it was called) monopoly needed stronger hand. Finally, AT&T was broken up into seven baby Bells in 1984. Even after the break up, the baby Bells  dominated the market, and you can still see them today. Bell Atlantic and NYNEX became part of today's Verizon; Pacific Telesis and Southwestern Bell became part of today's AT&T. 

Even today, the lack of competition, the wireless telephone service remain among the lower-scoring categories in terms consumer satisfaction, along with health insurance and airlines, according to ACSI (American Consumer Satisfaction Index). It could be much worse, if AT&T's monopoly was not dealt with aggresively. The worst companies in terms of consumer satisfaction are Time Warner Cable and Comcast, the Internet service providers. The reason is simple: according to ACSI report:

Wireless telephone service, however, is a more competitive industry than Internet service, and most customers can choose from four major national carriers plus at least one smaller regional or prepaid carrier. Indeed, the aggregate of smaller wireless companies shoes the highest customer satisfaction by far with a 1$ uptick to a combined score of 79. [Compared to Verizon's 71 and AT&T's 70]

Going Forward

Google innovated greatly. We should not take that for granted. If we allow its anti-competitive ploys to continue, we may turn Google into today's AT&T or worse, Comcast, the parasites of the society.
Even today, we do not know if Google would be forced to be more innovative if the anti-trust regulators are more forceful and vigilant. Even during the innovative years of Bell Labs, Bell lab suppressed innovations such as answering machines, mobile phones, and FM technology to protect its monopoly.