Google $2.7 billion EU fine only the beginning

Francois Lenoir | Reuters

European Competition Commissioner Margrethe Vestager holds a news conference at the EU Commission’s headquarters in Brussels, Belgium, June 27, 2017.

The record fine EU regulators just slapped on Alphabet’s Google unit — at least $2.7 billion if it withstands a possible appeal — is only the beginning of the financial effect that Google will suffer from EU investigations.

To start, the company will also have to change how it displays comparison shopping ads for products in search results in the EU.

Credit Suisse analyst Stephen Ju said in a report Tuesday that Google gets about $30 billion, or one-third of its total revenue, from the region. Ju estimated that about 75% of its revenue is search, and less than 30% of that revenue might come from these ads.

So the result of complying with the tougher rules could dent Google’s revenue by 1.5 percent, and operating income by 2.6 percent, said the report.

That would mean an additional hit of $1.35 billion to revenue, and more than $600 million to operating profit. (Google’s parent company Alphabet booked $90.3 billion in revenue and had $23.7 billion in operating income last year.)

But worse for Google, European Commission competition watchdog Margrethe Vestager may just be getting started on the U.S. internet giant.

The statement from the EU announcing the fine says it “has already come to the preliminary conclusion that Google has abused a dominant position in two other cases.”

The EU is also looking at whether Google abused its dominant position in mobile operating systems with Android, and in its main system for third-party sites to buy ads, AdSense. These cases could produce further, larger fines or require Google to make more changes to its business.

Google doesn’t break out revenues from Android, but is a critical part of Google’s attempt to expand its ad revenue in the mobile space, and also fuels purchases through the Google Play store. Those purchases are probably the largest component in Google’s “other revenues,” which made up 11% of its revenue last year. (Note that ths Google revenue is distinct from Alphabet’s “Other Bets,” which are long-term bets like self-driving cars.)

Meanwhile, AdSense and similar products for placing ads on third-party sites accounted for about 17% of Google’s overall revenue in 2016.

Google’s argument, that the presence of large rivals like Amazon and eBay are proof of a competitive market, has so far fallen on deaf ears in Brussels. As Microsoft’s antitrust travails in the 2000s showed, the first ruling could be the beginning of a very long, expensive struggle for Google.