Why Google Has Become Germany's Bogeyman - And Why It Matters

REUTERS/Pawel Kopczynski A member of German Piraten Partei (Pirates party) wears a mask with the portrait of U.S. President Barack Obama sporting Google Glass during a protest in Berlin's Tiergarten district, June 19, 2013.IN ITS nearly 500-year history, Unter den Linden, Berlin's main boulevard, has seen many political protests. But the one held recently in front of Google's offices in the German capital must be among the most peculiar.

Activists demonstrated against iWright, a new software that can supposedly write novels and is supposedly backed by Google. "It's a declaration of war against all authors", an organiser said.

If all this sounds like a PR stunt, it probably was--though it is not clear what for. Still, it nicely captures the mood in Germany. Although Germans seem to love Google's services (it has a 91% market share in online search), the firm itself is seen as a digital glutton that intends to ingest everything: personal data, intellectual property, industry, even democracy. Sigmar Gabriel, Germany's economy minister and vice-chancellor, has gone so far as to suggest that the company be broken up.

In recent weeks things have calmed somewhat: next month Mr Gabriel is due to appear on a discussion panel with Eric Schmidt, Google's executive chairman (who is also on the board of The Economist's parent company). But Germany's Googlephobia is a big reason why Joaquín Almunia, Europe's competition commissioner, is likely to announce shortly that he plans to renegotiate a deal with Google to settle antitrust charges.

One reason for the aversion is, predictably, Edward Snowden's revelations. Since any German attempts to curb American spooks' snooping are doomed, Google and other big American tech firms have become ersatz targets. This is in tune with a mounting digital revulsion in Germany.

It has just become the first country to ban Uber Pop, a ride-sharing service based on a smartphone app, on its entire territory. Dave Eggers's "The Circle", a dystopian novel about a Google-like firm which came out in German in mid-August, has rocketed to the top of bestseller lists.

Politics is another reason. Mr Gabriel, who is also chairman of the Social Democrats, views the consequences of digitisation and the power of online giants as important issues for his party--not just in terms of privacy and abuse of market power, but of workers' rights.

"We have to formulate a new set of rules for work if we are to prevent 'click workers' from becoming day labourers void of all rights in the digital world," he wrote in an article for the Frankfurter Allgemeine Zeitung (FAZ).

Yet it is business interests that are mainly driving the country's Google debate. German publishers, led by Axel Springer and Hubert Burda Media, have been battling the American company for some time to get it to pay for the content it aggregates. They also increasingly compete with Google: more than half of Springer's revenues now come from digital services.

"Google knows more about every digitally active citizen than George Orwell dared to imagine in his wildest dreams in '1984'," wrote Mathias Döpfner, Springer's boss, in an open letter to Mr Schmidt, also in the FAZ.

Mr Döpfner surprised many by endorsing Jean-Claude Juncker to become president of the European Commission in an editorial in Bild, Germany's biggest tabloid and Springer's main source of political influence. This prompted conspiracy theories that in return, Mr Juncker would be tough on Google. ("He hasn't even met Mr Juncker," retorts a Springer executive.)

And then there are Germany's manufacturers. They fret they will lose out from digitisation. In this age of "big data", the thinking goes, profits will migrate from physical products to data about them. Google is a digital native, whereas many German companies are data newbies.

For a cheap toaster, take exit 83

The biggest fear is that Germany's proud carmakers will be relegated to mere producers of "tin cans". If they lose ownership of the data and software that make self-driving cars move, and control of the display screens inside them, the firms' margins will get squeezed. There may be a more profitable business in telling a driver that the product he wants is available cheaply at the next autobahn exit than in building the car he is sitting in.

Such worries are not fanciful--nor is the concern that Google and other American tech giants already have too much of a head start. Google, for instance, is benefiting from powerful network effects. Its two core businesses, the search service and the online-advertising platform, feed into each other.

Simply put, the data the firm collects from its many users help improve its search algorithm and the ad selection, which attracts even more users and advertisers, which allows Google to improve its algorithms and infrastructure, and so on.

Yet even if these are real economic issues, the big question is what to do about them. In Berlin many think that regulation is the answer. In particular, Springer has lobbied to get Mr Almunia to squeeze more concessions from Google. Complicating matters for the competition commissioner, two colleagues, Michel Barnier and Günther Oettinger, in charge of the finance and energy portfolios respectively, have come out against the deal.

Lobbying is not the only reason why the settlement is in trouble. Even relatively neutral observers find the deal unsatisfactory. In a "preliminary assessment", the commission takes the view that Google is "diverting traffic away from competing vertical web-search services", meaning price-comparison sites.

But the proposed settlement is unlikely to do much to remedy the situation: Google agreed to yield three advertising slots to competitors, but its own results are still shown on top and its rivals have to take part in an auction for their allotted spots.

Whatever the details of the settlement, the goal of Google's critics in Germany is for regulators to go further and treat the firm as an "essential facility" that is obliged to give its rivals fair access. "We must give serious thought to the possibility of a break-up, in a similar way to the electricity and gas networks," Mr Gabriel wrote in his FAZ article.

Treating Google as an essential facility would be going too far. Network effects and Google's high market share notwithstanding, it would not be infeasible to duplicate its infrastructure, says the Bundeskartellamt, Germany's competition authority, in an internal report. In any case, it could not be forced to give rivals fair access without changing competition law.

Competition experts' assessments, and the law, may change should Google really become evil and go for world domination. But in the meantime Germany's government would do better to focus on where it can make a difference: creating an environment in which digital innovation can flourish.

Yet in this department, political energy is lacking: a recently presented "digital agenda" is no more than a wishlist; an effort to help Germany's industry create a common data platform, called "Industry 4.0", is languishing; and German startups consistently complain of the many bureaucratic barriers keep them from growing. Going after Google may be politically convenient, but it is hardly good policy.

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