Google vanquished a rival in Prague. Payback could hurt

Mr Michal Feix leads Seznam’s legal efforts against Google. PHOTO: NYTIMES

PRAGUE (NYTIMES) - As Google extended its dominance as a search engine over the past two decades, the Czech Republic stood out as a surprising holdout.

People in the European nation preferred Seznam, a search engine started in Prague in 1996, two years before Google. For about 15 years, Seznam's focus on its local market provided a feel-good story about a hometown underdog prevailing against a rising global titan.

But when smartphones became commonplace, most of them with Google installed as the default search engine, Seznam's luck ran out. Google today controls more than 80 per cent of the Czech search market, and Seznam is a marginal search engine with more of a focus on media.

Since its fall, Seznam has been a continual thorn in Google's side, including when it joined a complaint against the American search giant that led to a record fine. Now it is also helping to inspire laws to crimp the power of companies like Google, with consequences that go far beyond the Czech Republic.

European lawmakers are putting the final touches on a law aimed at protecting businesses like Seznam by preventing large tech companies from unfairly bundling services to box out rivals. The legislation would require Google and other tech giants to make services from smaller firms more easily available to users.

The new rules, expected to pass by June, would affect how Apple and Google operate app stores, Amazon sells products online, and Meta and Google sell online advertising. The debate in Europe is being closely watched in countries including the United States, where the Justice Department and Federal Trade Commission have also proposed updating competition rules targeting the world's largest tech companies.

This wave of new regulation is a sign of the worldwide concern that some companies have reached such a scale that new competitors cannot emerge, giving the platforms outsize influence over business and society. The Internet, once seen as creating a decentralised way for a constellation of businesses to reach users around the world, is controlled by a shrinking number of corporate behemoths. There is less room, policymakers fear, for smaller companies to thrive.

"We are an example of the consequences," said Mr Michal Feix, a former chief executive of Seznam, who now leads its policy and legal work as an outside consultant. Without the new laws, he said, "you just can't compete".

Google said its success in the Czech Republic was the result of building a superior service. Czechs "choose our products because they help people find the information they're looking for - and because we make thousands of improvements every year", Google said in a statement.

In the Czech Republic, Seznam's history traces back to early enthusiasm about the Internet. Mr Ivo Lukacovic, the founder and owner of Seznam, recalled a childhood without much money; his family had no car or colour TV. As a teenager in 1989, when the country was still part of Czechoslovakia, he joined classmates in mass protests, known as the Velvet Revolution, that contributed to the fall of the ruling Communist Party.

"The regime collapsed, and the era of economic freedom began," Mr Lukacovic said on a recent blustery morning outside Prague. "Since I played with computers, I went to university." At 22, he dropped out of Czech Technical University in Prague after creating Seznam, which means "list" in Czech. It started as a recommendation site of 10 or so Czech websites to visit. A search engine was added in 1998; e-mail, maps and other services arrived in the years after.

The company continued to grow after Google opened in the country in 2006. Seznam's search engine was tailored to Czech speakers, and it added services like unlimited e-mail storage to keep up with Google's offerings.

In 2008, the Czech Republic, whose population of 10.5 million is about the size of North Carolina, was the only place in the 31-country European Economic Area where Google was not the leading search engine.

By 2010, Seznam's position began to change. Google had invested considerably in improving its non-English language services and tried to endear itself to Czech citizens through efforts like digitising the ancient books held at the 18th-century Baroque library in Prague's Old Town.

But Seznam felt something more underhanded was at work.

Google owned Android, the operating system used on most of the world's smartphones. And it had a deal with Apple that made its search engine the default choice on the iPhone. As Internet browsing habits moved from personal computers to smartphones, Seznam was at a disadvantage.

Google offered Android free to phone manufacturers like Samsung and LG, but it required the companies to pre-install apps like Google Search and the Chrome browser if they wanted access to the Google Play app store.

Seznam approached handset manufacturers about getting its search service included on phones, but they told Seznam that Google already had deals in place, Mr Feix said. The biggest drops in Seznam use came every Christmas, he added, when people unwrapped new smartphones with Google apps installed.

In 2012, Seznam went to the Czech regulators. And a year later, it joined other companies in filing a complaint with European Commission investigators accusing Google of breaking anti-trust laws by using Android to block competition.

The effort was successful, leading to a record fine of €4.34 billion (about S$6.8 billion then), against Google. The commission said Google had used Android to "cement the dominance of its search engine". Seznam is named or cited at least 24 times in the decision, which is still under appeal.

But for Seznam, the 2018 decision was too late. The company surrendered its lead in the Czech search market around the summer of 2014, according to Toplist, a market research firm. It now has only about 11 per cent of the market. Other research firms said Seznam might have lost its lead as early as 2011, just as smartphone use was exploding.

Last year, Seznam sued Google for roughly US$400 million (S$538 million) for lost revenue that it claims is related to Google's anti-competitive practices. Google is fighting the suit.

The new anti-trust law, the Digital Markets Act, would speed up tech-related competition investigations and require tech companies of a certain size to give users access to rival services. The penalties could be up to 10 per cent of a company's global revenue, worth about US$18 billion for Google. On new Android smartphones, users would be able to choose an alternative search engine or browser to use, a remedy that was also included in the 2018 penalty against Google in the Android case.

"Europe will be the first in setting these kinds of rules," said Ms Margrethe Vestager, the European Commission executive vice-president in charge of competition and digital policy. "Maybe others will take the inspiration so there can be a global movement."

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