On Wednesday, the European Union is expected to rule that Google illegally used the market dominance of its smartphone software, Android, to stifle competition, hitting the Alphabet-owned company with a hefty fine and aiming to change some of its business practices.
Although the EU is reportedly considering a record fine -- higher than the $2.4 billion penalty it issued last year related to Google’s comparison shopping service -- the money isn’t the real problem for Alphabet.
The maximum punishment the EU could issue is roughly $11 billion, or 10 percent of the company’s annual revenue, but the penalty is not expected to hit the high-end of that range. Plus, while $11 billion is a lot of money by any objective measurement, it's still only a fraction of the $102 billion in cash and short-term investments Alphabet had on hand last quarter.
The real challenge for Google will come if the EU forces it to change its behavior.
Google lets phone makers use the open-source Android software for free, but the EU has accused it of using restrictive licensing practices to benefit its own services, including forcing phone makers to bundle Google products like Search, Maps and Chrome with its app store, Play. The EU was also investigating agreements Google made with other companies to exclusively pre-install its search app and preventing them from selling other phones that run modified versions of Android.
In theory, this decision could give other apps more room to compete with Google's. Phone makers could auction off specific app categories to other app makers, and they'd be more likely to pay a high price if they didn't have to compete with similar Google apps installed. Users might also be more likely to download third-party apps since they wouldn't have a pre-installed option.
The ruling could also hamper the growth of Google's advertising business, where growth is being driven by mobile rather than desktop ads. If Google is forced to stop offering its apps as a suite, it would lose that automatic phone real estate, where it can sell more far ads than through third-party products.