In European Antitrust Fight, Google Needs to Appease Competitors

The European Commission on Wednesday formally said for the first time that Google’s proposal for addressing antitrust concerns did not go far enough, and demanded that it come up with more far-reaching remedies or potentially face a fine of up to $5 billion.

It was a significant setback for Google, which in April struck a deal with the commission to settle its three-year antitrust investigation by making certain changes in the way it displays answers to search inquiries. But the deal was contingent on feedback from Google’s rivals. The commission determined that the proposal was inadequate, and said the company needed to do more to address rivals’ concerns.

The about-face followed an outcry from Google competitors during the market testing phase of the inquiry, in which the commission asked for feedback on the proposal.

“What they discovered in the market test was that overwhelmingly, everyone said the settlement was inadequate and doesn’t solve the problem,” said a person with knowledge about the feedback competitors gave the commission, but who spoke anonymously because the filings were not public.

Joaquín Almunia, the European Union competition commissioner, said at a news conference, “I concluded that the proposals that Google sent to us months ago are not enough to overcome our concerns.” He said he had written to Eric E. Schmidt, Google’s executive chairman, “asking Google to present better proposals.”

A Google spokesman, Al Verney, said on Wednesday that it would “continue to work” with the commission to settle the case. He added that Google was confident that its earlier proposal “clearly addresses” the commission’s concerns.

Mr. Almunia did not give Google a deadline for presenting a new set of concessions, according to a person with direct knowledge of Mr. Almunia’s letter who spoke anonymously. So the case, which both sides had hoped to close this year, could continue for several months or more.

The main issue is the way Google, which, according to comScore, handles 86 percent of Web searches in Europe, orders its search results. Regulators have been investigating whether Google favors its own services — like travel, local business, mapping and shopping — over those of competitors. Regulators have also examined whether it disadvantaged competitors by including material from other Web sites in search results and whether its advertising business complied with European antitrust law.

Google managed to avoid antitrust charges in the United States, where it has two-thirds market share, after a two-year investigation of similar issues. Google has faced a more hard-line approach in Europe, where critics have accused the antitrust authorities of relying too much on outside complaints from competitors rather than on evidence of consumer harm. That is somewhat of a sore point for European officials, who insist they share the same goals as the Americans when it comes to consumers.

In April, Google proposed to change its search results to clearly label results from some of its own properties, like Google Plus Local, and in some cases to show links from rival search engines. It also proposed giving competitors more control over how it used information from their sites in its vertical search results and making it easier for small businesses to transport their ad campaigns to other search engines.

The proposal was the first time Google had agreed to legally binding changes to its search results, and went much further than the minor concessions it made to the Federal Trade Commission in its inquiry.

Still, the proposal would not have required Google to change the algorithm that produces its search results. Also, if it had been accepted, Google would have escaped a possible fine of about 10 percent of its annual global revenue of about $50 billion and a formal finding of wrongdoing that could limit its ability to expand in Europe.

James Kanter reported from Brussels, and Claire Cain Miller from San Francisco.

Instagram Reversal Doesn’t Appease Everyone

Ryan Cox, a 29-year-old management consultant at ExactTarget, an Indianapolis-based interactive marketing software company, said he had already moved his photos to Flickr, Yahoo’s photo-sharing app, where he could have better control.

Mr. Cox said the uproar this week over whether Instagram owned its users’ photos was “a wake-up call.”

“It’s my fault,” he continued. “I’m smart enough to know what Instagram had and what they could do — especially the minute Facebook acquired them — but I was a victim of naïve optimism.”

“Naïve optimism” is as good a term as any for the emotion that people feel as they put their private lives onto social networks.

Companies like Google, Twitter, Yelp and Facebook offer themselves as free services for users to store and share their most intimate pictures, secrets, messages and memories. But to flourish over the long term, they need to seek new ways to market the personal data they accumulate. They must constantly push the envelope, hoping users either do not notice or do not care.

So they sell ads against the content of an e-mail, as Google does, or transform a user’s likes into commercial endorsements, as Facebook does, or sell photographs of your adorable 3-year-old, which is what Instagram was accused of planning this week.

“The reality is that companies have always had to make money,” said Miriam H. Wugmeister, chair of Morrison Foerster’s privacy and data security group.

Even as Instagram was pulling back on its changed terms of service on Thursday night, it made clear it was only regrouping. After all, Facebook, as a publicly held corporation, must answer to Wall Street’s quarterly expectations.

“We are going to take the time to complete our plans, and then come back to our users and explain how we would like for our advertising business to work,” Kevin Systrom, Instagram’s youthful co-founder, wrote on the company’s blog.

Instagram’s actions angered many users who were already incensed over the company’s decision earlier this month to cut off its integration with Twitter, a Facebook rival, making it harder for its users to share their Instagram photos on Twitter.

Users were apprehensive that the new terms of service meant that data on their favorite things would be shared with Facebook and its advertisers. Users also worried that their photos would become advertising.

Instagram is barely two years old but has 100 million users. Last spring, Facebook announced plans to buy it in a deal that was initially valued at $1 billion. The deal was closed in September for a somewhat smaller amount.

For some users, Mr. Systrom’s apology and declaration that “Instagram has no intention of selling your photos, and we never did” was sufficient.

National Geographic, which suspended its account in the middle of the uproar, held a conference call with members of Facebook’s legal and policy teams. Afterward, the magazine, which has 658,000 Instagram followers, said it would resurrect its account.

Also mollified was Noah Kalina, who took wedding photographs earlier this year for Mark Zuckerberg, the founder of Facebook. In a widely circulated post on Twitter, Mr. Kalina said the new terms of service were “a contract no professional or nonprofessional should ever sign.” His advice: “Walk away.”

On Friday, the photographer said he had walked back. “It’s nice to know they listened.”

Kim Kardashian, the most followed person on Instagram, said on Tuesday that she “really loved” the service — note the past tense — and that the new rules were not “fair.” She had yet to update her 17 million Twitter followers on Friday, but since she is pushing her True Reflection fragrance it is a safe bet that she has forgiven and forgotten.