Australian companies forced to imagine life without Google

Can you imagine life without Google? That is the curious reality Australians have been contemplating since the US technology group threatened to shut its ubiquitous search engine in their country last month over a draft law that would force Big Tech to pay news providers for content.

“If the code becomes law, Google would have no real choice but to stop providing search in Australia,” Mel Silva, managing director of Google Australia & New Zealand, told MPs on a parliamentary committee scrutinising the draft news media bargaining code on January 22.

The ultimatum from Google provoked a terse reaction from Scott Morrison, Australia’s prime minister, who told journalists, “we don’t respond to threats”. Nevertheless, there is mounting concern in the business and tech sector that a Google exit — or “G-exit” — could cause severe disruption, particularly for small businesses that rely on search to drive customers to their websites.

“It would have a significant impact on our ability to connect our content to our audience,” according to Neil Ackland, chief executive of Junkee Media, a small publisher that targets the youth market.

Ackland warned the code, which government sources expect will be enacted within weeks, could “potentially be fatal” for small publishers such as Junkee, which rely on Google and Facebook to drive 75 per cent of traffic to their websites.

The code would create an arbitration system that could make binding decisions on the fees Google and Facebook must pay news providers for content carried on their platform if commercial negotiations fail. The platforms would also provide at least 14 days’ notice before changing algorithms that would have an impact on traffic to news websites. And there are stiff financial penalties if either company breaches non-discrimination clauses.

Canberra says the world-first regulation is needed to address a “fundamental imbalance” in bargaining power between Google and Facebook and traditional media companies. The technology groups have become “gatekeepers” to the internet, capturing A$81 of every A$100 spent on online advertising, and are unwilling to compensate news providers fairly for their content, according to the government.

Both tech companies say the code is unworkable in its current form and argue they derive little financial benefit from displaying news.

Google has warned it would break the way its search engine operates and undermine a fundamental principle of the internet by forcing the company to pay to provide links to news websites. Facebook has said it would remove all news, local and international, from its platform in Australia if the code is enacted.

Big Tech has launched a massive lobbying campaign over the code against news providers, such as Nine Entertainment and Rupert Murdoch’s News Corp. The latter argues it is owed up to A$1bn a year from Google and Facebook for delivering eyeballs on to their platforms. Analysts say the outcome of the battle holds global implications, with the EU, Canada, France and several other jurisdictions mulling similar regulation.

“One source of concern for Google is that the news media bargaining code creates a precedent, potentially spurring regulation in larger markets such as the United States,” said Liam Harrison, analyst at IbisWorld, a research group.

Google’s hardball tactic of threatening to shut its search engine has raised the stakes for Canberra, which critics allege drew up the pioneering regulation to curry favour with News Corp — a staunch supporter of the conservative government.

Atlassian, Australia’s most successful tech company, says the code is poor regulation because it targets just two companies and would “harm future tech investments and the economy at large”.

Most analysts predict “G-exit” would deliver a significant economic hit in the short-term, although not as dramatic as the A$53bn in annual economic benefits that Google claims it generates for businesses and consumers in Australia.

But Google’s brinkmanship also holds considerable risks for the company. Some analysts warn the group’s strong-arm lobbying tactics could prove counterproductive.

“There are already calls for ‘Big Tech’ to be broken up in the US and there may be more of this in relation to monopolies . . . that could in the future mean laws that prohibit Google being the default engine on browsers,” said David Holmes, assistant professor at Monash University in Melbourne.

jame.smyth@ft.com