CMA demands new laws to rein in Facebook and Google

google_facebookThe competition watchdog is calling on the Government to introduce tough new laws to break the stranglehold Google and Facebook have on the digital advertising market, after a year-long review into the industry found that existing rules are simply not suitable for effective regulation.

The Competition & Markets Authority (CMA) used its statutory information gathering powers to lift the lid on how advertising revenue drives the business model of major platforms and is recommending a new pro-competition regulatory regime to govern their behaviour.

UK expenditure on digital advertising was around £14bn in 2019, equivalent to about £500 per household. About 80% of this is earned by the Google and Facebook duopoly. Google has more than 90% of the £7.3bn search advertising market in the UK, while Facebook holds over 50% of the £5.5bn display advertising market. Google’s revenue per search has more than doubled since 2011, while Facebook’s average revenue per user has increased from less than £5 in 2011 to over £50 in 2019.

While recognising that Facebook and Google are “highly valued by consumers and help many small businesses to reach new customers”, the CMA says it is concerned that they have developed such unassailable market positions that rivals can no longer compete on equal terms.

The CMA report states: “Their large user base is a source of market power – it means that Facebook is a ‘must-have’ network for users to remain in contact with each other, and enables Google to train its search algorithms in ways that other search engines cannot.

“Each has unmatchable access to user data, allowing them to target advertisements to individual consumers and tailor the services they provide.

“Both use default settings to nudge people into using their services and giving up their data – for example Google paid around £1.2bn in 2019 to be the default search provider on mobile devices and browsers in the UK, while Facebook requires people to accept personalised advertising as a condition for using their service.”

The duopoly’s presence across many different markets, partially acquired through many acquisitions over the years, also makes it harder for rivals to compete, the CMA argues, adding that each of these factors individually presents a potential barrier to new competition, but together they work to reinforce each other and are extremely difficult to overcome.

Weak competition in search and social media leads to reduced innovation and choice, as well as to consumers giving up more data than they would like, the report continues. Further, if the £14bn spend in the UK last year on digital advertising is higher than it would be in a more competitive market, this will be felt in the prices for hotels, flights, consumer electronics, books, insurance and many other products that make heavy use of digital advertising. The CMA found that Google’s prices are around 30% to 40% higher than Bing when comparing like-for-like search terms on desktop and mobile.

Google and Facebook’s market positions also have a profound impact on newspapers and other publishers. The CMA has found that newspapers are reliant on Google and Facebook for almost 40% of all visits to their sites. This dependency potentially squeezes their share of digital advertising revenues, undermining their ability to produce valuable content.

The scale and nature of these issues mean that a new pro-competition regulatory regime is needed so that users can continue to benefit from innovative new services; rival businesses can compete on a level playing field and publishers do not find their revenues unduly squeezed. The CMA’s proposals are consistent with those made by Professor Jason Furman in his report for the government.

The CMA has proposed that within the new regime a ‘Digital Markets Unit’ should have the ability to enforce a code of conduct to ensure that platforms with a position of market power, like Google and Facebook, do not engage in exploitative or exclusionary practices, or practices likely to reduce trust and transparency, and to impose fines if necessary.

It could also order Google to open up its click and query data to rival search engines to allow them to improve their algorithms so they can properly compete. This would be designed in a way that does not involve the transfer of personal data to avoid privacy concerns.

Meanwhile, Facebook would be forced to increase its interoperability with competing social media platforms. Platforms would need to secure consumer consent for the use of any of their data.

In addition, the unit will restrict Google’s ability to secure its place as the default search engine on mobile devices and browsers in order to introduce more choice for users; order Facebook to give consumers a choice over whether to receive personalised advertising.

CMA chief executive Andrea Coscelli said: “Through our examination of this market, we have discovered how major online platforms like Google and Facebook operate and how they use digital advertising to fuel their business models. What we have found is concerning – if the market power of these firms goes unchecked, people and businesses will lose out.

“People will carry on handing over more of their personal data than necessary, a lack of competition could mean higher prices for goods and services bought online and we could all miss out on the benefits of the next innovative digital platform. Our clear recommendation to government is that a new pro-competitive regulatory regime be established to address the concerns we have identified and regulate a sector which is central to all our lives.”

The CMA has also worked with the Information Commissioner’s Office to examine the impact of privacy regulation on the market.

With GDPR still only two years old, the CMA says it is concerned that big platforms could be interpreting the regulation in a way which favours their business models, instead of in a way which gives users control of their data.
For example, it claims big platforms might share user data freely across their own sizeable business ecosystem, while at the same time refusing to share data with reputable third parties – which could have a detrimental impact on smaller players.

The CMA’s market study advocates a competitive-neutral approach to implementing privacy regulation, so that the big platforms are not able to exploit privacy regulation to their advantage.

Meanwhile, the CMA, working with the ICO and Ofcom, is formally launching a Digital Markets Taskforce. The Taskforce, originally commissioned by the Government, will build on the conclusions of the market study, as well as looking more widely across all platforms to consider the functions, processes and powers which may be needed to promote competition.

It will advise government on how a new regulatory regime for digital markets should be designed. To inform its work, the CMA is publishing a call for information, and writing to a number of platforms, seeking views and information. The Taskforce will deliver advice to Government by the end of 2020.

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