CMA: Strong argument for new laws to curb ad duopoly

duopolyA regulatory clampdown on Google and Facebook’s dominance of the £13bn UK digital ad industry has moved a step closer with the publication of a Competition & Markets Authority report, which insists there is a “strong argument” for a tougher regime.

Although the study stops short of saying whether the CMA will launch a full-blown investigation – as widely predicted earlier this week – it does expose huge concerns over the exploitation of personal data and the harmful effects of the duopoly on advertisers and rival firms.

It found that last year, Google accounted for more than 90% of all revenues earned from search advertising in the UK, with revenues of around £6bn, while in the same year, Facebook accounted for almost half of all display advertising revenues in the UK, reaching more than £2bn.

While conceding that ‘big’ is not necessarily ‘bad’ – and that these platforms have brought innovative and valuable products and services to the market – the CMA said it is concerned that their position may have become entrenched with negative consequences for the people and businesses who use their services every day.

The report states: “A lack of real competition to Google and Facebook could mean people are already missing out on the next great new idea from a potential rival. It could also be resulting in a lack of proper choice for consumers and higher prices for advertisers that can mean cost rises for goods and services such as flights, electronics and insurance bought online.

“The market position of Google and Facebook may potentially be undermining the ability of newspapers and other publishers to produce valuable content as their share of revenues is squeezed by large platforms.”

Through its market study, the CMA has used its statutory information gathering powers to build a better understanding of the market, the drivers behind the positions of Google and Facebook and the competition issues this might present.

It has also been able to build a clearer picture of how these large platforms collect and use personal data to assess whether people have the right amount of control over their own information.

The CMA has found that the default settings people are faced with online have a profound effect on choice and the shape of competition. Last year in the UK, Google was willing to pay around £1bn – 16% of all its search revenues – to ensure it was the default search engine on mobile devices such as Apple phones.

The regulator highlights how personal data collection also plays an important role in driving Google and Facebook’s powerful market position by allowing them to target their ads more effectively than others. Both for privacy and competition reasons, it is essential that people feel in control of their data. At the moment, the CMA is concerned that this is not always the case.

For example, social media platforms such as Facebook do not allow consumers to opt out of personalised advertising. Instead,  consumers are presented with a take-it-or-leave it offer, forcing them to share considerable amounts of personal data as a condition for using the service. And it is difficult to access privacy settings on these platforms, which are often only visible after navigating through multiple menus.

Overall, the CMA found that consumer engagement with privacy settings and controls is low and, that, as a result, most consumers follow the default settings set by platforms – which may result in them giving up more data than they would like.

The regulator is also concerned about a lack of transparency in the way that business on these platforms works. Publishers, such as newspapers, which rely on Google and Facebook for about 40% of their traffic, have expressed concerns about unexplained dramatic changes in the number people visiting their websites due to changes in Google’s search and Facebook’s news algorithms.

Different sorts of transparency concerns are particularly acute in the market for display ads, where advertisers and publishers participate in a “black box” process of realtime bidding but have limited ability to verify the effectiveness of their ads, the report states.

CMA chief executive Andrea Coscelli said: “Digital advertising fuels big businesses like Google and Facebook and we have been building a picture of how this complex new market works. We’ve looked especially at how these firms collect and use people’s data, how they monetise it and what this means for rival companies who want to compete, as well as the people and businesses using these services every day.

“We’re now inviting comments on what we have found. At the end of the study, we’ll present our findings to the new Government as they decide whether and how to regulate what is an increasingly central sector in all our lives.”

The CMA said the new regulatory regime could include legislation governing the behaviour of online platforms and giving people greater control over their own data, adding that the most likely outcome will be recommendations to the new Government as it decides whether and how to regulate the digital sector.

An Advertising Association spokesperson commented: “We believe that a healthy, competitive online advertising market is important for the long-term sustainability of the advertising industry and the wider economy.

“It is important that the CMA ensures its work is future-proof and coherent with other Government and regulatory reviews and allows the UK to retain its international standing as the most digitally-developed market in the world.”

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