The CMA has published its final report on online platforms and digital advertising, following a year-long market study during which the CMA used its statutory information gathering powers to reveal how advertising revenue drives the business model of major platforms. It has also launched a Digital Taskforce which has launched a call for evidence.
The CMA’s concerns
UK expenditure on digital advertising was around £14bn in 2019. Google and Facebook earned around 80% of this, with their market shares in their respective search advertising market and display advertising market increasing since 2011.
The services provided by Facebook and Google are highly valued by consumers and help many small businesses to reach new customers. However, the CMA is now concerned that they have developed such unassailable market positions that rivals can no longer compete on equal terms:
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 being the default search provider on mobile devices and browsers in the UK, while Facebook requires people to accept personalised advertising).
Their presence across many different markets, partially acquired through many acquisitions over the years, also makes it harder for rivals to compete.
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. Furthermore, the digital advertising spend feeds through into the prices of products making heavy use of digital advertising.
Google and Facebook’s market positions also affect newspapers and other publishers. They rely on Google and Facebook for almost 40% of all visits to their sites. This potentially squeezes their share of digital advertising revenues, undermining their ability to produce valuable content.
The need for a new regime
As a result of this, the CMA says that a new pro-competition regulatory regime is needed. The CMA’s proposals are consistent with those in the Furman report.
The CMA has proposed that 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.
- 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.
- order Facebook to increase its interoperability with competing social media platforms. Platforms would need to secure consumer consent for the use of any of their data.
- 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.
- introduce a “fairness-by-design” duty on the platforms to ensure that they are making it as easy as possible for users to make meaningful choices.
- order the separation of platforms where necessary to ensure healthy competition.
Whilst this recommendation is UK-focused, many of the problems that the CMA has identified are international in nature. It will therefore engage globally in relation to these issues as part of its wider digital strategy.
Privacy
Safeguarding people’s control over their data is paramount to privacy as well as to the healthy operation of the market. Therefore, the CMA has worked with the ICO to examine the impact of privacy regulation on the market.
The GDPR is still quite new and the CMA is concerned that big platforms could be interpreting it in a way which favours their business models, instead of in a way which gives users control of their data. For example, 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. It will be working with the ICO and Ofcom further to address these issues through the Digital Regulation Cooperation Forum. The Forum has been formed to support regulatory coordination in digital markets, and cooperation on areas of mutual importance.
Digital Markets Taskforce
A Digital Markets Taskforce has also been launched. 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. The Taskforce will focus on three areas:
(a) The scope of any new approach to promote competition and innovation – specifically the test which might be used to identify firms with Strategic Market Status (SMS) and which online activities might be considered to be within the scope of a digital markets regime.
(b) The range of potential types of remedies that should be available under a new approach – including in what circumstances and to what aim they are applied and whether only in relation to firms with SMS or more widely.
(c) The options for designing procedure – how a new approach could be put into effect.
To inform its work, the CMA is publishing a call for information, and views are sought by 31 July. The Taskforce will deliver advice to the UK government by the end of 2020.
The CMA is not currently recommending making a market investigation reference. However, after the work of the Taskforce has concluded, it will assess whether the actions being taken by the government are sufficient to address the full range of issues identified by its market study, or whether direct action by the CMA is likely to be required.
