CMA Calls to Rein in Market Powers of American Tech Giants Facebook And Google

Summary

• UK’s competition watchdog pushes for curbs on the dominance of Google and Facebook in the online-advertising market
• As per CMA the American tech giants enjoy a significant market share
• The CMA has proposed the government to create a ‘Digital Markets Unit’, which can enforce a code of conduct in this sector

For better administration of the leading digital marketing platforms such as Facebook, Google, Instagram and many others, CMA (Competition and Markets Authority) has recommended a new regulatory regime to make sure that the industry remains competitive.

According to the market study conducted by CMA, the existing legal framework applicable in the realm of the virtual world and digital marketing needs an upgrade, due to its constant evolution and dynamic landscape. It is about creating a level play for all in the digital marketing space.

CMA has learnt through a year-long assessment of the markets, how these tech companies are driving their business models through advertising revenue and have recommended a new regulatory regime to the government.

CMA was formed in 2013 to prevent anti-competitive activities and malpractices. The independent non-ministerial government department is responsible for promoting business competition for the benefit of people. The UK watchdog ensures that the businesses are operating in accordance with the legal framework in place. The authority encourages healthy competition among the market players so that consumers are benefitted while buying goods and services.

The CMA’s Findings

Around 80 per cent of the UK’s expenditure on digital advertising was earned by Facebook and Google, just two companies, while the UK’s spend on digital advertising in 2019 stood at £14 billion.

In terms of market share, the search advertising market in UK is controlled by Google, as its market share is more than 90 per cent. In the sphere of display advertising, Facebook is the market leader with a share of more than 50 per cent. Only two companies are dominating the arena, not just in the UK but also in most of the other countries.

The £14 billion spend in the UK last year on digital advertising would have led resulted in increased prices for all services and goods which use digital advertising to market their products. According to the CMA, while comparing like-for-like search terms on desktop and mobile, Google charges around 30 per cent to 40 per cent higher prices than other search engines such as Bing. This indicates that lesser competition in the industry could lead to profiteering.

The CMA recently constituted a Digital Markets Task force. The task force would build upon the CMA’s findings by carrying out further analysis on more platforms and then draft the design guidelines for the new regime by the end of this year.

Why is the new regime required?

Businesses within an industry compete on price, quality, and service to gain market share and attract new customers. If there is lack of competition in the market, the business might collude and offer sub-standard products with irrational pricing to consumers. This would mean cheating consumers. Businesses in the absence of competition can collude to fix the price of goods & services, which is called price-fixing, in such case, consumers would have no other option and would end up paying unjustified prices.

Therefore, a new pro-competition regulatory regime is required. Level playing field ensures fair pricing of goods & services and makes room for innovation. Anti-competitive practices might lead to legal proceedings and big fines, along with reputation loss. CMA has expressed its availability in attending complaints from consumers on anti-competitive practices or any form of cheating. The kind of the situation the world is going through an unprecedented crisis induced by Covid-19; the legal framework is not designed to capture such emergencies. However, it is the responsibility of the Government and CMA to ensure the well-being of its people.

The CMA has proposed the government to create a ‘Digital Markets Unit’, which can enforce a code of conduct on the technology companies operating in this arena and could penalise them, if necessary. The new unit would ensure that these technology companies would allow easy data accessibility for their rivals.

Google Search is widely used as a default search engine in our mobile phones or web browser. The new unit would restrict Google’s ability to serve as a default option so that users can try more options. Similarly, Facebook, Instagram tends to show up advertisement based upon user interests. The new unit would ask Facebook to first seek consumer consent before showing them personalised advertisements. In addition, to ensure healthy competition, the new unit could order a separation of platforms if necessary.

Amid the COVID-19 turmoil, the online market space has flourished by leaps and bounds as shoppers have made a rapid switch to the online platforms. Online marketing by businesses has gained traction over the recent past, and they will likely have additional penetration as consumers look to stay at home due to the risks of infections.

How did these tech giants become market leaders?

Facebook and Google are the leaders in the digital marketing space. Small businesses or start-ups need a medium to acquire new customers. These tech companies provide businesses with a medium to connect with their target audience. The audience is targeted based upon their browsing interest by AI (Artificial Intelligence) powered algorithms used by tech companies.

They have grown manifold and have attained an unassailable market position across the world. Facebook, which started as a social networking site, has a very large user base, including celebrities, which have a lot of followers. They can precisely target advertisements to individual consumers and finetune their offerings as they have unmatchable access to user data. For instance, Google knows your geolocation, your search history, all the applications being used. It has a readymade advertisement profile for you. In addition, it also provides with cloud applications such as Google Drive, which is used by the people to store their contacts and other important documents for seamless access anytime.

These factors pose as a high barrier for new competition to enter the arena. Weak or negligible competition would leave no choice for consumers and businesses to use the services of these tech companies. In addition, these tech giants would continue to thrive on unlimited access to public data. The right to privacy should be protected. Therefore, a new pro-competitive regulatory regime is required to control a sector which is central to all our lives and encourage domestic tech companies to flourish under the new framework.