What's the issue?
The CMA launched a market study into online platforms and digital advertising as part of its Digital Markets Strategy. This was a response to requests to investigate the online advertising market, including from the House of Commons DCMS Committee, the Cairncross Review of the UK news sector and the Furman Report on the digital economy. All raised concerns about the market power of online platforms and the impact on consumers and other industries.
What's the development?
The CMA has published its final report following its market study of online platforms and digital advertising. It calls on the government to introduce a new, pro-competition regulatory regime to tackle the market dominance of Google and Facebook and govern the behaviour of major platforms funded by digital advertising.
The 437 page report looks at:
- the market power of platforms (particularly Google and Facebook) in user-facing markets and the impact on consumers
- the extent to which users have control over their data and how it is collected and used by online platforms
- whether competition in the digital advertising market is distorted by the market power of specific platforms.
While the scope of the report is not limited to Google and Facebook, they are its focus as the CMA finds that 80% of online advertising is earned by them. Google has a more than 90% share of the £7.3bn search advertising market in the UK, and Facebook has over 50% of the £5.5bn display advertising market.
The CMA recognises the value of the services offered by both companies, but is concerned that "they have developed such unassailable market positions that rivals can no longer compete on equal terms." The CMA attributes this dominance to:
- the large user base which is a source of market power and allows Google to train its search algorithms in ways other search engines can't
- unmatchable access to user data allowing targeted advertising and tailored services
- the use of default settings to nudge people into using their services and giving up their data – Google paid to be the default search provider on mobile devices and browsers in the UK and Facebook requires users to accept personalised advertising as a condition for using its service
- their presence across many different markets.
The CMA finds that the resulting barriers to competition impact:
- consumers by leading to reduced innovation and choice and because they give up more data than they would like, either in order to access services or because they cannot easily navigate the available choices
- businesses because advertising spend is higher that it would be in a more competitive market – Google's prices are 30-40% higher than Bing's
- newspapers and other publishers – the CMA found that newspapers are reliant on Google and Facebook for almost 40% of visits to their sites. This potentially squeezes their share of digital advertising revenues, undermining their ability to produce valuable content.
What does this mean for you?
The CMA proposes a series of innovations consistent with the findings of the Furman report to create a new regulatory regime centred around a statutory code of conduct. The code of conduct would govern the behaviour of platforms with market power (or strategic market status – SMS) as defined by the Digital Market Taskforce (DMT). The CMA suggests the code be overseen by a new Digital Markets Unit (DMU) and should take the form of high level principles rather than prescriptive rules, based on fair trading, open choices, and trust and transparency. Each SMS would have its own tailored code with related guidance.
If the recommendations are adopted, they will most immediately impact the tech giants, in particular, Google and Facebook. However, the aim of reforms will be to encourage innovation and help smaller players. They will also impact the adtech ecosystem as well as online publishers and consumers but we will need to wait and see exactly what concrete measures emerge from the CMA's report before we know the full impact.
Within the new regime, the DMU would have the authority to make pro-competitive interventions centred around data (consumer control, interoperability, data access and separability), consumer choice and default options, and separation interventions including to:
- enforce the code of conduct to ensure that platforms with a position of market power do not engage in exploitative or exclusionary practices or practices likely to reduce trust or transparency, and to impose fines if necessary
- order Google to open up its click and query data to rival search engines to enable them to improve their algorithms in order to compete more effectively (without releasing personal data)
- restrict Google's ability to become the default search engine on devices and browsers and approve the design of any choice screens
- order Facebook to increase its interoperability with competing social media platforms
- order Facebook to give consumers a choice over whether or not to receive targeted advertising by introducing a 'fairness by design' duty on platforms to encourage transparency and consumer choice about their data. Consumers would have to be offered the choice of a basic service without personalised advertising and the DMU would approve the way choices were presented
- address concerns around auction manipulation where platforms exercise discretion on bidders' behalf through automated bidding and address self-preferencing concerns within search advertising and adtech intermediation
- require the release of data on fees charged by adtech intermediaries and publish data on average fee or take rates
- require Google and Facebook to give advertisers access to the tools or information necessary to carry out their own independent verification of advertising purchased on the inventory owned and operated by them
- require the introduction of data separation, user ID and data access interventions and data mobility interventions
- order separation of platforms where necessary to ensure healthy competition.
The CMA, Ofcom and the ICO will set up a Digital Markets Taskforce (DMT) to build on the conclusions of the market study and advise the government on how to design a new regulatory regime for online platforms. The CMA is also publishing a call for information and the DMT will report to the government by the end of 2020.