UK competition watchdog calls for new sheriff to police Google and Facebook

CMA has stopped short of proposing to break up Google or Facebook.

Google and Facebook: CMA said £14bn UK digital ad market is 80% controlled by them
Google and Facebook: CMA said £14bn UK digital ad market is 80% controlled by them

The UK’s competition watchdog is calling on the government to introduce new regulatory powers to tackle Google and Facebook’s market power in digital advertising.

The Competition & Markets Authority’s long-awaited report says that existing laws are not suitable to regulate the £14bn digital ad market, which is 80% controlled by the two tech giants. 

It is now proposing to create a "digital markets unit" that should have the ability to ensure that Facebook and Google do not engage in exploitative or exclusionary practices, and which can impose fines if necessary. 

However, the CMA is not proposing to break up either company, despite growing speculation that the US justice department is expected to file an antitrust suit in the coming months. 

Give users 'personaised advertising opt-out'

One of the new proposed powers would require a radical policy change for Facebook, which currently requires users to accept personalised advertising as a condition for using its service. The CMA said the new regulator should have the power over Facebook to give consumers a choice over whether to receive personalised ads.

It also wants to order Facebook to increase its interoperability with competing social platforms, and these platforms would need to secure consumer consent for the use of any of their data.

For Google, the CMA said the search titan should be ordered 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," the body added.  

It also wants to 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. 

The watchdog warned that both companies use default settings to nudge people into using their services and giving up their data. It used the example of Google paying roughly £1.2bn last year to be the default search provider on mobile devices and browsers in the UK. The CMA also found that Google’s prices are 30-40% higher than Microsoft’s Bing when comparing like-for-like search terms on desktop and mobile.

Both Facebook and Google should also introduce a "fairness by design" duty to ensure that they are making it as easy as possible for users to make meaningful choices, the CMA said, adding that the new authority should be able to order the separation of platforms where necessary to ensure healthy competition.

'Unassailable market positions'

The CMA used its statutory information-gathering powers to lift the lid on how advertising revenue drives the business model of major platforms.

Google enjoys a more than 90% share of the £7.3bn search advertising market in the UK, the CMA noted, while Facebook has a share of more than 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 more than £50 in 2019.

The CMA said it is concerned that Facebook and Google have developed "such unassailable market positions that rivals can no longer compete on equal terms".

It noted that Facebook has such a large user base that it has become a "must-have" network for users to remain in contact with each other, while Google's larger user base enables it to train its search algorithms in ways that other search engines cannot. 

Each platform has unmatchable access to user data, allowing them to target ads to individuals and tailor the services they provide, the CMA added.

Their presence across many markets, partially through many acquisitions over the years, also makes it harder for rivals to compete, the organisation pointed out.

The report warns 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. 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 said in a statement.

The watchdog, working with the Information Commissioner's Office and Ofcom, is also today formally launching a Digital Markets Taskforce, which will look more widely across all platforms to consider the functions, processes and powers that may be needed to promote competition and deliver advice to the government by the end of 2020.

Facebook: we compete with Google, Apple, Snap, Twitter and Amazon 

Andrea Coscelli, the CMA chief executive, added: "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."

A Facebook spokesman said the company faces "significant competition from the likes of Google, Apple, Snap, Twitter and Amazon, as well as new entrants like TikTok".

He added: "Giving people meaningful controls over how their data is collected and used is important, which is why we have introduced industry-leading tools for people to control how their data is used to inform the ads they see. We’re also exploring new ways through which people can move their data to other services through our Data Transfer Project. We look forward to engaging with UK government bodies on rules that protect consumers and help small businesses rebuild as the British economy recovers."

Ronan Harris, vice-president of Google UK and Ireland, said: "Digital advertising helps businesses find customers and supports the websites that people know and love. Advertisers today choose from a wide range of platforms that compete with each to deliver the most effective and innovative ad formats and products. We support regulation that benefits people, businesses and society, and we’ll continue to work constructively with regulatory authorities and government on these important areas so that everyone can make the most of the web."

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