Big Tech - how the UK seeks to define and rule digital markets

Chris Middleton Profile picture for user cmiddleton December 16, 2022
Can the UK’s attempts to limit the power of Big Tech achieve anything significant?

Image of a map of the UK with digital waves behind it
(Image by Pete Linforth from Pixabay )

Digital markets demand a discrete set of rules, regulations, and legislation to enable greater competition and prevent systematic harm to consumers and other businesses. That’s the belief of the British government, and it is certainly backing that view with action. 

In the wake of the Furman and Penrose reviews, and the setting up of a dedicated Digital Markets Unit (DMU) within the Competition and Markets Authority (CMA) 18 months ago, the new Digital Markets, Competition and Consumer Act is finally incoming, with a Bill due in the third Parliamentary session next year. 

The Unit will actively promote competition, while the Act – in whatever form it eventually takes – aims to promote greater fairness in a world dominated by the so-called ‘Gamma’ Big Tech players: Google (Alphabet), Amazon, Microsoft, Meta (Facebook, Instagram, WhatsApp, et al), and Apple: brands that have a combined market capitalization that is twice the value of UK GDP. 

Those companies will be designated as having strategic market status (SMS, a typically unhelpful UK abbreviation) and will be expected to “manage the effects of their market power”, while being subject to “pro-competition interventions”, such as being forced to allow greater interoperability and data sharing.

Westminster believes that a more level playing field will ensure that growing start-ups have greater access to infrastructure, an innovation culture, leadership development, finance, talent, and – crucially – customers, though it is far from clear how these follow on from reining in Gamma. Particularly in the context of Brexit, which has made a traditional growth route for UK start-ups, Europe, more complex, expensive, and bureaucratic to sell into.

Europe poses another challenge, as its own attempts to regulate Gamma with a digital markets Act are more advanced than the UK’s. So, it stands to reason that the bigger market of 27 EU nations will create a more significant center of gravity in terms of the impact and reach of new rules.

Nonetheless, the DMU and the forthcoming Act are ambitious moves for the UK, when some of those Big Tech incumbents own the hardware as well as the platform and the apps: market muscle that says, “develop for our platform and reach millions of users, but don’t build a rival.”

But with 129 homegrown tech unicorns, a digital sector that’s growing 70 percent faster than the rest of the economy – particularly in fintech, AI, and quantum – and which already hosts 1.8 million jobs, are the Act and Unit really necessary for the UK? 

And what can such a limited focus on Gamma really hope to achieve, in the absence of any local challenger to their crowns?

Euan MacMillan is a Director at the DMU. He says:

Digital markets are different in three key ways. First, they have an acute tendency towards concentration [of power/customers], where one or two companies come to dominate. Second, the technologies employed in digital markets create new possibilities for consumer harms. And third, the scale, scope, and speed of these markets is of a different order of magnitude to any other markets and the economy. 

Together, these characteristics create pronounced risks. And these are risks that weren't envisaged when the CMA’s existing toolkit was originally created. So, we need new legislation to enable us to take swifter or more tailored action to manage the risk. 

To turn Mark Zuckerberg famous adage in its head, we now need to be able to move fast and fix things.

Walled gardens

Fair enough; few would disagree with that assessment. But ‘fast’ is a relative term after more than 25 years of ecommerce and a network effect that not only broadens and deepens platforms, but also leads to a greater concentration of customer data in Gamma’s hands. 

In turn, this becomes a barrier to entry for wannabe disruptors – though the recent case of Elon Musk’s Twitter has proved that rival providers can benefit from customers using one platform to announce that they are leaving for another (Mastodon et al). Or at least, they could until this week, when Musk designated Mastodon links as ‘unsafe’.

MacMillan acknowledges the size of the challenge and says:

What we then see is that the markets quickly tip to a ‘winner takes most’ outcome. Yesterday's disruptors become today's dominant incumbents with little likelihood of challengers replacing them tomorrow.

But again, this overstates the case: rivals can steal the thunder of established giants, as TikTok has proved in the user-generated video market. But these challengers are flowers that bloom in a small number of walled gardens, rather than being new walled gardens themselves – unless Musk succeeds in launching a rival to Apple and Google; unlikely as his personal brand crashes and burns. (No Tesla jokes, please.) 

Nevertheless, MacMillan is right when he says:

We must be cognizant of the risks that come with significant and entrenched market power, particularly in markets that have become essential for our way of life and commerce. For people, it creates the risks of higher prices, less choice, and giving up more data than they would like. 

Meanwhile for businesses, it creates the risk that their new ideas may be quashed before they get to market, and may be unable to compete on a level playing field. They may be forced to accept unreasonable terms to get access to customers. 

And for the economy, it risks holding back the potential of productivity, investment and growth that comes from digital markets being able to operate fully, effectively, and in a competitive way.

Too little too late? 

Those are no minor issues for a UK whose economy is tipping into what may be a protracted recession, and with productivity growth flatlining since the 2008-09 financial crisis.

So, are the UK’s plans too little and too late? Not according to Francesca Hill, Head of the Digital Markets regime at the UK’s Department for Digital, Culture, Media and Sport (DCMS). She says:

We want this new regime to be forward looking. We want it to be incredibly targeted and clear. We want it to be fast, and we want it to be non-adversarial. 

We are thinking about enabling businesses to create new products and services that will drive a more dynamic digital economy, and increase opportunities for new, innovative start-ups to arise and compete with dominant incumbents. We think that will flow through to benefits for consumers in more choice, better quality and more innovative services.

Great news, but again it is hard to see how that follows on from a stated intention to restrict the power of Gamma after 25 years of the network effect – Hill describes strategic market status as the “gateway” to the DMU regime. She adds: 

The DMU will assess whether a firm holds both substantial and entrenched market power and a strategic position. Of course, big is not always bad. And we really want to have an evidence-based gateway into this regime. We expect just a handful of firms to fall into scope.

She continues:

It's worth flagging that there's going to be a consumer benefits exemption. And this is really important, because we don't want the DMU intervening in cases where consumers are deriving real benefit from how something is being done. So, there is an exemption to ensure that conduct which brings about net consumer benefits will not breach conduct requirements.

This isn't a one-stop markets-regime-style intervention where [an SMS company] has to comprehensively address the whole problem on day one. We can start small, aiming to preserve as many consumer benefits from the existing way of working as possible. And preserving existing consumer benefits is going to be a key factor in how GMU chooses which intervention to take forward.

We want to see a lot of ongoing dialogue between these firms and the DMU. And we want to move away from an adversarial space. The focus of the regime is on resolving concerns through constructive engagement. We do not want to be relying on these mechanisms frequently, and we don't want them to be the ‘go to’. It is, however, important that the DMU has robust mechanisms that it can fall back on when necessary.

This piecemeal approach to limiting the power of Gamma seems, somehow, both woefully underpowered and naïve, and yet pragmatic at the same time. Either way, it does not suggest the likelihood of many wins for the UK, given that Gamma companies can simply say that consumers are benefiting and walk away. They may even be right.

And this focus on consumer and/or competitor benefits ignores another important community: creators. Many Gamma platform users aren’t passive consumers, but are active makers of content. 

While these platforms may theoretically offer a global opportunity to local content creators – musicians, artists, authors, and game-, film-, and video-makers among them – the network effect has, for example, driven down streaming income to a fraction of a cent and taught generations of consumers not to pay for providers’ work. 

The problem is, such issues don’t fall into an easy definition of anti-competitive practice, so those communities remain largely unprotected. Another is that platforms like Spotify, for example, are not deemed at have strategic market status in the first place, despite their huge cultural import and reach.

I put this to MacMillan. He says: 

The CMA’s perspective has been there hasn't really been a competition issue. That has been the root of some of the problems that have been experienced in these markets. It is more fundamental than that. 

But on the whole, absolutely, yes: the users of platforms are not simply end-users, but also intermediate users who are businesses, who are the creators of the content that those platforms host. They are an important part of the mix of people that we want to ensure are not detrimentally affected by anti-competitive practices.

My take

The UK’s move is simultaneously inevitable and over cautious. In the real world, the time to tackle Gamma has long passed, though Brexit has forced the issue in regulatory terms. So, what will all this achieve? Being seen to do something, no doubt. But how many wins will follow? Few, if any, I expect.

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