A new regulator has launched in the UK this week - dubbed the Digital Markets Unit (DMU) - which aims to tackle the dominance of online platforms that hold considerable market power. The likes of Apple, Google and Facebook will likely be in the firing line of the DMU, which sits within the Competition and Markets Authority.
A recent independent review, which formed the thinking around the new unit, said that the regulator should focus on network monopolies, which charge nothing upfront, but harvest and use customer data to make money.
There has been increased hostility from governments globally towards tech giants, particularly those based in the US. Legislators have argued that these online platforms are harming local industries and aren't paying their fair share of tax. However, there isn't much of a global consensus on how to tackle the issues and the US has mostly resisted isolated attempts to have its tech industries regulated from abroad.
You only have to look at the recent posturing between the Australian government and Facebook to realise that there's no simple answer to these challenges, without international collaboration.
The OECD is hoping to reach a global solution on the challenge of taxing digital services, but that has been the case for a number of years now.
As such, it will be interesting to see how much headway a UK regulator can make with the tech titans.
That being said, the DMU aims to oversee plans to give consumers more choice and control over their data, promote online competition and crack down on unfair practices which it claims can often leave businesses and consumers with less choice and more expensive goods and services.
Commenting on the organization's launch today, Digital Secretary Oliver Dowden said:
Today is a major milestone in the path to creating the world's most competitive online markets, with consumers, entrepreneurs and content publishers at their heart.
The Digital Markets Unit has launched and I've asked it to begin by looking at the relationships between platforms and content providers, and platforms and digital advertisers.
This will pave the way for the development of new digital services and lower prices, give consumers more choice and control over their data, and support our news industry, which is vital to freedom of expression and our democratic values.
As noted above, the British government and a range of experts are of the view that the concentration of power of a few number of firms is stalling growth and having negative impacts on consumers and businesses that rely on them.
The government has asked the DMU to begin looking at how codes of conduct could work in practice to govern the relationship between digital platforms and groups such as small businesses which rely on them to advertise or use their services to reach their customers. The debate between the likes of Facebook and Google being platforms vs publishers has been raging for years, with little consensus on what the answer is.
The government highlights that:
Around £14 billion was spent on digital advertising in the UK in 2019, around 80 per cent of which was spent on Google and Facebook, and the Competition and Markets Authority notes the number of adverts that consumers are exposed to on digital platforms is increasing.
Facebook's average revenue per user has increased from under £5 in 2011 to more than £50 in 2019 and its average revenue per user is now more than ten times higher than competitors.
In the UK, Google's prices for search advertising on desktop and mobile were 30 to 40 per cent higher than Bing's, its main competitor in 2019.
Digital Secretary Dowden has asked the new unit to work with communications regulator Ofcom to look specifically at how a code would govern the relationships between platforms and content providers such as news publishers. This gives us a sense of what initial regulatory flexing we may see from the Watchdog over the coming months.
The government has said that this could support wider work being done to "boost the sustainability of the press".
Andrea Coscelli, Chief Executive of the Competition and Markets Authority (CMA), said:
People shopping on the internet and sharing information online should be able to enjoy the choice, secure data and fair prices that come with a dynamic and competitive industry.
Today is another step towards creating a level playing field in digital markets. The DMU will be a world-leading hub of expertise in this area and when given the powers it needs, I am confident it will play a key role in helping innovation thrive and securing better outcomes for customers.
The DMU is currently in ‘shadow' non statutory form, ahead of legislation granting it full powers. The government has said that it is consulting on the design of the new pro-competition regime this year and will put the DMU on a statutory footing as soon as Parliamentary time allows.
The unit will also work closely with the CMA, which is already taking enforcement action against Google and Apple, as well as scrutinising mergers involving Facebook and eBay. However, the recent independent review did warn that the unit should have its powers ring-fenced tightly, so as to prevent regulatory creep, which could impact every digital sector of the economy. In other words, it should stick to the tech giants and the tech giants only.
Going forward, the DMU intends to work alongside business, the government and academia to compile evidence, knowledge and expertise so that once the new pro-competition regulatory regime is in place, it can begin operation as quickly as possible.
The government has said that the unit will also coordinate with international partners, with the aim of making the UK a "global leader in shaping the debate in this area".
With this in mind, the Digital Secretary is planning to host a meeting of digital and tech ministers in April as he seeks to build consensus for coordination on better information sharing and joint up regulatory and policy approaches.
The DMU will be led by Will Hayter, who has previously been working out of the Cabinet Office on the UK's exit from the EU. Prior to this recent role, Hayter spent four years working at the CMA on projects and international policy.
The launch of this unit is to be expected and to be honest, somewhat overdue. The tech giants have largely been able to operate as they wish for over a decade, without too much scrutiny or backlash from regulators in the UK. However, the impact of the DMU remains to be seen. I have limited hope for it achieving too much in isolation. I think the likes of Apple, Google and Facebook will be more concerned about regulatory action happening across the Channel in the EU. But the key to success here will be international consensus - including from the US. The sooner governments can work together to establish what ‘good' looks like, the sooner progress will take shape.