UK digital markets Bill - why the real problem is who or what is ‘strategic’

While the UK jostles to position itself in a leadership role on AI safety – more on that in our reports next week – the Digital Markets, Competition and Consumers Bill is getting less attention than it did on publication in April. That needs to change.

The Bill seeks to establish an ex-ante regime for digital markets, which are increasingly hard to define and quantify in the 21^st Century. (Is AI a ‘digital market’? Discuss).

More, it seeks to strike a difficult balance - promoting competition in those markets, while reining in the power of companies deemed to have strategic market status (SMS). In practice, that means US Big Techs. In this way, the proposed legislation is a fellow traveller with Europe’s Digital Markets Act.

But given that Apple, Microsoft, Alphabet, and Amazon are four of the top five companies in the world by market cap, each worth more than a trillion dollars, intervention seems late in the day. Nine of that top ten are US corporations, with seven of them focused on technology.

Indeed, the top two, Apple ($2.6 trillion) and Microsoft ($2.4 trillion), have valuations that, as nominal GDP, would make them the eighth and ninth largest economies on Earth. Meta Platforms is not far behind the leaders, though hardware giant NVIDIA has overtaken it, buoyed by global interest in AI – plus digital tokens (another digital market? You see the problem).

Late or not, this decade the UK and EU have finally noticed the supermassive black hole of the US tech industry and decided to lob some rocks at it.

Among the many instruments available under Britain’s Bill are pro-competitive interventions, investigatory and enforcement powers, and M&A controls. Plus, requirements for good conduct (again, very late in the day. The Northern District of California has been the most active antitrust court in America every year since 2009!)

Avoiding the big question

So, where are we now? That was the question for industry body techUK this week, which avoided the big question: isn’t everything a digital market?

Vic Wilkinson is a director at tech-focused political comms firm, Taso Consultancy. This is one of the many organizations that – like the new generation of soi-disant think tanks (which are sometimes vendor pressure groups) – occupy a position as a kind of self-appointed Civil Service to the endless churn of government ministers. Ensuring digital continuity and expertise, rather than ongoing public service.

She told delegates:

Taking stock of the journey that we've had to get to this point, it's been a really long one.

It was 2018, of course, when we had the [government commissioned] Furman Review into digital competition. That was followed by the Competition and Markets Authority’s [CMA] Digital Market Strategy in 2019. The Digital Markets Taskforce was launched in 2020, then in 2021 we saw the launch of the Digital Markets Unit [DMU, within the CMA]. And then, following extensive consultation, the Bill was finally published in April 2023.

So, it's been a really long time in the making. But there is still a lot to iron out...”

Intended as a scene-setter and summary, this was a useful statement in another way: it revealed just how long it has taken the government to even begin to act on a definition of digital markets that, really, dates back to the Web explosion in the 1990s.

Gathering moss

This is the core problem with belated attempts to ensure fair competition: it is 30-plus years since the big bang. Consider this: in a fraction of the time it has taken Whitehall to debate what to do about Big Tech, an entirely new market has exploded for generative AI – one that may see OpenAI undergo a 9,900% revenue increase from $10 million in 2022 to a predicted $1 billion in 2024.

Granted, that’s healthy competition (albeit with the aid of Microsoft’s Big Tech partnership and investment). But the underlying point is this: so-called SMS companies don’t really have ‘strategic’ market status at all.

That’s because strategy is surely forward-thinking horizon scanning: a direction of travel, a vision set and managed. Looked at in this light, US Big Techs like Microsoft, Amazon, and Alphabet have incumbent market status, looking back at what they have achieved. The companies with real strategic status would be the likes of OpenAI or Anthropic. They represent the direction of travel.

Yet it seems likely that the definition of ‘digital markets’ will barely touch on how those spaces will be torn apart and rebuilt by AI this decade – including by Big Tech. And that would be an absurd state of affairs, one that merely reveals the slowness and paucity of the regulatory response. Like tuning a piano that has fallen out of a skyscraper, and then been hit by a missile.

Yet the arguments still focus on what ‘big’ looks like, in the most outdated terms. Wilkinson continued:

I think it's fair to say that when the Bill returns for Report stage [November], it's likely to be a source of contentious debate, which has been brewing and intensifying over the last few weeks.

There's been lots of noise around the Judicial Review standard, and whether that will change to make it easier for Big Techs to appeal regulator decisions. Yesterday we had former Secretary of State Nadine Dorries calling for the government to hold firm, decrying what she saw as a managed decline of the Bill’s effectiveness, and a Prime Minister in thrall to Big Tech.

In ‘even a stopped clock is right twice a day’ style, it seems the UK’s former digital minister might have a point. Wilkinson also observed that the Opposition benches face a tough challenge: any attempt to modify the Bill would make it even more complex and unwieldy. A Bill that models the complexity of an Amazon or Alphabet, in fact: not good in legislative terms, but great for lawyers’ incomes.

She added:

Meanwhile, a lot of the Big Tech platforms themselves are calling for more guardrails to be placed on the CMA, moving towards a time-limited full-merits review instead.

On the face of it, that’s no surprise. But what do Big Techs actually think?

Also present at the event were Amazon (which qualifies for SMS status) and Spotify (which does not, despite having forced the entire music industry to play its tune and try to game its algorithms – another example of incumbent/SMS versus genuinely strategic).

Amazon Director of Digital Policy Iain Wood said:

You could be forgiven for thinking this is really contentious legislation, with people having quite entrenched, mutually exclusive views. And I'm not sure that's actually the case. If you strip away the noise, there's actually a lot less disagreement than you might think.

There's broad agreement on the starting point. Everybody accepts that the tech sector is an economic success story. And that proportionate, predictable regulation has been a really important part of that. So, I think there's broad agreement with the political objective.

Spoken like an incumbent, not a strategic disruptor. He continued:

With this regime, I think everybody wants to see something that can be surgical and proportionate in addressing and proving problems, while not becoming a barrier to innovation.

When we think about how we design these regimes, lots of people recognize there is some benefit in having a degree of regulatory flexibility and discretion, which allows the regulator to tailor the remedies to the use case in hand, so we avoid a clunky ‘one size fits all’ solution.

One of the challenges, though, is if you're designing a regime where the regulator has significant discretion and flexibility, then you need corresponding checks and balances. [But] when you look at the explicit checks and balances in this regime, they're relatively weak.

For example, the threshold for intervention is low. Rules can be imposed on firms, in some cases without needing to identify a particular consumer harm or competition problem, or demonstrating that the intervention will benefit consumers. And the appeal standard is also relatively low.

So, it does seem that there's an asymmetry between the degree of discretion and the checks and balances.

Spoken even more like a market incumbent, waving its hand to direct the hoi-polloi. But Wood made a fair point (no pun intended). He said:

In designing a regime from scratch, we have the relative luxury of a blank sheet of paper. But if we want designs that survive over the long term, it is better to make the regime clear from the outset. […] I also think it's better for investment, because it provides more certainty about the long-term regulatory climate of the UK.

We would all like that! So, what did digital music giant Spotify make of the state of play? Describing Spotify as a “challenger company”, its Senior Manager of Government Affairs, Francesco Versace, sounded like a man who sees the Bill as an opportunity to tie Big Tech in red tape:

Spotify wholeheartedly supports the Bill, and we hope you can get it passed as soon as possible! In its current form, there could be discussions on how to refine it, perhaps. But in terms of its building blocks, it's absolutely paramount that the whole approach sticks together and is confirmed in the process.

It is about promoting innovation, which enables consumer choice. It's absolutely paramount that these goals are not put in question in the political and legislative process!

Spoken like the real strategic player. He continued:

You may have seen that our founder CEO Daniel Eck wrote an op-ed in the Daily Mail saying that if Spotify were to attempt to launch today, it could not exist. And that's because of the amount of anti-competitive and unfair practices we see in the digital marketplace, dominated by the SMS firms.

Something for nothing

In Spotify’s case, I see this is as a specious argument. That’s because it positions ‘after the fact’ events as happening ante-post. Just as the original Napster proved the business and consumer case for Apple to launch iTunes – it created and proved the market, saving Big Tech billions of dollars – so Spotify has proved the market for consumers to stream music for free.

Apple, Amazon, Google, et al, now want some of that, and they’ve got it. Yet Spotify remains – as any impoverished musician will tell you – by far the biggest beast in that jungle: the real strategic player. The one creators need, and consumers want. A byword.

Spotify has given those creators a global platform, but also one that makes it almost impossible for them to earn a living from royalties. At least, not without spending their fractional incomes on services to get Spotify’s attention, in the vain hope it leads to a billion streams. (This behaviour is a distant echo of the many publishers that still employ bigger SEO departments than editorial teams. All the effort goes into gaming the algorithm, then designing content to do the same.)

Versace added:

When I hear that the Bill is anti-consumer, it makes me laugh, because normally this doesn't come from consumers. If you listen to Which? [the Consumers Association], for example, they wholeheartedly support the Bill.

Of course they do, Mr Versace! ‘Challengers’ like Spotify have given them something for nothing: reams and reams of free stuff. And now they want Big Tech to do the same.

He continued:

And you have support from challenger companies. And we are mindful that this is just the tip of the iceberg, because for each challenger company that dares to speak out about their approach, there are probably hundreds who don’t dare to do so.

My take

Fair enough. Yet ultimately, this tricky debate comes down to one key question: who really has the ear of the government? Answers on a postcard from California, please. Meanwhile, make way for the 30-year solution to the 1990s big bang!