What happens when Big Tech firms get too big for a government’s comfort? A storm is brewing, none is willing to yield, and the coming days will witness an intense battle
Alibaba, the US$72-billion revenue Chinese conglomerate and pride of the communist nation was on a roll and preparing for a mega IPO (initial public offering) of US$34.5 billion for one of its subsidiaries the Ant Group, involved in banking and financial services. That was till Autumn 2020. It was just then the Chinese authorities cracked down on Alibaba, froze the IPO and launched an anti-trust investigation into the giant organization’s operations. It wiped off US$100 billion for its market value. Whether it is a communist or a democratic government, anti-trust sees a convergence of views from authorities across the world as they prepare to launch some of the toughest measures against Big Tech in 2021. This is the new battle ground which will define the future of technology.
A little background
The guns were being readied for a while now; the salvoes were fired last year, and 2021 will witness some of the biggest battles between Governments & Big Tech. Governments have become increasingly cagey of Big Tech as they have started to exert greater powers over citizens, than any government. GAFAM (Google, Amazon, Facebook, Apple, Microsoft) and BAT (Baidu, Alibaba, Tencent) enjoy ever increasing influencing power over people than any government, and no politician would like to see this power shift away from them to Big Tech.
Last year the US Federal Trade Commission (FTC) accused Facebook of abusing its position in social media, arguing that the acquisitions of Instagram and WhatsApp were part of a broader strategy to monopolize the market. FTC asked that Instagram and WhatsApp be split off from the main Facebook. The European Union (EU) in November 2020, came to the preliminary conclusion that Amazon used unfair practices towards third-party merchants after a probe into the company’s dominance in ecommerce. The US Department of Justice sued Google in October last year for allegedly maintaining a monopoly in search by cutting off rivals from key distribution channels. The case focuses on the company’s exclusive deals to package its search engines onto phones and browsers.
In June last year the EU opened two investigations into Apple’s Apple Store and its Apple Pay payment system, where restrictions could distort competition. The App Store investigation came after a 2019 complaint from Spotify over Apple’s policy of taking a 30% commission on every subscription completed through the App Store in the first year of a user’s subscription and a 15% cut in subsequent years. Separately, an investigation into Apple Pay will assess whether it undermines competition by limiting access to near-field communication for contactless payment in stores.
Regulators will come after these global organizations in 10 major regulatory arenas: data privacy, data security, antitrust, tax avoidance, misinformation, online harm, obstruction of justice, copyright, net neutrality, and fintech regulation.Of course, the common thread of arguments that will be placed before citizens is that actions were being taken to protect their privacy, to curb the powers of these companies to stifle competition, spread misinformation, cause online harm and in general shield people from the damaging effects of concentration of overwhelming technological powers in the hands of a few.
While some of these arguments are correct, but what cannot be denied that the tussle between government authority and digital monopolies over who will have greater power to influence citizens, is at the heart of this new global combat that will shape the future of technology. Big Data and who has the ability to use it to influence decisions, is at the heart of this battle that will be spread over the next few years. Technology has grown exponentially, and the rise of the super-platforms have often baffled authorities, who are now scrambling to control it.
The most successful digital companies have built large ecosystems of complementary products and services around their core operations. Their vast troves and data and immense scale make it possible for these super-platforms to expand their services into new markets, some of which are traditionally dominated by non-digital firms. For example, Facebook is expanding into financial services and cryptocurrencies, while Amazon kickstarted its evolution from an online to a high-street retailer with the acquisition of Whole Foods Market in 2017. It is hard for incumbents in these disrupted markets to compete with super-platforms that boast superior data and formidable computing power. The playing field is no longer level.
COVID-19 has created an even greater challenge, as the move to remote-everything has made these super-platforms enormously more powerful and financially stronger than even some countries. They are the leaders in most of the key Artificial Intelligence (AI) technologies, from computer vision to machine learning, conversational platforms to data science. AI and analytics have vastly improved the value of data for these digital platforms. AI systems produce better insights when trained on larger datasets. Therefore, super-platforms with access to large amounts of data and strong technical capabilities can improve service quality in ways that companies with restricted access to data and limited IT skills cannot.
The regulatory concerns
The biggest worry of government and bureaucrats is that they do not understand these digital super-platforms which have become technologically extremely complex. The old anti-trust and anti-competitive laws are not equipped to handle the issues of a digital era. They have also failed to grasp the intricacies of digital platforms, which typically connect many sides of a market (for example, consumers, advertisers, developers, and publishers in the digital advertising market). In single-sided markets, the consumer feels the burden of monopoly through higher prices, but this is not easy to establish in multi-sided markets.
The biggest concern of the authorities is that the business model of these super-platforms are based on data collection and manipulation techniques that are at times rather opaque and have the possibility of misleading users around data collection practices. Ad-funded platforms are designed to hold the user’s attention for as long as possible, with no particular care for the quality of the information provided. As a result, antitrust, together with data privacy and misinformation, become fundamental themes to measure digital platforms’ control of data, given the significant role of data in all aspects of the digital economy.
Through use of data and a smart combination of services, GAFAM and BAT can lock users and force them to use certain services. A case in point is Microsoft which is mostly avoiding the techlash in Washington. However, a new complaint from Slack, opened in 2020 with EU regulators, could upend that. The collaboration tool company has accused Microsoft of illegally tying its Teams messaging service with its Office products, forcing people to install it.
Over the last few years, several studies have investigated how competition policy should be adapted to the digital era. As a result, new approaches are often recommended to address the complexities of the digital economy. The EC’s proposed Digital Markets Act (DMA) aims to constrain platforms so that they don’t become monopolies. It defines scale in terms of both global turnover and number of users to identify “gatekeepers” that require monitoring. In the proposed law, the definition applies to all platforms with at least 45 million monthly active users, with a turnover of at least €6.5bn ($7.9bn) and activities in at least three EU countries.
What makes the DMA innovative is that EU antitrust enforcers would abandon lengthy proceedings against large platforms in favour of ensuring minimum conditions to avoid monopolies. The UK antitrust watchdog is exploring a similar approach in its first attempt to regulate those tech giants that use their dominance over digital services to stifle competition. It has created a Digital Markets Unit (DMU) within the Competition and Markets Authority (CMA). The initiative comes in response to an investigation launched in 2019 by the CMA into UK online advertising.
Indian regulators are aiming to prevent a small number of companies from dominating the digital payments market. They have introduced a regulation to establish that no single player can facilitate more than 30% of total payments transactions. Companies also must use the country’s open payment platform to ensure interoperability. Indian regulators seem more concerned about ensuring domestic companies can compete on a level playing field with non-Indian companies.
While ostensibly some of these regulatory measures are to protect citizens, at the same time like GAFAM and BAT, governments too are seizing the opportunity to act as gatekeepers and arm-twist the super-platforms to use their influencing powers on behalf of political forces in power. The coming days will witness an intense battle to see whether Big Tech continues to innovate and invent to stay two steps ahead of the regulatory authorities or governments ultimately succeed to curb the march of these companies.