Unintended consequences of regulating big tech

“My investing advice is simple,” writes Scott Galloway in his new book Post Corona (a must-read by the way). “I only invest in unregulated monopolies. They aren’t supposed to exist, but our antitrust laws were written in the era of steam engines, and enforcement has been nonexistent.”

The Competition and Markets Authority (CMA) is seeking to redress this. The UK government consumer watchdog has announced the creation of the Digital Markets Unit. Its purpose: to oversee a pro-competition regime for platforms including those funded by digital advertising, such as Google and Facebook.

The Digital Markets Unit will write a new statutory code of conduct designed to provide consumers with more choice and control over how their data is used, plus enable small businesses to better promote their products online.

The initiative follows the publication on 1st July of a 440-page report by the CMA. Initially focused on digital advertising - the Digital Markets Unit’s orbit has widened. It will now introduce, maintain and provide supporting guidance on a big tech code. 

The code will provide big tech with: “clear expectations over what represents acceptable behaviour when interacting with customers, users and competitors. It will address anti-competitive behaviour and enhance choice and control for consumers across online platform markets. It will promote greater fairness in the relationships between platforms and their business customers, including news publishers” - according to the Government’s response to the CMA’s market study.

The Digital Markets Unit will work closely with regulators including Ofcom and the Information Commissioner’s Office. The new unit begins work in April 2021. But plans to have a code written by the end of this year. 

The Digital Markets Unit could be given powers to suspend, block and reverse decisions of tech giants, order them to take certain actions to achieve compliance with the code, and impose financial penalties for non-compliance.

Unchecked growth and market dominance cause problems for  industry, consumers and society as a whole. Unfettered by competition, companies become complacent losing their innovative edge. Instead, they capture profits and market share from sticking their elbows out and exploiting their position. They conduct a Herodian Massacre of Innocents to new entrants in order to protect their position. 

The pro-competition regulator role is a much-needed step in the right direction. What of unintended consequences of Digital Markets Unit’s actions?

Unintended consequences

A significant potential risk is the Digital Markets Unit may end up benefiting big tech in its pursuit to rein them in. In October Facebook-owned Instagram came to an arrangement with the CMA. The new commitment makes it much harder for people to post an advert on Instagram without labelling it as such. A noble cause. It is, after all, a banned practice falsely to claim or create the impression that a trader is not acting for purposes relating to his trade, business, craft or profession, or falsely representing oneself as a consumer. This is laid out under the Consumer Protection from Unfair Trading Regulations 2008. 

By forcing Instagram users to adopt Instagram’s ‘paid partnership’ tool, however, the CMA is inadvertently pushing consumers into Instagram’s branded content ecosystem including branded content ads and its ad manager.

Content marked with the ‘paid partnership’ tag tends to receive the lowest levels of engagement when compared to other compliance hashtags such as #AD. Using the the 'paid partnership' tag carries a negative variance on average of 32% against organic content according to a 2018 study.

It’s possible that the CMA actions could be inadvertently pushing brands into paying more to Instagram in order for their sponsored content to reach intended audiences by having to pay to have the content boosted up the algorithm rankings.

The CMA/Instagram initiative also distances itself from an Advertising Standards Authority 2019 finding. It risks confusing consumers and alienating influencer marketers. ASA research into consumers’ perception of ad labelling concluded that AD or #AD is the most effective way of highlighting the commercial relationship between a content creator and brand. 

What is the expectation now of Instagram influencers? To append each post with #AD plus Instagram’s paid partnership tool? To disregard the ASA guidelines and use only the paid partnership tool?

A solution is to seek industry insight from academia and at practitioner level to ensure the regulators can look around the corners and ask the right questions of big tech to attain the best solutions for consumers.

Plain sailing for the Digital Markets Unit?

The UK is not alone in attempting to redress the imbalance between big tech and its citizens. In July the Australian Competition and Consumer Commission published the draft News Media Bargaining Code law intended to force Google and Facebook to pay media groups in exchange for carrying their content.

French tax authorities last month began demanding millions of euros from US technology groups as they push ahead with a new digital services tax. 

Both initiatives have been met with threats of retaliation. The managing director of Google Australia, Mel Silva, warned Australians that the bargaining code “would force [Google] to provide you with a dramatically worse Google Search and YouTube, could lead to your data being handed over to big news businesses, and would put the free services you use at risk in Australia.”

“You’ve always relied on Google Search and YouTube to show you what’s most relevant and helpful to you. We could no longer guarantee that under this law.” Facebook threatened to pull the plug on news sharing in the country altogether. 

The US government has condemned the French digital tax as an example of an unfair trade practice. The tax largely affects US companies, threatens to reignite the transatlantic trade tensions and trigger new tariffs on Europe.

The UK is scheduled to begin collecting its own levy on Big Tech digital tax in April next year. 

Photo by Ales Nesetril on Unsplash.