CMA says that all of society will lose out ‘if the market power of these firms goes unchecked’

Credit: PA

The Competition and Markets Authority has called for a new regulatory framework to monitor the operations of Google and Facebook, after finding that the two tech giants currently account for 80% of UK spending on digital advertising.

The CMA has urged government to introduce a new Digital Markets Unit with the power to “enforce a code of conduct” on Google and Facebook – and any other companies that have “a position of market power”. 

The code should seek to ensure that the technology firms “do not engage in exploitative or exclusionary practices, or practices likely to reduce trust and transparency”.

If the guidelines are breached, the unit should be able to impose fines, the CMA said.

Government should also enable a regulatory body to “order Google to open up its click and query data to rival search engines… [and] order Facebook to increase its interoperability with competing social media platforms”.

Restrictions should also be placed on Google using its dominance to ensure it is the default search engine on devices and browsers.

Facebook, meanwhile, should be instructed to allow users to choose whether or not to receive personalised adverts.

£14bn
Annual UK spending on digital advertising

80%
Proportion of spending that goes to either Google or Facebook

£400
Amount of annual revenue generated by the two companies for each household in the UK

$232.7bn
Cumulative global revenue generated by the two companies

All platforms under the scope of the new regulatory environment should be compelled to adopt so-called fairness-by-design principles – the purpose of which will be “to ensure that they are making it as easy as possible for users to make meaningful choices”.

The government’s overall goal, according to the CMA, should be to use regulation to encourage competition. As such, a new digital markets unit should be able to “order the separation of platforms, where necessary, to ensure healthy competition”.

The regulator’s recommendations come on the back of a year-long investigation that found a worrying level of dominance enjoyed by Google and Facebook.

Between them, the two firms accounted for 80% of the £14bn that was spent in the UK last year on digital advertising. This equates to about £400 in advertising revenue generated by the companies for every household in the country.

The search advertising market, of which Google holds share of more than 90%, was worth £7.3bn in 2019. More than half of the £5.5bn display advertising market was held by Facebook.

Since 2011, Google has more than doubled the amount of revenue generated per search, while Facebook has grown its revenue per user from less than £5 to in excess of £50.

Unassailable positions
CMA noted that the services provided by the two companies are enjoyed and valued by individual and small business users, and that the firms’ earlier growth had been fuelled “by offering better services than the main platforms in the market at the time”.

But now “the CMA is concerned that they have developed such unassailable market positions that rivals can no longer compete on equal terms”.

This inequality manifests in their large user bases and “unmatchable access to user data”. 

The companies’ increasing financial might, meanwhile, has allowed them to bolster their standing through acquisitions of smaller rivals, the regulator said. 

Money and ubiquity also permit them to exert more influence over users behaviour.

“Both use default settings to nudge people into using their services and giving up their data,” the CMA said. “For example, Google paid around £1.2bn in 2019 to be the default search provider on mobile devices and browsers in the UK, while Facebook requires people to accept personalised advertising as a condition for using their service.”

“If the market power of these firms goes unchecked, people and businesses will lose out”
Andrea Coscelli, CMA chief executive

The CMA has joined forces with fellow regulators the ICO and Ofcom to create a government-backed Digital Markets Taskforce. The group will work over the coming months on how best a new regulatory regime could be designed. It will provide further advice to government by the end of this year.

CMA chief executive Andrea Coscelli said: “Through our examination of this market, we have discovered how major online platforms like Google and Facebook operate and how they use digital advertising to fuel their business models. What we have found is concerning – if the market power of these firms goes unchecked, people and businesses will lose out. People will carry on handing over more of their personal data than necessary, a lack of competition could mean higher prices for goods and services bought online and we could all miss out on the benefits of the next innovative digital platform.”

He added: “Our clear recommendation to government is that a new pro-competitive regulatory regime be established to address the concerns we have identified and regulate a sector which is central to all our lives.”