Facebook and Google ‘are not free; everything has a cost’: ACCC’s Rod Sims on new draft code, inquiries, and Google court cases

Rod Sims, the boss of the Australian Competition and Consumer Commission (ACCC), has addressed the watchdog’s court cases against Google, its ongoing inquiries into the digital platforms and ad tech supply chain, and the newly-released draft code that could see Google and Facebook pay for news.

While these platforms are “supposedly free”, Sims argued that consumers pay to use the services with their personal data: “They are not free; everything has a cost.”

The new code will see news companies enter into negotiations with Facebook and Google in an attempt to get them to pay for content. Sims admitted that the benefit the platforms get by featuring news is “extremely challenging for the government to quantify”, making a bargaining process necessary.

Sims addressed a wide range of concerns the ACCC holds

If the news companies and digital giants don’t come to an agreement after three months of negotiation and mediation, they can proceed to a rare form of arbitration, which is “well-suited to this issue, given the difficulty of quantifying benefit that news provides to digital platforms”. Sims said this would involve “an arbitrator or panel of arbitrators consider[ing] the best ‘final offers’ from each party on remuneration for news and choos[ing] one.”

“The issues covered by this code are complex and it is critical to get the balance right,” Sims added.

“We consulted extensively with relevant stakeholders including Facebook and Google and the full breadth of Australian news media businesses during the development of the draft code. Following release of the draft legislation for the code, we are continuing to consult widely, and are currently accepting stakeholder submissions.”

Sims was speaking to the Australia-Israel Chamber of Commerce (WA) via a video call – “another indication of how this terrible pandemic has reinforced the importance and value of the digital world to all of us”.

He also acknowledged that since handing down the ACCC’s Digital Platforms Report over a year ago following an 18 month inquiry, Facebook and Google’s power had only grown.

“Since the report’s publication, the size and influence of the digital platforms has continued to expand, highlighting a number of issues crossing consumer and competition laws,” Sims said.

“We are optimistic we and our fellow regulators and enforcers around the globe can deal with these issues, but it requires a multi-faceted approach that includes competition assessment, regulatory responses and consumer enforcement.”

The digital platforms’ market power can be seen in the volume of acquisitions from both companies: Between 2004 and 2014, Google spent at least $23bn buying 145 companies, and Facebook has forked out a similar amount for 66 companies in the past 12 years.

The ACCC is currently considering Google’s acquisition of Fitbit and Facebook’s purchase of Giphy. The Fitbit transaction could “lead to the potential raising of barriers in emerging technology reliant health markets, which rely on large scale data sets such as those accessible to both Fitbit and Google”, Sims said.

And “the combination of Facebook’s and Giphy’s huge data sets certainly increases Facebook’s reach in online advertising which is a concern in itself but we are also interested in examining how it will impact the competition in their respective markets,” Sims said.

“Facebook did not notify the acquisition to any competition authorities before completion. This is an example of a transaction we would want to know about well in advance, given Facebook’s strong position in various markets.”

Ongoing digital platform and ad tech inquiries

Since the report’s release, the ACCC has been tasked with carrying out a further two inquiries: an additional five-year investigation into the digital platforms, and an inquiry into the ad tech supply chain.

The first report on the new digital platforms inquiry is due to Treasurer Josh Frydenberg at the end of next month, and will examine search, social media, and online private messaging.

“These reports will provide the ACCC with an opportunity systematically to examine the activity of a broader range of platforms and digital services than our original inquiry,” Sims explained.

“Not just the search, social media and aggregation platforms looked at during our previous inquiry, but also other platforms including those facilitating the sale of goods and services between suppliers and consumers. These include general online marketplaces like Ebay and Amazon, app stores, private messaging services platforms, data brokers.”

The Digital Platforms Report was released a year ago, and its recommendations, 23 of which the government accepted, are still being implemented

The ad tech inquiry, meanwhile, confronts the “complex and opaque supply chain involved in digital display advertising”, an industry worth $3.5bn last year. Sims’ concern is that “we don’t know how much of that figure flowed through to the online publishers, and how much was retained by the intermediaries”. Earlier this year, an investigation by the UK’s advertising association found that almost 50% of ad spend was gobbled up before it reached publishers.

“Most of these services make decisions based on algorithms, and the final sale price of an ad is often the product of multiple sequential auctions … occurring in milliseconds,” he said.

“But in taking full advantage of services that make these split-second decisions, the advertiser and publisher give up a level of control.

“This raises potential issues when the services you are entrusting with your decisions may have incentives that don’t always completely align with your own. For example, the intermediaries operating these auctions may be acting on both sides of the market: providing services to help the advertiser achieve the best deal, while simultaneously providing services to publishers to help them maximise the sale price of their inventory.”

The ACCC’s final report included this diagram of how media agencies make money [Click to enlarge]

Accordingly, Sims said it can be “hard to know … whether the largest suppliers of these services are taking too much of a cut from the supply chain, and whether both publishers and advertisers are getting value for money” and potential regulation needs to be explored. The preliminary report as part of the inquiry is due in December, and the final report in a year’s time.

“Higher advertising costs may be passed onto consumers in the form of higher prices for goods and services,” he said.

“Lower revenues from online advertising for publishers may affect the bottom line of Australia’s most popular websites, including media businesses. A competitive and efficient ad-tech supply chain is critical to vibrant journalism in Australia.”

Court cases against Google

Finally, Sims touched on the ACCC’s court cases against Google, including proceedings launched recently over the way the search engine used sensitive data, allegedly without properly informing consumers.

“If consumers were given an informed choice, we believe, and survey evidence supports this, they may have refused Google permission to combine and use their personal information in this way,” Sims proposed.

“The ACCC considers that consumers effectively pay for Google’s services with their data, so the new privacy policy introduced by Google effectively increased the price of Google’s services, without consumers’ knowledge.”

The ACCC has two court cases against Google on foot

Last year, the ACCC commenced another court case, which is set down for a hearing in November, against Google for allegedly misleading consumers over location data.

“These enforcement actions are about holding powerful digital platform businesses accountable for their representations to consumers and ensuring consumers are fully aware of the price they pay, through their data, for the supposedly free services they receive,” Sims said.

“There is an obvious power imbalance and information asymmetry between digital platforms and consumers, but we believe that consumers have the right to know and make an informed choices about their use of those services, particularly how their personal data is being collected and used.”


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