Consolidation and the 'winner takes all' principle in the internet sector have resulted in three technology conglomerates: Amazon, Alphabet (Google) and Facebook (we leave Microsoft and Apple aside for this case). All three have grown through a series of takeovers, some spectacular. This raises the question whether standalone businesses like Netflix and Spotify can survive. Not only do these two companies have negative cash flow and depend on regular external financing, the cash positions of the 'big 3' - which measure in the tens of billions of dollars - loom large in contrast. Google is now under pressure for abusing its dominant market position. Amazon shows that it's possible to not abuse its position by opening up its platforms in a fair and non-discriminatory manner to rivals. Google should follow its example.
Customer central
All successful internet companies have in common a very strong focus on the end-user. This is imperative when dependent on advertising (Google, Facebook) or if trying to claim a position in a traditional sector like retail (Amazon).
Google is known for its motto 'don't be evil', Amazon's most important principle is 'customer obsession rather than competitor focus', and Facebook lives by the philosophy of 'move fast and break things'. In short, they all aim to offer good products for customers. A large number of 'free' services (Google Search, Facebook, Amazon Prime) or low prices (Amazon.com) are the result. The question is whether the quest for growth has gone too far and led to monopoly-like market practices.
Abuse of a dominant position
Microsoft was already fined in the past by the EU, and Alphabet/Google is the latest to come under fire. In June, the European Commission imposed a fine of EUR 2.42 billion on Google for abusing its dominant position by favouring its own Google Shopping service in search results over competing comparison services. Google was given 90 days to rectify the problems and filed its proposal with the EC at the end of August. At the same time, it is appealing the fine. The EC is also investigating possible unfair practices by Google in the Android and AdSense markets.
Complex material
Monopolies, cartels, dominant positions, market abuse and antitrust - it seems simple: the government wants free competition for all players. In the media sector, the aim of plurality is added, in the name of healthy democracy. In practice the market is more unruly. The complexity of competition rules and new issues such as net neutrality have led the big internet companies to set up a strong lobbying defence. In Washington and Brussels they spend millions on lobbyists and friendly policy institutes in order to influence politicians and other opinion-makers. The New York Times reported recently how Barry Lynn and his Open Markets group were dismissed from the New America Foundation reportedly because they saw an argument for the EU's fine against Google. It's also clear that the EU is tougher than other countries or regions when it comes to fighting abuse of a dominant position.
The relatively new internet sector complicates the competition issues in a number of ways:
- The network effect. Facebook is becoming stronger every day and any attempt to start a rival social network appears doomed to fail. The fact that such a competitor is only 'one click' away is not pertinent for the EC. However, the existence of a dominant position is not in itself illegal - only the abuse of such a position.
- Ranking. That competing comparison shopping sites do appear in Google's search engine, albeit lower down in the results of a query, is not enough for the EC. How the results are ranked is the issue, as the further down the page the site appears the less likely someone will click on it.
- Cross-subsidising activities. Examples include Google with its advertising revenues (is YouTube TV offered at below cost price?), Amazon with its e-commerce revenues (Prime is expanding all the time as e-commerce growth takes priority) and Facebook also with advertising (to finance the new service Watch and expansion in the video market). Cross-subsidising allows a company to use its strength in one area to expand into an adjacent sector.
- Vertical integration can lead to conflicts of interest. In addition to Google Search and Google Shopping, there are many other examples, such as Amazon using its own distribution networks (physical and digital) for its own services as well as competitors such as Netflix.
Platforms
The core idea is simple: you have a platform (generic concept) on which you offer services (vertical integration). If you keep it to yourself, this creates a dominant position or even a monopoly, and the state can intervene if it suspects abuse. The regulator can impose a separation, for example hiving off the services from the platform. If the platform is opened up to others (either voluntairily or forcefully by the state), then there is a conflict of interest. The risk is that the company's own services will have an advantage, but that does not necessarily have to be the case.
There is a clear parallel with infrastructure markets, such as post, utilities, telecom, transport, etc. Google needs to adapt its search engine so that its own Google Shopping (started originally as 'Froogle') does not have an advantage over other comparison shopping sites. The Android operating system is another platform on which services (apps) are offered. For AdSense, we still need to hear where the EC sees signs of abuse.
So far Amazon, on its way to world domination, appears to have succeeded in building a Chinese wall betwee the platforms it manages (e-commerce, AWS, Amazon Channels) and the services it offers over them. If Amazon ever needs to fend off a claim of abuse of its dominant position, it needs to offer fair and non-discriminatory acces to its competitors. With Netflix using AWS, it's clear that Amazon already makes this possible.
It's now up to Google to make the same possible with its search engine.
