HomeInsightsCompetition and Markets Authority publishes the final report on its market study into online platforms and digital advertising, finding that competition is not working well in these markets

The CMA says that its study shows that the dynamic nature of digital advertising markets and the types of concerns identified by the market study are such that existing laws are not suitable for effective regulation. The CMA is therefore recommending a new pro-competition regulatory regime to govern the behaviour of major platforms funded by digital advertising, such as Google and Facebook.

The study found that UK expenditure on digital advertising was around £14 billion in 2019, equivalent to about £500 per household. About 80% of this is earned by just two companies: Google and Facebook. Google enjoys a more than 90% share of the £7.3 billion search advertising market in the UK, while Facebook has a share of over 50% of the £5.5 billion display advertising market. Google’s revenue per search has more than doubled since 2011, while Facebook’s average revenue per user has increased from less than £5 in 2011 to over £50 in 2019.

The services provided by Facebook and Google are highly valued by consumers and help many small businesses to reach new customers. While both originally grew by offering better services than the main platforms in the market at the time, the CMA is concerned that they have developed such unassailable market positions that rivals can no longer compete on equal terms:

  • their large user base is a source of market power, meaning that Facebook is a “must-have” network for users to remain in contact with each other, and enables Google to train its search algorithms in ways that other search engines cannot;
  • each has unmatchable access to user data, allowing them to target advertisements to individual consumers and tailor the services they provide;
  • both use default settings to nudge people into using their services and giving up their data; for example Google paid around £1.2 billion 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;
  • their presence across many different markets, partially acquired through many acquisitions over the years, also makes it harder for rivals to compete.

The CMA says that each of these factors individually presents a potential barrier to new competition, but together they work to reinforce each other and are extremely difficult to overcome.

These issues matter to consumers. Weak competition in search and social media leads to reduced innovation and choice, as well as to consumers giving up more data than they would like. Further, if the £14 billion spend in the UK last year on digital advertising is higher than it would be in a more competitive market, this will be felt in the prices for hotels, flights, consumer electronics, books, insurance and many other products that make heavy use of digital advertising. The CMA found that Google’s prices are around 30% to 40% higher than Bing when comparing like-for-like search terms on desktop and mobile.

Google and Facebook’s market positions also have a profound impact on newspapers and other publishers. The CMA has found that newspapers are reliant on Google and Facebook for almost 40% of all visits to their sites. This dependency potentially squeezes their share of digital advertising revenues, undermining their ability to produce valuable content.

The CMA is calling on the Government to introduce a new pro-competition regulatory regime to tackle Google and Facebook’s market power. The CMA has proposed that within the new regime a “Digital Markets Unit” should have the ability to:

  • enforce a code of conduct to ensure that platforms with a position of market power, such as Google and Facebook, do not engage in exploitative or exclusionary practices, or practices likely to reduce trust and transparency, and to impose fines if necessary;
  • order Google to open up its click and query data to rival search engines to allow them to improve their algorithms so they can properly compete. This would be designed in a way that does not involve the transfer of personal data to avoid privacy concerns;
  • order Facebook to increase its interoperability with competing social media platforms. Platforms would need to secure consumer consent for the use of any of their data;
  • restrict Google’s ability to secure its place as the default search engine on mobile devices and browsers in order to introduce more choice for users;
  • order Facebook to give consumers a choice over whether to receive personalised advertising;
  • introduce a “fairness-by-design” duty on the platforms to ensure that they are making it as easy as possible for users to make meaningful choices; and
  • order the separation of platforms where necessary to ensure healthy competition.

The CMA also worked with the ICO to examine the impact of privacy regulation on the market. The CMA says that because the GDPR is still in its early stages, it is concerned that big platforms could be interpreting it in a way which favours their business models, instead of in a way which gives users control of their data. The CMA’s market study advocates a competitive-neutral approach to implementing privacy regulation, so that the big platforms are not able to exploit privacy regulation to their advantage. It will be working with the ICO and Ofcom further to address these issues through the Digital Regulation Cooperation Forum (see item below). To read the CMA’s news release in full and for a link to the market study report, click here.