Welcome to Big, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…
A few weeks ago, the Australian Competition & Consumer Commission (ACCC) dropped a giant report on the power of Google and Facebook, the result of an eighteen month investigation known as the “Digital Platforms Inquiry.”
Those of us who pay close attention to antitrust and big tech were looking forward to the results of the investigation, because the ACCC is a pace-setter in global antitrust action.
One of the subtexts of the fight over big tech is how antitrust enforcement has gone global. I’ve already discussed how Russia beat back Google and created a competitive search market. There are investigations all over the world examining big tech, with reports having come out or coming out from the United Kingdom, Germany, the EU, France, Israel, and Japan, as well as lawsuits from enforcers, including at a state level in the U.S.
Each action builds on the last, a sort of global legislative and enforcement conversation. The ACCC built on the French competition authority’s report from March of 2018, which largely focused on Google and Facebook’s impact on advertising technology, as well as a series of reports and hearings coming out of the United Kingdom. Enforcers watch each other, learn what works, and what doesn’t. The Australians and the Germans are the most aggressive global enforcers, and so they set the pace on what is possible.
This Australian report will be foundational for enforcers going forward, on the key questions of democracy, advertising, journalism, and big tech platforms. And when the U.S. finally gets serious, our enforcers will have a large body of knowledge available, thanks to the British-prisoners-turned-into-the-nation-of-Australia. What the ACCC got right and got wrong is what I’m writing about today.
But first, news updates.
Cancer patients are being denied drugs, even with doctor prescriptions and good insurance (Sacramento Bee) I haven’t discussed health care yet, but it is one of the most concentrated sectors in America. In this case, the merger of monopolistic insurance companies with monopolistic drug middlemen has led to cancer patients being refused the drugs their doctors prescribe them. America has the worst of all worlds, a centrally planned system by private unregulated financiers.
Republican Congressman Jim Banks Attacks Hospital Concentration: This is a very smart bill, which does two things about hospital mergers. First, it provides substantial resources for the Federal Trade Commission to go after hospital consolidation. Second, in highly concentrated hospital markets, it says hospitals must take Medicare rates. The logic here is great. If private hospital holding companies are going to use their market power to set prices, then the state will either eliminate their market power or take over the price setting itself. Banks is part of a new anti-monopoly conservative group in Congress.
The FTC and Department of Justice Antitrust Division Are Fighting Over Big Tech Turf (Wall Street Journal) Big readers will notice in this Wall Street Journal story something I noted a few weeks ago on DOJ’s announcement that it is looking into social media markets even as the FTC supposedly has jurisdiction over Facebook. Oh noes! Incompetent mommy and daddy are fighting.
PE Giant Fortress to Loot U.S. Newspapers (NYT) That’s my headline.
Activist group sets up FailedTradeCommission.com and demands the FTC file a deceptive claims act against itself over the Equifax settlement.
Air Force Gen. John Hyten Disappointed with Competition wrt Boeing (Inside Defense) pulled out of the ICBM bidding competition with Northrop Grumman: "I always get concerned when competition disappears from America. Anytime we're in a competitive environment, that puts pressure on schedule, pressure on cost and we have a higher likelihood of getting delivery of the capability, that's why I was so disappointed when Boeing decided not to compete for GBSD.”
Crikey! Facebook and Google Are Big!
While Australia is in the running, along with the UK and America, for the most dysfunctional political system in the Anglo-American world, the Australian government actually has a great antitrust enforcer named Rod Sims at the helm of its competition commission.
Why is Sims so great? There are certain vibes you get hanging around antitrust circles, and one of them is who the corrupt antitrust bar likes and who they don’t. Sims is someone they very much don’t like. And that means he’s worth listening to.
This report isn’t just an analysis, but will lead to serious enforcement actions, and likely very soon. In his press conference laying out the results of the inquiry, Sims discussed how the ACCC just received the authority to fine institutions violating competition law, and how “anxious he is to use it.” Though it’s a small economy, Sims said, “you’ll still see fines in the hundreds of millions of dollars.”
If it’s so important, why haven’t you heard about this report?
A lot of people thought that this inquiry would be the moment an enforcer finally recommended a break-up of Google. This is not only because Sims is aggressive, but because Rupert Murdoch’s News Corp is quite powerful in Australia, and submitted a submission to the ACCC recommending such a break-up. Sims didn’t do that, disappointing many of us, and no doubt, Rupert Murdoch. The ACCC’s reasoning made sense. A break-up is premature, and other mechanisms should be attempted first. But that’s why you haven’t heard about the report. The big headline grabber - enforcer recommends break-up of Google - just isn’t in here.
But in my view, what the ACCC did say will eventually lead to a break-up.
It’s the Market Power, Stupid
The ACCC’s most important contribution to the debate is to say, unvarnished, that Google and Facebook have exceptional amounts of market power and the incentive to use it to manipulate and exploit publishers, businesses, and users. Over the past fifteen years, Google and Facebook have become, as Sims put it in his press conference, “essential gateways for consumers and businesses.” The consequences of this shift are the killing of the free press and the mass manipulation of users. Here’s what the ACCC dubs the key to their power:
Google has market power in the supply of general search and the supply of search advertising
Facebook has market power in the supply of social media services and the supply of display advertising.
Both have substantial bargaining power against media outlets.
In other words, Google and Facebook control the internet. Here’s a chart from the report that gets to the most fundamental aspect of their power, which the ACCC calls the ‘news referral market.’ You probably know that when Facebook or Google changes their algorithms, the internet screams out in pain, as massive amounts of content production and business investment have to reorient to deal with new and opaque rules on how users access the web. This chart shows why.
Make no mistake, this is a deadly amount of power. If your revenue is tied to traffic, and 50% of your traffic comes from Google and Facebook, you are dependent on the platforms for your livelihood. Not only can platforms change algorithms at will, but they can impose coercive terms, like forcing publishers to share data, forcing the adoption of unwanted standards for advertising or publishing, or driving formatting choices.
The report is explicit on what this means in terms of leverage. While this paragraph is about Facebook, the ACCC is equally clear about Google.
Many news media businesses in Australia would likely lose significant revenue, with adverse impacts on their business, should they forego referrals from Facebook. The opposite is not the case for Facebook. Access to the news content of any one news media business is unlikely to have a material effect on Facebook or its users.
After the ACCC establishes Google and Facebook have power, there are a host of follow-on implications that get very complex. These companies lock in advertisers to their systems, they set standards shaping the web to prioritize their own business models, they deny rivals of key data or access to markets, and they leverage their power in adjacent markets to get more data and use that data to undercut competitors.
For example, you can’t buy YouTube ad inventory or get access to search data if you don’t use Google marketing software. If you’re a marketing department, why would you use anything but Google marketing software given that you absolutely need to buy YouTube ad inventory and you need to know whether potential customers are searching for your product category? You wouldn’t. Once a marketer has gotten used to using a set of tools, it’s hard to move. It’s especially difficult when critical inputs can only be accessed through Google’s marketing suite, or when you can only buy key social media ad inventory through Facebook.
Another example is how Google and Facebook use standard-setting and defaults to shape the internet and reinforce their monopoly power. Facebook has refused to adhere to Nielson’s audience measurement standards for video viewing, thus structuring video ad metrics around its needs. Google has created Accelerated Mobile Pages (AMP), which essentially is a way of forcing every publisher in the world to let Google host their pages, get data from those pages, and structure the layout of other people’s content. The ACCC noted the letter from 600 developers last year attacking AMP, saying “publishers should not be compelled by Google’s search dominance to put their content under a Google umbrella. The Web is not Google, and should not be just Google.” Google and Facebook are also part of the Coalition for Better Ads, which shapes ad standards; Google structures ad blocking and browsers in ways to privilege itself. Google also embeds its search as the default in Chrome and Android, something the Russian enforcers addressed years ago (and the Russian enforcement action is cited in the ACCC finding).
Facebook and Google also use their gatekeeping power to get more data. As the ACCC notes, “of the apps available on the Google Play store, 88% send user data back to Google and 43% send user data back to Facebook.” And more than 70% of websites have "a Google tracker and more than 20% of websites have a Facebook tracker.” The most relevant factor in pricing an ad, as antitrust expert Dina Srinivasan notes, is whether you can identify the person looking at the ad. Since Google and Facebook can identify users and have detailed profiles on nearly everyone, they can do the most accurate pricing for advertising.
The power Google and Facebook have over data manifests most clearly in the ‘ad tech markets,’ the large automated ad auctions where advertisers and publishers match with each other, which are significant parts of the only ad revenue stream for most ad-financed media outlets. It is here that lock-in to marketing software, data, control over large amounts of ad inventory and buying power, and pricing power intersect.
Every time someone opens a web page, a complex auction starts which let ad buyers bid to place their ads in front of that user. While Facebook has a modest amount of presence in these third party markets, Google is a powerful intermediary at every layer of this auction process. There is no transparency in these markets; publishers might be getting as little as 29 cents for every dollar spent by advertisers.
Their control of ad markets is a lot like Amazon’s control of retail. Just as Amazon can controls a marketplace and competes with third party competitors on that marketplace, Google and Facebook control ad markets and compete with third party publishers on that marketplace for ad sales. It’s no surprise that ad revenue is flowing to the entities with dominant power over the marketplaces where those ads are bought and sold.
Here’s the flow of revenue to Google and Facebook in Australia.
That’s why, in other words, the press in Australia, as everyone else, is dying.
Communication Networks Financed by Ads Are New
But there’s a social question that the ACCC didn’t really tackle, except laterally by talking about consumers, or various forms of sectoral regulation that apply to media or telecommunications but do not apply to tech platforms. The ACCC is not just a competition authority, it also has consumer protection authority. As such, the commission spent a vast amount of time on consumer behavior, things like the potential for price discrimination, political manipulation, addiction, and so forth. These intersect with the power of big tech, but they are not the same problem as Google and Facebook having a lot of power.
Instead, what we are dealing with is something new, which is ad-financed communications networks. Traditionally, advertising has financed media channels, often distorting the incentives of newspapers and publishers with commercial demands. An entire system of ethical quandaries are part of the debate over advertising influence over journalism.
But Google and Facebook, while they curate media and have control of the ecosystem, aren’t media outlets that produce original content and sell ads to finance that content. Their ad revenue streams finance communications networks and indexes. The distortion of the flow of information by advertising plays out differently when applied to these different markets. Instead of pressure from brands to hide bad stories, the distorted incentives of advertising push Google and Facebook to prioritize anti-social, fraudulent, and addictive content that engages the user and tears apart our social fabric.
This market problem problem is a result of a failure to consider the ethics of an advertising financed communication networks. While the ACCC does a great job discussing the rise of big tech as part of a technological inflection point, the commission misses this element of the change. It isn’t just that the ad-financing has shifted from a large group of media outlets to two dominant platforms, it’s that ad-financing has also moved from financing media outlets to financing communication networks.
Distorting our communication with one another has serious moral and political implications that are different than the pressure advertising puts on journalist. And we need to decide if that’s a change we want to live with. Because while I suspect we’re heading towards the decentralization of Google and Facebook, it’s not obvious that we are grappling with a core ethical question of how to address the inherent distortion of the flow of information that advertising induces as that distortion applies to communication networks. And as Amazon comes into advertising in a big way, we’re going to see similar quandaries, only this time applied to retail distribution (there is some precedent there).
Anyway, I don’t have an answer. Or well, I do. I don’t think advertising should finance communications networks. But that kind of change, which is to say breaking off the ad sales piece of Google and Facebook, and blocking big tech from getting ad money, while necessary to sustain a democracy, will be quite disruptive.
Regardless, this ACCC report is a big step forward in the discussion. I only summarized a very small amount of what they wrote, as it’s six hundred pages long and is accompanied by commissioned research, earlier drafts of the report, and a large number of briefs from partners, competitors of Google and Facebook, and the big tech companies themselves. It really is incredible work, I learned something on nearly every page. And given that antitrust suits emerge from detailed investigative work, this report will cause a large number of changes to law and enforcement practice in Australia and all over the world.
Thanks for reading, and if you enjoy this newsletter, please share it on social media, forward it to your friends, or just sign up here.