The UK’s competition regulator said it sees a "strong argument" for launching a digital ad industry watchdog, after publishing a lengthy report detailing how Google and Facebook’s dominance is stifling competition.
In issuing an into online platforms and digital advertising, the Competition & Markets Authority said it was concerned that the world’s biggest online advertising companies have been able to "entrench" their positions, with negative consequences for users and advertisers.
The CMA said that, to solve competition problems in the sector, there is a "strong argument" to create a regulator that would monitor online platforms funded by digital advertising.
For Google, this could mean tackling the source of its market power in search by including third-party access to click-and-query data, as well as intervening in how phone manufacturers such as Apple and Samsung decide which default search engines appear on internet browsers.
For Facebook, the CMA is considering tackling the source of its power by increasing its interoperability with other platforms.
The CMA said it is also considering a "fairness by design" duty on online platforms to prevent barriers to entry for rivals, while it is also looking at how to combat conflicts of interest in the digital ad market, such as separating Google’s ad exchange activities in the open market for online display ad buying.
However, the regulator added a key caveat to its report by stating that it did not want to "cut across" other work the government is doing, such as potentially setting up an online harms regulator for social media and website forums. The CMA said it risks "complicating the landscape" if it sought to impose major reforms on Google and Facebook that did not fit with the government’s overall regulatory plan.
Barriers to entry
The CMA’s has found that last year, Google accounted for more than 90% of all revenues earned from search advertising in the UK, with revenues of about £6bn. In the same year, Facebook accounted for almost half of all display advertising revenues in the UK, reaching more than £2bn.
A lack of real competition to Google and Facebook could mean people are already missing out on the next great new idea from a potential rival, the CMA said. It could also be resulting, it added, in a lack of proper choice for consumers and higher prices for advertisers that can mean cost rises for goods and services such as flights, electronics and insurance bought online.
For example, each year about 15% of queries on Google have never been searched for before. Other search engines such as Microsoft’s Bing will not have the same access to these queries, putting Google in a powerful position of being able to better train its algorithms and provide more accurate search results than its rivals.
The regulator added that the market position of Google and Facebook may potentially be undermining the ability of newspapers and other publishers to produce valuable content as their share of revenues is squeezed by large platforms.
Programmatic 'black box'
The CMA also criticised "black box" decision-making in the programmatic advertising space, because market participants find it "difficult to understand or to challenge how decisions are made and to exercise choice effectively". The regulator cited concerns from newspaper publishers about their websites' traffic being negatively affected by overnight changes to Google search and Facebook news feed algorithms.
Meanwhile, the report said advertisers and ad agencies told the CMA that Google and Facebook are able to "mark their own homework" for the measurement of ad viewability on their own inventory – something that could result in brands overpaying for ads.
The real-time bidding process of buying ads was also cited in the report as having a lack of transparency. Because advertisers cannot observe directly what the RTB intermediaries are doing, or even how much they are being charged in some cases, they cannot make optimal choices on how to buy or sell inventory, thus reducing competition among RTB exchanges.
Industry reaction
Phil Smith, director-general of ISBA, said the CMA's report confirms some of the concerns that the advertiser trade body has raised on behalf of its members. ISBA, meanwhile, would support a full market investigation.
Smith added: "More needs to be done to increase digital advertising transparency and ensure consumers have greater control over their data. Furthermore, certainty needs to be brought to the regulatory structures that surround social media platforms.
"Our Programmatic Supply Chain Transparency Study, the first end-to-end study of its kind, is an example of the work we are undertaking, which we will include in our response to this report. Finally, we encourage DCMS [Department for Digital, Culture, Media & Sport] to take close account of this report and co-ordinate the final recommendations from the CMA, ICO [Information Commissioner's Office] and Centre for Data Ethics [and Innovation] as we move through 2020."
Meanwhile, an Advertising Association spokesperson said: "We believe that a healthy, competitive online advertising market is important for the long-term sustainability of the advertising industry and the wider economy. It is important that the CMA ensures its work is future-proof and coherent with other government and regulatory reviews, and allows the UK to retain its international standing as the most digitally developed market in the world."
The CMA will now consult on the contents of today’s update ahead of publishing its final report next year.