Going gets tough for tech

Google and Facebook’s online dominance could come to an end as the UK government proposes pro-competition regulation. The Competition and Markets Authority (CMA) recommends an enforceable code of conduct which will govern platform’s behaviour and a range of pro-competitive intervention which will redress imbalances of power held by the biggest providers.
In a market study published last Wednesday, the CMA singles out search engine Google and social media platform Facebook as being ’protected by such strong incumbency advantages – including network effects, economies of scale and unmatchable access to user data – that potential rivals can no longer compete on equal terms’. The authority says currently it is toothless against the significant power of these two entities, forcing it to propose a regulatory approach to be overseen by a newly created Digital Markets Unit.
The CMA identifies numerous issues with the dominance of Google and Facebook, specifically:
• The extent Google and Facebook have market power in search and social media respectively and the sources of this market power.
• Whether consumers have adequate control over the use of their data by online platforms.
• A lack of transparency, conflicts of interest and the leveraging of market power undermine competition in digital advertising.
The CMA is clear that a sector controlled by Google and Facebook is damaging for innovation; exposes consumers to fake news; leaves individuals’ data vulnerable to abuse by certain companies; and leads to excessive advertising costs.
The big tech stocks carry a bundle of ESG risks. PIRC has been vocal in our concern about Facebook’s inability to manage hate speech and we have recommended investors vote for improved governance at the company, including appointing a human rights expert to manage its content. We have similarly supported proposals at Alphabet to institute a societal risk committee and give employees board representation. Its influence is enormous. Google has generated around 90% or more of UK search traffic each year over the last ten years and generated over 90% of UK search advertising revenues in 2019. Its only competitor is Microsoft’s Bing which barely touches the sides of Google’s scale.
Despite growing pressure from shareholders and other stakeholders, Facebook and Google have been resistant to change. The CMA’s recommendations show that regulatory risk is rising up the agenda for Big Tech. Expect more to come.

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