Seizing power of digital revolution for recovery

The evidence is in. The Big Tech revolution has enabled business to pivot online and limit losses during the pandemic. The results are on display at The Australian’s E-Commerce Summit this week, exploring how the digital revolution is transforming every aspect of daily life. Equally clear is the fact that regulators around the world are scrambling to catch up to ensure the benefits of the digital revolution are more widely shared. Done well, Australian Consumer & Competition Commission head Rod Sims says enacting consumer data rights to give individuals control over information collected about them will be a reform equal to the winding back of tariffs and the floating of the dollar.

Scott Morrison told the summit that COVID’s acceleration of e-commerce would be a cornerstone of the country’s recovery from the pandemic. A Deloitte report found that for goods-related businesses, e-commerce helped 61 per cent keep operating during the crisis by limiting revenue losses to 7 per cent — even though in-store revenues fell by 21 per cent. Woolworths chief executive Brad Banducci says the chain is on track to have digital interactions with its customers at almost double the rate of customers walking into its stores in the next 18 months.

Alongside the positive news are warning shots that steps must be taken now to stop the major tech players from abusing their market dominance. The US Department of Justice has launched a long-anticipated antitrust action against Google that is a rerun of measures it took to break the market dominance of Microsoft in 1998. In a speech to the National Press Club, Australia’s top competition regulator, Mr Sims, outlined how Australia was engaged in the global effort to bring the tech giants to heel. The US government’s complaint against Google parent company Alphabet is that Google acted unlawfully to maintain its position in search and search advertising on the internet. The lawsuit says that ultimately, it is consumers and advertisers who suffer from less choice, less innovation and less competitive advertising prices.

The DoJ is asking the US courts to break Google’s grip on search distribution so competition and innovation can take hold. Google has called the lawsuit “deeply flawed”, claiming people use Google because they choose to, not because they are forced to or because they can’t find alternatives. Mr Sims called Google out on its defence. An ACCC Digital Platform report in July last year found that Google was paying Apple $US9bn ($12.7bn) a year to make Google the default web browser on its products. “I heard Google on the radio this morning saying that it doesn’t matter, we are just so popular people would be there anyway,” he said. “Well if that is the case why are you (Google) paying $US9bn a year to Apple.”

In Australia, the ACCC is driving reform to force the big tech companies to reach agreement with media groups to pay for content. Mr Sims says the “take it or leave it” attitude of Big Tech when dealing with publishers has damaged journalism, which is “of course essential to a well-functioning society”. On media generally, he says the digital revolution has led to more competition, not less.

It is naive to believe, he says, that business will only and always act in the interest of customers. He cited economists Adam Smith, Joseph Schumpeter and Michael Porter as providing the foundation for his thinking. Smith identified the invisible hand of self-interest and competition, Schumpeter the theory of creative destruction and Porter put the view that the surest way to gain profits is to gain market power. The role of regulators is to prevent the natural instinct for self-interest to abuse creative destruction to gain unreasonable market power.

Mr Sims says Facebook and Google achieved their dominant positions in search and social media through excellent and beneficial innovation. The issue is how much stronger they have become by acquiring other companies, stifling competition and further innovation. The DoJ has a long history of breaking monopolies for the good of consumers. As John Durie has written, the tech giants will ultimately be forced to reach a commercial agreement to open the market to others and changes will flow through to the rest of the world. Mr Sims has given a glimpse of the potential that will be unleashed when this happens. A taste of where that might lead is on display at The Australian’s E-Commerce Summit.