Glamour wears off as tech giants’ dirty little secrets revealed

Rod Sims is betting his far-reaching report will bring the titans to heel.

Illustration: Eric Lobbecke

Even a grizzled veteran of business power plays and customer abuses can still be shocked. Rod Sims surfaced yesterday after a deep dive into the all-conquering global tech giants to say he was surprised at what he found.

Australia’s competition and consumer watchdog regularly stands in the way of big businesses behaving badly towards their customers or wanting to knock out the competition. But he hasn’t seen anything quite like the tech titans — particularly Google and Facebook — for their cavalier attitude towards the interests of their billions of users around the world.

“I didn’t anticipate that they would be completely indifferent to what is on the platform and what is done with it,” Sims tells Inquirer.

Ditto to their attitude to users’ privacy and the treatment of their data.

Sims’s 619-page final report into the digital platforms arrived with a metaphorical thud yesterday and the Australian Competi­tion & Consumer Commission boss is betting its 23 recommendations covering consumers, competition and the media will be far-reaching and ­reverberate not just in Canberra but around the world.

“I challenge you to read it all in one day, without alcohol,” Sims jokes.

Following numerous data breaches, competition abuses and the live-streaming of the Christchurch massacre, governments and regulators have woken up to the extraordinary social and ­economic power of the digital platforms and are scrambling to find a way to protect their citizens and businesses from the worst ­excesses.

After a golden run in the capital markets and corridors of power — particularly under an Obama ­administration that seemed in the thrall of Silicon Valley — Facebook and Google have been hit with billions in fines in the US and Europe for abuses of market power and of their users’ privacy.

“It does feel like the glamour of the global digital players has worn off in Canberra, and for the first time there seems to be a strong political will to address big issues like inadequate regulation, lack of transparency and the impact on Australian media companies, consumers and local content producers,” Network Ten chief operating officer Annabelle Herd says.

Australia has been at the forefront of the pushback against the tech giants, with Sims commissioned 18 months ago by then treasurer Scott Morrison to ­investigate the industry, amid ­urgings by then independent senator Nick Xenophon and parts of the media, including this newspaper’s owner, News Corp. More inquiries in other jurisdictions have followed.

As Josh Frydenberg noted while unveiling the report yesterday with Communications Minister Paul Fletcher, the market power of these companies is “immense” and needs to be checked.

In Australia, for every $100 spent by advertisers online — ­excluding classifieds — $47 goes to Google, $24 to Facebook and the rest of the media industry scraps over the rest. That’s a huge share of the esti­mated $9 billion market that has grown more than eightfold since 2005, much of it by taking share formerly held by traditional media.

The ACCC found more than 98 per cent of online searches on mobile devices are with Google, while Facebook had about 17 million Australians checking in for half an hour every day.

Frydenberg highlights the ­extraordinary level of concentration that has developed. “The nature of the services ­offered by Google and Facebook allow them to collect an unprecedented amount of personal data, which is then monetised by providing advertisers with highly targeted opportunities,” he says.

Shopping patterns, browsing history, location and personal data, such as the size of your family or your relationship status, are there to be collected, aggregated, sliced and diced and auctioned to the highest bidder. “The world has never before seen so much commercially sensitive and personal data collected and aggregated in just two companies,” Frydenberg says. “Our legislative and regulatory framework could not and did not anticipate such a new paradigm, a paradigm which poses real ­challenges for authorities the world over.”

What began as an inquiry into the impact of the tech giants on traditional media has morphed into a much broader inquiry taking in privacy, data, merger laws, digital media literacy, trade practices law and even public funding for investigative journalism and state broadcasters.

There are plenty of recommendations for media companies and the public to like. Sims wants Google to stop installing its Chrome browser on Android phone devices in Australia — as the EU, on pain of multi-billion fines, has forced the company to do in Europe. The ACCC recommends harmonising laws ­between the traditional media and the tech giants that, for example, let them escape local and children’s content rules that bind television broadcasters. But it stops short of calling Google and Facebook broadcasters or publishers. And a call by News Corp to separate the advertising and search business of Google has not been taken up.

Still, it’s a weighty set of issues that Frydenberg and Fletcher ­approached yesterday with a mixture of heavy rhetoric and caution about the specifics.

After sitting on the report for a month to digest it, the government will put it up for discussion for the next 12 weeks before deciding what to do with it.

It’s a notably more cautious ­approach than it took to the findings of the banking royal commission. Then the government and opposition professed immediate and almost entirely unqualified support for the recommendations of Kenneth Hayne, before backing away as some of the com­plexity and unwanted con­se­quences became apparent.

And it’s this that the industry fears.

The reaction from traditional media was a cautious welcome. Executives are hoping the government’s tough talk yesterday can survive a three-month consultation period that is bound to see the lobbying might of the tech ­giants thrown at anyone with the potential to soften any legislation.

News Corp Australasia executive chairman Michael Miller has welcomed the “strength of the language and identification of the problems created by the dominance and immense market power of the digital platforms”.

Miller also says he is encouraged by the “stated determination of the government to address these problems” but urges the government to follow through on real reforms.

“The recommended regulatory and legislative measures must be powerful enough to correct the adverse effects associated with digital platforms and their impact on Australian consumers and businesses, including news content creators,” he says.

And the concern remains that a big part of the impetus for the ­original inquiry — the impact of Google and Facebook sucking up the lion’s share of advertising dollars on the viability of newsrooms — remains unresolved.

Sims yesterday touted a proposed new code of conduct as a key to restoring the balance of power between the tech giants and the traditional media, and ­ensuring its ongoing viability.

That code couldn’t just be written by the tech giants: it would have to be signed off by media companies and approved by the regulator, giving them a stronger hand in determining who makes money out of the often expensive business of journalism.

But the bigger issue of how ­advertising revenue is carved up when it appears in a Google search or a Facebook post won’t be ­resolved for some time.

Sims wants another 18 months to do a formal inquiry into what is called the “ad tech” industry. In his words, it is a vast and opaque machine with a lot of potential for abusive trade practices.

After the release of the draft ­report in December last year, Sims issued a call for advertisers and agencies to tell him more about an industry that could suck as much as $75 of any $100 spent by an advertiser before it got to the publisher.

“We didn’t get the response that we wanted,” Sims says. “I mean, if you visit a website, then an auction can immediately occur online as to who wants to advertise to you on that website. There are intermediaries taking bits and cuts of it all over the place. This all takes place in nanoseconds.

“We absolutely got to the bottom of that. It’s all in our report and it’s the best description of the ad-tech market and the way it works anywhere in the world. But we do need to know more.”

Meanwhile, redundancies that have been a feature of newsrooms since at least 2012 will continue. News, Nine and Seven West Media have all suffered them ­recently. But it’s not just a legacy media issue. Even new age media sites such as Buzzfeed and Vice, which were built for the internet, have been unable to combat the advertising might of Google and Facebook, or convince them to share enough of their riches.

Yesterday media companies’ share prices fell across the board in what appeared to be a judgment that the ACCC report would not be the salvation that some had hoped it would be.

Meanwhile Alphabet, the parent company of Google, posted quarterly results that showed it beat brokers estimates by $US900 million ($1.3 billion). Its ­advertising revenue jumped by 16 per cent.

It was a stark reminder of just how rich and powerful the tech ­giants have become that their ­results are untouched by the extraordinary level of global attention their businesses now attract.

Even a record $US5bn fine handed to Facebook this week by the US Federal Trade Commission for selling user data to Cambridge Analytica before the 2016 US presidential election barely dented its share price.

At $US201, it's still worth $US35 a share more than it was at the end of May.

“It’s just a rounding error for them,” one local media executive said yesterday, summing up the anxiety about whether Australia can do anything to rein them in.

How the tech giants respond remains to be seen. In official statements yesterday, Google and Facebook said they had been co-operating with the inquiry and would continue to do so.

Up until now their strategy has been “trust us” to fix it. Facebook, for example, took action to restrict live-streaming following its social media platforms being used to live-stream the Christchurch massacre earlier this year.

Then, as now, it is not getting the benefit of the doubt. The federal government unveiled legislation in May to ban live-streaming of violent content.

Sims says trust is no longer enough.

“I don’t think you can leave these issues to be dealt with by commercial companies,” he says.

“Their business model is based on creating a platform that they make enormous economic value from but they take no responsibility for what happens on there.

“It is ingrained in their psyche. So I don’t think they have got the right approach to deal with these issues. I don’t think dealing with these issues would suit their business model. It will cost them money … But that’s why governments exist, that’s why regulators exist.”