All eyes on ACCC inquiry into tech giants

The world is watching as Australia prepares to ask the hard questions about digital technologies.

Don’t be fooled by the magic of services such as Google Home. The speakers that enable Siri to answer questions are also microphones capable of listening to your conversations and drawing from them key words or phrases. Picture: AFP

We are living through the most astonishing, convulsive revolution in world history. It is enabled by the world wide web and is built on digital technologies that are simultaneously empowering and destructive.

The revolution is not two decades old and, as we face new waves of technical advances such as artificial intelligence and self-driving cars, there is every indication that it will continue at warp speed.

Its direction and shape is not decided by politicians or regulators but by engineers and data analysts. There has been little debate or scrutiny, let alone anyone being asked to vote on it.

Around the world, questions are being asked: Are the tech giants BAADD — too big, anti-competitive, addictive and destructive to democracy? Are we at a watershed? Have we reached a tipping point where those that monopolise the net need to be reined in for the good of all?

Australia took a step down that road this week when the head of the Australian Competition & Consumer Commission, Rod Sims, released a discussion paper designed to frame its inquiry into digital platforms and how they operate in this country.

Treasurer Scott Morrison commissioned the inquiry last year and an interim report is expected by the end of this year.

The world is watching. The same questions that prompted our government to look behind the activities of tech giants such as Google, Facebook, Amazon, Apple and Microsoft are being asked in the US and Europe.

When does big become too big? When does expansion and growth become a monopoly? Should the tech giants be broken up, in the same manner as the oil and telephone industries were in the US last century? Should the internet and some of the services it enables be treated as public utilities, like electricity or water suppliers? How will we cope with the mass destruction of jobs brought about by robotics and artificial intelligence?

The ACCC inquiry will have a particular focus on media, concentrating on the impact of digital search engines, social media platforms and other digital content aggregators on traditional media and advertising services. It will inquire into the impact of the tech giants’ market power over the creators of journalistic content and examine future trends in this field. It will have the power to demand information that the tech companies have traditionally held tightly, and its final report will make recommendations for changes of policy or new laws to preserve competi­tion and protect consumers.

The growth of the tech giants has been astounding. Jonathan Taplin, in his book Move Fast and Break Things published last year, says he dates the rise of the digital giants from August 2004 when Google raised $US1.9 billion in its initial public offering.

“By the end of that year Google’s share of the search engine market was 35 per cent, with Yahoo on 32 per cent and Microsoft on 16 per cent,” he writes. “Today, Google’s market share is 87 per cent in the US and 91 per cent in Europe.”

That is, by any definition, an unassailable monopoly. Taplin notes that Microsoft spent nearly $US1bn trying to establish its search engine Bing as a rival to Google and achieved barely 4 per cent of the market. “What rational person would enter the search market?” he asks.

Similar growth trajectories among other giants have created near monopolies. Taplin reports that Amazon had net sales of $US6.9bn in 2004. In 2016 its net sales were nearly $US136bn.

Facebook and its subsidiaries Instagram, WhatsApp and Messenger control 75 per cent of the American social media market.

In the dozen years since 2004, Taplin says, Google, Facebook and Amazon “wreaked havoc on much of the creative economy — journalists, musicians, authors, filmmakers. In the decade ahead the tech behemoths will use their dominance in artificial intelligence to overturn much of the service economy as well, including transportation, medicine and retail.

“With what result? Goldman Sachs recently reported that self-driving cars could eliminate as many as 300,000 jobs a year in two decades or more. Will we be ready for the flood of unemployment?”

There are many arguments for and against the rise and rise of the tech companies, but Taplin goes to the heart of the matter when he says: “We are rushing into the AI universe with almost no political or policy debate about its implications. Digital technology has become critical to the personal and economic wellbeing of everyone on the planet, but decisions about how it is designed, operated and developed have never been voted on by anyone. Those decisions are largely made by executives and engineers at Google, Facebook and other leading tech companies and imposed on the rest of us with very little scrutiny.”

Taplin concludes: “It is time for that to change.”

As the tech giants began their rise, they were at pains to reassure their users that their intentions were nothing but the best. Google adopted the slogan “Don’t be evil” — now abandoned as part of a corporate restructure that makes it a subsidiary of a new entity called Alphabet — and Facebook declared its mission was to “Give People the Power”.

If Facebook’s aim was to establish a system that would allow people to connect with each other, share pictures of their cats, dogs, children and evening meals, it certainly achieved that. But it also facilitated much more sinister things.

 

Facebook has been accused of being a partner in terrorism recruitment, spreading invocations to jihad and promulgating extreme philosophies. It has led to children being bullied to the point of suicide. It has made pornography available at a click and it has been the platform of choice for meddling in elections.

The recent indictments handed down by special counsel Robert Mueller against 13 Russians alleges an elaborate plot to disrupt the 2016 US presidential campaign and charges them with using a huge but hidden social media campaign aimed at helping Donald Trump defeat Hillary Clinton.

Facebook was not the creator of the thousands of memes and fake news stories launched from Russia but it was the carrier. Its self-imposed rules designed to take down dangerous or injurious posts clearly did not work or were not invoked.

The Russians’ use of US-based internet addresses fooled Facebook and millions of consumers. But according to Oxford University researchers Philip Howard and Robert Gorwa, writing in The Washington Post, Facebook “has the metadata to identify precisely which (fake news) accounts were created, where they operated and the kind of things those users were up to in the election. Their data scientists could probably provide some insights that the intelligence services could not.”

Facebook’s chief executive Mark Zuckerberg acknowledged the problem in his new year letter to employees: “The world feels anxious and divided and Facebook has a lot of work to do — whether it is protecting our community from abuse and hate, defending against interference by nation-states, or making sure that time spent on Facebook is well spent. My personal challenge for 2018 is to focus on fixing these important issues. We won’t prevent all mistakes or abuse but we currently make too many errors enforcing our policies and preventing misuse of our tools.”

Like Google, Facebook insists it is not a publisher, merely a facilitator of communications. How long it can avoid the responsibilities of publishers remains to be seen. But being a communications carrier or a search engine provider is now just part of the power equation. Far more power and value has accrued to the big players through the accumulation of data — information about you, your interests, hobbies, purchases and intentions. Enhanced by artificial intelligence, this data has enormous implications for business and commerce, allowing marketers to anticipate your every wish or desire.

Those companies that develop and deploy AI technologies will benefit from the virtuous circle of success as outlined by venture capitalist Kai-Fu Lee, writing in The New York Times. “The more data a company has, the better its product can be; the better the product, the more data you collect; the more data you collect, the more talent you attract and the more talent you attract, the better your product.”

Until now the tech giants have enjoyed complete freedom to develop their businesses, arguing digital transformation demands no regulation and paying little tax. In short, their unspoken slogan is: “Who is going to stop us?”

One answer came from European regulators who last year fined Google $3.75bn, the largest antitrust fine. EU policy, based on maintaining competition in the marketplace, is stronger than that imposed in the US, where the benchmark for action is seeing harm to “consumer welfare”.

 

EU Competition Commissioner Margrethe Vestager says Google has invented many innovative products and services that have made a difference to our lives, and “that is a good thing”.

“But Google’s strategy for its comparison shopping service wasn’t just about attracting customers by making its product better than its rivals,” she says. “Instead, it abused its market dominance by promoting its own ser­vices and demoting those of competitors. It denied other companies the chance to compete on the merits and to innovate and what it has done is illegal under EU antitrust laws.”

The EU action spurred allegations of cartel behaviour by Facebook in Germany, and the French have threatened action for sharing data between its various apps.

The ACCC is also concerned with the exercise of excessive market power. The focus of its inquiry is on media and advertising ser­vices; the interaction between journalists and publishers as the creators of content and the role of the tech giants’ digital platforms in distributing it and the impact on consumers choice and quality.

A few years ago it was fashionable to declare in media, “content is king”. This was built on the notion that digital technologies allowed for a vastly increased number of channels, each of which would require content to fill it.

But content is not king. Distribution is. Value has moved from the creators of content to the owners of the monopoly platforms. Today Google is the largest media company in the world, followed by Facebook. Together they are responsible for nearly 80 per cent of news publisher’s referral traffic, making them a vital and indispensable source of readers.

But the flip side is they attract about 85 per cent of all digital advertising dollars in Australia, and nearly 90 per cent in the US. This has stripped billions from traditional media companies, with the inevitable loss of thousands of jobs and the reduction of news services of community benefit.

Media leaders such as News Corp chief executive Robert Thomson have railed against the tech tsunami, accusing the giants of using their all-powerful algorithms to promote or downgrade search engine positioning. He led the fight against Google’s controversial “first click free” policy that demanded that news publishers provide at least three articles free on search before users would confront a paywall. Publishers who refused to accept the policy virtually disappeared from search results — a brutal outcome, manipulated by an unassailable monopoly.

After Google abandoned the policy in October, publishers were free to set their own subscription barriers at whatever level they chose. The effect of this has been seen in Australia where News Corp Australasia executive chairman Michael Miller reported this week that paid subscriptions to News Corp sites triggered by Google searches were 50 times higher in the first seven weeks of the year, compared with the corresponding period last year. “This is not evidence of Google doing the right thing,” Miller says. “It is evidence of how much impact the tech giants’ restrictive and unfair prac­tices have had on our businesses.”

Thomson says the removal of “first click free” is merely a first step. Miller agrees and urges the ACCC inquiry to grasp the opportunity to say “enough is enough, and to find a new, more equitable digital model that benefits all”.

That is a challenge facing politicians globally. In the US, regulators see a possible way forward by looking back to last century when governments tackled monopolies by breaking them up or converting them to public utilities. They cite the actions against Standard Oil and AT&T.

But as London’s The Economist points out, not all tools in regulators’ hands apply. Price controls, for instance, are powerless when products such as search engines and social messaging are free. It is difficult to make a case that consumer welfare has been harmed when users regard the product as free. In fact, it is not free. The currency of modern commerce is data. By using their services, we give the tech giants permission to use what they know about us to construct algorithms that can predict behaviour and therefore help create new products and services.

Don’t be fooled by the magic of services such as Google Home. The speakers that enable Siri to answer questions, switch on the TV, turn down the lights or remind you of birthdays are also microphones capable of listening to your conversations and drawing from them key words or phrases. If you tell your partner you’d like to take an ocean cruise, chances are ocean cruise advertising will quickly come your way.

The Economist, in an editorial, says greater use should be made of existing trust-busting laws and new thinking should be applied to personal data. “Just as America drew up sophisticated rules about intellectual property in the 19th century, so it needs a new set of laws to govern the ownership of personal data,” it says.

“This means giving people more control over their information. Regulators could oblige platforms to make anonymous bulk data available to competitors … mechanisms that would turn data from something titans hoard to suppress competition, into something users share to foster innovation.”

It won’t be easy to tame the tech giants and it may not be deemed to be desirable if the effect were to deny the benefits they bring or stifle future advances. But the first steps have been taken.