The online competition revolution

It’s day two of the Council of Small Business Australia’s national summit today (I’ll be interviewing two great Smart50 members this afternoon if you are attending), but I wanted to share a few reflections from the first afternoon of what is a great event.

Every year COSBOA gets the big names and this year it’s no different. Yesterday’s lunch was attended by Victorian Premier Ted Baillieu, Federal Small Business Minister Brendan O’Connor, his Opposition number Bruce Billson, all of the state small business commissioners, Commissioner of Taxation Michael D’Ascenzo, and Australian Competition and Consumer Commission chief Rod Sims.

The latter two men spoke in an afternoon session which nicely set out how their agencies are seeing the SME landscape.

The key message from the softly-spoken D’Ascenzo addressed the pressure that the ATO must be seeing in the SME community. “Talk to us sooner rather later,” was his plea to struggling businesses. The ATO helped many SMEs get through the GFC with payment plans and tax chief was keen to emphasise there is still plenty of empathy for viable businesses with good records.

Sims, a witty guy with a dry sense of humour, gave a presentation that reflected the many and varied issues the competition watchdog has on its plate.

He said SMEs have generally handled the introduction of the carbon tax well and stressed that the ACCC will give any business that does face a complaint every chance to explain itself.

Sims also spoke about the ACCC’s investigations into the market power of the supermarket giants in relation to their private label push, their dealings with suppliers and their potential market-changing power in the petrol sector. All investigations are in the early stages and Sims was careful to warn that outcomes would take time.

One area of focus the ACCC chair and his deputy Michael Schaper were keen to highlight was their focus on the online sector.

Sims said that while it was clear the internet continues to revolutionise various industries, it also has the potential to revolutionise the area of competition policy.

This was particularly the case, he argued, because the internet has chopped up traditional business models into little pieces. He used the example of a complaint that saw ticketing group Ticketek fined $2.5 million.

Ticketek was a vertical business that both sold and supplied tickets to events. But the competitor it was accused of harming had taken only one bit of the supply chain, in that it was only on-selling tickets – it eventually had to go back to Ticketek to access the tickets it on-sold.

Schaper says the case is an example of how competition may need to respond to different online business models, where new marketplaces have been formed with different models to those in the bricks and mortar world.

He provided three examples of the sorts of online competition issues the ACCC is trying to get its head around:

• Franchising. Franchisors have long resisted selling online because they feared they would end up competing with their franchisees. But as the rapidly changing market gives franchise groups no chance but to start selling online, Schaper sees the potential for competition issues to arise when two parties compete (or don’t compete) with each other.
• Electronic products. Australian booksellers have raised concerns about the fixing of eBook prices following an investigation by US authorities into the same matter. Schaper sees this as “the canary in the coalmine” and expects similar issues to arise with digital goods.
• Abuse of market power. Schaper points out that many of the most successful online businesses have effectively established market dominance by moving first and moving fast. His concern is about the ability for nimble upstarts to enter the market – much like these online pioneers did once upon a time.

There aren’t necessarily solutions to these problems at this stage – indeed, the problems themselves haven’t quite emerged.

But it’s good to see the ACCC looking into the future and anticipating what Sims quite rightly sees as a coming revolution in the competition area.

James Thomson is a former editor of BRW’s Rich 200 and the publisher of SmartCompany and LeadingCompany.