‘No choice’: ACCC finds Google, Facebook market power makes life difficult for small businesses

Competition watchdog, the Australian Competition and Consumer Commission (ACCC), has identified a series of concerns about the dealings between small businesses and digital platforms such as Facebook and Alphabet-owned Google.

Releasing the results of its 17-month inquiry into digital platforms last Friday, the ACCC made 23 recommendations to government, primarily focused on addressing the issues arising from the market power American technology companies have in Australia.

The 623-page report found a lack of transparency, inadequate dispute resolution, unfair contract terms and self-preferencing are key issues facing SMEs in their engagement with digital platforms, also recommending a review of privacy laws, which could see small firms slapped with new red tape.

While the ACCC was at times scathing of the behaviour of Facebook and Google, it has opted for recommendations which primarily enhance the ability of regulators to keep an eye on the sector and deal with issues arising from their market power, rather than tackling the significant and growing influence of the platforms themselves.

In response, Google and Facebook issued statements acknowledging the release of the ACCC’s report, while digital platforms lobbyist DIGI has argued the recommendations should be viewed against an “innovation test” that examines how a crackdown on Google and Facebook would “impact Australia’s digital industry at large”.

Treasurer Josh Frydernberg on Friday responded by recognising digital platforms are responsible for an “important innovation” which has “fundamentally changed the way” the media works.

The Treasurer also accepted the “overriding conclusion that there is a need for reform”, but did not commit to implementing the recommendations, signalling a forthcoming government response later this year.

Small business has no choice

The final report spent a considerable amount of time exploring the size and shape of Google and Facebook in Australia, concluding their gigantic user bases and command over advertising revenue confer them an unmatched level of market power in their respective industries.

Crucially, for the more than half of Australian small businesses with Facebook pages and a similar amount using Google services, including the provision of advertising, the ACCC concluded businesses have little choice in doing business with digital giants.

“Small business owners must utilise digital platforms if they want to survive in today’s current economic climate,” the ACCC said in its report, referencing a submission.

Digital platforms dominate our time online

Source: ACCC (2019).

Finding Google and Facebook have provided significant benefit to small businesses, particularly through the provision of relatively low-cost online advertising, the ACCC recognised the importance of digital platforms to business owners, but also highlighted a series of concerns about the way the market is operating.

It was also revealed the ACCC has active investigations underway into the business practices of both Facebook and Google after uncovering possible breaches of regulations while undertaking the inquiry.

Lack of transparency

Over the last two years, about half of all small business complaints to the ACCC about Google and Facebook related to a lack of transparency in the provision of advertising services, including issues with dispute resolution.

Businesses which made submissions to the inquiry complained Facebook and Google often make changes to the algorithms that govern how their products work without notifying businesses or explaining why.

For many SMEs, changes in the operation of these algorithms can have adverse effects on business, including reducing exposure to Google and Facebook users or making it more difficult to secure returns using their advertising services.

Other common complaints SmartCompany has covered in the past include instances where Google AdWords and SEO optimisation have been used by big businesses to push smaller competitors out of the online market, as well as cases where social media policies prevent businesses from accessing marketplaces where most of their customers reside.

Digital platforms dominate Aussie ad spend

Source: ACCC (2019).

In its assessment of the relationship between small business and digital platforms, the ACCC said: “This is likely to be inconsistent with what might reasonably be expected of a competitive market.”

“Google and Facebook have substantial market power in the supply of search advertising services and display advertising services respectively.

“Because of this market power, Google and Facebook arguably each have a reduced incentive to maintain the quality of all attributes of these services.”

Reviews not working, businesses say

The ACCC’s consultation with small businesses also identified small business anger about the way Facebook and Google resolve instances of defamatory comments and fake reviews.

Complaints have centred on the time and resources necessary to address instances of fake reviews with tech giants, while others noted a lack of transparency on the part of Google in how it decides to take down negative reviews.

Several stakeholders expressed frustration that the Google Reviews function simply appeared on many small business accounts without their knowledge or consent, with this lack of communication leading to their withdrawal from digital advertising entirely,” ACCC consultation notes read.

Dispute resolution spotlighted

Two of the ACCC’s recommendations are targeted at these issues, among others. First, the watchdog wants digital platforms to develop a set of minimum dispute resolution standards to be administered by the Australian Communications and Media Authority (ACMA).

It is hoped standardised dispute resolution will provide small firms with a better path to redress when they encounter problems in their dealings with digital platforms.

Secondly, the ACCC has recommended the creation of an ombudsman scheme to protect consumer and business users of digital platforms by fielding complaints, making binding determinations and conducting research into the market.

“The ACCC has identified particular areas where recourse to an ombudsman should be available including complaints regarding scam content, business users’ complaints relating to the delivery of advertising campaigns and suspended business accounts,” the regulator said.

The ACCC wants any ombudsman scheme to have the power to compel Google and Facebook to provide information, make binding decisions on their operation and even order compensation where appropriate.

Should small firms come under Privacy Act?

Buried on page 479 of the report, the ACCC also lobbed some information to government, noting it could review The Privacy Act to consider whether it covers enough entities.

Under current laws, The Privacy Act, which sets out a series of regulations for the way companies deal with consumer data, does not apply to most businesses with a turnover of less than $3 million annually.

If this were changed, hundreds of thousands of additional businesses would be brought under the act’s provisions and associated compliance framework.

The ACCC has called on the government to undertake a broader look into Australia’s privacy laws, recommending they be strengthened in numerous ways.

“[Consider] broader reform of Australian privacy regime to ensure it continues to effectively protect consumers’ personal information in light of the increasing volume and scope of data collection in the digital economy,” the ACCC said

Unfair contract terms back in the spotlight

The ACCC on Friday repeated its longstanding calls for unfair contract terms (UCTs) to be outlawed, noting the likelihood that terms between Google, Facebook and businesses across the country contain unfair terms.

“The ACCC has observed terms in contracts that can involve a significant imbalance in the rights of consumers and digital platforms but which, if held to be an unfair contract term, would not be subject to penalties,” the regulator said.

The ACCC revealed on Friday it is currently investigating whether Facebook’s terms of use and privacy policies contain unfair contract terms.

The federal government has said it will strengthen current UCT laws, which include no financial penalties, and has announced a consultation on whether they should be outlawed, but has not committed to this position itself yet.

Gatekeeping a risk to businesses

The significant market power behind Facebook and Google, alongside their position as owners of platforms where retail transactions are conducted, raise issues about their capacity to “self-preference”, the ACCC said.

Also known as gatekeeping, the practice refers to the use of market power by digital platforms to favour their own products and business interests at the expense of other firms using their platforms.

“They also have the ability and incentive to favour a business with which they have an existing relationship (and through which additional revenue may be generated), such as websites that are members of their display or audience network or use their ad tech services,” the ACCC said.

This issue came to a head in Europe back in 2017 when the European Commission found Google systematically gave prominence placement to Google Shopping in search results, demoting rival comparison services.

The commission issued a whopping €2.42 billion ($3.9 billion) over the conduct, and while the ACCC has not prosecuted either company for this behaviour in Australia, it said this area should be monitored closely.

The proliferation of voice shopping and its capacity to allow the digital assistants of tech giants to prioritise search results which benefit their own business interests has also been raised in the past but was not touched on by the ACCC.

“The ACCC remains of the view that digital platforms with substantial market power, and which are present in related markets, have the ability and incentive to engage in this type of self-preferencing behaviour,” the regulator said.

The ACCC has recommended a specialist digital platforms branch be set up within its offices to “build on and develop expertise in digital markets”, including monitoring self-preferencing.

It is hoped this branch would conduct a public inquiry into the competition for the supply of advertising technology services, an area also identified by the ACCC as lacking competitive veracity.

The full ACCC report, alongside the regulator’s recommendations, can be accessed here.

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