Synopsis
Digital marketing is a non-conventional platform that uses the internet for the purposes of promoting goods and services offered by producers, connecting consumers and understanding the needs of consumers. It is incorporated in different brands such as search engine marketing and social media advertising. There are many players in digital marketing including Google, Bing, Yahoo, DuckDuckGo, Facebook, Pinterest, Instagram, LinkedIn, and Twitter among others. Google and Facebook dominate the most common digital markets and generate the largest revenue in comparison with the other platforms (ACCC, 2019). The two platforms grew tremendously as a result of offering better products in the market. For instance, when Facebook entered the market, it was highly committed to the preservation of the privacy of its users. However, today, accepting Facebook’s policies is merely agreeing to a broad spectrum of commercial surveillance (Srinivasan, 2019, p.41).
The large platforms in digital marketing they take advantage of the protection of network effects, great access to users’ data and economies of scale. This places the other platforms at a disadvantaged position in terms of competition. Additionally, the unfair competition compromises innovation, diminishes consumer choice and increases the costs at the detriment of consumers. Nevertheless, Google seems to portray a rather different perspective. The Google Report by Daniel and Stephen in 2020 for example states that the ad tech sector is a fiercely competitive marketplace in which Google has created innovations and promoted synergy with its products while ensuring a balance with all other participants of the ecosystem (Bitton and Lewis, 2020, p.6, 10).
Different jurisdictions across the globe have are continually developing legislations and policies to combat the challenges that arise from the dominancy of some platforms in digital marketing. The European Union competition laws promote competition by prohibiting cartels and monopolies (TFEU). Further, Europe has recently proposed the Digital Markets Act which will provide protection of interests of consumers, privacy of users, and protect advertising sector (Brussels, 2020, p.1). Large platforms in digital marketing such as Google and Facebook use their network effects intermediating the transactions between business users and consumers. These platforms use this opportunity to track users and profile them. Additionally, these platforms have a great impact on the digital market, which allows them to block new entrants and control the market. As such, the business users highly depend on them, and consequently create unfair trade practices and lack of competition in the market (Brussel, 2020, p.1).
The purpose of the Digital Markets Act proposal is to allow all players in digital marketing to achieve their greatest potentials by addressing issues of unfair practices and unfair competition, thereby affording business users and end users full benefits in a fair environment. Generally, governments come up with legislations regarding digital marketing to protect consumers from exaggerated prices, to protect the users’ data and to ensure they have a variety of products to choose from. Moreover, the governments use these legislations to protect the new and smaller companies that to enter the market. Consequently, competition drives innovation, offering better products for consumers. It is also argued that regulating design and operation of digital marketing platforms also concentrates economic, social and political power (Simons and Ghosh, 2022).
Impact on leading platform players
The interference by governments with digital marketing has major impacts on the leading platform players. Google and Facebook being the leading platform players in digital marketing attract many business users who seek to advertise their products. The preference of the business users is informed by the fact that these companies many users and therefore reach more people, despite the fact they are more costly compared to their competitors. Google and Facebook are monopolies in internet search and social media respectively. Consequently, governments seek to combat such monopolistic behaviors to promote competition and innovation.
The Digital Markets Act of Europe intends to curb the powers of these dominant players such as Google and Facebook. The Act prohibits providers of core platform services in digital marketing from abusing its position in the market to the detriment of their competitors and users (Brussels, 2020, P.34). It further prohibits the leading platform players from ranking their products and services higher than those of their competitors, using users’ data for purposes other than that for which it is given, creating unfair business environment such as overpricing business users, pre-installing software applications, and forcing app developers to subscribe to particular modes of payments or brand providers for their apps to be listed in app stores (Ramachandran, 2022). Article 26 of the Act provides penalties in form of fines against the gatekeeper players who violate the rules. The fines are quite stringent as they jeopardize a significant percentage of the player’s worldwide revenue. These rules therefore risk the revenue generation of the leading platform players in the market.
Amnesty International Report noted that Facebook and Google violate the rights of billions of users to privacy, freedom of expression and freedom of choice by engaging in surveillance (Amnesty International, 2019). Google controls close to 90 percent of the search engine while Facebook owns a significant portion of the world’s most common internet services (Naidoo, 2019). Relying on the surveillance carried out by these platforms, many people have limited choice as Facebook and Google dictate their public space. This way, the platforms exercise monopoly in digital marketing. According to Chief Justice Sheerwood, market monopoly has a false tendency that is repugnant to the free will of persons (Srinivasan, 2019). The rules as made by different jurisdictions around the world proscribe abuse of market dominance that creates monopolistic markets, and protects the rights of persons to privacy and freedom of expression and choice. Governments are making more stringent rules backed with penalties in digital marketing to protect the privacy of the users and prevent monopolistic actions by leading platform players. These rules threaten to slap these platforms with heavy fines. Australia enacted laws that require Facebook and Google to pay for news. This is to combat the monopolistic behavior of these leading platforms and promote the news sites. The threat posed by this law against Facebook and Google of losing their market and adversely their revenue led the two companies to lobby with the government to amend the law while they pursued contracts with the local news companies.
Google and Apple entered an agreement in which Google is the pre-installed search engine for the products made by Apple. Google makes hefty payments to Apple to ensure it is not outbid by its competitors and therefore remains the dominant search engine (Wakabayashi and Nicas, 2020). Nevertheless, Google claims that its dominance in the market is a result of user preference rather than the evident fact that it pays to have many users. Apple also benefits from this relationship as Google engages in surveillance of its users for the benefit of Apple against its competitors (Wakabayashi and Nicas, 2020). However, this relationship is threatened by the proposed European Digital Markets Act. Other than the money Google risks losing from fines should they violate the rules, the proposed rules risk Google a lot of income through the Search Engine Results Pages (SERP).
Europe is not the only jurisdiction that disallows abuse of dominant market power by Google. The U.S Justice Department filed a lawsuit against Google for using illegal tactics to maintain a market monopoly and engage in a cut-the-throat kind of competition. The Justice Department observed that a lot of Google’s traffic is obtained from the Apple deal. As such, a break up between these two companies will not only affect Apple’s income from Google, but also jeopardize the revenue generated by Google. Additionally, Apple may create its own search engine, further threatening Google’s position in the market.
Impact on digital landscape for the rest of the world
Digital landscape can be influenced by the government through policy making that promotes competition between service providers and encourage innovation and protection of users (Policy Circle, 2021). The Digital Markets Act of Europe for example intends to promote competition among the tech providers for the benefit of users and all players. By preventing limits to new entrants in the market and promoting smaller tech companies, all players have an opportunity to access the market equally. This combats monopoly and ensures the gatekeeper players do not overprice their services to the detriment of the business users. As such, the business users will have more freedom to choose the platform they prefer as all platforms reach their target consumers equally. Through the limitations of pre-installed software applications and deals between companies that limit competition, providers of digital services such as search engines will also have equivalent opportunities to reach people. Consequently, the dominance of particular companies in digital marketing based on purchase of users and network effects will be alleviated, creating a fair market environment.
Currently, Google and Facebook are the largest players in the digital marketing. They use the data collected from the users to inform the market space for each user and as such limit the variety of the market. They also promote their services by ranking their products highly and allowing easy access of the users to other products they offer. The Digital Markets Act prohibits gatekeeper players from ranking their services higher than those offered by their competitors. Accordingly, the processes of finding, interpreting and conveying patterns of data in digital marketing will be fair. The correct conclusions in analytics will ultimately provide effective communication to business users on the most preferred platforms by their target market and enable them make efficient business decisions.
Government policies also protect the privacy of the users. Consequently, private information of the users will only be used for the purpose for which it was intended and not shared with other tech companies to influence the internet space of users. This way, consumers will have a vast variety of choices of products advertised in their ads and have the freedom to choose as they deem fit. Provision of privacy in digital marketing will also ensure that the leading platforms do not benefit from the labor and efforts of smaller companies such as news sites. Australia’s law requiring Facebook and Google to pay for news promotes the business of local news companies and offers the other news companies such as newspapers a rather equal access to the market.
Conclusion and Recommendations
Various jurisdictions have come up with different policies to ensure that healthy competition is promoted within the industry for the benefit of all players as well as business users and end users. Some of these policies are however not as effective. For instance, in Australia, the law passed requiring Google and Facebook to pay for news like other news sites, was met with much criticism as the companies resisted and threatened to withdraw their services from Australia (BBC, 2022). The Europe’s Digital Marketing Act also intends to sanction companies that violate its rules through hefty fines on the revenue generated by the violating company in the world over. Although Google and Facebook may be in violation of laws of competition, the companies being the leading players in the industry provide significant services that would be highly threatened by crippling their relationships with other app developers and software applications. Moreover, the policies that tend to encourage more players into the industry and promote as many small companies as possible tend to create a saturated market. This will adversely result in unhealthy competition pressures. Inasmuch as the government interventions intend to improve the digital marketing sector, there are some policies made which jeopardize the growth of the industry as a whole.
Policy makers should rely on principles of financial regulation to improve competition between companies in digital marketing. This includes requiring leading platforms to share their identity information as well as internet speed with the middlemen in the digital marketing without discrimination (Srinivasan, 2019, p.159). Policy that restricts limitations of speed in digital marketing allows all platforms to have equal opportunities in the market. Laws that require the various players in digital marketing to be transparent with the governments and public should also be enacted. This will ensure that the leading players in the industry remain impartial in allowing new entrants into the market, allow healthy competition among the companies in the industry and promote innovation as the companies fight for a common market equally. Moreover, the privacy of the users will be upheld.
References
ACCC (2019) Digital Platforms Inquiry: Final Report
Amnesty International (2019) Surveillance Giants: how the business model of google and facebook threatens human rights
BBC (2022) Facebook and Google news law passed in Australia
Bitton, D, and Lewis, S (2020) clearing up misconceptions about google’s ad tech business
Brussels (2020) Proposal for a regulation of the european parliament and of the council on contestable and fair markets in the digital sector (Digital Markets Act) European Commission
Ramachandran, N (2022) Facebook, Google, Amazon, Apple to be Regulated as Europe Agrees to Landmark Digital Markets Act, Variety
Simons, J., and Ghosh, D (2022) Utilities for democracy: Why and how the algorithmic infrastructure of Facebook and Google must be regulated, Brookings
Srinivasan, D. (2019). The antitrust case against Facebook: A monopolist’s journey towards pervasive surveillance in spite of consumers’ preference for privacy. Berkeley Bus. LJ
The Policy Circle (2021) Digital Landscape Treaty on the Functionality of the European Union, article 101, 102
Wakabayashi, D and Nicas J (2020) Apple Google and a Deal that controls the Internet, New York Times
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