A brief catch-up: In December 2019, the Government announced that for the next five years the Australian Competition and Consumer Commission (ACCC) would monitor digital platform services, producing a report every 6 months (10 reports in total) following the ACCC’s recommendation in its Digital Platforms Inquiry. 

The ACCC has embraced this role in its first Interim Report with an in-depth focus on online private messaging services, social media and online search.  Many of the issues are not new, and as the ACCC recognises, the Interim Report often updates and develops previous findings the ACCC reached regarding these industries. Of course, the digital landscape has seen accelerated growth and development in light of COVID-19. The Interim Report expresses the ACCC's clear awareness of this, with a view to monitoring developments online throughout the pandemic. 

This first Digital Platforms Services Inquiry Interim Report reinforces the recommendations that the ACCC made in last year's Digital Platforms Inquiry (for more detail, see our summary of the recommendations ‘Digital reform unfolds - ACCC releases Final Report on Digital Platforms Inquiry’).  In brief, these recommendations include:

• To address key consumer concerns in online private messaging: strengthening Privacy Act protections, establishing an enforceable code requiring platforms to be transparent with consumers about data sharing and consent, and providing opt-out-controls, and implementing dispute resolution mechanisms to address platform complaints and disputes.
• To address scam activity on platforms, and small businesses being disadvantaged when dealing with digital platforms: establishing an ombudsman scheme to resolve these complaints and disputes.
• For small businesses facing unfair terms: prohibiting unfair contract terms and certain unfair trading practices.

The Interim Report also further expresses the ACCC’s intentions regarding the digital economy including:

• The ACCC is “working towards” its recommended merger notification protocol, subject to negotiation between the ACCC and digital platforms, which would require nominated platforms to provide the ACCC with advance information on certain proposed acquisitions. Although that recommendation will only be towards nominated platforms (most likely Google and Facebook), the Interim Report calls out numerous big tech companies’ acquisition strategies. It suggests the ACCC won’t shy away from its suggestion of broadening regulatory intervention in M&A activity to other large platforms, depending on how they act. For more on the ACCC’s changing approach to digital M&A see our insight ‘The ACCC signals a changing approach to digital M&A’.
• The ACCC is keeping an eye on the response to the CMA’s recommendations for improving competition in the search services market; and on Google implementing a choice screen for general search providers on Android in Europe.
• Facebook (through Facebook Messenger and WhatsApp) is relatively free from competitive constraint in the supply of “standalone” online private messaging services.

For more detail on all of it – see below.

The basics of the Digital Platform Services Inquiry - Online Private Messaging Services Interim Report

In February 2020, Treasurer Josh Frydenberg directed the ACCC to hold an inquiry into the markets for the supply of ‘digital platform services’, meaning the markets for services relating to internet search engines; social media; online private messaging; digital content aggregation platforms; media referrals; and electronic marketplaces.

The ACCC was asked to investigate the intensity of competition in these markets, the practices of individual suppliers that may result in consumer harm (e.g. supplier policies on privacy and data), market trends that may affect suppliers’ market power and the durability of that market power, changes to the nature of these services arising from innovation and technological change, and developments in similar markets overseas.

The final report is not due until 31 March 2025, but in the meantime the ACCC is required to produce 6-monthly Interim Reports.  This first Digital Platform Services Inquiry 2020-2025 Interim Report, released today, focuses on issues relating to online private messaging services and, to a lesser extent, social media and search services.  Future interim reports will focus on other digital platform services.

Digital Platforms Services Inquiry Interim Report: 7 things you need to know

The Digital Platforms Services Inquiry Interim Report includes the following key takeaways:

1. ACCC contends that Facebook is winning in online private messaging services:

The ACCC’s views build on consistent themes it expressed in its Digital Platforms Inquiry, asserting that:

• Facebook and Apple are two of the largest suppliers of standalone online private messaging in Australia. Because these standalone services are not interoperable, the ACCC considers that the size of Facebook’s user base  (via Facebook Messenger and WhatsApp) provide significant network effects that give Facebook a significant competitive advantage and ‘a degree of freedom from competitive constraints’ in the market.
• The Digital Platforms Services Inquiry Interim Report found that while many users of standalone messaging services ‘multi-home’ (use multiple services), this phenomenon is asymmetric – for example, at least 80% of video conferencing users also use Facebook, while only 50% of Facebook’s users also use WhatsApp, ~35% use Zoom, less than 25% use Snapchat and ~15% use Teams.
• While the default position of Apple’s iMessage and FaceTime on Apple devices and size of its user base provide network effects that give Apple a competitive advantage over smaller suppliers, as iMessage and FaceTime services are limited to users of Apple devices, the ACCC considers that this means Apple is less of a constraint on Facebook than Facebook is on Apple. 
• The global pandemic has resulted in significant growth of online messaging, and video conferencing and other services such as TikTok.

2. The ACCC remains concerned about consumer privacy

The ACCC found that many users of private messaging services are concerned about their data being shared with third parties, and their online activities being tracked.  The Digital Platforms Services Inquiry Interim Report reviewed major providers’ terms and conditions and set out some key privacy concerns that arise in relation to private messaging services, for example:

• emphasising the benefits of cookies or describing cookies as standard practice to discourage consumers from turning it off;
• not clearly explaining the extent to which consumers are tracked, e.g. by using obscure language; and
• not making it clear in the Terms of Service what third parties a consumer’s data will be shared with, and what kind of information will be shared.

3. The ACCC considers that Facebook and Google are still dominant in social media and search

The ACCC reaffirmed the view expressed in the Digital Platforms Inquiry Final Report regarding the market position of Google in search and Facebook in social media.

The Digital Platform Services Inquiry Interim Report does say that more consumers, concerned about privacy protections, are switching to other providers like DuckDuckGo.  DuckDuckGo’s global daily average search traffic increased ~61% in the year to June 2020. 

At the same time, Facebook’s and Google’s shares of online advertising expenditure are increasing.  The ACCC now estimates that for every $100 spent on online advertisers in 2019, Google received $53 and Facebook received $28.  In 2018 this was $49 and $24.

4. Consumers in focus: tracking and scams

With COVID lockdowns increasing, consumer use of online services, the ACCC considers that Australian consumers are tracked more – and scammed more – than ever before. Despite the pervasiveness of digital platforms in our social lives, less than 10 per cent of Australian consumers have a good understanding of how their personal information is used after the provision of consent.

The Interim Report notes that large platforms such as Facebook and Google use large data sets tracking Australian consumers to improve their role in providing advertising and other services. Research by AppCensus on the top 1000 Android mobile apps in Australia found the prevalence of software development kits (SDKs) within apps contributed to large digital platforms’ ability to receive a range of user information. The ACCC cites Google’s SDKs were identified at 92% of all apps analysed and Facebook’s SDKs in 61% of apps. These SDKs enable the platforms to collect and transmit user data, ranging from user advertising identifiers to sensitive user information, such as access to a user’s camera and health data.

The ACCC noted that similar findings in the Digital Platforms Inquiry Final Report led to the ACCC’s recommendation for changes to privacy law and the Australian Consumer Law to ensure customers can exercise choice. Consequently, it continues to support those recommendations to ensure greater consumer awareness.

Tracking capabilities of new technology

The rapid advancement of consumer technology has also heightened large platforms’ ability to collect consumer data. Every month globally, 500 million people receive personalised recommendations from Google Assistant by allowing access to relevant personal data from a user’s existing technological ecosystem of devices. While often providing an enhanced user experience, consumers may not be entirely aware of the extent of data collections enabled by devices such as voice assistants – limiting a consumer’s ability to exercise privacy controls.

The ACCC did not mention advanced technology such as voice assistants in the Digital Platforms Inquiry Final Report. This Interim Report notes the ACCC will continue to monitor take-up and use of these devices in the near future where there is potential for anti-competitive conduct and reduced consumer welfare.

Scams and digital platform accountability

The ACCC also recommends that digital platforms do more to address scams on their platforms. Online private messaging scams reported by consumers increased by almost 95% in the first half of 2020 – possibly due to the uptake of these services during COVID-19. In accordance with its recommendations on the Digital Platforms Inquiry Final Report, the ACCC recommends the development of an effective dispute resolution scheme to address complaints on disputes on digital platforms – including an independent ombudsman to address scams to consumers.

5. Small businesses in focus: ACCC finds that small businesses continue to be significantly disadvantaged by digital platforms’ terms and condition

With more Australian businesses than ever relying on digital platforms to reach Australian consumers, the Interim Report noted that terms and conditions of digital platforms often disadvantage small to medium size businesses. Without bargaining power, small businesses are often subject to the discretion of digital platforms for terms and conditions.

Power imbalances in terms and condition

The Interim Report says that terms that small businesses are required to accept to use platforms’ services demonstrates a power imbalance with digital platform service providers. Most conditions relevant to small businesses on digital platforms are required to be accepted by default – thus giving digital platforms the ability to remove content or suspend accounts for even minor infractions of terms and conditions. The ACCC is particularly concerned with the proliferation of prohibitive dispute resolution clauses that unilaterally limited small businesses by requiring claims to be made in the US or preventing a small business from participating in a class action.

The ACCC reiterated its recommendation from the Digital Platforms Inquiry Final Report: that there should be effective dispute resolution mechanisms to address complaints and disputes between platforms and businesses. Furthermore, the ACCC continues to recommend prohibitions on unfair contract terms and unfair trading practices to reduce the power imbalance between small businesses and digital platforms.

6. Increasing prominence of non-organic search results

The Interim Report states small businesses are becoming increasingly disadvantaged by the disparity between search results on a desktop device and mobile device. The ACCC found there was a higher proportion of sponsored results on mobile devices compared to desktop devices – a concerning observation, it says, given almost half of all visits to Google Search are now from mobile devices. This means businesses are needing to subscribe to Google’s search advertising tools as a primary form of consumer communication, rather than clicks to organic links.

The ACCC has sought to examine how search results are presented to users – especially in relation to the differences between the display of searches on mobile devices and desktop devices. With the continued increase of mobile devices by consumers, the Interim Report says the ACCC will closely monitor the area.

7. Globally, regulators are scrutinising digital platform M&A activities

The Digital Platform Services Inquiry Interim Report finishes by highlighting that many global competition and consumer agencies are monitoring large platform M&A. Acquisitions of smaller businesses by digital platforms in neighbouring industries before they become a significant competitor has been at the forefront of many overseas antitrust bodies’ interest. The ACCC is also concerned with digital platforms’ ability to extend their asserted dominance into adjacent markets where a platform’s complementary products operated by small businesses could insulate their central business offerings from the threat of future competition, potentially then to gather further data.

Accordingly, the ACCC reiterates its recommendation in the Digital Platforms Inquiry Final Report for a renewed merger notification protocol that can enable the ACCC to assess acquisitions in a manner that adequately considers M&A activity by large digital platforms.

In concluding with this focus on large platforms expanding through acquiring, the ACCC suggests there is more to come in the scrutiny of large platform M&A. This suggestion is not necessarily limited to Google and Facebook. The ACCC mentions also Apple, Amazon and Microsoft as companies continuing to acquire businesses and develop new products to enable them to expand into other markets.

Cooperation with the world’s competition and consumer agencies is not new.  But, in the context of digital platforms M&A, coordinated scrutiny has become increasingly prevalent – and specific. It remains to be seen what this increasing scrutiny will lead to, in Australia and beyond. Stay tuned.