A report into the market power of large online platforms such as Google, Facebook, Amazon and Airbnb has concluded that more needs to be done to bolster consumer trust in tech giants’ handling of their data.
The review was carried out by the UK’s upper House of Parliament responding to a European Commission public consultation on “the regulatory environment for platforms, online intermediaries, data and cloud computing and the collaborative economy” aimed at furthering the latter’s digital single market strategy.
Among the report’s recommendations is a suggestion that a privacy standards kitemark be developed to badge best practice by web giants on data protection and transparency in order to further consumer trust and create an impetus for these businesses to compete on consumer rights and user privacy — rather than, as is the current suspicion, by attempting to outmaneuver each other via ever more comprehensive data-mining of users.
“The Committee believes that one way to increase consumer trust in online platforms is the creation of a traffic-light style kite-mark on all websites and apps, to show good practice on privacy policies. This, we believe, will encourage platforms to compete against each other to improve standards on transparency, privacy and use of personal data,” the chair of the report committee said today, as the report was published.
The EC launched the consultation into online platforms last fall, calling for evidence on whether the region’s existing regulatory framework is fit for purpose to handle the rise of giant online platforms or whether new regulation needs to be introduced to deal specifically with this dominant sub-set of digital businesses.
Defining exactly what an online platform is was a necessary precursor to the call for evidence — with the EC coming up with the following typically dry descriptor: “‘Online platform’ refers to an undertaking operating in two (or multi)-sided markets, which uses the Internet to enable interactions between two or more distinct but interdependent groups of users so as to generate value for at least one of the groups”.
The House of Lords report concludes that new regulation to govern the operation of online platforms specifically is not necessary — but does urge existing regulations to be updated and more robustly enforced to take account of the scale and market power of these tech giants. And to avoid the risk of regional regulatory fragmentation undermining moves to establish a digital single market if individual European Member States feel compelled to introduce new rules at a national level.
The report also notes the role “accelerated network effects” play in impacting the markets in which online platforms operate, and argues the potential for disruptors themselves to be subsequently disrupted by other tech players means competitive pressures can play a role in regulating dominant players. However it also urges case by case analysis — asserting that competition pressure varies in type and intensity from sector to sector.
“The potential for dominant positions to emerge means that competition authorities must be vigilant in these markets, to ensure that market power is not abused. Protecting users in these markets also requires that consumer rights and data protection rights are effectively enforced,” the report notes.
Regulators failing to keep pace with the business expansion of tech giants has been a staple theme of the tech industry in recent years, whether it’s Uber running taxi industry red lights, Airbnb breezing past rental rules or Google sticking two fingers up at regional data protection regulations. The playbook of many tech giants applies VC funding at a pace and in a fashion that outstrips the pace of regulators to determine which rules are being broken. Leaving existing businesses that do conform to regulatory rules at a disadvantage.
And, as it happens, the publication of the Lords report coincides with the EC today issuing a formal Statement of Objections against Google’s Android mobile platform — with allegations the company has engaged in anticompetitive behavior that has damaged competitors including in the search space by Google incentivizing the pre-loading of its own search app and other services on Android devices.
“Companies such as Google, Airbnb, and Uber are not only pioneers of innovation, and key drivers of growth, but they potentially wield enormous power over consumers and businesses, and must do so responsibly,” noted Lord Whitty, Chairman of the Committee, in a statement.
“Growth of our digital economy should go hand-in-hand with better protection for consumers and small businesses. We heard of an array of worrying practices by websites that simply aren’t transparent enough and leave consumers vulnerable to exploitation — from fake reviews to personalised pricing, from baffling privacy agreements to rigged displays of search results,” he added.
In terms of specific measures to encourage competition regulators to keep up with digital developments, the report proposes a series of changes — including increased use of ‘interim measures’; time-limits on commitment proceedings; and strengthening the EC’s ‘sector inquiry’ power.
It’s also calling for the rules on mergers to be revamped to prevent larger online platforms acquiring smaller companies and escaping scrutiny by competition regulators because they fall below the revenue thresholds that trigger a probe.
On the transparency front, the report urges updates to consumer protection law to require online platforms to be clear about how they rank and present search results, publish ratings and reviews, and when they use consumers’ personal data to determine prices (so-called ‘personalized pricing’). It also wants to see sharing economy platforms be more transparent about their consumer protection obligations.
“While some online platforms have gone beyond the requirements of existing consumer protection law, bad practices also persist. There is a widespread lack of transparency in how platforms rank and present information to their users. We recommend that existing regulation be altered to require online platforms clearly to communicate the basis on which they rank results, and also to inform consumers when ‘personalised pricing’ is taking place,” it notes.
In another suggestion, aimed at combating the risk of regulatory fragmentation, the report advocates the creation of a panel of independent experts to monitor “ongoing issues of enforcement, privacy and innovation”.
“As well as identifying any emerging challenges to the sector, the panel would also act as a channel for public concerns, engaging with regulators, policy makers, businesses and citizens, and subjecting them to rigorous scrutiny. The panel would make policy recommendations to the European Commission,” it suggests.
The committee also has specific concerns vis-a-vis the operation of online travel agents, and is calling for the UK’s antitrust watchdog, the Competition and Markets Authority, to carry out an urgent market investigation into the sector.
“The Committee heard claims that online travel agents have intimidated hotels which gave better rates to their competitors and used deliberately misleading messages about vacancies, and so-called ‘shell websites’ which pretend to be the hotel website to take bookings at a higher rate,” it notes.