Government urged to limit Facebook and Google’s power over online ad market

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Facebook could be forced to allow users to switch off personalised advertising, and Google required to hand valuable data about search engine usage to competitors, under UK proposals to introduce competition into the digital advertising market.

The two companies accounted for 80% of all digital advertising spending in the UK last year, according to the Competition and Markets Authority (CMA), leading to fears they have developed “such unassailable market positions that rivals can no longer compete on equal terms”.

In response, the CMA has recommended the government creates a “Digital Markets Unit” with the power to force competition where none exists, by, for instance:

  • Requiring Google to share data about user behaviour with competitors, in a way that avoids the transfer of personal data, so that it can improve its own algorithms;
  • Ordering Facebook to increase compatibility with competing social media platforms;
  • Restricting Google’s ability to make itself the default search engine on mobile phones;
  • Forcing Facebook to give users the ability to opt out of personalised advertising;
  • And, “where necessary to ensure healthy competition”, ordering the separation of platforms, such as requiring Facebook to sell Instagram.

The CMA’s chief executive, Andrea Coscelli, said: “Through our examination of this market, we have discovered how major online platforms like Google and Facebook operate and how they use digital advertising to fuel their business models.

“What we have found is concerning – if the market power of these firms goes unchecked, people and businesses will lose out,” he said. “People will carry on handing over more of their personal data than necessary, a lack of competition could mean higher prices for goods and services bought online and we could all miss out on the benefits of the next innovative digital platform.”

The CMA’s concerns are due not just to the scale of Facebook and Google’s dominance of the online advertising market, but also the belief that the scale of the two companies allows them to effectively lock out competitors.

Facebook, for instance, owns three social networks with more than a billion users each – Facebook, Instagram and WhatsApp – making it a “must-have” social network for people to remain in touch with each other. Google’s search engine, meanwhile, has substantially more users than other search engines, which means it receives more data about how people react to search results, which lets it improve its search results, which means it has more users.

“We have not seen a significant challenge to the position of Google and Facebook for many years,” the report says, arguing that any one of their competitive advantages “would be substantial, but we have found they are mutually reinforcing and in combination provide an unassailable incumbency advantage”.

The CMA has issued its recommendations a fortnight after the departure of its chairman, Andrew Tyrie, who said the role prevented him leading a more aggressive campaign for change.

The report also highlights the “profound impact” the two companies have had on the news media. “The CMA has found that newspapers are reliant on Google and Facebook for almost 40% of all visits to their sites,” the body says. That finding comes the day after Facebook announced a radical overhaul to how its algorithm values news, focusing on “original reporting” over simple measures of engagement. “This important journalism takes time and expertise, and we want to ensure that it’s prioritised on Facebook,” said Campbell Brown, Facebook’s head of global news partnerships.

The CMA’s report lands just as Facebook is dealing with an unprecedented boycott from advertisers. On Wednesday, Lego and apparel company Vans announced they would take part in a month-long protest, coordinated by a coalition of US companies who are pushing Facebook to take more action to prevent hate speech on the site.

In a statement, Ronan Harris, the vice-president of Google UK & Ireland, said the company would “continue to work constructively with regulatory authorities and government on these important areas so that everyone can make the most of the web”.

“Digital advertising helps businesses find customers and supports the websites that people know and love,” Harris added. “Advertisers today choose from a wide range of platforms that compete with each [other] to deliver the most effective and innovative ad formats and products. We support regulation that benefits people, businesses and society.”

A Facebook spokesperson said: “Providing a free service, funded by advertising that is relevant and useful, gives millions of people and businesses in the UK the opportunity to connect and share. We face significant competition from the likes of Google, Apple, Snap, Twitter and Amazon, as well as new entrants like TikTok, which keeps us on our toes.

“Giving people meaningful controls over how their data is collected and used is important, which is why we have introduced industry leading tools for people to control how their data is used to inform the ads they see. We’re also exploring new ways through which people can move their data to other services through our data transfer project. We look forward to engaging with UK government bodies on rules that protect consumers and help small businesses rebuild as the British economy recovers.”

The report was welcomed by consumer rights group Which?, whose director of advocacy, Rocio Concha, said: “It is positive to see the competition regulator pushing to give control back to consumers and address competition concerns.

“People should be able to use these services without sacrificing their data for personalised advertising and consumers have told us they want an opt-in, rather than an opt-out, choice if they are to be targeted in this way.”

The CMA has formed a joint body with the Information Commissioner’s Office and communications watchdog Ofcom, called the Digital Markets Taskforce, to examine “the functions, processes and powers” needed to promote competition online, and provide more detailed advice to the government about how the regulatory regime should work. That taskforce will deliver its report by the end of 2020.

Both the taskforce report and the CMA report ultimately leave the choice to the government as to whether, and how, to legislate to adopt the recommendations. “To achieve this substantial package of reform, the necessary next step is for the government to pass legislation,” the report concludes.