This dominant position has provoked calls for the dismantling of web giants, as was the case for Standard Oil in the early twentieth century. In the past, ‘The Economist’ had opposed such a drastic reaction. The size of society in itself is not a crime. The success of these giants has benefited consumers. Few would like to live without the Google search engine, 24-hour delivery from Amazon or the Facebook news feed.
These companies also do not trigger an alarm signal during routine market checks. Far from extorting from consumers, many of their services are free (indeed, users pay by providing even more data). If we take into account their physical competitors offline, the market shares of web giants seem less worrying.
But there are reasons to worry nonetheless. The control that digital societies exercise over data gives them immense power. Traditional approaches to competition, developed in the oil age, seem obsolete in what is now called the “Data Economy”. This requires a new approach.
The quantity has quality in itself
What changed? Smartphones and the Internet have made data plentiful, ubiquitous, and valuable. Whether you’re jogging, watching TV, or just stuck in traffic, any activity potentially creates a digital trail, and therefore more raw material for data refineries. As our devices and machines, from watches to cars, connect to the Internet, the volume is increasing: according to some estimates, an autonomous vehicle will soon generate 100 gigabits per second. At the same time, artificial intelligence (AI) techniques such as machine learning can extract more and more information from data. Algorithms can predict when a consumer is ready to buy, one where a reactor needs maintenance or when a person presents a risk of falling ill. Industrial giants such as General Electric or Siemens are now selling as data companies.
This abundance of data is changing the nature of competition. Digital giants have always benefited from network effects: the more Facebook users there are, the more interesting the registration becomes for others. The data presents new network effects. By collecting more data, a company develops more knowledge to improve its products, thereby attracting more users, and thus generating even more data, and so on. The more Tesla collects data from its autonomous vehicles, the better the company is able to improve autonomous driving: this is partly why the company, which sold only 25,000 cars in the first quarter of this year, is worth today more than General Motors, which sold 2.3 million.
But access to data also protects companies from their rivals in another way. Optimistic approaches to competition in the new technology sector are generally based on the idea that it is possible to see leaders taken aback by a start-up founded in a garage or an unexpected technological revolution. But these situations are less likely in the data age. Giants’ surveillance systems sift through the entire economy: Google can see what internet users are looking for, Facebook what they share, Amazon what they buy. These companies own application stores and operating systems and lease compute power to start-ups.
They have a “divine point of view”, overlooking the activities of their own market, and beyond. They can spot a new product that is on the rise, in order to copy it or simply to buy out the newcomer before it becomes too great a threat. Many observers believe that Facebook’s $ 22 billion takeovers of the Whatsapp messaging app, which had fewer than 60 employees, falls into this “Acquisitions-Eliminations” category aimed at getting rid of potential competitors. By providing barriers to entry and early warning systems, data can stifle competition. Many observers believe that Facebook’s $ 22 billion takeovers of the Whatsapp messaging app, which had fewer than 60 employees, falls into this “acquisitions-eliminations” category aimed at getting rid of potential competitors. By providing barriers to entry and early warning systems, data can stifle competition. Many observers believe that Facebook’s $ 22 billion takeovers of the Whatsapp messaging app, which had fewer than 60 employees, falls into this “acquisitions-eliminations” category aimed at getting rid of potential competitors. By providing barriers to entry and early warning systems, data can stifle competition.
What Do You Need To Do?
The nature of the data makes traditional anti-monopoly remedies less effective. Cutting a company like Google into five small “Googlets” would not put an end to the effects of networks: ultimately, one of these companies would become dominant in turn. There is a need to rethink the regulation of competition. As the contours of a new approach take shape, two ideas stand out.
First, competition regulators must move from the industrial era to the 21st century. Faced with a merger, for example, they traditionally rely on the size of companies to decide when to intervene. They must now take into account the range of data assets to assess the impact of the groupings. The purchase price can also be a signal that a well-established company is buying a threatening young competitor. In this regard, Facebook’s willingness to pay such a large sum to buy Whatsapp, which could not boast of any income, could have been a red flag. Regulators also need to improve their data expertise in the context of market dynamics analyzes,
The second principle is to ease the grip that online service companies have on data, and give more control to their providers. More transparency would be a good thing: companies could be forced to reveal to consumers what information they hold about them and the income they generate from it. Governments could encourage the emergence of new services by opening more of their own data or by managing certain essential fields of the data economy as public infrastructure, as India does with its digital identity system, Aadhaar. They could also make it compulsory to share certain types of data, with the agreement of the users:
It will not be easy to reset the competition regulatory software to adapt it to the information age. This will involve new risks: more data sharing, for example, could compromise confidentiality. But if governments don’t want a data economy dominated by a few giants, they will have to act quickly.