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June 14, 2021

The EU could intervene to curb Big Tech’s IoT market dominance

Big Tech is tightening its grip on IoT, and the EU is poised to step in. But will this create a more innovative and competitive market?

By Laurie Clarke

The European Commission has opened an antitrust inquiry into the internet of things (IoT) sector following a preliminary EU report warning that Apple, Google and Amazon could be stifling competition in the area. New antitrust cases and regulation could follow, depending on the inquiry’s outcome, but some experts are divided on whether a crackdown on Big Tech would lead to a more competitive and innovative IoT market.

Big Tech and IoT

The EU will look closely at the likes of voice assistants and connected devices. (Photo by David Becker/Getty)

The inquiry will focus on voice assistants and connected devices, including smart home appliances and wearables. Areas of potential concern highlighted by the preliminary report include exclusivity and tying practices of voice assistants; market leaders’ extensive access to data that helps them both improve products and move into adjacent markets; and lack of interoperability in the consumer IoT sector.

“When we launched this sector inquiry, we were concerned that there might be a risk of gatekeepers emerging in this sector,” said EU Competition chief Margrethe Vestager in a statement. “We were worried that they could use their power to harm competition, to the detriment of developing businesses and consumers. From the first results published today, it appears that many in the sector share our concerns.”

The European IoT market: a strong networking effect

The EU notes that although the IoT sector is relatively young, it’s characterised by strong network effects and economies of scale, which may lead to the rapid entrenching of dominant digital ecosystems and gatekeepers.

The Commission finds that the number of voice assistants in use is expected to double between 2020 and 2024 (from 4.2bn to 8.4bn), although only 11% of EU citizens surveyed in 2020 had already used one. A larger number use connected devices, with 51% of people in the EU reporting they used the internet on a smart TV, games console, home audio system, or smart speaker in 2020.

With the sector braced for rapid growth, the EU is concerned this will be concentrated in a small number of companies. The smart speakers market is clearly dominated by Big Tech. By 2022, Google Home will hold 48% of the IoT devices market share, followed by Amazon Alexa at 37% and the Apple HomePod at 12%, according to Futurum Research.

“There’s a long list of innovation projects which have attempted and failed to break into the virtual assistant market, due to the fact that these hyper-scalers are so dominant,” says Emma Mohr-McClune, service director for global telecom consumer services, platforms and devices at GlobalData.

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There’s a long list of innovation projects which have attempted and failed to break into the virtual assistant market, due to the fact that these hyper-scalers are so dominant
Emma Mohr-McClune, GlobalData

Businesses trying to compete in the sector usually find they have little choice but to work with tech’s biggest names, Mohr-McClune believes. Citing the examples of Orange and Deutsche Telekom, she says: “We’ve watched many telcos try to create their own virtual assistant for the home, and they come to realise very quickly that they cannot compete in this space without Google Assistant and Alexa. Their own innovation projects have been crushed under the weight of this incumbency.” She says that companies are forced to partner with the dominant players, rather than innovating in the space themselves.

This is relevant to another area that the EU is interested in regulating: AI. “Consumer IoT devices are frequently powered by AI, which can ingest all the data created by end-users in highly specific and distinct use cases, such as running or watching TV at home,” says Mohr-McClune. This means devices can identify patterns and use these as a basis to make predictions or recommendations. “To that end, AI is able to create super-restrictive commercial leverage behaviours which are potentially far more customised, attractive, yet more clandestine, invisible and less easy to regulate than simple e-commerce marketplaces.”

Big Tech and IoT: is regulation needed?

The European Commission has opened five investigations into ‘GAFA’ (Google, Amazon, Facebook, Apple) in the last two years, out of a total of nine since 2010, demonstrating a recent surge in the scrutiny of tech giants. If the IoT investigation turns up evidence of anti-competitive behaviour, the EU could open new case investigations to make sure companies are compliant with EU rules on restrictive business practices and abuse of dominant market positions. The Digital Markets Act, EU ex ante regulation on the horizon, takes direct aim at “gatekeeper” (read, Big Tech) companies to curb their market power.

But in the IoT sector, the issue is more complex than identifying companies that dominate the market, says Luca Schiavoni, telecoms and technology analyst at Assembly Research. “Regulating those three companies may not necessarily result in a better consumer IoT market,” he says, noting that tech giants and the small start-ups they acquire are responsible for a lot of innovation in this sector.

“We can’t be sure that forcing Big Tech platforms to be more ‘neutral’ will necessarily lead to better outcomes. The jury is still out there on whether enforcing interoperability in this market would really be a good thing for consumers. It could increase complexity, which could impact products’ usability, and even raise privacy risks.”

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