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May 6, 2022

Will UK Digital Markets Unit tackle Big Tech and help small businesses?

The Digital Markets Unit is set to get statutory powers to rein in Big Tech. But will it be effective?

By Sophia Waterfield

The UK government has laid out its plans for how its new digital markets regulator will tackle anti-competitive practices by some of the biggest technology firms. Its new watchdog, the Digital Markets Unit (DMU), will be granted statutory powers to enforce pro-competition rules and “rebalance the relationship tech giants have with consumers and businesses so they are better protected from unfair practices”.

As part of its consultation response, the Department for Digital, Culture, Media and Sport (DCMS) said that it plans fines of up to 10% of global turnover for breaches of the rules. Senior technology bosses could also face tough penalties if their companies fail to comply.

Digital markets will be regulated by new pro-competition regulator DMU
Facebook and Google could come under fire from new digital markets competition regulator, Digital Markets Unit (DMU), says DCMS. (Photo by iStock)

The proposals also aim to make it easier for mobile users to switch between Apple iOS and Android phones or between social media accounts without losing their data and messages, says the DCMS. It could also give “smartphone users more choice of which search engines they have access to” and more control over “how their data is used by companies”.

“Technology has revolutionised the way thousands of UK firms do business; helping them reach new customers and putting a range of instant online services at people’s fingertips, ” says Chris Philp, Digital Minister. “But the dominance of a few tech giants is crowding out competition and stifling innovation.

“We want to level the playing field and we are arming this new tech regulator with a range of powers to generate lower prices, better choice and more control for consumers while backing content creators, innovators and publishers, including in our vital news industry.”

What is the Digital Markets Unit?

The DMU, launched in non-statutory form within the Competition and Markets Authority (CMA) last year, will have the power to designate some of the world’s most powerful firms with “strategic market status”. According to the consultation response, the scope of this status will only apply to a small number of the most powerful firms, meaning that smaller companies will not be bound to the DMU’s rules on digital activities.

The regulator will enforce new tailored codes of conduct for how the handful of firms dominating digital markets should treat their users and other companies fairly, with tough sanctions for those that ignore the rules. Under these binding conduct requirements, firms must ensure consumers have open choices about the digital services they use, say the DCMS.

The DMU will be able to stop companies, for example, limiting consumers to pre-installed software on their devices. This is thought to make it easier for smartphone users to choose, which search engine or messaging apps they use as well as get more decision-making power over how their data is used and handled by tech firms by opting out of targeted personalised adverts.

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To some extent, this is already done on Apple devices, as iOS 14.5, iPadOS 14.5, and tvOS 14.5 and later requires apps to ask users for their permission to track them across apps and websites owned by other companies.

Why is the Government tackling Big Tech companies?

The Government says that the majority of UK companies now rely on technology firms to ensure customers find their business online. However, they also control online gateways for millions of internet users, giving preference to their own apps and browsers, as well as setting their own prices for online services they provide businesses.

The Competition and Markets Authority estimates that Google and Facebook made UK profits of £2.4bn in 2018. Facebook’s average revenue per user in the UK increased from less than £5 in 2011 to more than £50 in 2019, with Google’s revenue per search in the UK more than doubling in the same time frame.

The government believes that tens of thousands of UK small and medium businesses (SMEs) will get a better deal from the tech giants such as Facebook and Google, which they rely on to trade online. These tech companies could also need to warn smaller firms about changes to their algorithms, which drive traffic and revenues.

Several small businesses confirmed to Tech Monitor that changes in Facebook’s algorithms especially were causing their cost per acquired customer (CAC) to dramatically increase.

One eCommerce business owner, Natalie Ormond, said that her sales, engagement and reach had been impacted by algorithm changes over the past few months: “Facebook advertising worked really well for me in 2020 and early 2021 to find new customers and my community on Instagram was steadily growing, but now reach and engagement are through the floor and my regular customers tell me that they don’t see my posts unless they seek them out. 

“I’ve worked with a digital marketing freelancer in the past and she advised that post iOS there were a lot of algorithm changes due to data loss so, in the end, I’ve stopped running ads as I was spending so much money without results.”

Another business owner, Tas Rotherham, told Tech Monitor that Facebook advised them that they had to spend at least £100 a day just to be seen on the platform: “Before the iOS update, I used to do okay with the odd Facebook ad; I generally knew if I spent £10, I would at least make a sale of about £30.”

How has the tech industry responded?

Overall tech players and industry bodies in the UK have responded favourably to the announcement, but there are concerns regarding the lack of details about the incoming legislation.

Simon Elliott, senior technical director at content management software provider Acquia, told Tech Monitor that while the reported scale of fines and rules should be welcomed, there is “frustration” about timings: “The reported scale of fines under consideration for those companies which fail to abide by these new competition rules is significant and should be welcomed,” he says.

The lack of a timescale to introduce the DMU’s statutory powers is a concern, Elliott says. The DCMS says new laws will be brought forward “in due course”, but it is unlikely to be included in the upcoming Queen’s Speech, which sets out the government’s immediate legislative programme. “Consumer demand for privacy has never been stronger; research suggests that only 58% of UK consumers trust brands to handle their personal data,” says Elliott. He continues that the business practices of tech giants need to be subjected to greater scrutiny so that we can “steer away from opaque data usage”, which he warns has eroded consumer trust and has put smaller businesses at an unfair disadvantage.

The association for the technology industry in the UK, techUK, also welcomes the “pro-competition regime”, but wants the government to clarify its scope. Neil Ross, associate director for policy at techUK said: “The consultation response raises major outstanding questions over key terms and arbitration mechanisms. It is also not clear when the new regime will be implemented. We urge the government to engage with the sector to resolve these issues to support the wider UK economy.”

Will new digital markets legislation work?

Whether the incoming rules and new DMU will make radical change remains to be seen. Rob Weatherhead, an online marketing consultant and eCommerce business owner, says that while platforms do gain an advantage over competition by using the data at their disposal, this is just the nature of business.

“Do the platforms use their data to gain unfair advantage over competitors? Absolutely yes they do; if that is what the DMU is looking to find out, it won’t take them very long,” he says. “The question is what do they do about it? I am not sure there is a lot they can or will do.”

Google and Facebook “are data collection machines, and the data is fuel for their advertising,” Weatherhead says. “Every move they make into new areas is either to gather new data, or add new advertising functionality.”

Businesses must understand that they are not owed reach by Facebook and Instagram, and if they build their business based on it they are the ones running at a risk, he adds. “Businesses need to accept that change happens with social media, and finding ways to diversify the risk a single change will wipe you out.”

On whether these new rules will hurt larger tech companies, Weatherhead says: “These things have the power to hurt Google and Facebook, but in practice, they never seem to have the end result of doing so.”

Read more: EU agrees new rules for Big Tech

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