Arshad Shaikh examines the accusations against Google by media companies and app developers of exploiting its monopoly by trying to grab a disproportionate share of the revenue pie and trying to kill the competition. The matter is now pending before India’s competition watchdog. At the heart of the issue is the question of regulating monopolies and devising a policy of ‘live and let live’.
Every firm has to deal with both internal and external threats that could be detrimental to its business. In economics textbooks, the ‘business environment’ is generally defined as the external factors, which have a direct impact on the business. One of the factors that affect the business environment are the economic laws such as the trade law, industrial law, labour law and the laws that restrict monopolistic policies. Hence, companies such as Apple, Amazon, Facebook, Google and Microsoft, which have a combined market cap of US $6.8 trillion, are always alert and vigilant to the regulatory environment in which they operate.
With combined revenue of US $ 900 billion, the size of Big-Tech is equivalent to the 18th largest economy in the world. Naturally, such magnitude of financial prowess and ability to change the fortunes of hundreds of thousands of business partners would most likely result in conflict and opposing viewpoints with their stakeholders on a myriad of issues. It should therefore come as no surprise that the Digital News Publishers Association (DNPA), a representative body of leading Indian digital media companies, lodged a complaint with the government against Alphabet Inc, the parent company of Google, accusing it of denying them a fair share of advertising revenue.
Similarly, Google is also being investigated by the government for unfair business practices concerning Google Pay and Google Play’s payment system. Such disputes and investigations are lodged with the Competition Commission of India (CCI), the chief national competition regulator in India. It is a statutory body under the Ministry of Corporate Affairs and is responsible to enforce the Competition Act, 2002. The CCI’s stated “goal is to create and sustain fair competition in the economy that will provide a ‘level playing field’ to the producers and make the markets work for the welfare of the consumers”.
Besides trying to understand the nature of the accusations against Google, it is also important to look at the role of the ‘business environment’ in ensuring that there is ‘fairness’ in the market and monopolies are not given a free hand to kill the competition and deny choices that could have been available to the consumer.
THE GROUSE OF DIGITAL MEDIA COMPANIES
Google developed an open source HTML framework called Accelerated Mobile Pages (AMP) that boosts traffic to the mobile websites of digital media publishers. Soon enough every news company latched on to AMP, only realising later that they were virtually handing over Google the power to control their internet traffic (consumption of their digital news).
As Google has a near monopoly in the search engine market, it is alleged that it became possible for Google to abuse its dominance by curtailing the traffic to news websites that did not use AMP and then restricting the online advertising on those websites that did adopt AMP. In other words, Google was allegedly trying to build its own version of the World Wide Web using the AMP framework, a charge vigorously denied by Google. Much to the chagrin of Google, the CCI admitted the complaint of DNPA and issued an investigation order (Case 41 of 2021 dated 7 January 2022) under Section 26(1) of the Competition Act, 2002.
The CCI order says: “In view of Google’s market position in the online digital advertising intermediation services, the alleged unilateral and non-transparent determination and sharing of ad revenues appears to be an imposition of unfair condition on publishers. The alleged opacity on critical aspects such as data and audience management practices, or generation and sharing of revenue with publishers, exacerbates the information asymmetry and is prima facie prejudicial to the interest of publishers, which, in turn, may affect the quality of their services and innovation, to consumer detriment. Thus, the imposition of such unfair conditions as well as price by Google in the provision of its various services is prima facie violation of Section 4(2)(a) of the Act.”
THE COMPLAINT OF APP DEVELOPERS
Google’s woes in India also include a complaint by Indian app developers to the CCI regarding Google’s policies regarding its payment system. The complaint filed by Alliance of Digital India Foundation (ADIF) says that under a new payments policy, certain app developers will have no choice but to use Google’s Billing System to accept payments from users for which Google will charge a 30% commission compared to a 2% fee by other payment gateways such as Paytm etc. It is reported that Google has since reduced its commission fees to 10-15% for app developers and will implement this policy only from October.
The operating system on most mobile phones is Android developed and owned by Google. Globally Android has a near 70% market share with the rest (29%) occupied by Apple’s IOS. In India, Android has almost 95% share of the mobile market. Many apps like Gmail, Chrome, Maps, Photos and Search are preloaded on Android phones.
The CCI had in its order under Case no. 07 of 2020 dated 9th November 2020 said: “Although, Google has contended that such arrangements are optional, its market position in different streams of smart mobile device ecosystem cannot be discounted in the relationship with OEMs. It is apparent that the market position of Google in several gateway products for web based services makes it an indispensable partner in the smart mobile device ecosystem and such position also appears to place Google in a unique advantage compared to other UPI app developers. Thus, it is appropriate and imperative to understand the nature of such contractual arrangements and whether they harm the process of competition in the market for UPI based payment apps. Therefore, the Commission agrees with the contention of the Informant and is of the prima facie view that the alleged conduct on the part of Google merit detailed investigation.”
REGULATING MONOPOLIES
It is well understood that a monopoly market is one in which the monopoly enjoys maximum profit; the firm is a price-maker and not a price-taker. There is a single seller, there are high barriers to entry for other firms, and the monopolist can carry out price discrimination policies. Typically the options available to the government to regulate monopolies is to limit price increases, regulate its takeovers and mergers, carry out investigations into unfair practices and in extreme case nationalise the monopoly or break it into smaller companies.
Mostly, “natural monopolies” are created due to high startup costs or powerful economies of scale in a specific industry. However, in the case of Google, it is the unique technological superiority and the way the company has managed to churn out the best product portfolio required for an internet-driven world that has helped it dominate the space in online advertising technologies, search engines, cloud computing, software, and hardware.
Google has often been criticised for issues such as data privacy, tax avoidance, censorship, search neutrality, antitrust and abuse of its monopoly position. The broad lesson to be drawn from the story of ‘Googleopoly’ is to be extremely alert to the business practices of monopolies and duopolies. The regulatory framework must be agile and strong to curb any unfair practice that kills competition, hinders innovation and is detrimental to the interests of the consumer. If we allow Big Tech to be beyond accountability, they will devour democracy and we may be reduced from intelligent beings to pre-programmed bots.