ACCC: Regulation needed as platforms expand into emerging technologies

The expansion of Amazon, Apple, Google, Meta and Microsoft into emerging technologies and other markets demonstrates the critical need for regulatory reform, according to competition watchdog the ACCC in its latest report.

The report examines the strategies of the five biggest digital platforms and finds that their expanding reach into the daily lives and livelihoods of Australians – via multiple interconnected products and services – is exacerbating risks of harms to competition and consumers.

The report, which is the seventh in the Digital Platform Services Inquiry, uses smart home devices and consumer cloud storage as examples to explore the impacts of the expansion of digital platforms into different products and services.

ACCC chair Gina Cass-Gottlieb said the significant investments made by digital platforms to develop new technologies are having a transformative effect on society and the economy despite the many benefits of online products and services.

“The continued expansion of digital platforms has also increased the risk of those platforms engaging in harmful behaviour, such as invasive data collection practices and consumer lock-in practices that can reduce choice and stifle innovation,” she said.

“Robust competition is critical for markets to function well. As the digital economy evolves and the ecosystems of digital platforms continue to expand, we must be equipped with the appropriate regulatory tools to ensure effective competition in these markets.

“This report is further evidence supporting our earlier recommendations that we should update our competition and consumer laws to ensure consumers and businesses continue to benefit from the opportunities created by digital platform services. Our proposed reforms include a call for targeted consumer protections and service-specific codes to prevent anti-competitive conduct by particular designated digital platforms.”

The ACCC has not made specific findings of anti-competitive conduct in this report but considers that when a digital platform service provider has significant market power in one or more markets, certain behaviours have a higher risk of harming competition.

Digital platforms with significant market power can use practices like bundling or tying of products, pre-installation and default settings to limit customer choice or deter innovation from competitors.

Consumer cloud storage is commonly embedded within digital platform operating systems, devices and productivity suites and in some cases is no longer available as a standalone product. Consumers may use a bundled cloud storage service even when there are more innovative or high-quality alternatives available to them.

The ACCC said that coordination decisions, such as among families who use the same services to share files or photos, or lock-in effects arising from the cost and inconvenience of transferring files to a new service, can further deter consumers from switching to a different service.

“Integrated cloud storage services can be convenient for consumers, but they can also discourage consumers from purchasing new products and services outside the ecosystem," said Cass-Gottlieb.

"This makes it harder for competitors who offer standalone services to compete and potentially stifles the development of innovative products."

The ACCC also found that as digital platform service providers expand, they have greater access to rich consumer data, which they can collect and use throughout their ecosystems of products and services.

The ACCC said as digital platforms create products and services in other sectors, consumers face the risk of losing control over their data.

“Consumers who use multiple products from a single digital platform may be forced to agree to unfavourable terms and conditions and/or accept unpalatable data collection practices due to a lack of suitable alternatives or because it is simply too inconvenient or costly to move out of that ecosystem,” Cass-Gottlieb said.

The report also considers the role of digital platform providers in developing emerging technologies. The five largest digital platforms (Amazon, Apple, Google, Meta and Microsoft) are making substantial investments in research and development and buying smaller companies in areas such as generative AI and virtual reality to ensure they’re in strategically important positions in the developing digital economy.

“The critical role digital platform service providers have in the development of new technologies like artificial intelligence and cloud computing demonstrates their importance to the Australian economy, now and in the future,” Cass-Gottlieb said.

“It is also further evidence that we need to ensure our competition laws are fit-for-purpose to respond to the potential challenges posed by these technological and market developments.”

In the fifth report of the Digital Platforms Services Inquiry, the ACCC made a range of recommendations to address harms to Australian consumers, small businesses, and competition.

The recommendations include new service-specific mandatory codes of conduct for particular ‘designated digital platforms,’ based on principles set out in legislation.

This new regulatory regime would work alongside Australia’s existing competition laws to address anti-competitive conduct, unfair treatment of business users and barriers to entry and expansion by potential rivals.

The ACCC has also proposed new mandatory obligations on all digital platforms to address scams, harmful apps, fake reviews, including notice and action requirements and stronger verification of business users and reviews.

The ACCC’s Digital Platforms Branch is conducting a five-year inquiry into markets for the supply of digital platform services in Australia and their impacts on competition and consumers, following a direction from the Treasurer in 2020. The ACCC reports to the Treasurer every six months and examines different types of digital platform services.