Facebook’s Antitrust Misadventures: Finale In Sight?

[By Pragya Jain & Akshita Singh

Pragya is a student at Hidayatullah National Law University, Raipur and Akshita is a student at National Law University Odisha, Cuttack

General Overview

Facebook’s iconic Senate hearing in 2018, while the punchline of many jokes for years to come, brought a fact into vivid perspective. The CEO, Mr. Zuckerberg, when prompted to provide the most accurate description of Facebook’s business, quipped simply – “Senator, we run ads.” The rebuttal, though seemingly precise, is akin to Pandora’s box of essential legal questions – one of which, concerning dubious anti-competitive practices, is central to this article. This description of Facebook’s services cements a glaring fact: if the service being consumed is free, the consumer is but a misnomer. It can be fairly said that while availing a seemingly “free” service, it is the consumer’s attention that becomes the product. This is the guiding principle behind zero-price markets which are more relevant than ever in the rapidly digitising world.

One of the waves brought in by digitization which seems to have patently hit the shores of BigTech is online advertising. Statistics reveal a significant share of 46% of Facebook’s income is on account of online advertising. In fact, a pointed look at the revenue models of BigTech reveals that online advertising is strategically employed by these companies, not only to generate soaring revenues but also to gain dominance in the relevant market. This inevitably puts competition regulators in a spot while demarcating the competitive boundaries for an enterprise in an arena as exponentially advancing and fragile as online advertising.

Consequently, the growing dissatisfaction of competition regulators across the globe with BigTech can be evidenced by the onslaught of probes into their practices. Recently, the European Union and Britain commenced twin antitrust proceedings against Facebook. Both the proceedings have been initiated with the intention of deciphering Facebook’s conduct particularly in the online advertising segment. The Commission seeks to undertake a thorough examination of Facebook’s status in the online advertising and social networking markets and whether it’s behaviour has been antithetical to fair competitive practices.. This brings us to the primary objective of the blog which is to discuss the contested knots of the ongoing proceedings against Facebook by the EU and UK and understand the arguments put forth by the Competition regulators. The authors also intend to unravel the future course of action which may be taken by countries, especially India, as their competition regime matures.

Facebook’s March to Trial

A Peep into Facebook’s Ad-Revenue Model

To understand the peculiar problems in the realm of online advertising services, we must first examine the stakeholders in such a scenario. As per the authors, the stakeholders are the advertisers and the consumers of such product offerings. Any platform that hosts such users acts as both the middleman and the agent tasked with enriching the user experience of the consumer. The platform thus, accumulates invaluable information and consumer attention that is further monetised. The advertisers, ranging from small firms to large conglomerates compete for  consumer attention; and as such, the value that they derive from such platforms is immeasurable; both in terms of their market presence as well as innovation. Towards the user, the platform customizes their experience by displaying personalised advertisements that allow them to peruse different product offerings and maximize the value obtained in consideration of their attention and money.

The next key concept to understand in this regard is Facebook’s method of ad-auctions, a process wherein Facebook assumes the role of an agent of the user. Essentially, the auction is characterized by generation of a ‘total bid’ which denotes the approximate value that an ad being hypothetically displayed to a user can create. As the final determiner, the ads with the highest estimate of the total bid are displayed to the particular user. The key inputs taken from the advertisers in this process are their bid (the amount they are willing to pay for their desired outcome) and their target audience. These serve to create the relevant market for the advertisers where their ad relevance is determined on the basis of estimated action rates and quality. At this juncture it is key to remember that the relevance of an ad is of the utmost importance and consequently rewarded. Per Facebook’s policy, it may choose to subsidize relevant ads and reduce their costs while the advertisers get good results from the same. It is thus, practicable that in an auction, a relevant ad has a higher chance of winning against a higher bid.

Rising Dissatisfaction 

Facebook’s use of data over the past few years has raised eyebrows all over. Recently, its use of data collected from advertisers through its online advertising service has struck the eye of the competition regulators in the UK and EU. A probe has been launched to ascertain the potential abuse of data through its classifieds service- Facebook Marketplace. To explain briefly, Facebook Marketplace is an online platform which allows its users to sell and buy goods from one another. The potential breach in competition is in regard to Facebook’s use of commercially valuable data mined from its advertising service to get a leg up for its marketplace.

In addition, the UK also geared up to put Facebook’s use of data from its single sign-on authentication service under the microscope, and its recently launched product – Facebook Dating, a service available only in select countries. Facebook Dating is being scrutinised for synthesizing data based on user preferences, groups and events attended as well as mutual friends to recommend potential matches. It also allows the use of other Facebook services such as Messenger and Instagram as add-ons to the Dating profile. Recently these dubious practices have come under fire with the European Commission (EC) and the Competition and Markets Authority (CMA) of the UK, for their alleged anti-competitive nature. A peep into the viewpoints of the two competition authorities can be traced on the following lines.

To begin with, the investigation initiated by the EC delved into the online classifieds ad sector. The heart of the investigation lies in the examination of data collected by Facebook via its advertising service from companies who are also its potential competitors. The use of this collected data is being put under the lens by the EC to examine whether it has given an undue advantage to Facebook over its competitors by the use of the same to make Facebook Marketplace the undeniable winner in the market of online classifieds platforms. Through the investigation, the EC would also be digging deeper into the aspect as to whether the manner in which Facebook Marketplace has been embedded into the social network App constitutes a form of tying which gives it an an edge over its competitors in terms of customer reach in the online classified ads services.

The CMA also launched its own probe into the suspected breach of competition law in the digital market space. The CMA’s investigation is aimed at evaluating whether the data collection and usage policies of Facebook in regard to its Social Media or Digital Advertising services can be characterised as an abuse of dominant position constitute the abuse of dominant position. The CMA will be probing through the use of troves of valuable data gathered through its advertising services and the single sign-on authentication feature, (that allows Facebook users to interact with other websites using their Facebook credentials), for Facebook Marketplace and Facebook Dating. This investigation comes as the third of its kind, after the U.K. recently affirmed its pro-competition stance and emphasised the importance of expanding customer choice and allowing competing firms a fighting chance. While the investigations have been initiated independently, both the regulatory bodies have also hinted their intent of working cordially and closely with one another. These regulators now shoulder the responsibility of potentially framing the issues that will evolve legal principles and regimes for the time to come across the globe.

Conclusion

While it is Facebook’s turn to face the music in front of these regulators, the other big tech giants are not too far from their judgement day or in fact have already been dealt with. For instance, France had recently imposed a hefty fine of 220 million Euros on Google Inc. (Google) on grounds of abuse of dominance. The move, unprecedented in nature, was hailed for being the first to examine the algorithmic process used by the tech giant for its online advertising business. Thus, potentially creating an example for the world to follow. In 2019, the EU had also hit Google with a penalty of 1.49 million Euros for its abusive practices in the online advertising segment. The Federal Trade Commission of the USA also prayed for a divestiture of assets and reconstructing the tech giant so as to sell off parts (such as Instagram and WhatsApp) as independent businesses in a suit against Facebook. Given the revenue which is carved out from online commerce by Facebook, it is unlikely that it would give up its engagement in the online advertising segment. Moreover, with the company’s vision being interoperability, i.e., to inflate the time a user spends on one of its platforms, any measures detrimental to the same would be a hard pill to swallow.

The limited scope of remedies available in competition regimes world over will be continuously faced with such calls for reworks and expansions. The imposition of fines while an appropriate penal remedy might not suffice to fulfil the core purpose – deterrence. There needs to be a greater and nuanced sanction available in the event that a redressal is sought. Furthermore, a more radical move such as divestiture of assets exists on the far end of the spectrum and may set innovation back. The juncture at which we are today, the role of competition regulators goes beyond that of an umpire. It is time that the authorities invest time and effort to decipher the vast digital sector rather than instantly assuming themselves to be the governing body only because there exists no alternative.

Furthermore, it has been reported that the Facebook-Google duopoly has been the kingpin in the Indian digital advertising market, occupying 60% of the market share. The Indian advertising industry is driven by self-regulation and is overlooked by a non-statutory body, let alone having a regulator specific to online advertising. These circumstances make it pertinent for India to take proactive measures and bridge the legislative gaps that exist in the Indian regime especially when a boom in the market is projected. India must move in a peremptory fashion rather than wait for market practices and patterns to crystallize. Given the gigantic audience share that India provides for both these players, it is inevitable that India, with her own developing competition jurisprudence must keep a close eye on the investigations world over and pick up the nuances to regulate its own space.

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Contact Us

Kerwa Dam Road., 
National Law Institute University, Bhopal
Madhya Pradesh, India. 462044​.

write to us at – cbcl@nliu.ac.in