Digital Markets, Competition and Consumers Bill (Third sitting)
Thursday 15th June 2023
(10 months, 2 weeks ago)
Public Bill CommitteesDigital Markets, Competition and Consumers Bill 2022-23 View all Digital Markets, Competition and Consumers Bill 2022-23 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 June 2023 - (15 Jun 2023)
The Chair
Good morning. We are sitting in public and the proceedings are being broadcast. We have Mr Ross with us; thank you for your kind attendance. Will you introduce yourself to the Committee for the record, please?
Neil Ross: Yes. My name is Neil Ross. I am associate director for policy at techUK, which is a trade association that represents about 1,000 technology companies that operate in the UK.
Alex Davies-Jones (Pontypridd) (Lab)
Q
Neil Ross: As you rightly said, techUK represents the wide breadth of the tech sector. Our members fall broadly into three categories: the likely strategic market status or SMS firms, which will be regulated; their immediate challengers, which stand to benefit the most from the Bill and which I think you will hear from later; and a third group, the wider tech sector, which sees the benefits of the Bill but is perhaps not engaging as deeply as others.
The Bill sets up a structure and confers on the digital markets unit powers to boost competition in digital markets. The way those powers are set out is sound, but how they are exercised is something that happens after the legislation has passed. Ultimately, whether the Bill results in a positive regime depends on a number of things: how the regime has its priorities set; how it is held accountable by this House and by Government; how proportionate the regime is, in terms of when guidance is consulted on and who is engaged with after the scheme is up and running; and how we ensure that the checks and balances in the regime—such as the appeal standard—work for the Bill.
Alex Davies-Jones
Q
Neil Ross: The key thing that the digital markets unit will have to do is to ensure that it is actually consulting those companies and engaging with them throughout the process. At the moment, the rules for how the digital markets unit will consult are not set out in legislation—the Bill just gives a duty to consult, and subsequently the digital markets unit will issue guidance on how it will do that—but, ultimately, we want to ensure that those companies are involved at pretty much every single stage of the discussion and that they are able to submit evidence privately to engage with the DMU informally. Competition regulation often uses requests for information, which can be quite heavy-handed tools to extract information from firms, but we think that the DMU will have to come up with a much more sophisticated way of doing its stakeholder engagement, which is likely to involve a blend of panels, stakeholder engagement and those RFIs, to make sure that it does not overburden smaller and challenger firms, which will want to feed in but will be cautious about going through the legal mechanisms.
Alex Davies-Jones
Q
Neil Ross: We have seen this throughout the process of consultation on the Bill and in submitting evidence to the Committee. We have found that smaller and challenger firms, which often have very tight commercial relationships with the larger companies and often rely on and benefit from them for scale and various things, are very sensitive about what they can and cannot submit. The Bill says very little about confidentiality requirements, so the DMU will have to set out in a lot of detail how that is going to work. We really encourage it to ensure that it consults those firms closely, to make sure that there are clear guardrails around what confidentiality marks are put on evidence that is submitted, what could be shared in summaries, and so on. That is going to be absolutely critical to make sure that the DMU can actually gather the information it needs to do its job.
The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
Q
Neil Ross: There is a risk of that, so we have put forward a position that aligns with what the Government want, which is an appeal standard that is principally based on judicial review principles, but has the flexibility to consider the different requirements of the case. Both techUK and the Government have pointed to the standard used by Ofcom as one that would be suitable in this case. The issue is that we are not sure that with the way the Government are applying the standard in the Bill, it will actually meet that test. As far as I understand it, the Government have set out a legal position that the appeal standard will be flexible because the Competition Appeal Tribunal will be able to look at human rights law, as well as private property rights, to consider how that standard will flex. We have tested that legal argument very widely with members—in-house legal counsel as well as other lawyers—and, to be blunt, a very limited number of people share that view.
Ultimately, what we want to do is work with the Government to see where we can go further to provide additional clarity on how that appeal standard would work—what the flex would look like. Ultimately, the standard will have to principally sit in JR principles, but have that flex higher up.
The point you made about speed is also hugely important. We set out a position saying we would like to see a standard that makes sure that any appeals are limited to about six months in length, because these are very fast-moving markets. If the standard means that things are bogged down, you know that the market might move on and the benefits might not be conferred across. We understand why hard limits might not be possible as part of the regime, but you could take steps in the Bill to try to encourage the courts to move a bit quicker, especially in more dynamic or high-impact cases.
Kevin Hollinrake
Q
Neil Ross: Yes.
Kevin Hollinrake
Q
Neil Ross: It is a concern that has been raised. There is nothing in the legislation that would mean that that was what happened. It is going to rely much more on how the digital markets unit itself exercises its powers. I think that if we can make sure that the regime is proportionate, is accountable to Parliament and has a pro-innovation focus, we can get over that. But it could happen. It is just that it is much more dependent on the subsequent guidance and the role that the DMU itself plays.
Kevin Hollinrake
Q
Neil Ross: If the digital markets unit, as I think the Government and the CMA intend, is focusing on a small number of firms with very significant market share in a select number of markets, then yes, that will be the case. However, some concerns have been brought by other companies, which are perhaps leading in their market but would not consider themselves as having a strategic position or causing serious consumer harms and which look at the Bill and think, “At its widest possible scope, I could be included.” That is why we have to make sure that, in exercising the powers, the regime is being held to account.
The Chair
Mr Ross, we will now have a quickfire round, because we have you for only another five minutes and there are three Members seeking to ask questions. It will be one question each and one answer each.
Jerome Mayhew (Broadland) (Con)
Q
Neil Ross: We put out a position paper ahead of the Bill being published and we did not argue in favour of full merits; we argued in favour of what is often referred to as a judicial review-plus system, which is a blended system that gives a bit more flexibility for the CAT to decide what factors to take into account.
Jerome Mayhew
Q
Neil Ross: I am not 100% sure of exactly how it would work in practice. We are just reporting back that what our members are really keen to see happen is that they move forward at speed. There is a lot of debate about exactly how you speed up that process, and we are pretty open to what solutions might be brought forward.
Jerome Mayhew
Q
Neil Ross: Yes, absolutely.
Jerome Mayhew
Q
Neil Ross: I think there is a balance to be struck depending on what the case is and what is being discussed. Ultimately, the aim would be speed and flexibility. There are going to be trade-offs between the two, depending on what is happening. We want to give the CAT as much discretion as it needs to make that judgment, depending on what is being put before it. Because this regime has enormously flexible and very invasive powers at the upper end, we do not know exactly what kind of cases are likely to be brought forward or discussed. That is why we will want that focus on flexibility as well as speed.
Andy Carter (Warrington South) (Con)
Q
Neil Ross: Yes. Sorry to repeat points I have made before. I think it depends on exactly how the DMU exercises the power. They have to look ahead five years when making an SMS designation, which puts a lot of pressure on the digital markets unit to make an assessment about how a market is going to be used.
Andy Carter
Q
Neil Ross: It is as much as five years; it could be longer. It is really how the digital markets unit looks at that. Companies in the broader sector would be given a lot of certainty if the DMU came out fairly early on and set up a priority list of where it is likely to look first. There is quite a good precedent in the Communications Act 2003 of the reporting powers conferred on Ofcom. I know the CMA has some reporting capabilities, but given the wide-reaching powers of the Bill, it might make sense to also think about applying the same standards to the digital markets unit.
Vicky Ford (Chelmsford) (Con)
Q
Neil Ross: With this Parliament, the CMA is here quite a lot and so are the other regulators, so there is regular scrutiny of the regulators themselves. As the various different Bills go forward, whether that is the Online Safety Bill, the Digital Markets, Competition and Consumers Bill or the Data Protection and Digital Information (No. 2) Bill, we might have to think again about exactly how we are scrutinising those interrelated bits of digital regulation. That is a decision for this House and how you want a change of structures. It would be important to make sure—
Vicky Ford
Q
Neil Ross: That is certainly one example to look at. I know a number of people in this House are actively thinking about that, given the loss of those Committees following the referendum.
Vicky Ford
Q
Neil Ross: Not really. I do not think we would necessarily go so far as to advise Parliament on how to set up a Committee structure.
Vicky Ford
Q
Neil Ross: They certainly do, and we can get back to you on that if that is something you wanted in more detail.
The Chair
Mr Ross, you have been a complete star. Thank you very much indeed for your time.
Examination of Witnesses
Gene Burrus and Tom Smith gave evidence
The Chair
We move on to the next panel. Gene Burrus is coming in by Zoom. Tom Smith is in the room with us. Mr Burrus, please introduce yourself to the Committee briefly.
Gene Burrus: My name is Gene Burrus and I am here on behalf of the Coalition for App Fairness, which is a coalition of mobile app developers numbering over 70 at this point, from the UK, the US, the EU and around the world. I have been a competition lawyer for 30 years and have worked for the last two decades in dominant digital platforms, with time at Microsoft, Spotify and now in private practice.
The Chair
You sound dangerously overqualified. Mr Smith.
Tom Smith: I am a competition lawyer and have been for 17 years. I most recently spent seven years as legal director at the CMA, including working on the digital markets taskforce that recommended these proposals. Two years ago, I went into private practice and launched the London office of a competition boutique firm called Geradin Partners. I advise a lot of companies on competition and digital regulation.
Alex Davies-Jones
Q
Gene Burrus: If properly enforced, I think this Bill will break the distribution monopoly that currently exists with respect to mobile devices. Currently, app developers have no choice but to use the existing app stores of the dominant firms, Apple and Google, if they want to get their products to consumers. This Bill holds the promise that that monopoly will be broken, so that if the fees are too high in any given instance or for a particular developer, they will have other options and other ways to get their products to consumers. We think it is a great step forward. It is a problem that has been recognised around the world and various approaches have been tried to get at that problem. This gives the DMU the flexibility to both develop bespoke solutions to this problem, as well as the ability to future-proof what is going on, which will take us a great deal forward on avoiding that specific problem and, I think, the broader problems that come with the distribution monopoly that exists.
Alex Davies-Jones
Q
Tom Smith: From my point of view, the Bill is very well drafted indeed. It gets it exactly right; I think a lot of careful thought has gone into it. It is really a very modest approach. The CMA cannot do anything at all unless it can prove its case to a high standard, which can withstand the appeals in court, but the Bill gives the CMA the right amount of discretion. There is a list of categories, for example, in clause 20, which gives it enough discretion without giving it unbounded discretion to roam over the strategic market status firms’ wider groups, for example.
Alex Davies-Jones
Q
Tom Smith: It is a concern with existing competition law, and that is why this Bill is needed. The Bill as currently drafted is exactly right. For example, the judicial review standard is the right one. It is the well-established standard for UK regulators. It is the standard used for the CMA’s market investigations, for example, which has the exact same legal test as the pro-competitive interventions under this Bill. It would be quite strange to have a different standard. By definition, one party may not like the outcome of a given decision, but everyone benefits if there is a prompt outcome, because everyone can get on with running their businesses rather than fighting in court.
The best example of fighting in court forever is the Google Shopping case in Brussels. That was started by a complaint from a UK company, Foundem, back in 2009. Unbelievably, it is still going through the courts now. Foundem has long since stopped operating, so whatever the outcome in the courts, it is not really going to benefit them. This Bill will enable the DMU to intervene before harm materialises, so that businesses do not go out of business so quickly.
Alex Davies-Jones
Q
Gene Burrus: I think the opposite is actually true. We will see immediate benefits in terms of costs to consumers, when the taxes that the dominant players are able to extract are eliminated. We will see immediate benefits in terms of innovations and features that can appear in apps that right now are being prohibited by the dominant platforms. Those things can appear immediately.
Longer term, too, the opportunity to truly unleash innovation on mobile devices is key. We are in a place in history much like we were in the late 1990s when one company owned access to the internet. As mobile devices have taken over as the way consumers access the internet, we are now in a similar position where two firms manage access to the internet. Just as intervention with Microsoft 25 years ago led to the explosion of firms just like Apple and Google that could reliably build their businesses on PC computers, we will see firms able to reliably build their businesses on mobile devices. The long-term unleashing of innovation will be key here.
Kevin Hollinrake
Q
Gene Burrus: I am not sure that those concerns are really valid. There is a consultation process in place. I agree with the prior witness that it is important for third-party input to be part of that process with the DMU, so it can fully understand what it is implementing and the ways in which it is doing that. We have seen problems emerge in the past in competition law cases with respect to trying to craft orders without sufficient input from industry, and those have fallen on the rocks as being ineffective or unwise. We saw that, for instance, when the European Commission attempted to settle cases with Google long ago. They would reach a settlement, then finally market test that settlement that they thought was great, and industry would pan it. I think that is why, with sufficient third-party input into the process with the DMU, those concerns can be addressed
Kevin Hollinrake
Q
Gene Burrus: Quite the opposite. I think it will drive their innovation as well. Right now they are in a position where they are not often faced with competitive constraints with respect to innovating on things such as the privacy and security of their app stores and features that they need to put out. Or, when they self-reference their own products, sometimes that means that they do not have to make the best product; they just have to make the product that they can ensure users will get whether they want it or not.
The Bill will not only unleash innovation for third parties, but force the SMS firms to innovate more in order to keep up. I think history proves that is true. I will go back again to that point in time 25 years ago. Even with all the constraints that were put on Microsoft, nothing has prevented it from innovating. In fact, Microsoft is still a great innovative company today.
Kevin Hollinrake
Q
Tom Smith: May I add something quickly on the JR-plus proposal? I think it is strange to come up with a whole new appeal standard when we have perfectly good ones already. Also, the JR-plus standard came in, as far as I understand it, to comply with an EU telecoms directive. It is strange in this period in our country’s history to start putting that standard in place again. The direction of travel is in fact the opposite—to go from merits to JR—and another place in the Bill actually does that. It is the same for Ofcom; that went from merits to JR in the Digital Economy Act. I really do not see the JR-plus standard working.
Also, it is all very well putting a deadline on an appeal, but you need to explain how you will complete the process in that time. It will not work if you just put a deadline on it, then expect everyone to do 18 months’ work in six months. I think you need to explain how on earth that would work, because I do not see it working.
Andy Carter
Q
Gene Burrus: I think that ignores and rewrites the history of how these platforms got to be as powerful as they are today. If you go back in time to 2008, for example, when there was intense competition among mobile platforms to be your phone, right? There were dozens of firms that you barely know exist any more, like Blackberry, like Nokia, like Microsoft. There were lots of firms competing in that space. And the game then was actually to be as attractive as possible to developers, to the point where those platforms were paying developers to be on their platform, because they were going to recoup that investment through the sale—in Apple’s case—of very expensive mobile devices. And that is where they have recouped—handsomely recouped. It is probably the best business in human history, actually. It is only after they gained a degree of market power that they then began to use that power to try to flip the game and try to extract. Once they had developers in a place where they could not leave, that is when they attempted to go and extract those rents from developers.
I think that argument is a false argument. Apple has recouped its investment in these markets through the sale of very expensive hardware, and Google has recouped its investment in Android through billions and billions of dollars in ad revenue that it has continued to generate. The recoupment argument is a false one, I think.
Andy Carter
Q
Gene Burrus: Yes. I think the reason we are at this place today in the UK and why the European Union has come to a place in seeking to ex ante regulate these markets, and why even the US is considering it, although unfortunately quite slowly, is because of the speed that these markets move and the reality we have experienced in the past that often the competition cases against these dominant digital firms end up being an archaeological dig for the dead bodies and bones of the companies that did not survive long enough to see the outcome of the cases.
It is also the case that continuing to flout the law is extremely profitable for these dominant digital platforms; there almost is not an ex post fine that is large enough to deter them from engaging in the conduct going forward. The ability to find a way to quickly impose the codes of conduct means that, first, it is of benefit to the companies that are actually being harmed today and, secondly, tit will bring certainty to the market in a way that allows firms to reliably make investments based on those codes of conduct, instead of where we are today, where there are probably lots of firms that are declining even to start on mobile devices today because they know that they might not be able to recoup their investment, even though they have great innovative ideas for products that they know people would love. They also know that, absent action, it is likely that all of their investments might eventually just flow to the dominant players.
Andy Carter
Q
Tom Smith: I think a lot of major economies are in the same place and moving forward in the same direction anyway. There are rulings against Google in India. There is app store legislation already in force in Korea. The Netherlands has a ruling against Apple’s app store. Australia is proposing a very similar regime to this one. There are lots of proposals, obviously, in America. Germany already has its regime in place and in force, as does the EU. There is a major benefit to all the major economies moving forward together because these are global issues.
As for deterring investment, I would say that monopolies do not stimulate innovation, competition does. That is the whole point of the Bill—to open up competition and get rid of artificial restrictions. When Apple bans alternative app stores on its devices, it is just holding the market to itself. If the DMU removes that ban, new app stores can come in and innovate. Maybe they will offer a better service than Apple; maybe they will not, and people can stick with Apple and Apple can make lots of money. That is great if it has a better product, but currently it is not being challenged.
Vicky Ford
Q
Gene Burrus: The problem bothering a great number of our members is the forcing of the use of an in-app payment system that comes along with a 30% tax on any apps that sell what are called “digital goods” from within their app. If it is a digital subscription for a gaming app, for a news app or for music streaming, that comes along with a 30% charge. Those digital platforms did not contribute anything to those products; they simply take it off the top.
Ten years ago, the game was the opposite. People were actually paying those developers to come on to the platforms. To some degree, it has been a bit of a bait and switch for these platforms. When they were facing competition, they had one business model and, once they achieved dominance, they altered their business model to try to extract those rents. Making the bet with that 30% is probably one of the best examples of that.
Vicky Ford
Q
Gene Burrus: In 2008, it was zero, and the 30% probably came in about 2012. Once the markets settled down and it was clear that there were two phone platforms to be had, that is when Apple began to try to extract that.
Tom Smith: We focus on the app store stuff, but there is potential at other SMS firms. There are a lot of allegations about Amazon’s fees going up over time for small sellers, for example, and them being pushed into buying Amazon’s logistics operations, which are said to be expensive. The DMU can go and investigate whether they are expensive and whether they should be freed up to competition more. The CMA published a very good market study report on Google’s advertising businesses. It was 2,000 pages long and detailed the excessive profits made. Google charges 30% to 40% more than Bing to reach the exact same eyeballs. Those prices are going up.
Jerome Mayhew
Q
Tom Smith: You may have seen yesterday that the European Commission is threatening to break up Google in the ad-tech business. The European Commission is formally alleging that Google is abusing its dominant position in ad tech. That is on the display side of the business. On the search side, Google has a 90%-plus market share in this country. It is a must-have product, and people are buying that product. There are lots of allegations about why it should be able to sustain such prices, but I do not want to make an unfounded allegation.
Kevin Hollinrake
Q
Tom Smith: No, I do not think so. In fact, one of the problems with subscriptions that are operated through mobile devices is that Apple inserts itself and Google inserts itself in between the developer and the customer. If you are a British person who subscribes to an app and then something goes wrong or you want to cancel your subscription, quite naturally you might want to contact the developer, such as Tinder or whatever other developer—you are talking to Mr Buse later. At that point the developer has to say, “I’m terribly sorry; you might think you are dealing with us, but you have a contract with Apple,” and that is a major source of complaints. It is pretty confusing for consumers.
Kevin Hollinrake
Q
Tom Smith: No, it is nowhere in the legislation. The idea that the CMA wants to stop SMS firms innovating is not based in any evidence that I can see anywhere. There is a leveraging principle in clause 20, which is extremely narrowly written and I think should be made slightly wider, but that is the only thing that could touch a non-SMS activity.
The Chair
I thank our witnesses for their evidence. If there are no further questions, we will move on to the next panel.
Examination of Witnesses
Tom Fish, Richard Stables and Mark Buse gave evidence.
The Chair
We will now hear oral evidence from Tom Fish, head of public policy and research at Gener8; Richard Stables, CEO of Kelkoo; and Mark Buse, senior vice president for global government relations and policy at the Match Group. Will you introduce yourselves for the record, please?
Mark Buse: I am Mark Buse, SVP for global Government affairs and policy at Match Group.
Richard Stables: I am Richard Stables, CEO of Kelkoo Group. I have been with Kelkoo for 14 years.
Tom Fish: I am Tom Fish, head of public policy and research at Gener8.
Alex Davies-Jones
Q
Richard Stables: I can jump in. Just to give you a little bit of background, Kelkoo was a shopping price comparison site—an internet darling. It started in ’99 and grew to be probably the most popular shopping comparison site in Europe, especially in the UK. Our industry and our company was decimated by the actions of Google, who decided to put themselves at the top of Google and remove the likes of us from the listings and put us on page 10 or page 20, which is pretty much in the wilderness. Why do you care? There are two big reasons. If you are a consumer, you want to see prices, and you want to see prices of lots of goods from lots of merchants.
I am a tennis player, and I want to buy a tennis racket. I am interested in what the cheapest tennis racket is, because I know that I am going to buy a Babolat or a HEAD racket. I want to see 30 to 40 merchants side-by-side, and I want to look at availability, brand and price. If I cannot see that, I am being hurt. I am not seeing the best price. With Google at the moment, you see 10 or 12 merchants. You do not see the entire industry. You can scroll to the right and see more, but what you see are the merchants that can afford to be on Google and pay the most to be in there at the top left. That is reason No. 1: you are seeing less prices.
As for the second, Google has created a complete monopoly on traffic. If I am a merchant or retailer, the only place I am going to get traffic from digitally is through Google. If I am only getting it from one place, I am basically in a monopoly. As we know, with a monopoly you are paying probably 25% to 30% more for the prices. What if I am a retailer in a cut-throat situation? What am I going to do with that price? I am going to pass it on to the likes of you and I. We are all paying a much higher mark-up to pay Google’s execs and Google for the massive amounts of money they extract from the UK economy. That is how consumers are hurt by not having proper competition in digital markets.
Alex Davies-Jones
Q
Richard Stables: I think the Bill is well written, well founded and I would not change it. The abuse started way back—according to the Commission’s shopping decision, in 2008. The first complaint came in 2009. It came from a company that we now own, Ciao, which has now disappeared, along with LeGuide, which is now part of our company. We basically have been in a fight with Google since 2010, when the investigation started with the Commission. In 2017, it made a decision and fined Google £2.4 billion. We are still in legal uncertainty, because Google has gone to a court of first instance and lost and has now gone to the European Court of Justice. That is why a merits appeal is absolutely loved by big tech. They want to delay, delay, delay—to kick the can down the road.
If there is one thing I would say to you guys today, it would be: do not move from JR. If you move from JR, you might as well go home. For businesses like mine, if we had had the Bill 10 or 12 years ago, the CMA could have looked at what happened and said, “You know what, we will do this in an ex ante fashion. We think there is a problem here. We will go and investigate. We know there is an issue, so let’s change it.” We have been going for 13 and a half years and we still do not have legal certainty because of the problem with ex post. That is the problem with antitrust regulation in digital, where markets move so quickly, so you are absolutely right. There will be a really vibrant market for price comparison today, but it would have been great for consumers if we had this legislation 10 or 15 years ago.
Alex Davies-Jones
Q
Richard Stables: I think it is long overdue. Governments in America, Europe and the UK have, frankly, been asleep at the wheel for the last 20 years in terms of big tech. There is a worldwide movement, and everybody recognises that there is a huge problem. They realise that you need ex ante regulation in digital. You have the Digital Markets Act in Europe, and this Bill is well founded, well thought through. From discussions I have had, it seems to be really well supported from both sides of the House. I implore you guys to pass it quickly.
Alex Davies-Jones
Q
Mark Buse: We believe the Bill has the flexibility to be future-proofed. When we look at how our users access our services, it is almost exclusively via an app. Desktop has no role. You can use our products, such as Tinder, cheaper if you go to the website and download it, but nobody does. The user behaviour is that they all use apps. Our fastest growing brand in the UK is called Hinge; Hinge does not even have a website. It was not worth the time or money to build one, because nobody uses it.
When I say nobody, I mean that less than 1% of Tinder’s users go to the website. That is also partially because Apple and Google have restrictions that they impose on us contractually. They do not allow us to tell our users that they can subscribe cheaper if they go to the website. In an ideal world—we think the Bill will go a long way in creating an open market—somebody who wants to subscribe to our product will have those options right there in front of them. They will be able to subscribe using our service, PayPal, or whatever else is available, and get it cheaper.
Apple, Google or big tech say, “This is all a myth. You are not going to have cheaper products”. Match has stated emphatically and publicly that we will drop our prices if we do not have to pay an artificially imposed 30%, which is what occurs today. We will drop our prices. We have also pledged that we will put more money into research and development, the hiring of employees and online safety, which we believe is crucial. By the way, the monopoly power that both Apple and Google exert over the store hinders online safety. That also has a negative pejorative impact on consumers today.
The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)
Q
Mark Buse: Sure. There are a couple of issues when we look at safety. One is keeping bad actors off our platforms—for example, entities or individuals who intend to do harm. Another is under-age users; they do not intend any harm, but our platform is limited to 18 and over only. We do not allow people under the age of 18. We do not want them there and our users do not want them there. In both cases, we have a limited pot of data to try to assess whether somebody is a bad actor or under age. There is a lot of data that exists that could inform us about that. I am going to use this little device—my phone—when I fly home on Saturday as my boarding pass. I am going to pay my bills on it. I am incentivised to put truthful information into my phone, which is the most powerful computer that most people own. I use it for a multitude of services.
For us, 98% of our revenue is from subscriptions; ads have virtually no impact. When you look at our companies, when somebody subscribes to Tinder, we do not know who they are, because they do not actually have a subscription with us. That also has a pejorative consumer impact. Consumers cancel their subscriptions for perfectly good reasons, such as, “I have a three-month Tinder subscription and I met the love of my life. Neither of us want me on Tinder any more, so I am cancelling my subscription”.
As the consumer, I go to Tinder and say, “I have a Tinder subscription that I want to cancel. Tinder, cancel it”. We have to inform them, “You don’t actually have a subscription with us. You have a subscription with Apple or Google”, who artificially put themselves in the middle of this situation because they can—because they have a monopoly and they can demand and force it. As a result, they know who I am. They have my credit card and real address—all those identifiers that we could use at Match to keep a bad actor off our platform.
This Bill would change all that dynamic. The positive impacts, as I say, go much further than just increased competition; they go directly to lower prices and increased online safety.
Paul Scully
Q
Tom Fish: Absolutely. Before I dive in at the deep end, it is worth recognising that these big tech companies play an essential stewardship role within their ecosystems, but the flipside of that is they are operating as the de facto regulator for millions of businesses up and down the country in a whole range of important public policy areas, including advertising standards, consumer protection and data protection. One thing we know is that the commercial incentives of these companies are not perfectly aligned with the optimal outcomes that we would hope to see in those areas, regardless of how hard they say they are trying. In many cases, they are operating as the rule maker, the referee and the player in that game. As a result, there are, of course, conflicts of interest. It is undeniable that some degree of growing oversight and scrutiny will be needed if participants like us in those markets are to believe that there is a level playing field and that they will get a fair crack of the whip.
When it comes to the challenges that Gener8 is facing, we struggle with unpredictable and opaque review processes. We miss out on a potential revenue stream for our browser as a consequence of Google’s dominance in search. We lose users of our browser in Windows because Microsoft disrespects our users’ choices. We suffer from surprisingly confusing and random rejections of our ad campaigns by Meta, which makes planning our user growth and acquisition strategy impossible. We observe insurmountable barriers to entry in the mobile browser market, leading to us putting development of that product on ice. When it comes to data and your question, we face unnecessary friction at every turn as we try to access our users’ data on their behalf and earn money on it for them.
Collectively, these issues cause real harm to our business—they have consequences. We face increased costs and we divert resources away from product development to fight these fires. Missing out on revenue means our users missing out on gift cards and charity donations. It makes us a less attractive investment proposition. We have a drag placed on our ability to attract and then retain new users. Most alarmingly, in my opinion, is the way I have been witnessing it filtering through into internal discussions and thinking about what we should invest in and which innovations we should bring forward to market. From our perspective, the Bills urgently need to establish this regime and address these issues.
Paul Scully
Q
Tom Fish: Gener8 is a personal information management service. Essentially what we do is we enable our users to access their data from third-party services, bring it into the app and visualise it. If they want to, they can choose to earn from it, and we then put that data to work for them, just like a bank does with people’s monthly income. The crux of this issue is we need to be able to act as an agent for our users and to access that data. Unless that is possible in a streamlined, efficient way, users quickly get turned off. What we need is really for the companies that are hoovering up all this data to enable the data owners—the consumers—to be able to access it, and then ultimately share in its value.
Paul Scully
Q
Tom Fish: That is right. I think the excess profits of these companies, year after year, is an illustration that consumers are not necessarily getting a fair deal, even though it might look like it.
Paul Scully
Q
Tom Fish: Exactly. He was being pitched to on the basis of these companies having astronomical levels of granularity and detail about what people are up to online. That is filtering through in the advertising market to vast profits. He had the idea that people should be able to take a share of that value themselves.
Paul Scully
Q
Tom Fish: That is right.
Anna Firth
Q
Tom Fish: Shall I answer quickly and then pass over? I looked it up, and in Southend-on-Sea there are 372 active Gener8 users. At the micro level, they stand to benefit from Gener8 bringing forward new features more quickly, earning more revenue more quickly, and they will quickly start to earn more value from their data themselves.
Zooming out from Southend-on-Sea and Gener8 and looking at the big picture, all these excess profits in the advertising sector filter through into the prices people pay for all goods and services across the economy, whether that is hotels, flights or insurance. They miss out on choice and potential quality that is banned by big tech, but really the biggest issue here is innovation. It is those innovations that we do not know about that never make it through to disrupt the status quo—the unknown unknowns—which are the greatest value consumers are missing out on.
Richard Stables: You have probably read George Orwell; you have probably read “1984”. Later on today, you will hear some “1984”-type speak, because they will sit in front of you and they will say, “This Bill is going to hurt innovation. This Bill is going to hurt investment in the UK.” Basically, listen to what they say and think the complete opposite, because I can tell you now that if you are a businessman or businessperson trying to invest today in digital, your No. 1 question is, “How am I going to get keeled over by big tech?” If I am going to be keeled over, I am not going to invest in it. Why would you? It makes absolutely no sense.
By creating level playing fields, you will do the absolute opposite of what they are saying. You will get investment in the UK. People will look at the UK and say, “That is a place I want to be, because I know that I have got a level playing field against big tech, therefore I will invest in it,” so you get investment. What happens with investment? Innovation. Innovation comes from well-functioning markets.
Another myth you will get today is on security, or privacy, or China, or AI. If you look at what has happened in America when they tried to bring this type of legislation, big tech went out on the biggest expenditure—bigger than they did on even Medicaid, from big pharma—trying to rubbish the Bills. They said, “Amazon Prime will stop working. Google Maps will stop working”, but that is complete baloney; it is the opposite. None of that is going on.
For your constituency, you should be thinking, “We get lower prices, investment into the UK—why the hell weren’t we doing this 10 or 20 years ago?” Why have we got only five big huge titans running the internet today? Because we have not regulated them. These are winner-takes-all markets, and they have taken their power in one market to go and gobble up the rest.
Mark Buse: Let me put some real-world facts around what my colleague here is saying. Match has been very consistent when we have said, “We will invest in markets in countries where the regulatory regime encourages competition.” So we were very active working with the Korean National Assembly to make the law pass there that broke open the app store. The law said people could have alternative payments. We then moved employees out of Japan and into Korea. Now, as they were testifying, my friends over on the big tech side of the world, said, “No, people aren’t going to move,” or, “It’s going to stifle innovation,” but others said, “Well, Match did.” They say, “No, that’s not true.” I say, “Yes, we moved employees. We absolutely did.”
When we look at marketplaces, we want to operate and headquarter in marketplaces that allow maximum innovation, flexibility and competition. What we want on our product is what you see today on Uber. You can open up Uber and choose to pay in 10 different ways; if you open up our products, you can pay one way and one way only—that is by using Apple or Google, and they take their 30%. That is the first point.
The second point is that, when you are a start-up, you are just creating the next new, great product. If you have to look at that and say, “Wait a minute! The moment I go in, I have to start paying 30%,” that changes the economics.
To make another, fine point about how fast things move, Tinder is the largest online dating app in the world, with 3.5 billion swipes a day. Tinder is 10 years old—10! That is nothing in the real world. Tinder was invented at a hackathon. If the UK creates this marketplace, all of a sudden you will see everyone flowing into it. Match would view this—absolutely, and we are happy to state this publicly—as a huge opportunity to put jobs and potentially even broad decision-making and corporate authority into a marketplace where we do not have to have our relationship with our users dictated by a couple of select big-tech companies.
Anna Firth
Q
Mark Buse: I think there are unintended consequences in every piece of legislation, some of which are impossible to anticipate, but what the UK is doing with the Bill you are considering is unique, in that it gives flexibility to the CMA to adjust and adapt. Recently, Google submitted its proposal or response to the CMA, in which it said, okay, it could do a 26% fee, which we would have to pay instead of 30%, and that there could be some flexibility so a company like Match could put an alternative payment provider in. The CMA accepted Google’s proposal because it had no authority to demand anything more from Google.
Make no mistake: 26% is a specific number chosen by Google and Apple, and they have done this in Korea and the Netherlands. They know that if we are paying a 26% commission—originally, it was called an “in-app payment fee”; now it’s a commission—and then pay to have payments processed and handled, we will be paying over 30%. What developer is going to want to choose the option that is going to cost them more money? Nobody will.
This kind of flexibility means that you do not end up in a world where you have these companies who have all the data and all the ability to come up with what are essentially programmatic solutions that are not solutions. I think that that whole dynamic is encapsulated in this flexibility in the Bill, designed to avoid unintended consequences.
Richard Stables: My unintended consequences? More jobs for the UK, more investment and the UK maybe becoming a leading digital place to be. That may be unintended—[Laughter.]
Tom Fish: A lot has been said about the fact that it has taken quite a long time to get this legislation to this point. Well, I guess that an unintended consequence of that is that it has given people a lot of time to think about these issues and to think through the design very carefully. So, actually, I cannot say that I think there are any obvious unintended negative consequences. Ultimately, a lot of the nature of the impacts will be determined by the individual decisions that the CMA makes. I think it has shown itself in recent years to be very adept at assessing the full range of potential pros and cons of the decisions it makes.
Mary Kelly Foy
Q
Richard Stables: The biggest spender in the US on lobbying—they have to make this public—is Google. They spend millions. You must have heard what happened in the European Commission. There was a whole programme they were going to do in terms of trying to lobby on the Digital Markets Act, but it became public and it backfired massively. The Commission said, “Oh, we’re not going to speak to any of you in that sort of forum; we’re going to do it in a very clear fashion.”
I see this a lot, because I have been fighting this a long time. You will see institutions, education bodies and units that have been put up and that are sponsored by big tech. You will listen to what they are saying, and you are going, “Where did you get that from?” They go, “Oh, we’ve done all this research and evidence,” but it’s baloney. You get underneath it, and you are like, “That is not based on facts. That is based on you basically touting what they want you to tout.”
So, yes, I would be really suspicious of what these companies have to say. They have been on the biggest gravy train in history; they do not want to get off it. So they will say whatever it takes to try and obfuscate and persuade and stop this type of activity happening, because they know that the game is up.
Mark Buse: By publicly available numbers, and we obviously believe that the spending far outpaces that, Google, Apple, Microsoft and Amazon have spent well in excess of $300 million in the last two years on advertising alone against anti-trust change. They have spent another huge amount of money on direct lobbying, as well as on public relations efforts and so on around these issues, in the context of the US alone. They have been very strong on that and I do think, as somebody who used to work in Congress, that it has proven effective in slowing anything from occurring in the US.
As was said, if you have an assured pot of income coming in—if you are Apple and Google, in the store—every day that you can keep your walled garden intact is a good day, because even if the Bill passes tomorrow, companies like us are going to have to convince users to try something different. We believe we can drive users to alternatives by lowering price, and there are a lot of dynamics around that. However, in many cases, it is still going to be difficult to pull users out of that walled-off system that has been created.
Richard Stables: To add to what Mark has just said, when they were trying to pass the legislation in the US, there was one month where these companies spent $30 million on TV advertising. They specifically went to a couple of places where there were either Senate or congressional races happening and said exactly what I said earlier, which was, “Amazon Prime will stop working and your Google Maps will stop working.” It is just madness. I remember speaking to Senators and Congressmen, explaining to them that that is just rubbish and asking them to look at what is happening with the DMA in Europe. Amazon has not switched off its Amazon Prime and is never going to, and Google Maps works fine. They will do whatever it takes. I do not think they will try that in the UK, because they have recognised that parliamentarians are—well, they will not. I will not fill that; you can answer that yourselves. But they will try other, subtle things, and the most subtle one of all is innovation and investment. It is the absolute opposite of what they say.
Mary Kelly Foy
Q
Tom Fish: You certainly cannot blame the companies for wanting to put their points across to politicians who are potentially radically transforming their markets. I certainly echo the point about being wary of supposed bodies that represent small businesses in these areas. If you receive views from those types of organisation, think carefully about who they are really speaking for.
The one thing I would add is that knowing that those big companies will be lobbying hard is why companies such as Gener8 and others are willing to take the risk to speak out publicly and share our experience, because it is just so important that you hear both sides of the argument.
Kevin Hollinrake
Q
You are a very successful company. You own plenty of brands—Plenty Of Fish, as well as Tinder and the like. What do you make of the argument that, actually, far from inhibiting investment, these companies have encouraged investment by giving you a platform that can access lots of customers around the world?
Mark Buse: We do not deny, first, that what they have created is revolutionary and, secondly, that they should be paid for their intellectual property and their ongoing work. We have always stated that we support their ability to recoup and to profit off of this. There is no issue on that for Match. What causes us so much concern is that they make their decisions arbitrarily in a black box, with no transparency.
If you look at Tinder’s algorithm and Uber’s algorithm, they operate, at the base level, almost identically. We connect two strangers in real time for the purpose of a date. Uber connects two strangers in real time for the purpose of a ride. Uber does not own the car and it does not employ the driver; we encourage you to use an Uber, to not meet somebody in a dark alley in their car. Essentially, it works the same. Yet, on Uber, Uber pays nothing. We and our users have to only use Apple or Google and have to pay 30%. So there is a fundamental problem here.
Some of that is just due to a historical anomaly back when there was a competitive marketplace, but that competitive marketplace no longer exists. Again, we think this Bill gives flexibility, in that it does not have the CMA declare these companies as regulated utilities. Recently, a Minister in the Netherlands said that he believes Apple and Google should be treated like regulated utilities, such as a bank. That is not for me to decide; it is up to parliamentarians to decide. We would have concerns about that, just for precedent, but we think this Bill balances that and creates a flexible marketplace where, as long as Apple and Google are treating entities in a fair and transparent manner, they are entitled to earn profit.
Kevin Hollinrake
Q
Mark Buse: Absolutely. It has hampered it in an actual way, in that 30% of the money we should bring in goes to Apple and Google. To put it into context, we do a little over $3 billion a year in revenue. Last year we paid Apple and Google around $700 million, which we could be investing in employees, research and lowering prices. The question is, $700 million for what? What are we paying for? Are we subsidising Uber? We would say yes, in fact we are. What do our users get from that? To show you how the stores recognise the value, Apple buys ads within the app store search for Tinder. We do not buy ads for Tinder; Apple buys ads for Tinder. You might ask why. It is because Apple knows that the average user of an online dating product will have four or five different dating apps on their phone—us and all our competitors—and will bounce back and forth between them all non-stop. That is just the way the user behaviour is. Once you meet somebody, you do not use any of them, so it is a high-churn business.
With Tinder being the most well-known brand, Apple knows that if it can convince a 19-year-old to open a Tinder account, that 19-year-old will also then open a Bumble account, an OkCupid account, a Grindr account or whatever. Apple knows that they are going to start subscribing to all of them, so that is all free money. The system is already built. Uber is using it, Walmart is using it and Tesco is using it, but 16% of the companies are paying the extra 30%, which is subsidising all of this and enriching Google and Apple’s profits, so there are issues there.
The Chair
Minister Scully, do you want to come in on any of the points that have been made?
Paul Scully
Q
Tom Fish: I certainly am aware that other companies I have spoken to are reluctant to speak out publicly about the issues they face and the concerns they have. They are concerned about the risk that they might be penalised in the search engine, the app store or the marketplace. I will not name them, naturally, but those concerns are real. From my perspective, there is no choice. Unless this Bill is introduced, and the regime comes through and starts to address these issues, we will not be able to reach out for potential and the markets that we want to operate in will not be open and accessible. From our perspective, there is really no choice but to take this step.
Paul Scully
Q
Tom Fish: Exactly.
Richard Stables: I could give a bit of colour to that. When we started being hit by Google, we thought that it was just us. Eventually we realised that the whole market was suffering. We started talking to the commission. We were absolutely paranoid. We said, “Don’t tell Google because we think we might get the traffic back. If they know that we’re talking to you, that’s going to hurt us.” Eventually, they hurt us so much that it did not matter. I have spoken to so many firms—big firms as well as small firms—that have turned around and said, “We’re really glad about what you’re doing. I can’t come out and say this.” The power that these companies have is phenomenal. Companies can literally be put out of business overnight if one of these companies decides that that is what is going to happen.
Mark Buse: They believe in retribution. When we tried to offer Korean citizens in Korea a discounted price, Apple, instead of rejecting our app build, put every app build on hold. If you are not familiar with the concept of a build, it is where you update and change your app. You always get messages on your phone saying, “You need to update.” For 35 days, Apple froze every app build for every brand that we have that operates anywhere around the globe. We were unable to bring new products out, but more importantly we had bug fixes in all those builds. We have white-hat hackers: people we pay to show us what is wrong. We learned bug fixes internally. There were people who could not use the product right.
All those bug fixes sat on hold, so for UK citizens using our products, with no connection to Korea, those fixes did not take place for 35 days because Apple refused to let us move any builds. When we withdrew the build that would have given us the right to use alternative payment authorities, Apple then approved everything within 72 hours.
Tom Fish: On that point, it is important not always to get drawn into a polarised debate on these issues. It is not necessarily black and white—that big tech is good or evil. You can be a supporter of the Bill and the new regime without wanting to break up big tech. All that I am really asking for is a bit more scrutiny, oversight and transparency where obvious conflicts of interest exist.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
Mark Buse: We believe that the relationship should be between us and the customer—that Apple should not intermediate between us and the customer. Then we will, rightly, have the responsibility to ensure that there are not subscription traps or any other issues around subscription. At this point, generally what happens is that we are still blamed but the subscription is actually with Apple. We do not think that in an ideal world it should necessarily be just us. If some of our users want to subscribe via Apple, we are more than happy to let them use our service and continue to subscribe through Apple. If they believe that that is a safer, more private way to do it, great. We want to bring as many people as possible into our business. It is not about excluding; it is about different ways to include.
Andy Carter
Q
Mark Buse: It is a historical anomaly. When the store was created, in a brilliant move by Steve Jobs, he needed to get companies to build apps. Apps did not exist. People my age were bombarded with commercials. The slogan for Apple was, “There’s an app for that.” Apps have become the way we use our phones because they make it easier. He had to go to all these physical companies and say, “Build me an app. I’ll put it on the phone.” The Walmarts and Tescos of the world said, “We want people coming into our stores. Why on earth would we want them not to, and to use the app?”
What Jobs did, again because he was a brilliant man, is say, “Look—it won’t cost you anything. In essence, it will just increase sales. It’s you-branded. It’s yours. You operate it.” That is why apps are distinct. Uber had just come on to the scene and was the hottest thing going. It went into New York and into London—some would argue illegally, not abiding by the rules. What happened is that Jobs—you can see this from various biographies and public court documents—said to Uber, “Come into the store, but because you’re a digital product, and the whole idea of the walled garden is that they hold on to your digital data, you’re going to have to pay 30%.” Uber said, “No. We won’t do it.” Because the store was nascent and Uber was popular, Jobs said, “You know what? Go into the store anyway. It’s fine. I won’t make you pay.”
Match at the time was a fledgling, super-small company, and our business was not big and growing because there was a lot of stigma around online dating at the time. People thought that if you cannot meet a date in real life, in person, you go to the online dating world. Now online dating is the No. 1 way that people meet in the UK. More relationships start online than in any other way. In the LGBTQ community, over 70% of all relationships start online. The market has changed. If the store was being created today, our market power might enable us to say, “Don’t include us in that.”
Andy Carter
Q
Tom Fish: Largely speaking. The one issue that I raised in my written submission was a small concern around a degree of ambiguity regarding operating systems. It is critical that operating systems can be designated with strategic market status. Half the potential interventions that have been talked about for opening up markets will not be possible if you cannot designate operating systems. This is just a plea really to insert the words “operating systems” as an example. It will not cost anything, but it will solve a lot of problems.
The Chair
Thank you. I am sorry that we have run out of time. On behalf of the Committee, I thank our witnesses.
Ordered, That further consideration be now adjourned. —(Mike Wood.)