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06/12/2016

No regulation needed for online ‘gatekeepers’, experts tell Commission

Digital

No regulation needed for online ‘gatekeepers’, experts tell Commission

Google's Mountainview campus.

[Luis Villa del Campo]

The European Commission’s intention to regulate online giants such as Google, Ebay and Uber, has received a lukewarm response among analysts in the field.

The latest warning came from the Information Technology and Innovation Foundation (ITIF), which concluded that these powerful ‘gatekeepers’ do not pose “unique challenges” to the existing labour or product market – and therefore do not need specific regulation.

In a report published on Monday (19 October), the non-profit US-based think tank, one of the most authoritative voices in the world in this area, notes that EU policymakers’ attempts to set new rules “overlook how platforms work, the value they create, and the constraints they face”.

European regulators “already have sufficient legal powers to act against the most likely problems” – including anti-competitive or anti-consumer behaviour – the ITIF argues.

Joe Kennedy, a senior fellow at ITIF, in charge of technology policies, says that these companies’ rapid penetration, and their facility to attract “suppliers” prove their capacity to create “tremendous” consumer value and job opportunities. Meanwhile, they already face “strong” competition from traditional service providers and other platforms, which represents strong financial and reputational incentives to handle the private data properly. Moreover, any scandal or sign of criticism among consumers or workers could not only affect their market value, but also their capacity to retain “a reliable” workforce.

The foundation therefore warns against erecting “competitive barriers to platforms”. This concern follows the steps of some leading experts, such as the 2014 Nobel laureate in economics, Jean Tirole. The French economist, whose work contributed to better understand how monopolies work, told EurActiv that the EU intervention could create entry barriers for “effective” online players.

>>Read: Tirole: Brussels must level the playing field for online platforms

The Commission is currently looking into the social and economic role of online platforms. This includes issues such as transparency, how information gathered is used, the relations between platforms and their suppliers, and other providers, and the freedom of consumers and traders to migrate between platforms, which raises concerns “in many quarters”, said Andrus Ansip, the Commission Vice-President in charge of the Digital Single Market.

>>Read: Commission mulls new measures in divisive inquiry of online giants

The ITIF also pointed towards a latent bias against the private sector. Authorities, the document says, should “make sure” that government agencies implement “the same standards, especially with regard to data use and security, that the regulators impose on the private sector”.

Wrong European approach

The US-based think tank expresses harsh criticism against the approach taken by EU authorities. “European officials would do better to ask themselves why the continent missed the first platform revolution and continues to lag behind not only in the development of new technologies but […] in the adoption of existing ones,” says the report.

In its view, it is not only because of the lack of a digital single market, one of the Commission’s priorities, but also because of “the European approach to risk versus regulation and its comfort with the status quo versus innovation”. Such a regulatory environment “deters” the European output, the ITIF claims.

The report dismisses some of the “false threats” such as data privacy-related concerns, and their impact on the labour market.

As regards the use of customer data, the main concerns involve security breaches, or how the information is managed, and for what purposes. The algorithms that platforms use to match parties and price transactions may also have disparate impacts, it says.

Since the handling of data has become one of the main reasons to regulate online platforms, the study insists that these concerns about privacy and security “are not unique” to them.

Therefore, they should be addressed by general privacy and security polices, and not by specific rules. Besides, due to the strong competition between platforms, the report adds that any misuse of the data or controversy would punish the companies.

In regards to the impact on the labour market, the report laments that while old-fashioned labour regulations are still structured around stable relationships between companies and their employees, the modern economy demands more flexible links.

As “millennials seem much more comfortable with technical change and uncertainty”, the amount of part-time work and self-employee work is expected to increase, even more when a platform’s value depends on its ability to match supply and demand in a very dynamic environment.

“It is very likely that classifying people who work for Internet platforms as employees would destroy much of the value that they create and hurt more workers than it helps,” the report concludes.

Meanwhile, the ITIF report recalls the “dramatic” impact on economies of online firms. Better use of data could generate $1.3 trillion in additional value each year in just seven industries. The Internet of Things could contribute up to $11.1 trillion in global value by 2025, equivalent to 11% of current global GDP.

Background

The European Commission presented its plans for the digital single market in May 2015, announcing concrete proposals on 16 initiatives in 2015 and 2016. The Commission also announced that it would launch an inquiry into online 'platforms', widely perceived to be a move to target large US-based tech companies.

With more than one trillion webpages on the internet, platforms are an important way of bringing people and online information together. The Commission believes that they have become "very influential", and, to an extent, are responsible for shaping online behaviour. Therefore, the EU executive considers that there is a "potential challenge", both for Europe and worldwide.

A recent report by the McKinsey Global Institute estimated that using Internet platforms such as Monster.com, LinkedIn, and UpWork to better match underemployed workers with job opportunities could add annually $512 billion to the US economy and help place over four million workers.

The Commission defines 'online platforms' as "an undertaking operating in two (or multi)-sided markets, which uses the Internet to enable interactions between two or more distinct but interdependent groups of users so as to generate value for at least one of the groups. 

As examples, the EU executive lists general internet search engines (e.g. Google, Bing), specialised search tools (e.g. Google Shopping, Kelkoo, Twenga, Google Local, TripAdvisor, Yelp,), location-based business directories or some maps (e.g. Google or Bing Maps), news aggregators (e.g. Google News), online market places (e.g. Amazon, eBay, Allegro, Booking.com), audio-visual and music platforms (e.g. Deezer, Spotify, Netflix, Canal play, Apple TV), video sharing platforms (e.g. YouTube, Dailymotion), payment systems (e.g. PayPal, Apple Pay), social networks (e.g. Facebook, Linkedin, Twitter, Tuenti), app stores (e.g. Apple App Store, Google Play) or collaborative economy platforms (e.g. AirBnB, Uber, Taskrabbit, Bla-bla car).

Further Reading

EUROPEAN COMMISSION

Digital Single Market communication

Public consultation on the online platforms