Online consumer choice stifled by lack of competition

This article is part of our special report Consumer Choice on the Internet.

SPECIAL REPORT / Consumer choice to access the best services at the most convenient prices depends on the availability of competing offers, a pillar of antitrust policy that is increasingly put into question by the growing power of online “free” services. 

The dominant business model on the Internet is based on services provided allegedly for free, such as social networking, search or emails. In fact, these services require users to relinquish a massive amount of personal data.

Sometimes users are aware of this exchange and agree with it, but in most cases, they give away their personal information passively, without any understanding of the value of their data, nor of the use that will be made of it.

Online companies thrive under this misunderstanding. Google and Facebook, as pioneers of this new trend, are among those who profit the most. Their market capitalisation, several times higher than their assets, is proof of their power.

They have truly revolutionised the Internet, offering innovative services, attracting new users and creating new business opportunities. However, because of their pervasiveness, they also pose serious concerns in terms of competition, consumers and data protection.

“Successful online providers persuade increasing numbers of customers to provide more personal information which increases the value of the service to advertisers, thus generating ‘network effects’ whereby yet more customers are attracted to the service.” This quote is not from a competition authority, as it would be expected, but is an excerpt from a preliminary opinion issued at the end of March by the European Data Protection Supervisor, Peter Hustinx.

He is concerned that online giants are getting even bigger, and in so doing are harming not only competitors, but also consumers, especially from the standpoint of data protection.

“Choice depends on the availability of competing services and the consumer’s ability to understand the information provided about those services,” argues the EDPS report. “Confronted by multi-service companies in the digital economy, there are several significant obstacles to genuine choice,” it concludes.

The opinion, which is still under review to become definitive, mentions the recent acquisition of Whatsapp by Facebook, and the merger in 2007 between Google and DoubleClick, a provider of online advertising services, as cases where the competition authorities should look not only at economic factors, but also at the impact of these operations to the welfare of consumers.

He refrains from entering the debate about the ongoing competition case in which Google stands accused of exploiting its dominant position in the search market to the detriment of a number of e-commerce activities.

Linking competition and data protection

However, the opinion argues that in the future, competition, consumer and data protection should be linked as much as possible, and that competition cases should pay a much closer attention to consumers and their data.

The opinion comes at a crucial time, when EU member states are deciding on new rules for data protection which may significantly change the way online businesses function in Europe.

A Commission proposal, adopted in March by the Parliament, if confirmed by the EU Council, would introduce more stringent rules on how data protection should be applied.

There would be stronger obligations for online companies to obtain informed consent from users when using their data, and an increased accountability of service providers when they process personal information.

Does Google stifle innovation?

The dominant positions of some online giants can also harm consumers in an indirect way: through the limitation of access to new services.

Facebook and especially Google have become online traffic routers. Most websites get a chance to be visited only if Internet surfers see links in these crucial meeting points of the online world.  

Not appearing in Google means not existing. A US start-up recently experienced this side of the search engine when it saw the links to its website go down in Google search results after a review of the ranking algorithm introduced by Google in 2011, Google Panda.

The start-up Tutorspree, which focussed on pairing tutors with students, collapsed in a short period, though its funding was reportedly sufficient to keep the company going. One of the reasons behind the sudden collapse was the Google ranking review.

The online search giant just wanted to improve the visibility of quality sites, while pushing down those full of advertisements, but in doing so, pushed out of business many legitimate companies, therefore stifling innovation. The case of Tutorspree is not all an isolated one.

This shows the power of Google, and should increase regulators’ attention on its new advertising policies.

Indeed, what appears nowadays in Google search result pages is increasingly paid-for content. Some studies, widely circulated in the US press, put the amount of neutral results appearing in Google between 13% and around 20% of computer screens.

As it becomes the global meeting point, Google is increasingly asking for a cut for the visibility it offers. Questionably, it often does so in a way that users do not understand, as ads and other paid-services are not always easy to distinguish from neutral links resulting from ranking algorithms, some sources said.

The European Commission is also investigating Google on these grounds, although the case may be settled with an even more invasive presence of ads in the first page of Google results.  

What is the impact on consumers? Online choices will narrow down as search engines, like Google or Microsoft’s Bing, are strengthening their role as gates to Internet services, and in so doing are conditioning users’ choices with methods that go unnoticed to most consumers, sources said.

An increasing share of Internet activities pass through online search, which is for many users the main, or only, gateway to the Web.

Inevitably, this situation poses questions on the dominant role played by Google, which is by far the most important search engine in Europe and in the world. According to some estimates, Google controls 94% of online search in Europe.

EDPS - Preliminary Opinion on Big Data - 26 Mar 2014

European Commission - Press release on Data Protection reform - 12 Mar 2014

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