The Italian Antitrust Authority has started an investigation against Google on the assumption of an abuse of dominant position.
The company, controlled by Alphabet Inc, allegedly infringed Article 102 of the Treaty on the Functioning of the European Union with regard to the availability and use of data for the processing of display advertising campaigns, the space that publishers and website owners make available for the display of advertising content.
In the crucial market of online advertising, which Google controls also thanks to its dominant position on a large part of the digital chain, the Authority challenges the company to discriminatory use of the huge amount of data collected through its applications, preventing competing operators in online advertising collection markets from being able to compete effectively.
Below is an excerpt from the Agcm resolution with the start of the investigation on Google:
For the purposes of the application of Article 102 of the TFEU, a dominant position consists of a situation of economic power thanks to which the company holding it is able to hinder the continuation of effective competition in the relevant markets and to act significantly independently from its competitors, its customers and, ultimately, consumers.
In the present case, the identification of a dominant position requires taking into account, in addition to the circumstances set out in the previous section regarding Google’s high share of the online advertising intermediation sector - also in the individual markets into which it is to be divided -, Google’s presence and position in each phase that makes up the intermediation chain, as exemplified in the figure below (Figure 3).
According to the estimates provided by IAB, Google holds shares of more than 80-90% in the provision of ad server services, both on the advertisers’ and publishers’ side, and in the provision of SSP and DSP services.
Together with the market share held, there are further elements that consolidate Google’s position of absolute dominance, which reside in the vertical and conglomerate integration model adopted by Google, in network effects and economies of scale, as well as in the presence of barriers to entry and an unparalleled ability to access data.
In this regard, it should be emphasized, recalling the considerations contained in the above-mentioned cognitive survey IC53 - Big Data, how the availability of Big Data is only one of the various factors that contribute cumulatively to the high degree of concentration and the existence of barriers to entry into digital markets. In fact, other factors (in addition to investments to develop data analysis and processing capabilities), such as economies of scale and scope and network externalities, continue to play an important role in explaining market power. These are aspects that, although not new in the field of antitrust analysis, acquire a particular importance in digital markets, due to the significant conditioning that their cumulative effect is able to exert on competitive dynamics.
In fact, the conduct in question is closely linked to the fact that the use of Big Data - in particular the collection and combination of data of different nature, deriving from various services and devices - determines network effects such as to generate a greater capacity to create value for advertisers, leading the entire market to determine itself in favor of a specific platform (so-called market tipping), consolidating its position. In addition to the network effects, the presence of significant economies of scale and scope can also contribute to determining the structure of the markets. In the digital sector, in fact, high fixed costs - which can often be exceptionally high and not recoverable (so-called “sunk cost”), as in the case of search engines and e-book distribution platforms - are accompanied by low, or even zero, variable costs.
A further element that can significantly affect the competitive process is given by the possible presence of so-called switching costs, or technical and / or economic limitations that may hinder users from the possibility of changing supplier. This can occur, for example, due to the lack of interoperability between systems of competing operators, generating phenomena of so-called lock-in, or the low propensity of users to change supplier due to the existence of significant network effects.
a. Vertical integration and network effects
The vertical integration model, based on a position of absolute dominance in the search engine market and a pervasive presence in all online advertising markets, reinforced by the extraordinary importance of its intermediation apparatus, both on the publishers’ and advertisers’ side, appears at present to be an important competitive advantage.
Also the availability and ability to exploit data does not appear to be comparable or replicable, given that the collection of data by Google does not only take place through its own sites, but also from third party sites and applications that use its analysis services for user profiling purposes. In the profiling activity - essential and strategic in online advertising - Google has competitive advantages linked to the volume and variety of data, which allow it to tailor the publishers’ advertising space to the target audience of advertisers.
The vertical and conglomerate integration that characterizes the main digital operators such as Google constitutes a particularly important element in the assessment of the power that these operators hold in the individual relevant markets in which they are active, insofar as it amplifies their ability to acquire, process and exploit data in the provision of services to consumers and businesses. For example, the ability to combine data on the digital behavior of the same subject, acquired from a variety of sources, can allow an extremely accurate and much more sophisticated profiling than that which can derive from the acquisition of fragmented data on the individual digital consumption behavior of users.
In this perspective, it is necessary to take into account other indicators, starting first of all with the breadth of the range of services offered to consumers (and businesses) and the related use of platforms enabling the collection of such data. In particular, they survey the Android operating system and Google Pay Services - which constitute a basis for data collection based on a very large slice of smartphones and almost the entire market for licensed smartphone operating systems - as well as the Chrome navigation browser, which represents the navigation program used by about 69% of personal computer users.
Finally, an important element of market power can also be found in the links between different complementary services in the Big Data supply chain, as well as in the limited degree of interoperability with third-party services.
The presence of Google, with positions of dominance or absolute pre-eminence over other operators, in the entire intermediation chain is directly reflected on display advertising.
Google is an indispensable interlocutor for advertisers and publishers. The market share held in the server-based publisher segment (over 90%), in fact, shows that most ads cannot be placed on publishers’ sites without Google’s intermediation.
b. Barriers to entry
In addition to the above considerations, it should be noted that the markets examined above are characterised by substantial barriers to entry. In markets where the use of Big Data takes on particular importance in the offer of the service and, therefore, in the competitive process, they may constitute or contribute to strengthening barriers to entry resulting from other factors such as network externalities.
In particular, in online advertising markets the main barriers are represented by: network effects and economies of scale; the so-called “default behaviour” of the consumer; unequal access to user data; lack of transparency; the vertical integration of Google and the consequent conflicts of interest that such integration generates.
c. The availability of different channels to acquire personal data.
The heritage made up of user data, including those related to previous searches, generates network effects and economies of scale in online advertising markets, due to the interest of advertisers, to invest, in advertising search, on keywords whose search results are associated with relevant results for the user and to direct, in display advertising, advertising messages to well identified and profiled users and consumers. In fact, Google collects data from the services it offers to users, from Android mobile devices that use its operating system, and from so-called tags (the analytical technology applied to third party sites and apps).
As evidenced in a study acquired in the deeds, Google, in fact, offers its users a variety of services and features in addition to the web search engine (Google Web Search) and the operating system for mobile devices (Android). These services appear to satisfy, if not exhaust, the range of different needs that the individual wants to receive from the interaction with the Internet and allow Google to acquire data even without the conscious involvement of the user.
By way of example they are listed below: e-mail (Gmail), online maps (Street View on Google Maps), online advertisements and the marketing of advertising space (Google DoubleClick and Google AdWords), the browser (Google Chrome), the management of online payments (Google Wallet), the virtual store for the purchase of applications, music, movies, books and magazines (Google Play), the search, viewing and distribution of movies (YouTube), text storage, sharing and review services (Google Docs and Google Drive), software for displaying satellite images (Google Earth) or for managing diaries and calendars (Google Calendar), software for controlling and managing user profiles (Google Dashboard), tools for statistical analysis and monitoring website visitors (Google Analytics) and others.
Platforms of the size of Google, vertically integrated, can obtain consent to the use of user data, relevant for the purposes of advertising tarification, much more easily than other operators precisely because the sources from which to collect such consent are numerous, composing together an ecosystem traceable to the same subject.
As to whether such data is extracted from different sources in Google’s ecosystem and then used and combined to offer services that are perfectly tailored to your needs, please refer to the content of Google’s terms of service stating that “We provide a wide range of services subject to these terms, including: Applications and sites (such as Search and Maps), Platforms (such as Google Play), Integrated Services (such as Maps maps embedded in apps or sites of other companies), Devices (such as Google Home). Our services are designed to work together in order to make it easier for the user to move from one activity to another. For example, Maps can remind the user to go to an appointment stored in Google Calendar. For the purposes of assessing how Google can acquire large amounts of data, it should not be overlooked the fact that the consumer tends to give his consent to quickly acquire the availability of the service (so-called default behavior) against the issuance of an authorization to the processing of data then intended by Google to different types of services.
The quantity and quality of data that Google collects, therefore, represents an additional barrier to entry for both competing platforms and advertisers who want to offer content that only Google is able to offer customized (targeted).
It is clear, therefore, that the penetration capacity of an advertisement is a key driver for advertisers who choose how to allocate their spending between publishers and platforms.
Precisely in order to measure this ability to penetrate the message, advertisers must be able to track the behavior of online users, which is technically possible with tags (i.e. tools that allow to measure and catalog the pages visited and the number of visitors of the different pages). This means that, once again and from a different angle, Google has access to data and the ability to track user behavior that cannot be replicated by other platforms.