CMA (Competition & Market Authority), a non-ministerial government department in the United Kingdom, published their market study on digital advertising and online platforms this month. We bring you the highlights of the report in this post.
Here is the summary of the report:
Digital Advertising Spend
1. According to estimates by the Internet Advertising Bureau (IAB) and PWC in the Digital Adspend Report, the UK digital advertising market was worth £15.7 billion in 2019 (up from £13.6 billion in 2018) and now accounts for 62% of total advertising spend, up from 25% in 2010. publishers receive 51% of advertising expenditure on average
2. Around £14 billion was spent on digital advertising in the UK in 2019, Search advertising comprised around half of these revenues, at over £7 billion, and display expenditure was over £5 billion.
3. Total spend in display advertising was worth £5.5 billion in 2019 of which we estimate more than half went directly to Facebook, and around 60% to Facebook and Google combined
Google’s Unchallenged Market Presence
1. Google has generated around 90% or more of UK search traffic each year over the last ten years and generated over 90% of UK search advertising revenues in 2019
2. Google’s search advertising revenues have been steadily increasing over the past 10 years, from £2.1 billion in 2010 to £6.8 billion in 2019, reflecting a compound annual growth rate of around 14%. Google has continued to account for more than 90% of search advertising revenues, an order of magnitude greater than its next closest rival, Bing.
3. Overall, we estimate that around 80% of all expenditure on search and display advertising in the UK in 2019 was accrued as revenue by just two companies – Google and Facebook.
4. Google has a very strong position in advertising intermediation in the UK, controlling a share of [90-100]% of the publisher ad server segment, [80-90]% of the advertiser ad server segment and shares of [50-60]% in supply-side platforms (SSPs) and [50-60]% in demand-side platforms (DSPs)
5. Intermediaries (the largest of which is Google) capture at least 35% of the value of advertising bought from newspapers and other content providers in the UK.
6. Google has negotiated agreements with Apple and with many of the largest mobile phone manufacturers under which it pays a share of search advertising revenues to these partners in return for Google Search occupying the default search positions on the device. In 2019, Google paid around £1.2 billion in return for default positions in the UK alone
7. Google has generated around 90% or more of UK search traffic each year over the last ten years and generated over 90% of UK search advertising revenues in 2019.
The main area of study was to understand the following:
- To what extent Google and Facebook have market power in search and social media respectively and the sources of this market power;
- Whether consumers have adequate control over the use of their data by online platforms; and
- Whether a lack of transparency, conflicts of interest and the leveraging of market power undermine competition in digital advertising.
Here is what the market study help them find out:
1. Lack of comparable scale in click-and-query data is likely to be a key factor that limits the ability of other search engines to compete with Google.
2. Google’s extensive default positions across devices and browsers, and in particular on almost all mobile devices in the UK, act as a barrier to expansion for other search engines.
3. To measure effectiveness, advertisers need to be able to track user actions online, which is done through analytical tools such as tags. Google tags and Facebook pixels are widely available on advertiser websites and apps. This means that Google and Facebook are better able to track users and demonstrate the effectiveness of using their platforms relative to others, which is likely to create a barrier to entry for potential rivals.
4. The inability of smaller platforms and publishers to access user data creates a significant barrier to entry. Google and Facebook enjoy significant competitive advantages in both targeting advertising and measuring its effectiveness because of their extensive access to user data.
5. Such platforms have an incentive to interpret data protection regulation in a way that entrenches their own competitive advantage, including by denying third parties access to data that is necessary for targeting, attribution, verification and fee or price assessment while preserving their right to use this data within their walled gardens.
6. Market participants find it difficult to understand or challenge how decisions are made and to exercise choice effectively.
7. Google and Facebook’s businesses have built large ‘ecosystems’ of complementary products and services around their core service.
8. Google’s strong position at each level of the intermediation value chain creates clear conflicts of interest, as it has the ability and incentive to exploit its position on both sides of a transaction to favour its own sources of supply and demand.
9. Google has been able to use its market power in search and its wider ecosystem to build its position as a DSP.
10. Default behaviour by consumers has had a profound impact on the shape of competition in both search and social media. Defaults play a very important role in influencing consumers’ use of search engines. Default settings and the way in which choices are presented to consumers have a strong influence on the ability of platforms – particularly social media platforms – to collect data about their users, and the ability of users in turn to control the use of their data.
11. The two platforms (Google & Facebook) provide almost 40% of the traffic to large publishers. There are concerns about unexpected changes to the Google Search and Facebook News Feed algorithms that have resulted in dramatic reductions in traffic to certain newspapers overnight.
Here are a bunch of suggested recommendations stated in the report
1. On the basis of the evidence we have gathered in this study, we believe that there is a compelling case for the development of a pro-competition ex ante regulatory regime, to oversee the activities of online platforms funded by digital advertising.
2. The DMU have the power to introduce ‘pro-competitive interventions’ to transform competition in digital platform markets.
3. The DMU be given powers to mandate interoperability. Interventions to require greater interoperability will involve balancing a number of considerations including the competitive and consumer benefits of overcoming network effects and the potential costs of greater homogenisation of services and risks to privacy.
4. The DMU should have the power to restrict Google’s ability to secure default positions, to restrict the monetisation of default positions on devices and to introduce choice screens.
5. The DMU should have the power to require Google to provide click and query data to third-party search engines to allow them to improve their search algorithms, thus helping to overcome Google’s scale advantages in data.
6. In relation to verification, Google and Facebook should give advertisers access to the tools or information necessary to carry out their own, independent verification of advertising purchased on the inventory owned and operated by Google and Facebook
7. the DMU be given powers to introduce two interventions that would require platforms to give consumers genuine choice and control over the use of their data