Vestager is the European Union’s (EU) competition commissioner; Khan, a law student in her late twenties; and Srinivasan, a veteran ad-tech entrepreneur. Three women, one goal: dismantle the dominance of Big Tech. Vestager, Khan and Srinivasan have decoded Pichai’s Google, Bezos’s Amazon and Zuckerberg’s Facebook, respectively, to isolate the same antitrust DNA that runs through all these companies. All laid bare in the form of explosive research papers and orders.
These ideas—Srinivasan’s February paper on Facebook’s market dominance and privacy issues leading to lower quality of service, Vestager’s multiple rulings and multi-billion euro fines against Google and Khan’s 2017 article examining Amazon’s predatory pricing—are leading to a groundswell of action the world over.
At least 10 different regulators in different countries are probing at least one of the three companies for antitrust violations. Including, most recently, the US Federal Trade Commission, which is considering fining Facebook up to $5 billion over privacy violations.
In India, however, these ideas are still ricocheting off the walls of the antitrust watchdog, the Competitive Commission of India or CCI.
“The CCI so far is being pro-industry in its stance,” said a lawyer specialising in antitrust cases. She asked not to be named as she is not an authorised spokesperson for her firm. “They are watching what is happening globally, but there is this understanding that India is in an early phase of the digital economy, and the CCI doesn’t want to scuttle it.”
For example, the CCI was taken to the National Company Law Appellate Tribunal (NCLAT) in January by a union of 3,500 online sellers. For dismissing a case they had filed against Flipkart, complaining that the Walmart-owned e-commerce firm abused its dominant position in online retail. The CCI said it hadn’t.
“We have challenged the impugned order before the NCLAT, because contrary to the Hon’ble Commission’s opinion, we feel we presented reasonable evidence to prove the case of dominance,” says Chanakya Basa, an antitrust lawyer who argued for the All India Online Vendors Association. The NCLAT is set to hear the appeal next week. Its decision could set a new precedent for competition law in India.
The one thing Facebook, Amazon, and Google have in common is their ability to use their size and adjacencies to trample over the competition. What may be a whole business for another company is just a feature for these three. The companies’ network effects create switching costs and erect barriers to entry or expansion. That’s why venture capitalists’ favourite question to ask before investing is “What will you do if Google, Facebook or Amazon decide to do this”—a measure of competitive fear.
But to prove their dominance under existing legal frameworks—in India or elsewhere—is quite a task. Because the standard measures of monopoly power used historically for big oil or telecom companies don’t apply to internet firms happy to run up gargantuan losses for market control.
India is the second-fastest digitising economy after China, according to a McKinsey Global Institute report. And with the three tech giants looming larger than ever before in India, the CCI could do with some lessons from the three women opposing them.
Taking a pickaxe to Google
Google appeared on the EU’s radar in 2010 after at least three companies complained about its anti-competitive practices, sparking a decade-long crusade. This gathered momentum after Vestager, former deputy prime minister for Denmark, took over as competition commissioner in 2014. Known for her wry wit as much as for her love for knitting woollen elephants, Vestager is morally bound to protecting competition.
“I was brought up with a very strong value that you should always protect the small and the few against those who want to misuse their muscle and weight in order to get what they weren’t supposed to,” she told Reuters just before her appointment.
The European Commission sent questionnaires to 1,000 market participants, gathered 600 replies, looked at 5.2 terabytes of actual search results amounting to 1.7 billion search queries on Google, reams of financial data, traffic data, and other such evidence to pin down Google in Europe.
The EU’s concerns: Google promoted its own services over others when users searched for any product; it imposed exclusivity obligations among its advertising and distribution partners, and it placed restrictions on advertisers to port data on ad campaigns to competing online advertising platforms. The commission found Google guilty on all counts.
Of all the ways in which Google managed to elbow out the competition, its exclusive partnerships route stands out. For being both simple and hyper-scalable, all at once.
It simply mandated that phone manufacturers using Android pre-install the Google Search app and Chrome browser app as a condition for using Google’s Play Store. Manufacturers weren’t allowed to use alternative versions of Android that were not approved by Google if they wanted access to the Play Store’s million-plus apps.
Similarly, with online advertising, the EU found that Google struck contracts with publishers mandating they only place ads brokered by Google, and reserve the best spots on their apps or sites for Google-brokered ads. It also required publishers to get written approval from Google before making changes to the way in which rival adverts were displayed. It stopped these practices in 2016 following the EU enquiry.
If Android had an 80% market share in Europe, the situation in India is more lopsided. 91% of India’s smartphones run on Android. If Google had a 70% market share in online advertising in the EU, that number is estimated to be about 42% in India by those in the industry. (We wrote in detail about how Google acts as the gatekeeper to mobile internet in India and whether net neutrality should apply to the company here.)
“Google’s rivals were unable to grow and offer alternative online search advertising intermediation services to those of Google. As a result, owners of websites had limited options for monetising space on these websites and were forced to rely almost solely on Google,” said Vestager in her order. Incidentally, her term as competition commissioner ends this year.
In India, the obvious fallout in advertising has been the decline in ad-tech companies. “The number of players in the ad tech industry keeps reducing every quarter,” said an ad tech executive. 331 ad tech companies were set up in 2015, that number reduced to 33 by 2018, according to startup database tracker Traxcn.
“We saw a duopoly between Facebook and Google brewing, so we exited,” said an ad tech entrepreneur who sold his business. Besides just holding onto the choicest advertising inventory, the duo were able to occupy every single value-added service space in online advertising, killing off players one by one.
But while Google still presents a relatively clear target for regulators, Facebook—the second half of the online ad duopoly—is a tougher nut to crack. Even Vestager, for one, says Facebook’s issues are more about privacy violations than competition threats.
Dina Srinivasan disagrees.
Facebooks’s 1-2 privacy punch
Srinivasan, 39, studied antitrust law from Yale Law School, then gave up on law to develop tech for the ad industry. She sold a piece of tech that automated media buying to WPP Group, the world’s largest advertising and PR group. But her training in law made her see companies for what they really are.
This mother of four who lives in San Francisco has been watching Facebook for at least a decade, long before the Cambridge Analytica data leak. She says that kind of a scandal was waiting to happen. “I was watching a major market failure happen in front of me,” she says over a call. (Srinivasan uses Signal or Skype for her calls, consciously avoiding the more popular Facebook-owned messaging service WhatsApp.)
In a 101-page paper titled “The antitrust case against Facebook”, published this February in the Berkeley Business Law Journal, she lays out how Facebook ironically used privacy to differentiate itself from competitors in its early days. And after it was the only one left standing, the company did a backflip on privacy and began its intensive tracking of user data.
“Facebook entered the social network market being very vocal about privacy,” says Srinivasan. “It even had a short easy-to-read privacy policy. In fact, it promised users their privacy by saying it does not and will not use cookies to collect private information from any user.”
But in the background, right from the time it was founded in 2004, Facebook kept trying to track consumers even after they left Facebook and went to other sites or apps, says Srinivasan. It just did it more surreptitiously and scaled back products such as the ad tracker Beacon in the face of user ire when it became public.
“The market kept tipping in Facebook’s favour, competitors folded, and then in June 2014 Google announced they were withdrawing from the social network market,” says Srinivasan, referring to Orkut, the social media platform Google had launched in 2004. (The company actually had one social media service alive in 2014, the three-year-old Google+. But it stagnated until its eventual death this year.) “It may be hard to believe today but Facebook was feeling intense pressure from Google then,” Srinivasan says.
That same month, in June 2014, Facebook announced it would start tracking consumers not just on Facebook applications but across the Internet, she recalls.
Publishers who partnered with Facebook never wanted the social network to track the publisher’s own users for digital advertising. “They initially signed up for the Facebook social widgets upon the understanding that Facebook would not use them for tracking. They were tricked like consumers were. But now publishers are stuck,” says Srinivasan.
Post-2014, Facebook, began monitoring publishers’ readers. If a person is reading an article about “football”, say on the CNN website, Facebook catalogues this fact and assigns the user to a database of “football enthusiasts”, she explains. Here, Facebook just copied CNN’s reader data. Now, Facebook uses that data to undercut CNN’s pricing in advertising markets. It can sell advertising to “football enthusiasts” at a lower price than CNN.
“This is the single most important reason why almost every new advertising dollar than enters the market goes to Facebook or Google at the expense of independent publishers,” says Srinivasan.
In India, too, about 28% of digital ad spends go to Facebook, estimate by those in advertising. And an online publisher and a digital media buyer—both of whom asked not to be named—confirmed that Facebook charges less for ads than what publishers do.
It may not be quite the ad giant that Google is in India, but about 50% of Indian internet users are on one of Facebook’s social media or messaging platforms. Fertile ground for a play into dominating adjacent businesses like payments just as Google has. Srinivasan’s warnings ring loud.
Which brings us to the last of our formidable trio.
Amazon, the silent predator
At the heart of any anti-competitive practice lies price. Or in the case of tech companies, the lack of it. And this puts people in one of two camps. One that believes that when a company’s services cost nothing, there’s no question of consumer harm.
And in the other camp is Lina Khan—who believes that the very fact that these companies can afford to keep their services free is a lurking sign of predatory pricing.
Khan achieved overnight fame in 2017 for an article titled “Amazon’s Antitrust Paradox” in the Yale Law Journal. Naïve, hipster, legal wunderkind—the reactions to her idea from media, regulators, and politicians covered the entire spectrum of opinions. While in fact, what she did was bring an old argument back to life.
Any discounting, which is done with the intention of driving out competition should be seen as predatory pricing, she argues. Amazon’s “loss-leading” practice in categories such as books helps it penetrate other categories, and it is easily able to make up for the losses in one through another business.
Slashing prices is what helped Amazon corner 90% of the e-book market, but the US antitrust laws do not recognise this as an anti-competitive measure. Because the rules assume that companies adopting this sort of strategy will bleed money and die. But as Khan points out, the likes of Amazon think differently.
“The insistent emphasis on ‘market leadership’ (by founder and CEO Bezos) signalled that Amazon intended to dominate,” Khan argues in her article. “Amazon’s strategy has enabled it to use predatory pricing tactics without triggering the scrutiny of predatory pricing laws.”
And the e-commerce company has deployed the same strategy in India too. As has homegrown rival Flipkart, founded in 2007 by former Amazon executives Sachin Bansal and Binny Bansal (they’re not related).
Basa, the lawyer representing the third-party online sellers association, insists that is a sign of abuse of dominance. “The deep discounts by way of loss-leading as observed by the Bangalore Income Tax Tribunal shows the abusive conduct of Flipkart,” he argues. The income-tax department in 2018 had raised questions about whether Flipkart built market share by incurring losses through aggressive discounts. The tax department demanded penalties of Rs 110 crore ($15.7 million) from the company, but Flipkart won the case when it appealed the ruling in the Income Tax Appellate Tribunal.
Khan’s prescription is that predatory pricing by a dominant firm should mostly be treated as illegal. Interestingly, this is also what Section 4 of India’s Competition Act says. Despite which the CCI has repeatedly rejected a definition of dominance based only on market share, which is what Khan advocates, says Aditya Bhattacharjea. He is an antitrust expert and professor of economics at the Delhi School of Economics. Bhattacharjea is also part of the Competition Committee, set up in 2018 to redraft competition laws in India.
In the case filed by the All India Online Vendors Association, the sellers alleged that Amazon and Flipkart promoted their own private labels above third-party vendors’ brands. Something that Amazon has been accused of globally.
The vendors also claim that sellers like Cloudtail and WS Retail, in which Amazon and Flipkart have invested, respectively, are charged lower platform fees than third-party sellers. “They charge us a 30% commission, while sellers like WS Retail or Cloudtail are charged only 1% platform fees,” says one of the sellers.
In India, foreign investment norms and the draft e-commerce policy ban an online marketplace from also selling its own goods. But the companies adopt maze-like structures to find loopholes to this rule (we wrote about that here).
Flipkart did not respond to email queries on the sellers’ claims and ongoing litigation.
Amazon India did not respond specifically on the difference in fee, but a company spokesperson said, “Product prices on our marketplace are decided by sellers. Amazon is a marketplace and does not prioritise private brand products in search or discovery initiatives. We choose products for discoverability based on what is right for the customer.”
But after all we’ve seen, the three core arguments against Google, Facebook and Amazon, there’s a big question left from an Indian perspective. Just what can and will the CCI do about it?
The long arm of the competition law
In the short history of the CCI’s dealings with consumer tech companies, it has not been consistent in the way it looks at markets and therefore dominance. The first time Google had to defend itself in India was when Matrimony.com filed a wide-ranging suit against the company in 2012. Alleging everything from biased search results to making online advertising uncompetitive to promoting its Google Flights service above others.
The CCI dismissed most of the complaints—but fined Google $21 million for abuse of dominance on Google Flights. Google, the CCI ruled, was promoting its own search results and directed people to its flight-booking platform instead of other online travel sites like MakeMyTrip or Cleartrip.
But if the CCI found abuse of dominance in a market as small as online flight bookings (forecast to hit $13.6 billion by 2021), it did not apply that to e-commerce, which is expected to be an $84 billion market by 2021.
India is very much like the EU when it comes to the antitrust rules, lawyers say. The country’s laws look at the conditions for competition like the market power and economic strength of companies, more than consumer welfare like in the US. But that’s where the similarity ends.
“If you look at the Competition Act, it is wide enough that you can easily find Google, Facebook, and Amazon to be anticompetitive. But it is about the regulator’s stance. CCI is not as much against the digital giants as regulators around the world,” says a New Delhi-based antitrust lawyer. She asked not to be named as she isn’t an authorised spokesperson for her firm.
Be that as it may, as Khan says, to fully understand these companies and the structural power they are amassing, we must view all these companies as an integrated entity.
“Seeking to gauge the firm’s market role by isolating particular line of business and assessing prices or impact in that segment fails to capture the true shape of dominance and the ways in which it is able to leverage advantages gained in one sector to boost its business in another,” writes Khan who now is part of an antitrust committee in the US House of Representatives, the country’s lawmaking arm.
Srinivasan echoes the sentiment: “What the regulators should be asking about when it comes to these companies is the practice of tracking users across the Internet. This is not only a clear deviation from the level of quality that was the equilibrium in a competitive market, but this specific practice also hurts and restrains competition itself.”
The CCI is largely seen as under-equipped to deal with these issues, but in some ways, the regulator is also evolving. Lawyers for Google and Amazon have so far argued that an e-commerce marketplace or advertising should not be seen as a market by itself, but that they should be seen in the context of the overall retail market or advertising industry. (For instance, while Amazon may hold 30% of the online retail market, its share of overall retail in India would be in the low single digits.)
“This argument is no longer sticking,” said the antitrust lawyer quoted earlier. For example, she says, the CCI now recognises that online retail is a distinct market. For a body seen as not having the chops to regulate the tech sector (we mapped out the tech policy landscape in India here), she says this is the first sign of the CCI “growing up”.
At the same time, it’s also collaborating more with the European Commission’s antitrust group, which offers three-to-five-month internships. The CCI has proposed a candidate for said internship—a first—who will start in October 2019, said an official close to the European Commission.
But more than any of this, the CCI needs to start its own investigations and begin gathering evidence.“It is not too early for CCI to start analysing big tech and examine the investigatory process. Especially when India is defining what these platforms are doing with respect to product choices and business decisions,” says Apar Gupta, executive director at The Internet Freedom Foundation, a digital rights advocacy group.
The regulation of Big Tech may be the defining antitrust battle of our time, just as the breakup of Standard Oil or telecom giant AT&T were in the 1910s and the ’80s. And India may need an investigator like Margrethe Vestager sooner rather than later.
Spokespeople for the European Commission’s competition division did not want to comment on the article. The CCI did not respond to emailed queries. Lina Khan said she could not take part in the article as she was pressed for time.