Online platforms anddigital advertisingMarket study final report
1 July 2020© Crown copyright 2020
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Contents

Page

Summary .................................................................................................................... 5
Introduction ........................................................................................................... 6
What are our findings? .......................................................................................... 9
The case for a pro-competition regulatory regime for platforms.......................... 21
Decision on a market investigation and further CMA work.................................. 30
Summary of recommendations ........................................................................... 34
1. Introduction ......................................................................................................... 35
Context ............................................................................................................... 35
Evidence gathering ............................................................................................. 38
This document .................................................................................................... 39
2. Overview ............................................................................................................. 42
Introduction ......................................................................................................... 42
The business model of platforms funded by digital advertising ........................... 43
Search, social media, and their ecosystems ....................................................... 51
Digital advertising markets .................................................................................. 57
Market outcomes ................................................................................................ 62
Implications for consumers ................................................................................. 68
3. Competition in consumer services ...................................................................... 73
Introduction ......................................................................................................... 73
Competition in search ......................................................................................... 74
Barriers to entry and expansion in search........................................................... 89
Google’s expansion into related markets .......................................................... 109
Findings in search ............................................................................................. 112
Competition in social media .............................................................................. 114
Barriers to entry and expansion in social media ............................................... 131
Facebook’s expansion into related markets ...................................................... 144
Findings in social media.................................................................................... 146
4. Consumer control over data .............................................................................. 149
Introduction ....................................................................................................... 150
Consumer use of online platforms .................................................................... 151
How consumers can benefit from social media and search .............................. 153
The role of consumer data in digital advertising ................................................ 155
The relevant legal and regulatory framework .................................................... 159
Consumers’ understanding and attitudes about the use of their data ............... 162
Consumer engagement with privacy policies and controls ............................... 171
Our concerns about consumer control .............................................................. 177
Consumer choice over personalised advertising .............................................. 181
Platforms’ choice architecture ........................................................................... 194
Conclusions ...................................................................................................... 209
5. Competition in digital advertising ...................................................................... 211
Introduction ....................................................................................................... 212
Characteristics of digital advertising markets .................................................... 213
Competition in search advertising ..................................................................... 222
Competition in display advertising..................................................................... 242
Competition in open display .............................................................................. 262
Cross-cutting issues: data, transparency and publisher relationships with theplatforms .......................................................................................................... 290
6. Harm to consumers from weak competition ...................................................... 309
3

Introduction ....................................................................................................... 309
Reduced innovation and quality ........................................................................ 310
Price paid for goods and services ..................................................................... 313
Poor returns to consumers ................................................................................ 316
Privacy and data collection ............................................................................... 318
Broader social harms ........................................................................................ 318
Conclusions on harm to consumers .................................................................. 321
7. The case for a pro-competition regulatory regime ............................................ 322
Introduction ....................................................................................................... 322
Overview: development of a pro-competitive regulatory regime ....................... 324
Code of conduct for online platforms with strategic market status .................... 328
Pro-competitive interventions ............................................................................ 349
Conclusion and recommendations .................................................................... 356
8. Interventions in search, social media, and digital advertising ........................... 358
Introduction ....................................................................................................... 359
Interventions in search ...................................................................................... 360
Interventions in social media ............................................................................. 369
Interventions to give consumers greater control over their data ....................... 375
Interventions in digital advertising markets ....................................................... 394
Conclusion ........................................................................................................ 418
9. Decision on a market investigation reference ................................................... 420
Introduction ....................................................................................................... 420
The consultation................................................................................................ 421
Developments since our consultation ............................................................... 424
Our decision ...................................................................................................... 426
10. Further work by the CMA .................................................................................. 429
Introduction ....................................................................................................... 429
Digital Markets Taskforce ................................................................................. 429
International engagement ................................................................................. 430
Engagement with the ICO ................................................................................. 433
Potential CMA interventions using our markets and enforcement powers ........ 436
Concluding the market study ............................................................................ 437

4

Summary
Platforms funded by digital advertising provide highly valuable services, allowing
people to find information in an instant and connect with family and friends fromaround the world – all at no direct cost to the consumer. Google and Facebook are
the largest such platforms by far, with over a third of UK internet users’ time online
spent on their sites. Google has more than a 90% share of the £7.3 billion searchadvertising market in UK, while Facebook has over 50% of the £5.5 billion display
advertising market. Both companies have been highly profitable for many years.
Both Google and Facebook grew by offering better products than their rivals.
However, they are now protected by such strong incumbency advantages –including network effects, economies of scale and unmatchable access to user
data – that potential rivals can no longer compete on equal terms. These issues
matter to consumers. Weak competition in search and social media leads toreduced innovation and choice and to consumers giving up more data than theywould like. Weak competition in digital advertising increases the prices of goods
and services across the economy and undermines the ability of newspapers andothers to produce valuable content, to the detriment of broader society.
The concerns we have identified in these markets are so wide ranging and selfreinforcing that our existing powers are not sufficient to address them. We need anew, regulatory approach – one that can tackle a range of concerns
simultaneously, with powers to act swiftly to address both the sources of market
power and its effects, and with a dedicated regulator that can monitor and adjust its
interventions in the light of evidence and changing market conditions.
We are therefore recommending that the government establish a pro-competition
regulatory regime for online platforms. A Digital Markets Unit (DMU) would be
empowered to enforce a code of conduct to govern the behaviour of platforms withmarket power, ensuring concerns can be dealt with swiftly, before irrevocable harm
to competition can occur. The DMU should also have powers to tackle sources ofmarket power and increase competition, including powers to increaseinteroperability and provide access to data, to increase consumer choice and toorder the breakup of platforms where necessary.
We have identified a wide range of specific interventions that the DMU could
introduce under this regime to tackle the market power of Google and Facebook,from ordering Google to open up data to rival search engines and separate aspectsof its open display advertising business, to requiring Facebook to increase its
interoperability with competing social media platforms and give consumers a choiceover whether to receive personalised advertising. We are now taking forwardfurther advice on the development of this pro-competition regulatory regime
through the Digital Markets Taskforce.

5

Introduction
1.

This is the final report of the CMA’s market study into online platforms anddigital advertising. Digital advertising plays an important role in the provisionof hugely valuable services and content to consumers, includinginternet search, social media and news journalism. Consumers typicallydo not pay directly for these services – rather, platforms and publishers
finance them by using consumers’ attention and data to sell targeted digitaladvertising. In turn, for a wide range of firms, from the largest conglomerate to
the local café, digital advertising provides a highly effective method ofdelivering ads that are relevant to consumers, helping to drive brandawareness and sales.

2.

The main types of digital advertising are search advertising, in whichsponsored ads are provided in response to users’ search queries, and display
advertising, in which static or video ads are displayed alongside the content auser is interested in. Currently, Google generates almost all searchadvertising while Facebook has a strong position in display advertising.
Alongside the owned and operated platforms of Google and Facebook there
is an ‘open display market’ in which publishers such as online newspapers
compete in real time to sell advertising inventory to advertisers. Each of these
forms of digital advertising requires a relevant ad to be selected and served to
an individual consumer in a fraction of a second – an extraordinary
technological feat that was not possible only a few years ago.

Scope and objectives
3.

4.

This market study has assessed how well the markets for search, social
media, and digital advertising are working, and the role of Google andFacebook within them. We have focussed our work on three high-level issues:•

to what extent Google and Facebook have market power in searchand social media respectively and the sources of this market power;•

whether consumers have adequate control over the use of their databy online platforms; and•whether a lack of transparency, conflicts of interest and theleveraging of market power undermine competition in digital advertising.

In addressing these issues, we have aimed to inform the broader debate on
the regulation of online platforms, as explored in the Furman and Stigler

6

Center reviews. 1 These reviews concluded that relying solely on existing
competition law was not sufficient and that a new pro-competition approachshould be taken to regulating platforms. In March this year, the UK
government announced it was accepting all of the Furman Review’s strategic
recommendations for unlocking competition in digital markets and asked the
CMA to lead a Digital Markets Taskforce to advise the government on how totake these recommendations forward.
5.

The CMA welcomes these actions as a positive step towards the developmentof a new pro-competition regime, and is today formally launching theTaskforce work by issuing a call for inputs. Google and Facebook are two of
the largest platforms in the world, and an important objective of this market
study has been to provide concrete evidence and practical advice to informthe development of this new pro-competition regulatory regime, drawing on adetailed understanding of advertising-funded platforms’ business models andthe challenges they pose.

Why do these issues matter for consumers?
6.

Although people do not typically have to pay directly for the content that is
supported by digital advertising, all consumers stand to experience harm in avariety of forms if competition in these markets is not working well.

7.

First, competition problems may inhibit innovation and the development ofnew, valuable services for consumers. It is the threat of being overtaken by
rivals that provides the spur to companies to innovate and produce new
products that consumers want. If platforms are insulated from this threat – orindeed if they can stop new alternative platforms from growing – consumers
will suffer from reduced innovation and choice in the future. Google andFacebook were able to emerge, with limited resources, on the back of a good
idea, producing new and innovative services that are highly valued byconsumers. However, they are now protected by such strong and selfreinforcing incumbency advantages that similar innovation by new entrants ismuch more difficult.

8.

This impact on innovation is likely to be the largest source of consumer harm.
We have heard from many companies which have told us that the power ofthe online platforms poses an existential threat to their businesses and we areconcerned that, without reform, existing market dynamics will mean that the

1 Furman Review (2019), Unlocking digital competition. Stigler Center (2019), Committee on Digital Platforms

Final Report.

7

next great innovation cannot emerge to revolutionise our lives in the way that
Google and Facebook have done in the past.
9.

Second, although services such as search and social media appear to be freeto those who use them, they are paid for indirectly through advertising
revenues. The costs of digital advertising, which amount to around £14
billion in the UK in 2019, or £500 per household, are reflected in theprices of goods and services across the economy. These costs are likely
to be higher than they would be in a more competitive market, and this will be
felt in the prices that consumers pay for hotels, flights, consumer electronics,
books, insurance and many other products that make heavy use of digitaladvertising.

10.

Our analysis indicates that Google’s and Facebook’s market power has asignificant impact on prices and revenues. For example, Google’s revenue per
search in the UK has more than doubled since 2011, and our in-depth
analysis of Google and Bing’s search prices suggest that Google’s prices are
30-40% higher on desktop and mobile when comparing like-for-like searchterms. Facebook’s average revenue per user in the UK has increased fromless than £5 in 2011 to over £50 in 2019, and our comparison with othersocial media platforms suggests that its average revenue per user in 2019was significantly higher than that of its competitors.

11.

Third, competition problems result in consumers receiving inadequate
compensation for their attention and the use of their personal data by
online platforms. Although many online services are currently provided freeof charge, in a well-functioning market, consumers might be offered a reward
for their engagement online, or offered a choice over the amount of data they
provide or adverts they receive.

12.

We have found that the profitability of both Google and Facebook has been
well above what is required to reward investors with a fair return for many
years. In 2018 we estimated that the cost of capital for both Google andFacebook was around 9%, compared to actual returns on capital of over 40%
for Google and around 50% for Facebook. We would expect these excess
profits to be shared more freely with consumers in a more competitive market.

13.

Fourth, limited choice and competition also have the consequence thatpeople are less able to control how their personal data is used and may
effectively be faced with a ‘take it or leave it’ offer when it comes to signing up
to a platform’s terms and conditions. For many, this means they have toprovide more personal data to platforms than they would like.

8

14.

Finally, concerns relating to online platforms funded by digital advertising canlead to wider social, political and cultural harm through the decline ofauthoritative and reliable news media, the resultant spread of ‘fake news’
and the decline of the local press which is often a significant force insustaining communities. For online newspapers and other content providers,traffic from online platforms and revenue from digital advertising represents avital part of their business. Problems in the search, social media or digitaladvertising sectors can dramatically affect their advertising revenues andreduce their ability to invest in news and other online content, to the detrimentof those who value such content and to broader society.

15.

We have found that intermediaries (the largest of which is Google) capture atleast 35% of the value of advertising bought from newspapers and othercontent providers in the UK. Greater competition and transparency would put
downward pressure on these intermediaries’ fees, helping publishers toreceive a larger share of this value. Newspapers highlighted a wide range ofother concerns, including restrictions on their ability to control their own
content and data, to manage traffic to their websites and to target advertising;addressing these could make a vital contribution to the sustainability of news
media in the country.

What are our findings?
Size of market and shares of supply
16.

We estimate that around £14 billion was spent on digital advertising in the UK
in 2019, around 80% of which was spent on Google and Facebook. Searchadvertising comprised around half of these revenues, at over £7 billion, anddisplay expenditure was over £5 billion. The balance was made up of online
classified advertising (comprising digital comparison tools and online
marketplaces). This is shown in Figure 1 below.

9Figure 1: Expenditure on different types of digital advertising in the UK in 2019

Source: CMA estimates based on parties’ data. *IAB / PwC for classified. Figures may not sum due to rounding.

17.

Media agencies and most advertisers have told us that search and display
advertising are not substitutable, mainly because they perform different roles.
Search is intent-based advertising designed to encourage those consumers
who have already shown an interest in buying the product to make apurchase, while display is suitable for raising brand awareness and reaching
new audiences that might not yet have shown interest.

18.

Google has had a very high share of the general search market for many
years. Google has generated around 90% or more of UK search trafficeach year over the last ten years and generated over 90% of UK searchadvertising revenues in 2019. The only fully independent competitor to
Google in the core functions of general search is Bing, owned by Microsoft.
As discussed below, Google also has a very strong position in various
segments of the open display market.

19.

Facebook (including Instagram, which it bought in 2012) generated over halfof UK display advertising revenues in 2019. For comparison, its largest
competitor, YouTube (owned by Google), earned between 5 and 10%.

20.

It is important to be clear that ‘big’ is not necessarily ‘bad’ in these markets.
Where a platform has gained a large market share by being consistently
better than its competitors and where it must respond to continued
competitive pressures to maintain that position, it may be considered tooperate within a competitive market even with a large market share. However,
if potential competitors face substantial barriers to entry and expansion, such10

that the market is no longer properly contestable, then a high market share
can translate into market power, giving the platform the opportunity toincrease prices, reduce quality or leverage market power to undermine
competition in potentially competitive markets and deny innovative rivals the
chance to bring new services to market.
21.

22.

We have not seen a significant challenge to the position of Google andFacebook for many years and have identified a number of characteristics ofthese markets that inhibit entry and expansion by rivals and undermine
effective competition. These include:•

network effects and economies of scale;•consumer decision making and the power of defaults;•

unequal access to user data;•lack of transparency;•

the importance of ecosystems; and•vertical integration, and resultant conflicts of interest.

The effect of any of these characteristics in isolation would be substantial, but
we have found they are mutually reinforcing and in combination provide an
unassailable incumbency advantage. We discuss each of them below,
drawing on Chapters 3 to 5 of this report which present our findings in moredetail in relation to, respectively, search and social media, consumer control
over data, and digital advertising.

Network effects and economies of scale
23.

Network effects occur when the value of a service to its users increases as thetotal number of users increases. Economies of scale arise where average costs
decrease with increasing scale. These features mean that once a platform
reaches a certain size, it can be extremely difficult for smaller new entrants tochallenge them effectively.

24.

In relation to search, the crawling and indexing activities required to create a‘map’ of the internet that can be searched in real time represent a major costand are subject to significant economies of scale.

25.

There are advantages to scale in user queries and click behaviour (known as‘click-and-query’ data), since the more such data that search engines have,the more able they are to improve their algorithms. Such scale advantages
are particularly high for uncommon or ‘tail’ queries. Both Google and Microsoft
told us that a substantial proportion of queries that they see are uncommon ornew, which suggests that the ability to return appropriate results for such tail11

queries is likely to be valuable to consumers, and to be an important factor inusers’ assessment of search quality. In addition, a higher volume of user
search queries is of benefit to advertisers wishing to bid for keywords in the
tail of uncommon search queries. 2
26.

We conducted an analysis of all of the search events seen by Google andBing in a one-week period in the UK, and found that while a relatively large
proportion of Bing’s tail queries were also seen in the Google dataset, a verysmall proportion of Google’s tail queries were also in the Bing dataset. This
demonstrates Google’s scale advantages over Bing in relation to uncommon
search queries.

27.

Overall, the greater scale of queries seen by Google supports its ability todeliver more relevant search results compared to its competitors, especially in
relation to uncommon and new queries. In view of the importance of search
relevance to consumers and keyword coverage to advertisers, a lack ofcomparable 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.

28.

Social media platforms are characterised by strong network effects,
since the value to someone of joining a network is directly related to the otherpeople who are already on the network. Having a large network of connected
users also attracts developers and content providers to the platform - which inturn further increases its value to users - and advertisers keen to access awide range of users.

29.

These characteristics lead to substantial barriers to expansion. We note that
there have been some examples over the last decade of entry in the social
media sector funded by display advertising, including Instagram(subsequently acquired by Facebook), Snapchat and TikTok. However, withthe possible exception of Instagram, these platforms are yet to reach a verysignificant scale in the supply of display advertising. In the case of Instagram,its success in achieving scale may be linked to its acquisition by Facebook.

30.

Overall, rival social media platforms do not act as a material threat toFacebook’s competitive position. Although new entry is possible, newplatforms must overcome network effects and other barriers by offering a
differentiated proposition that induces users to switch. No current platform
offers a range of services comparable to Facebook’s and none can provide
access to a similarly extensive user base. Even where platforms are

2 These keywords (which for example might include specific detail on product characteristics desired by the user)

are often preferred by advertisers as they can allow for more specific targeting and higher returns on investment.
Our analysis of search prices suggests that, of queries with ads, less common queries attract a higher price thanmore common queries.

12

successful in developing a user base, to be viable in the long-term, they must
successfully monetise their services, and in the last ten years we note thatrival platforms have struggled to do this.
Consumer decision-making and the power of defaults
31.

The digital economy has transformed the way we interact with information –the answer to a question that in the past would have taken considerable timeand effort to find is now available in a fraction of a second. As access to huge
reserves of information has become almost instantaneous, so our ability tofilter extraneous information and focus on what is most relevant has become
more important, and our tolerance for delays has fallen. Both of these factors
have encouraged ‘default behaviour’ on the part of consumers – a propensity
to avoid wasting time by accepting the default option presented.

32.

We have found that default behaviour by consumers has had a profound
impact on the shape of competition in both search and social media.
First, defaults play a very important role in influencing consumers’ use of
search engines, and second, 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, andthe ability of users in turn to control the use of their data.

33.

In search, Google has negotiated agreements with Apple and with many ofthe largest mobile phone manufacturers under which it pays a share of searchadvertising revenues to these partners in return for Google Search occupying
the default search positions on the device. The scale of these payments is
striking and demonstrates the value that Google places on these default
positions. In 2019, Google paid around £1.2 billion in return for default
positions in the UK alone, the substantial majority of which was paid to Applefor being the default on the Safari browser. Rival search engines to Googlethat we spoke to highlighted these default payments as one of the mostsignificant factors inhibiting competition in the search market. Consumers
primarily access the internet through mobile devices, which account for over
two-thirds of general searches, a share which has grown substantially inrecent years and is likely to continue to grow in the future.

34.

Google’s extensive default positions across devices and browsers, andin particular on almost all mobile devices in the UK, act as a barrier toexpansion for other search engines, making it more difficult for theseproviders to grow their user bases and improve their search quality andsearch monetisation rates. In addition, there is likely to be a positive feedback
loop between Google’s position as the largest search engine and its ability toacquire extensive default positions that further reinforce this position.
13

35.

Personal data is something that many people care deeply about, and it isimportant that consumers have control over what data they provide toplatforms and how it is used. We have found that consumers do not havesufficient control, because of platforms’ restrictions of choices and use ofdefaults and choice architecture.

36.

Some platforms operate a take-it-or leave-it model, where they do not give
their users the ability to control their data. This is particularly prevalent acrossmost social media platforms, including Facebook and Instagram, whose users
are unable to turn off personalised advertising while continuing to use theservice. This is in contrast to search engines: both Google and Bing allow
consumers to opt out of personalised advertising and some search engines
such as DuckDuckGo do not use personalised advertising at all.

37.

Even with those platforms who do offer a choice in principle, we areconcerned that this is typically not, in practice, provided in a way that users
can realistically be expected to engage with. It is often time-consuming andcomplicated to exercise choice because of the way in which options areframed. For all of the social media platforms reviewed, we found that it is not
obvious how to access privacy settings, which tends only to be visible afternavigating through multiple screens. And we have identified many examples
of how platforms’ choice architecture and use of defaults inhibits
consumers’ ability to exercise informed choice and nudges consumers
into making choices that are in the best interest of the platforms.

38.

It is unsurprising, therefore, that many consumers do not engage, despite
evidence that most would like to have more control over the use of their data.
Most platforms only collect limited data about consumer engagement with
their privacy settings and controls, but the evidence that does exist suggeststhat consumer engagement overall is very low. For example, we found that
only a very small percentage of new users who registered with Facebook in
February 2020 engaged with ad preferences or privacy controls within 30
days of registering.

39.

We also found that platforms’ privacy terms and conditions were long andcomplicated, typically stretching to many thousands of words. We do not think
it is reasonable for platforms to expect consumers to have read andunderstood all of these, often complex, terms before signing up to use aservice. Research has shown that very few consumers read privacy policies
when signing up to an online service and the evidence we have gatheredconfirms this: for example, in a recent 28-day period, the average visit to theGoogle privacy page was just 47 seconds, with 85% of visits lasting less than
10 seconds.

14

40.

The upshot of this is that users understandably simply agree to the default
choices they are presented with. These are set by the platforms, and it is hard
to be confident that they will adequately balance users’ preferences about theuse of their personal data against the substantial benefits to the platform.

Unequal access to user data
41.

Data about users is highly valuable for targeting digital advertising (particularly
display advertising) and measuring its effectiveness. Advertisers andpublishers have told us that Google and Facebook enjoy significant
competitive advantages in both targeting advertising and measuring its
effectiveness because of their extensive access to user data.

42.

Google collects a vast amount of user data from three main sources: from its
user-facing services (it provides over 50 such services, including search and
Gmail); from mobile devices running Android, Google’s operating system; andfrom the analytical technology they place on third-party sites and apps (known
as tags). Facebook gathers user data from the three main services it provides
in the UK (Facebook, Instagram and WhatsApp) and from Facebook analytics
technology placed on third-party sites (known as pixels).

43.

Advertisers and media agencies have told us that Google offers in-depth
targeting options, driven by its unique and vast sources of data, while
Facebook has the advantage of offering the ability to target specific audiences
based on demographic characteristics, interests and location. This creates a
substantial competitive advantage for Google and Facebook, both of whichhave access to more extensive datasets than their rivals. The inability ofsmaller platforms and publishers to access user data creates asignificant barrier to entry.

44.

The evidence suggests that the user data used for targeting digital advertising
is highly valuable to advertisers and publishers. For example, Google ran atrial in 2019 to compare the revenue publishers received from personalised
advertising with revenue from non-personalised ads. Our analysis of theresults suggests that UK publishers earned around 70% less revenue when
they were unable to sell personalised advertising but competed with others
who could.

45.

The ability to measure the effectiveness of advertising is an important driver ofadvertisers’ decisions on how to allocate expenditure across publishers andplatforms. 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 andapps. In particular, multiple studies have found that Google tags are found on15

over 80% of the most popular websites, and that Facebook has the second
highest prevalence of tags, covering between 40-50% of the most popular
websites. Both dwarf other platforms’ very limited coverage. In addition,
Google’s mobile data also allows it to track user actions offline (eg to identify
visits to shops). 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.
46.

We have also heard concerns that large platforms use data protection
regulations such as the General Data Protection Regulation (GDPR) as ajustification for restricting access to valuable data for third parties, while
retaining it for use within their ecosystems, thereby consolidating their dataadvantage and entrenching their market power.

47.

Platforms have a crucial ‘gatekeeper’ function in the digital economy,
mediating relationships between consumers and businesses in a wide variety
of markets. We have found that, by virtue of this position, and their market
power, large platforms such as Google and Facebook increasingly appear tobe acting in a quasi-regulatory capacity in relation to data protection
considerations, setting the rules around data sharing not just within their own
ecosystems, but for other market participants. Google’s recent announcementthat it was phasing out support for third-party cookies on the Chrome browser,
restricting publishers’ ability to offer personalised advertising, is an important
example of this.

48.

Our concern is that such platforms have an incentive to interpret dataprotection 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.

Lack of transparency49.

One of the key functions of online platforms that are funded by digitaladvertising is to be able to identify and target users as they interact with theplatform. This involves complex decision-making in real time using large
quantities of data. This applies equally to user-facing services such as searchand social media as to the operation of programmatic digital advertising:neither of these would be possible without the use of sophisticated algorithms.
Yet one consequence of this reliance on ‘black box’ decision-making is thatmarket participants find it difficult to understand or challenge how
decisions are made and to exercise choice effectively.

16

50.

In relation to the auctions used to sell advertising inventory, for example, wehave found that platforms have considerable discretion over a wide variety ofparameters that affect the prices advertisers pay, including how relevance isassessed and the level of reserve prices (which determine the price paid inover half of the auctions in Google Ads). Further, for the substantial majorityof advertisers which make use of platforms’ automated bidding tools,
platforms even have discretion over which auctions advertisers participate inand the level of their bid. Over 90% of UK advertisers on Facebook use thedefault automated bidding feature, which does not allow advertisers to specify
a maximum bid.

51.

Several newspapers have also expressed concerns about the impact ofalgorithms employed by Google and Facebook on traffic to their sites. We
have found that these two platforms provide almost 40% of the traffic to large
publishers and have heard concerns about unexpected changes to theGoogle Search and Facebook News Feed algorithms that have resulted indramatic reductions in traffic to certain newspapers overnight.

52.

This reliance on opaque algorithms poses a fundamental challenge to
traditional notions of how markets work. Since they are unable to scrutinise
the basis on which decisions are made, platforms’ users are often required toaccept outcomes on trust. From the platforms’ perspective, it can be difficult toconvince sceptical users that they are making decisions in their best interests,
since there is no independent verification of this. Effectively, platforms both
set the rules and are the sole arbiters of whether they abide by them.

53.

In relation to monitoring the quality and effectiveness of digital advertising,neither Facebook nor Google allows full independent verification of its own
inventory. This has led to a perception on the part of advertisers and agencies
that we spoke to that Google and Facebook are able to ‘mark their own
homework' for the measurement of viewability of ad impressions on their own
inventory. This could weaken competition, potentially resulting in advertisers
over-paying for advertising inventory.

54.

The lack of transparency is particularly severe in the open display market
where publishers and advertisers rely on intermediaries to manage theprocess of real-time bidding and ad serving but cannot observe directly what
the intermediaries are doing or, in some cases, how much they are being
charged. Market participants such as newspapers and advertisers typically do
not have visibility of the fees charged along the entire supply chain and thislimits their ability to make optimal choices on how to buy or to sell inventory,
reducing competition among intermediaries.

17

55.

Overall, the lack of transparency that we have observed has the potential
to create or exacerbate a number of competition problems. Platforms withmarket power have the incentive and ability to increase prices, for example, or
to overstate the quality and effectiveness of their advertising inventory. They
can take steps to reduce the degree of transparency in digital advertisingmarkets, reducing other publishers’ ability to demonstrate the effectiveness of
their advertising and forcing advertisers to rely on information and metrics
provided by those platforms. And the lack of transparency undermines theability of market participants to make the informed decisions necessary todrive competition. The upshot of all of these issues is that competition is
weakened and trust in the market is eroded.

The importance of ecosystems
56.

One of the defining features of Google and Facebook’s businesses is thatthey have built large ‘ecosystems’ of complementary products and services
around their core service. For example, in addition to search, Google has astrong position in browsers (through Chrome), operating systems (throughAndroid) and video streaming (through YouTube). From its origins as a social
network, Facebook has expanded into messaging, devices, gaming and retail.

57.

Integration of a wide range of products and services can deliver efficiency
savings and can also improve the consumer experience overall, by increasing
the ease with which a range of different services are accessed. Yet theincreasing expansion of Google and Facebook’s ecosystems can also giverise to competition concerns.

58.

Platforms with market power can leverage their position into downstream or
adjacent markets, giving themselves an advantage over potential competitors
and undermining competition in those markets. We have heard numerous
complaints about this form of activity, for example that Facebook is using its
position in social media to leverage into adjacent markets, or that Google isusing its position in general search to undermine competition in different formsof specialised search, including online travel agents and shopping comparison
services. 3

59.

Further, platforms can use ecosystems to protect their most profitable
services from competition. If platforms can convince consumers to stay within
their ecosystem, a new entrant would need to compete on many fronts todisplace them. In addition, by gaining control of certain adjacent markets (forexample, browsers and operating systems for Google), platforms can control

3 There have been EU antitrust enforcement cases into these types of concerns, such as Google Search(Shopping).

18

the entry points to their core markets. Further, where the adjacent market may
impose a competitive constraint in the future (for example, specialised searchand display advertising for Google), controlling it can insulate the platformfrom the future threat of competition.
60.

Finally, by expanding the breadth and variety of online services provided,
Google and Facebook are able to gather increasing amounts of the two
critical inputs to the digital advertising market: consumer attention and data.
This in turn results in greater advertising revenues, enabling them to invest at
a greater rate than their rivals, which creates a feedback loop that further
cements their powerful position.

Vertical integration and conflicts of interest
61.

All of the advertising-funded platforms that we have considered in this study
are vertically integrated in the sense that they run integrated sales functions –often based on the use of quality-adjusted second-price auctions – for thesale of their own advertising inventory. This is generally referred to as ‘owned
and operated’ inventory. In contrast, in the open display market, publishers
and other content providers compete to sell advertising inventory using a wide
variety of third-party intermediaries and exchanges.

62.

We have heard a number of concerns, particularly from publishers, about theextent of vertical integration that has taken place in the open display market.
While vertical integration can allow intermediaries to realise technicalefficiencies, it can also give rise to conflicts of interest and allow
companies with market power at one stage of the value chain to use it toundermine competition at other stages.

63.

The concerns that we have heard focus on the role of Google, which, asshown in Figure 2 below, has a very strong position in advertisingintermediation in the UK, controlling a share of [90-100]% of the publisher ad
server segment, 4 [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).

4 A publisher ad server manages the publisher’s inventory and provides the decision logic underlying the final

choice of which ad to serve, based on real time bids and bilateral deals. Publishers typically single-home on one
ad server and have told us that switching ad server is a complex and lengthy process which takes several
months to complete and involves significant risks of revenue loss.

19

Figure 2: Google’s roles in advertising intermediation

Publisher

Google share[90-100%]

Google share[50-60%]Google share[50-60%]Google share[80-90%]Publisher
Ad Server

SSP

DSP

Advertiser
Ad Server

Sell side

Advertiser
Buy side

Source: CMA: We include Google AdX, Google Ad Sense and Google AdMob in our definition of SSPs and Google DV360 and
Google Ads in our definition of DSPs.

64.

Google has market power in the open display market stemming from threemain sources: its inventory of search and display advertising and associatedlarge base of advertisers; its data on users; and its strong position inintermediation, particularly as the largest publisher ad server, initially throughthe acquisition of DoubleClick and other intermediary businesses.

65.

We have identified two main concerns. First, Google has been able to use its
market power in search and its wider ecosystem to build its position asa DSP. This has involved leveraging its user data and large base ofadvertisers (from Google Ads) to favour its DSP, and tying access to YouTube
to use of its DSP services.

66.

Second, Google’s strong position at each level of the intermediation
value chain creates clear conflicts of interest, as it has the ability andincentive to exploit its position on both sides of a transaction to favour its own
sources of supply and demand. While some other intermediaries are also
vertically integrated, Google’s market power gives it the ability to exploit theseconflicts by self-preferencing its own activities, and thereby further reinforcing
its market power.

67.

Parties have expressed to us a wide variety of specific concerns regarding
Google’s self-preferencing behaviour in intermediation. These relate to, forexample, restrictions on publishers’ ability to access the bid data required tocompare the performance of Google’s SSP with rivals and the imposition of
restrictions on publishers’ ability to set differential price floors. In some of thecases we have discussed, Google has highlighted a potential efficiency
justification for the practice in question. In others, Google has stated that it
has changed its behaviour in response to concerns, although we note that thelack of transparency of auction mechanisms makes it difficult for publishers
and advertisers to verify whether this is the case.

68.

Overall, the fact that Google has a very strong position as: a publisher ad
server, with influence over which ads are served and at which price; an SSP,
which sells inventory on behalf of publishers; and a DSP, which buys
20

inventory on behalf of advertisers, raises clear conflicts of interest. Google
has been able to exploit these conflicts in the past and retains the ability andincentive to continue to do so.

The case for a pro-competition regulatory regime for platforms
69.

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 fundedby digital advertising. We recommend that the government brings forward
legislation to introduce such a regime.

70.

This would be a ‘pro-competition’ regulatory regime, in that its objectives
would be to encourage competition by overcoming barriers to entry andexpansion, thus tackling sources of market power and promoting innovation.
In addition, it would protect competition and consumers where online
platforms have a position of market power, by ensuring they do not engage in
exploitative or exclusionary practices, or practices likely to reduce trust andtransparency.

71.

The concerns we have identified in this market study are both interrelated andself-reinforcing. Network effects and consumer default behaviour lead in
combination to a form of path dependency, in which incumbent platforms
generate higher revenues and attract more consumer attention and data,
which can then be leveraged across ecosystems to consolidate and increase
market power.

72.

Google and Facebook have such entrenched market power as a result of
these self-reinforcing entry barriers, that we have concluded that the CMA’s
current tools, which allow us to enforce against individual practices andconcerns, are not sufficient to protect competition. Further, the markets wehave reviewed are fast-moving, and the issues arising within them are wideranging, complex and rapidly evolving. Tackling such issues requires anongoing focus, and the ability to monitor and amend interventions as required.

73.

We therefore recommend a new pro-competition regulatory regime withstrong and clear ex ante rules, which can address a wide range of concerns
holistically, can be enforced rapidly by a dedicated regulatory body, and canbe updated and refined as required. The regulatory regime that we arerecommending comprises two broad categories of intervention:•

the enforceable code of conduct, which is designed to protectcompetition by governing the behaviour of platforms that have market
power over an important online gateway; and21

•a range of pro-competitive interventions, which are designed to tackle
the sources of market power and promote competition and innovation.

74.

These two categories of intervention have distinct functions. The function of
the enforceable code of conduct would be to govern the behaviour of
platforms that enjoy a position of market power. It would apply to platforms
with ‘strategic market status’ (SMS), as envisaged by the Furman Review.
The objective of the code would be to address the harmful effects that canarise from the exercise of market power, thereby helping to ‘protect’competition, rather than tackling the underlying causes of market power.

75.

Pro-competitive interventions, in contrast, would aim to address the sourcesof market power that we have identified within the markets we have reviewed,by tackling issues on both the demand and supply side of those markets andthereby seeking to ‘promote’ competition. These include a number of types ofintervention suggested by the Furman Review – in particular, data-related
remedies including the provision of third-party access to data and measures
to increase interoperability – as well as remedies not directly considered by
the Furman Review, including consumer control and separation measures.
Many of these would be very significant interventions, the costs and benefitsof which would need to be considered very carefully.

76.

All of the interventions that we are proposing would need a dedicatedregulatory body to implement them. Consistent with the Furman
recommendations, we use the term Digital Markets Unit (DMU) to refer to thebody empowered to implement the regulatory functions we are considering.
We use the term DMU very broadly, noting that this could be a new or an
existing institution, or even that the functions could be assigned acrossseveral bodies.

Enforceable code of conduct
77.

We recommend that an enforceable code of conduct be established togovern the behaviour of SMS platforms funded by digital advertising.
Once it is in place, the code has the potential to address many of theconcerns that we have identified in both consumer-facing and digitaladvertising markets in a more rapid and effective way than through the use of
our existing tools.

78.

The code should apply to the small number of platforms whose conduct raises
the most significant competition concerns. The government has asked theDigital Markets Taskforce to recommend the criteria by which a platform
would be designated as having SMS, taking account of a broad range of
online platforms. For the purposes of this market study, we have considered22which platforms funded by digital advertising should be considered to have
SMS. Based on the principles set out in the Furman Review and the extensive
evidence we have gathered on their market power, we would expect both
Google and Facebook to be designated with SMS.
79.

We propose that the code should take the form of high-level principles rather
than detailed and prescriptive rules. Given the complex and rapidly changing
nature of the markets within scope and the issues we have identified, there isa risk that overly prescriptive rules would soon become redundant or fail toanticipate important new developments. The code would have a statutory
basis, with powers given to the DMU to suspend, block and reverse decisionsof SMS firms and order conduct in order to achieve compliance with the code,
backed up by financial penalties for non-compliance. The DMU’s
investigations would be completed quickly so as to act before there issignificant competitive harm.

80.

We propose that the code should be based around three high-level objectives(fair trading, open choices, trust and transparency), with principles withineach objective, providing greater specificity as to the behaviour required by
the code. The fair trading principles are intended to address concerns aroundthe potential for exploitative behaviour on the part of the SMS platform, theopen choices principles are intended to address the potential for exclusionary
behaviour, while the trust and transparency principles are designed to ensurethat SMS platform provides sufficient information to users, so that they areable to make informed decisions.

81.

Each SMS platform would have its own tailored code. Published guidance foreach SMS platform would provide more detail on practical application of theprinciples to the markets within which the SMS platform would operate. While
not formally part of the code, an initial draft of the guidance would be
published alongside the code, and it would be updated by the DMU as themarket evolves.

82.

Overall, we believe the code would have a number of advantages overexisting ex post enforcement tools in competition, consumer and dataprotection law, including: the ability to cover a much wider range of concerns
holistically; the ability to address concerns more rapidly and before they result
in competitive harm; a greater focus on remedies and remedy design; andgreater clarity for platforms and other market participants over what
represents acceptable behaviour when interacting with users and competitors.
Having a dedicated DMU focus on the sector should also help develop
regulatory expertise and understanding over time.

23

Pro-competitive interventions
83.

In addition to the code, we recommend the DMU have the power tointroduce ‘pro-competitive interventions’ to transform competition in digitalplatform markets. While the key objective of the code is to mitigate the effects
of market power by governing the behaviour of platforms with SMS to stop the
exploitation of users and the exclusion of competitors, the pro-competitive
interventions would aim to tackle sources of market power directly, byovercoming barriers to entry and expansion. Consistent with thetransformational nature of pro-competitive interventions, they would require
greater opportunities for consultation with affected parties and longer
timescales for analysis and decision-making.

84.

The Furman Review recommended that the DMU should have powers to
implement a range of data-related remedies including data mobility, systems
with open standards and open data. We agree that data-related remedies are
key in digital platform markets, reflecting the fundamental role that data playsin the business models of online platforms, particularly those funded by digitaladvertising, and the fact that differential access to data is at the heart ofimportant barriers to entry and expansion.

85.

The main data-related interventions that we have assessed in this study, andwhich we consider should be part of the DMU’s toolkit, are the following:

86.

•

Increasing consumer control over data, which includes providing
choices over the use of data and facilitating consumer-led data mobility;•

Mandating interoperability to overcome network effects andcoordination failures;•

Mandating third-party access to data where data is valuable inovercoming barriers to entry and expansion and privacy concerns can beeffectively managed; and•Mandating data separation / data silos, in particular where the data has
been collected by the platforms through the leveraging of market power.

We also consider that powers to introduce two additional forms of intervention
are necessary. First, to address the power of defaults in the markets we havereviewed, the DMU should have to power to introduce consumer choice
and default interventions, which would allow it to restrict platforms’ ability tosecure default positions and to introduce choice screens. Second, to address
potential conflicts of interest arising from vertical integration, the DMU shouldhave the power to introduce different forms of separation intervention, fromoperational separation, to full ownership separation.

24

How would these interventions solve the issues we have identified?
87.

We have assessed in some detail how the code and pro-competitive
interventions should be used to address the issues we have identified inrelation to search, social media, consumer control over data, and digitaladvertising.

Search88.

The code would be an essential tool in addressing concerns about several
aspects of the exercise of market power by Google in general search,
including the leveraging of that market power to adjacent markets andconcerns regarding self-preferencing in specialised search. However, we think
it is unlikely to have a significant effect in tackling the root causes of Google’s
market power in search. We therefore consider that pro-competitive
interventions are likely to be required to overcome barriers to entry andexpansion on the demand and supply side of search.

89.

First, we consider that the extent of Google’s default positions is a verysignificant current barrier to entry and expansion in search and addressing
concerns in relation to defaults could have a significant positive impact oncompetition in search. While Google’s default payments may be passed on to
consumers to some extent by device manufacturers, this is likely to be
outweighed by the costs imposed on consumers due to weaker competition in
search, such as increased prices for the goods and services that use searchadvertising. We therefore recommend that the DMU should have thepower to restrict Google’s ability to secure default positions, to restrict
the monetisation of default positions on devices and to introduce choicescreens. The DMU should also have the ability to influence and approve thedesign of any choice screens introduced.

90.

Second, we consider that the DMU should have the power to require
Google to provide click and query data to third-party search engines toallow them to improve their search algorithms, thus helping to overcome
Google’s scale advantages in data. We are confident that such an intervention
could be designed in a way that does not involve the transfer of personal data,and hence without raising privacy concerns. Such an intervention would havea positive impact on competition through helping to overcome barriers to entry
and expansion, which should provide a spur to greater innovation, although
the DMU would need to pay careful attention to design, including which data
should be within scope, to reduce the risk of third parties copying aspects of
Google’s algorithm.

25Social media
91.

The market power of Facebook derives in large part from strong network
effects stemming from its large network of connected users and the limited
interoperability it allows to other social media platforms. Under the code we
consider that there would also be an important role for the DMU to intervene if
Facebook proposes reductions in interoperability that restrict rivals’ ability tocompete directly with it.

92.

We also recommend the DMU be given powers to mandate
interoperability. Interventions to require greater interoperability will involvebalancing 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. We think that the case forinteroperability is greater in respect of functionality which is: directly helpful inovercoming identified network effects; not highly innovative; and in respect ofwhich privacy concerns can be managed effectively.

93.

Our assessment against these criteria is that there is a strong case formandating greater interoperability in relation to finding contacts and crossposting functionalities, but that the evidence does not currently favour more
ambitious forms of interoperability such as full content interoperability. Given
the market position of Facebook and the extent to which it benefits fromnetwork effects, we think that such interventions should apply to Facebook in
the first instance (eg Facebook should offer a defined find contacts service tousers of a third-party platform, but rival platforms should not be required
reciprocate). The balance of considerations is likely to change over time given
the fast-evolving nature of social platforms and the DMU will be well-placed tojudge the right forms of interoperability to deliver consumer benefits on an
ongoing basis.

Consumer control over data94.

We believe the balance of control over consumers’ data is too far in favour ofthe platforms. Consumers value privacy and want control over their data, butmany social media platforms do not allow consumers to turn off personalised
advertising. Those platforms that do provide a choice use defaults and choicearchitecture that make it difficult for consumers to exercise this choice.

95.

To address these concerns, we recommend that 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 in a way that they canreasonably be expected to exercise:26

•The choice requirement remedy, requiring platforms to give consumers
the choice not to share their data for personalised advertising.

•The ‘Fairness by Design’ duty, placing a duty on platforms to ensurethat they are maximising users’ ability to make informed choices about theuse of their personal data.

96.

We consider it reasonable to focus both the choice requirement remedy andthe Fairness by Design duty on platforms with SMS in the first instance.
These are the platforms with market power, which hold the largest amount ofconsumer data, are used by the most consumers, and consumers find it mostdifficult to avoid using. The DMU can review and refine the implementation ofthese measures and assess the impacts before considering potential wider
application to non-SMS platforms.

97.

Under a choice requirement remedy, platforms would be required to offer
consumers the choice of a basic service without personalised advertising. The
DMU should also be able to approve the way in which the choice ispresented, including whether the default is to allow personalised advertisingor not. The platforms would be able to offer consumers incentives to accept
personalised advertising, as this should both benefit consumers and help
platforms manage potential revenue implications. The Fairness by Design
duty would require platforms to design choice architecture in a way thatencourages free and informed consumer choice. It would be subject to arigorous trialling and testing and monitoring regime, to ensure it provides theintended support for consumers in practice.

Conflicts of interest and exploitation of market power in digital advertising98.

We believe the code of conduct would be an effective tool to address a wide
range of the concerns we have identified in digital advertising. For example,
under the ‘fair trading’ objective, the code could be used to address concerns
around the potential for auction manipulation, particularly where platforms
exercise considerable discretion on bidders’ behalf, such as throughautomated bidding. Under the ‘open choices’ objective, the code could be
used to address self-preferencing concerns within search advertising and ad
tech intermediation. For instance, it could require platforms not to prefer theirown customers over third parties who use other intermediaries.

99.

We also think there is a strong case for the power to introduce separation andaccess interventions in the open display market. The strong position of
Google’s publisher ad server, SSP and DSP, and its unique access toGoogle’s ad inventory, means that each of these businesses potentially faces
a conflict of interest, potentially acting on the advertiser side, on the publisher
27side and on Google’s own account. Further, Google can increase its market
power by tying access to YouTube to use of its DSP services. Based on our
analysis, we consider that there is a case for two broad forms of intervention
to address these concerns in open display advertising:•

Separation of the function of ad serving from the advertising advisory
function (DSP), where the ad server has market power; and•The prohibition of a DSP restricting access to its inventory, where thatinventory is sufficiently important to generate market power for the DSP.

100.

We recommend that the DMU should have powers to implement
ownership separation and operational separation and to oblige parties
to provide access to inventory on reasonable terms. There are various
forms of separation, each of which could apply to the separation remedies
described above. These can be categorised as: full ownership separation;
operational separation, which would include management separation and‘firewalls’ between different businesses under common ownership; or
restrictions directly targeted at conflicts of interest, where intermediary firms
are not allowed to act on both sides of a single transaction.

101.

In considering the use of its separation powers, the DMU should look tobalance the costs of intervention with the benefits for consumers throughinnovation and more effective competition. We recognise that ownershipseparation would be a highly interventionist remedy and the DMU would needto consider the feasibility of the UK acting unilaterally in this area.

Data access and transparency in digital advertising102.

Many of the concerns we have identified in digital advertising markets relate
to data. First, many of the basic functions of digital advertising, such as pricing
and ad verification, are characterised by a lack of transparency andinformation asymmetries, inhibiting effective demand-side engagement andleading to a lack of trust. Second, we have found that differential access todata for targeting and attribution creates a substantial barrier to entry andexpansion in digital advertising, with Google and Facebook enjoying a muchwider variety of sources of such data and restricting other parties’ access to it,
sometimes on the basis of data protection regulation.

103.

There is a strong case for greater transparency over fees and verification
data. In relation to fees, we consider it to be good practice that data on fees
charged by ad tech intermediaries should be provided to contracted parties,
and that a move to more widespread publication of data on average fee ortake rates could help bring a degree of confidence to market participants. In
28our view, this would be an appropriate role for the DMU to take on. We also
recommend that the DMU should have the power to introduce atransaction ID but suggest that further work would need to be undertaken by
the DMU to assess how such a transaction ID could be designed to avoid
potential privacy concerns.
104.

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 andoperated by Google and Facebook and that all sides work to secure thenecessary contractual arrangements to ensure that this is done in a way thatis consistent with the requirements of GDPR.

105.

To address concerns relating to Google’s and Facebook’s greater access touser data for targeting advertising and assessing its effectiveness, we haveidentified three forms of intervention, all of which could improve competition indigital advertising markets by providing more equal access to data fortargeting and attribution. We recommend the DMU have powers to
introduce:

106.

•

Data separation (or data silo) interventions which would prohibit
platforms from combining certain categories of data within theirecosystems;•

User ID and data access interventions, which would provide for thecreation of a secure common digital ID that market participants could use
to assign to their own data,•

Data access interventions, which would require platforms to provide
third parties access to certain categories of data; and•Data mobility interventions, which would allow consumers to share thedata that platforms hold on them with other parties, potentially bothpromoting competition and increasing consumer control over their data.

Although each of these interventions would improve competition, they differ interms of their potential implications for effective targeting and data protection
and privacy. The DMU will wish to apply different interventions in different
circumstances. For example, data separation is most likely to be appropriate
where the linking of the data constitutes a significant barrier to entry andexpansion, where the data has been collected through the exercise of market
power and where there are significant privacy concerns and limited efficiency
benefits from the data being combined. The case for user ID and data accessinterventions is stronger where there are strong competition and efficiency
29benefits in sharing the data, and privacy concerns can be managed throughaggregation or anonymisation. The potential use of these interventions is a
key focus of our proposed further work with ICO, as discussed below.

Decision on a market investigation and further CMA work107.

We have carefully considered what actions the CMA should now take to help
in the creation of the new pro-competition regulatory regime and to address
the concerns we have identified. This has included: whether we should launcha market investigation and/ or use our enforcement powers; how to takeforward the work of the Digital Markets Taskforce; joint work with the ICO; andinternational advocacy and cooperation.

Decision on a market investigation reference
108.

Whenever the CMA conducts a market study, it has a statutory duty toconsider whether to launch a market investigation. Undertaking such a market
investigation enables the CMA, amongst other things, to intervene directly in
relevant markets through order making powers.

109.

In our interim report in December, we noted that Google and Facebook had ahigh degree of market power in their respective markets, with consumers
facing substantial harm as a result, and that the statutory test for making amarket investigation reference had been met across a number of related
markets. However, our provisional view was that we should not launch amarket investigation on the basis that recommendations to government for
regulatory reform represented the best means of addressing our concerns.

110.

In the consultation responses to our interim report, several stakeholders
supported this approach, while many others advocated strongly for us toundertake a market investigation. These responses included calls forinvestigations into a number of different markets, and to solve different issues
and competition concerns. We have considered these representations very
carefully. Our view remains that the statutory test for a reference has been
met. However, we have concluded that we should not launch a market
investigation now but should focus our work in the near term on further
support for regulatory reform, as this is the most effective means of delivering
the interventions we are proposing. There have been two significant
developments since our consultation that have strengthened this conclusion.

111.

First, and most significantly, the acceptance by the government of the Furman
Review’s strategic recommendations, coupled with commissioning of theDigital Markets Taskforce, has given us renewed confidence that the30

government is committed to taking forward pro-competitive reforms in thisarea, which are consistent with the findings and aims of this market study.
112.

This development is consistent with our conclusion that a new pro-competition
regulatory regime is essential to delivering and enforcing the kinds ofinterventions we have proposed in this report. Although some of theinterventions we have proposed the DMU takes forward could be
implemented using order making powers within a market investigation,effective design and implementation of these measures will require a holistic
approach, taking into account the interaction between the code and procompetitive interventions, and the ability to monitor, test and amend
interventions on an ongoing basis, to ensure that they are effective. This will
require a new pro-competition regulatory regime.

113.

Such a regime will need to be implemented through legislation, and webelieve we can best support such legislation through detailed and practical
recommendations to government regarding the powers it should allocate to
the DMU, both through this report and, subsequently, through the DigitalMarkets Taskforce. We do not consider it would be helpful to the process ofdesigning such legislation if we were to run a market investigation in parallel,as this would risk cutting across broader regulatory reform.

114.

Second, the disruption caused by the COVID-19 pandemic, to the CMA but
also to many of our stakeholders, has been significant. We are mindful thatlaunching any market investigation introduces burdens onto the businesses
within its scope, and given the current disruption to the economy we do notthink it would be appropriate, or in the best interests of consumers, to launcha market investigation at this stage.

115.

We are optimistic that, following the report of the Taskforce, the government
will be ready to take forward the necessary legislation for establishing theDigital Markets Unit in good time. If that turns out not to be the case, or ifsome of our recommended interventions are judged not to be well-suited tothe emerging new regime, then the CMA will stand ready to take direct actionof its own through a market investigation. The CMA will keep this option underreview following the conclusion of the Taskforce.

Enforcement action
116.

The CMA is currently actively considering possible enforcement cases in thedigital sector, drawing on the work of the market study. More broadly, the
CMA will also continue to consider any examples of digital platforms exploiting
their market power or otherwise engaging in anti-competitive conduct, and will31

stand ready to take enforcement action where it identifies evidence of anticompetitive conduct.
Digital Markets Taskforce
117.

The recommendations we have made to government within this report are a
big step forward towards the establishment of a new pro-competition regime,
but that is not the end of our work in this area. This market study has focusedon a subset of online platforms that are likely to be within the scope of the
DMU – our detailed recommendations are based only on an assessment of
online platforms that are funded by digital advertising.

118.

As the next step to inform the new regime, the CMA will be leading the workof the Digital Markets Taskforce, commissioned by the government to provide
expert advice on the action that is necessary to promote competition andinnovation in digital platform markets. More specifically, the government has
asked the Taskforce to set out recommendations for the practical applicationof the potential pro-competitive measures set out in the Furman Review.

119.

The Taskforce will draw on a wide range of evidence to inform its advice,including the findings and recommendations of this market study, while its
scope will be extended to all online platforms, including those that are notfunded by digital advertising.

120.

The CMA is today formally launching this work by publishing a call for inputs.
Responses to this consultation are requested by 31 July 2020. 5 The
Taskforce will now provide advice to government by the end of the year.
Building on the important work of this market study, the Taskforce will be a
critical next step in the journey towards development of a new pro-competition
regime for digital platform markets.

Work with the Information Commissioner’s Office (ICO)121.

We have engaged constructively with the ICO throughout this market study on
issues relating to the intersection of competition and data protection law andon the potential design and development of several of the interventions weare proposing. After the completion of the study, we will build on this positive
collaboration with the ICO as part of an ongoing programme of joint work topromote markets which are competitive, empower consumers and safeguard
individuals’ rights to privacy.

5 Digital Markets Taskforce case page.

32

122.

There will be several areas of focus for this ongoing work. These will include,for example, ongoing consideration of the issues discussed in this study
regarding the interaction between competition and data protection regulationin digital advertising markets, including in particular how to respond to andengage with Google’s proposals for phasing out third party cookies on
Chrome browsers over the next 18 months. We will also wish to further
develop thinking on our proposed Fairness by Design intervention and how it
would complement the Data Protection by Design obligation under dataprotection regulation, and consider how data-related remedies may apply toother digital platform markets outside those we have reviewed in this study.
More broadly, we will consider the data protection, consumer empowerment
and competition implications of different models of consumer control overdata, including privacy-enhancing technologies and forms of data mobility
such Personal Information Management services. The details of our intended
collaboration with the ICO are set out in Chapter 10.

Advocacy and cooperation with our international partners
123.

Throughout the market study the CMA has engaged extensively with otherinternational authorities. This includes discussions with: authorities incountries undertaking similar market studies into digital advertising, includingFrance, Germany and Sweden; countries developing proposals for ex ante
regulation of platforms, including Australia, Germany and Japan; andauthorities that have recently completed or have ongoing enforcement
investigations in relation to digital advertising, including authorities in the
United States and the European Commission. We believe these forms ofinternational engagement are vital in seeking to develop a consensus on theissues and the potential solutions to the global challenges posed by digitalplatforms.

124.

Following the completion of the market study the CMA will continue to look to
inform the international debate about how to address concerns relating toonline platforms funded by digital advertising. In particular, we will seek todisseminate the findings we have set out in this report through seminars,
bilateral and multilateral engagement, proactively advocate the need for exante regulation through fora such as the OECD and International Competition
Network, and work closely with any enforcement agency investigating issues
in digital advertising markets to share the knowledge and investigativetechniques we have learnt.

33

Summary of recommendations
125.

To achieve this substantial package of reform, the necessary next step is forthe government to pass legislation. We have set out our recommendations to
the government in Box 1 on the broad content of this legislation.

Box 1: Our recommendations to the government
The government should legislate to introduce a new regulatory regime forplatforms comprising both the code and the pro-competitive interventions, drawing
on the work of this study into online platforms funded by digital advertising, andthat of the Digital Markets Taskforce, which will also be considering online
platforms funded by transactions.
More specifically, we make the following high-level recommendations togovernment for what this legislation should include:
Recommendation 1: Establish an enforceable code of conduct to govern the
behaviour of platforms funded by digital advertising that are designated as having
strategic market status (SMS). The purpose of the code would be to meet threehigh-level objectives of fair trading, open choices and trust and transparency.
Recommendation 2: Establish the requirement for a DMU to undertake SMS
designation, introduce and maintain the code based on objectives set out in thelegislation, and produce detailed supporting guidance.
Recommendation 3: Give the DMU the necessary powers to enforce theprinciples of the code on a timely basis, and amend its principles in line withevolving market conditions.
Recommendation 4: Give the DMU the necessary powers to introduce a rangeof pro-competitive interventions, which should include:a. Data-related interventions (including consumer control over data,interoperability, data access and data separation powers)
b. Consumer choice and default interventions
c. Separation interventions

34

1.

Introduction

Context
1.1

This is the final report of our market study into online platforms and digitaladvertising in the UK.

1.2

The study was launched in the context of concerns, raised in the UK andglobally, about the powerful position held by a small number of online
platforms. These have focussed, alongside a broader set of issues such as
online harms and fake news, on the market power of large online platforms
and their ability to extract large volumes of data from consumers to entrenchthat power. Several institutions in the UK raised specific concerns about themarket power of platforms that are funded by digital advertising, and the lackof transparency and conflicts of interest in the business-to-business digitaladvertising market, and recommended that the CMA undertake a market
study in this area (some examples of these calls are provided in Box 1.1).

1.3

We launched our market study on 3 July 2019 in response to these calls. Its
scope is structured around three related themes:
1) to what extent online platforms that are funded by digital advertising havemarket power in consumer-facing markets, and the sources of this market
power;
2) whether consumers have adequate control over how data about them isused and collected by online platforms; and
3) whether competition in digital advertising markets is distorted by a lack oftransparency, conflicts of interest or market power held by platforms.

1.4

On 18 December, we published our market study interim report. That report
set out our understanding of the markets within the scope of the market study
and our initial findings on each of the above themes, and identified a broad
range of potential interventions to address our emerging concerns. We
published the responses we received to this consultation on 8 April 2020. 6

6 Online platforms and digital advertising market study case page.

35

Box 1.1: Calls for a CMA market study into digital advertising
Digital Competition Expert Panel (Furman
Review): 7‘The CMA should conduct a market study into thedigital advertising market encompassing the entire
value chain, using its investigatory powers to
examine whether competition is working effectively
and whether consumer harms are arising.’
Cairncross Review: 8‘The Review recommends that the Competition andMarkets Authority use its information-gathering
powers to conduct a market study into the online
advertising industry. By looking more closely into theposition of different players, their roles, costs andprofitability, the CMA will be able to identify how
efficiently the online advertising market is working,and what remedies, if any, are needed.’House of Lords Select Committee on
Communications: 9‘We recommend that the Competition and Markets
Authority (CMA) should conduct a market study ofdigital advertising to investigate whether the market
is working fairly for businesses and consumers.’

Which?: 10‘The Competition and Markets Authority (CMA)
should conduct a market study in to the digitaladvertising industry as a matter of urgency.’

7 Unlocking digital competition, report of the Digital Competition Expert Panel aka ‘the Furman Review’.
8 The Cairncross Review: a sustainable future for journalism.

9 Select Committee on Communications, UK advertising in a digital age.
10 Which?, Control, Alt, or Delete? The future of consumer data.

36

1.5

A primary aim of this study has been to inform government thinking on theregulation of online platforms and to provide analysis to support the
government’s response to the Furman Review. 11 In particular, we aim toensure that any proposals for future regulation by government are based on asound understanding of advertising-funded platforms’ business models andthe challenges that they may pose. We also want to inform the developmentof a new regulatory landscape that extends beyond advertising-funded
platforms, here in the UK and globally. We have already made substantial
progress towards these aims.

1.6

Since publication of our interim report, the government announced in the
Budget on 11 March that it was formally accepting all six of the Furman
Review’s strategic recommendations for unlocking competition in digitalmarkets. 12 It also announced that ‘a new cross-regulator taskforce, based in
the Competition and Markets Authority (CMA), will report to the government
within six months on a pro-competitive regime for digital platform markets.
This will include advice on implementing a pro-competitive code of conduct for
digital platforms with strategic market power.’ We welcome thisannouncement of establishing the Digital Markets Taskforce as a positive step
towards the development of a new pro-competition regime in the UK.

1.7

As well as supporting a number of recommendations that we are making togovernment, the analysis and findings set out in this report will also inform theassessment and report by the Digital Markets Taskforce.

Coronavirus (COVID-19)
1.8

Since publishing our interim report in December, the majority of the UK andglobal population has been forced to adjust and adapt to substantial
restrictions on its freedom and usual way of life due to the COVID-19
pandemic. As a result, some forecasts suggest the UK will face the most
severe downturn in economic output seen for hundreds of years. 13 There
have also been some inevitable consequences for the work of this study, with
the CMA and parties we have engaged with facing significant disruption anduncertainty.

1.9

As has been the case for so many organisations, we have had to adapt ourapproach to working during the lockdown, dealing with home-working,absence due to illness, and increased childcare responsibilities during the

11 Furman Review (2019), Unlocking digital competition.
12 HMT, Budget 2020, section 2.43.

13 Financial Times, BoE warns UK set to enter worst recession for 300 years, May 2020.

37

final few months of the study. We are also acutely aware of the pressures thatmany companies are under during these challenging times, and we are
extremely grateful to all parties that have continued to cooperate soconstructively with the study. Even so, we have faced some understandable
delays in receiving critical data from a range of parties.
1.10

For these reasons, we have had to scale back aspects of the further analysis
we proposed to undertake at the interim report stage. In particular, we chose
not to take forward a quantitative survey of advertisers due to a very low
response rate at the pilot stage, undertaking a smaller scale qualitative survey
instead. Overall, however, we have been able to carry out extensive further
analysis in the second half of the study, including in-depth quantitative work,and are grateful to all parties who provided the data required for this. We havealso needed to take account of the ongoing disruption caused by the virus inconsidering the appropriate action for us to take following the conclusion ofthis study. We set this out in Chapters 9 and 10 of the report.

Evidence gathering
1.11

Over the course of the study, we have consulted a large number of parties,
and gathered a broad range of evidence. This has involved a high volume ofsubmissions from parties, in response to our statement of scope, our interim
report consultation, and our numerous requests for information. We are
grateful to all those who have helped us progress our work at a rapid pace.
Figure 1.1 summarises the sources of evidence we have been able to gather.

38

Figure 1.1: Overview of our evidence sources

Source: CMA.

1.12

The extensive data we have been able to gather directly from market
participants has enabled us to carry out analysis on a wide range of market
outcomes, including revenues and shares of supply, pricing for search anddisplay advertising, profitability, fees charged by advertising intermediaries
and many others. A summary of the responses to our interim reportconsultation can be found in Appendix B. 14

This document
1.13

This final report marks the conclusion of our market study. The purpose of thisdocument is therefore to set out the conclusions we have reached on thestate of competition in the markets within our scope, as well as setting out ourrecommendations for how to address the issues we have identified. We

14 For a summary of responses to our statement of scope, see Appendix B to our interim report.

39

consider that this document provides compelling evidence to the government
in support of our full suite of recommendations.
1.14

This final report follows a similar structure to our interim report, building on theanalysis and findings we published previously. Chapter 2 provides an
overview of how the markets, platforms, and issues within our scopeinterrelate. The chapters that follow then provide a detailed analysis of theissues we have found under each of the three themes. Where there are
elements that are more complex or technical, such as an explanation of therole of data within digital advertising sectors, or of the ways that consumers
are tracked online for the purpose of serving personalised advertising, wehave provided additional detail in supporting appendices. 15 We hope that, as
well as supporting the case for our recommendations to government, theevidence and analysis included within this report and supporting appendiceswill inform both the work of the future Digital Markets Unit – a new regulatory
function proposed by the Furman Review to oversee its pro-competition
proposals – and global policy-making in the area of online platforms.

1.15

Building on the strong groundwork provided by the Furman Review for the UK
government, 16 the special advisors’ report for the European Commission, 17
and Stigler Center Committee’s report on the challenges posed by digitalplatforms, 18 we have taken the discussion forward by identifying which
specific features and concerns are most relevant to each market or individual
platform. Chapter 3 reviews the consumer-facing services within generalsearch and social media. Chapter 4 analyses issues relating to consumer
control of data on those same platforms. Chapter 5 considers issues that are
specific to digital advertising markets.

1.16

Chapter 6 explains how the issues identified within this market study lead to
detriment for both consumers and broader society, and gives an indication of
the potential benefits to consumers from more competition in these markets.
This analysis is not a formal impact assessment for the recommendations set
out in this report, but serves to illustrate the nature and scale of harm from theconcerns we have identified and the potential benefits of regulatory reform toconsumers and broader society.

1.17

Building on our findings, Chapter 7 sets out the case for a pro-competition
regulatory regime for online platforms, and in that context makes our

15 See Appendix F for information on the role of data in digital advertising. See Appendix G for information on therole of tracking in personalised advertising.
16 Furman Review (2019), Unlocking digital competition.
17 Jacques Cremer, Yves-Alexandre de Montjoye and Heike Schweitzer (2019), Competition for the digital era,
final report for the European Commission.
18 Stigler Center (2019), Committee on Digital Platforms Final Report.

40

recommendations to government. These recommendations are intended to
inform the necessary legislation to develop the new regime.
1.18

Chapter 8 then sets out a number of more detailed proposals for how the new
regime could be applied in practice to platforms that are funded by digitaladvertising. In doing so, the chapter clarifies how the code of conduct and thedifferent types of pro-competitive interventions would address the specificconcerns we have identified in the markets for general search, social media,
and digital advertising. The purpose of the additional detail we have includedin this chapter is to provide ‘proof of concept’ to the government of the new
approach we are advocating, while also informing, as far as we are able atthis stage, the future work of the DMU. More detailed analysis on each of theindividual interventions can be found in Appendices T to ZA.

1.19

Chapter 9 then explains our decision not to make a market investigationreference at this stage, choosing to focus on recommendations to government
in the near term, both through this report and subsequently through the DigitalMarkets Taskforce.

1.20

Chapter 10 concludes by highlighting the further work that the CMA will be
undertaking to take our recommendations forward. This includes the next
steps for the Digital Markets Taskforce and its call for inputs, international
engagement and advocacy, further work with the ICO and the potential for
future action using our markets and enforcement powers.

1.21

Consistent with our intention for this study to shine a light on these complex
and opaque markets, we have attempted to reveal as much detail from ourevidence and findings as possible. Through our interim report in December,and again in this final report, we have surfaced a great deal of information thatwas not previously in the public domain. As was the case in our interim report,
there has been some information we have chosen not to publish – in somecases because the information is highly commercially sensitive, and in others
because parties that provided the information to us indicated that they wished
to remain anonymous for fear of repercussions in the market if their identity
were revealed. There are as a result some instances where we haveanonymised parties’ submissions, presented confidential numbers in ranges,
or sought to make more generalised statements in order to convey the key
messages while not disclosing confidential information. We indicate these
instances with the use of [square brackets], and in some cases [].

1.22

We stand ready to work with government and market participants to take our
proposed pro-competitive reforms forward as a priority.

41

2.

Overview•

Google and Facebook are the largest online platforms that are funded bydigital advertising. Their business model relies on attracting consumers’
attention and gathering data about them, which they use to sell targeted
advertising.

•

The services provided by both companies are highly valued by consumers.
Search engines give us instant access to information, news and a wide rangeof goods and services. Social media services enable us to connect withfriends and family around the world, keep up with news or current trends andshare creative content with one another. Both platforms have opened up
access to sophisticated and targeted advertising for millions of small
businesses around the world.

•

Over a third of UK internet users’ total time online is spent on sites owned by
Google and Facebook. Both companies are also able to gather substantiallymore data about consumers than their rivals.

•

As a result, both Google and Facebook now hold powerful positions in the
UK digital advertising markets. We estimate that search advertising revenues
totalled around £7.3 billion in 2019, of which more than 90% was earned by
Google. Total spend on display advertising was worth £5.5 billion, of which
we estimate more than half went to Facebook. Overall, we estimate thataround 80% of all expenditure on search and display advertising in the UK in2019 went to Google or Facebook.

•

Both Google and Facebook are highly profitable. Our analysis demonstrates
that both companies have for many years been earning profits that aresubstantially higher than any reasonable estimate of what we would expect in
a competitive market.

•

In this study, we are assessing whether problems such as market power, lackof transparency and conflicts of interest mean that competition in search,social media and digital advertising is not working as well as it should.

•

These issues matter to consumers: if competition in search and social media
is not working well, this can lead to reduced innovation and choice, while
poor competition in digital advertising can increase the prices of goods andservices across the economy, and undermine the ability of newspapers andother providers who rely on digital advertising revenue to produce valuable
content.

Introduction
2.1

Our study has covered three themes relating to platforms that are funded bydigital advertising: competition in consumer-facing services; consumer control
over data; and competition in digital advertising markets. The aims of this42chapter are to explain why we have looked at each of these three themes andhow they are connected, to explain how the key consumer-facing and digitaladvertising markets work, and to set out at a high level why this all matters to
consumers.
2.2

The chapter covers the following topics:•

The business model of platforms funded by digital advertising, including
an explanation of the importance of consumer attention and data. Thissection clarifies why we have focused on the services provided by Google
and Facebook.

•

A high-level introduction to the digital advertising market, including thedifferent types of digital advertising.

•A summary of some key market outcomes, including expenditure on
different forms of digital advertising, and an analysis of the profits earned
by Google and Facebook.

•

An explanation of how a lack of competition in these markets can result ina wide range of negative impacts for consumers.

The business model of platforms funded by digital advertising
2.3

Online platforms typically seek to attract consumers by offering their coreservices for free. Once they have attracted a critical mass of consumers, theyseek to make money from business users on another side of the platform. In
transaction-based platforms, such as Amazon Marketplace or Apple’s App
Store, this is predominantly through the commission that is charged toretailers or app developers respectively.

2.4

For other platform services, such as search engines and social media
services, monetisation comes predominantly through serving adverts. Morespecifically, they make money by selling inventory to advertisers. 19 In an
online setting, inventory is essentially empty space on a web page or mobile
app, which can be filled with text (including links to other websites), images,
and videos. Google and Facebook are by far the largest two companies
operating with this business model – we have therefore focused heavily onthese two companies throughout our market study.

19 Advertising ‘inventory’ is a space, whether located on a billboard, in a newspaper, on a web page, or on a TV

screen, where adverts can be displayed.

43

2.5

Although consumers do not pay money for these services, there is still an
exchange that takes place between them and the platform. In exchange forsearching the internet, watching videos, or communicating with friends,
consumers provide their attention and data about themselves. Advertisingfunded platforms are able to combine the attention of their users with
contextual or personal information they have about them to serve highlytargeted adverts, which are in high demand by advertisers. These exchanges
are illustrated in Figure 2.1 below. The importance of consumer attention anddata in the digital advertising market is explained in more detail later in thischapter.

Figure 2.1: Consumer services supported by digital advertising

Source: CMA assessment.

2.6

The advertising-funded business model is not novel, nor is it inherently
problematic from a competition perspective. Newspapers have been
generating revenue in the UK through advertising for several hundred years.
On television, ITV provided the first alternative to the BBC in 1955, 20 when it
began its ad-funded broadcasting. Similarly, commercial radio stations havebeen generating revenue through advertising in the UK ever since the market
was liberalised in 1973. 21 These services have added substantial value to oursociety.

2.7

The same is true of many services provided by digital platforms. Searchengines give us instant access to information, news, directions, and otherwebsites with minimal effort. Social media services enable us to connect withfriends and family around the world, make new friends, keep up with news or

20 ITV summary of its history.

21 Frequencyfinder.org.uk, history of radio transmission in the UK.

44current trends, and share creative content with one another. These services,which are funded by digital advertising, are highly valued by consumers (seeBox 2.1).
Box 2.1: The value of online platform services
Platform services that are funded by digital advertising bring substantial benefits to
consumers, while being provided free of charge. Research published in 2018
demonstrated that consumers place great financial value on a range of online
services, with values of multiple thousands of dollars being assigned to searchengines and digital maps. Video streaming services such as YouTube, and social
media more broadly received lower, but still significant valuations. 22
The fact that these services are so important to consumers and valued so highly is
precisely why it is critical that competition is effective in these markets. The current
COVID-19 pandemic has emphasised the critical importance of digital services for
consumers’ well-being and prosperity. Through our work in this area we want toensure that current consumers are reaping the maximum potential rewards fromthese services, and that future consumers will continue to benefit from new
innovative services that can transform our lives.

2.8

The targeted nature of digital advertising can add value to both advertisersand consumers. For consumers, targeted adverts will be more relevant tothem, which can make them less irritating and more likely to provide genuinely
useful information about products and services they may be interested in. For
advertisers, improved targeting should deliver a greater return on theirinvestment as their adverts will be viewed more often by their intended
audience. Overall, more relevant and better targeted adverts can be expected
to result in more purchases, increasing consumer and producer welfare as aresult.

2.9

Platforms such as Google and Facebook have made it substantially easier forbusinesses to reach and serve adverts to consumers all around the world, in a
way that was only previously possible for large companies. This has openedup greater advertising possibilities for a long tail of small businesses, andenabled large numbers of predominantly online businesses to thrive that mayotherwise not have been viable.

2.10

Despite these benefits that online platforms have undoubtedly delivered, themarkets within which they operate contain a range of features that mean theyfrequently tend towards a ‘winner-takes-most’ dynamic, with limitedcompetition ‘in’ or ‘for’ the market, and with demand often aggregated by one

22 Brynjolfsson, Eggers, and Gannamaneni (2018), Using massive online choice experiments to measurechanges in well-being, National Bureau of Economic Research, Working Paper 24514.

45or sometimes two very large platforms. This may result in sub-optimal
outcomes for consumers in these and other markets over the longer term.
These features, which have been well-articulated in existing reports, including
the Furman 23 and Stigler Center24 reviews, are summarised in Box 2.2.
Box 2.2: Key features of online platforms
While the precise characteristics of each platform varies from market to market, theytend to share a set of general features that collectively support a ‘winner-takesmost’ dynamic:•

Online platforms typically have very low marginal costs and significant
economies of scale in delivering the core service, and economies of scope in
relation to data.

•

Network effects mean that the value of a service to existing users of a platform
increases as the total number of users increases. The nature of the network
effects can vary significantly between platforms.

•

The fact that consumers do not pay directly for the platform’s services limits
their incentives to switch, and means that new entrants must attract users
through demonstrably better quality or innovative features, rather than being
able to undercut on price.

In this report we have set out our assessment of how important these and otherfeatures are in general search and social media – the two most significant platform
markets that are funded by digital advertising.

Google’s and Facebook’s positions in respect of consumer attention and data
2.11

There are two key factors that influence the revenue that online platforms andpublishers can generate through digital advertising:•

Capturing consumers’ attention: this is an essential requirement for
selling any form of advertising inventory. The more of consumers’
attention that platforms can capture, whether that is through increased
reach or keeping consumers online for longer periods, the more attractive
the platform’s inventory is to advertisers, and the more inventory they will
have to sell. 25

23 Furman Review (2019), Unlocking digital competition.

24 Stigler Center (2019), Committee on Digital Platforms Final Report.

25 As consumers spend more time online using platforms, they will scroll through more webpages or further down
their newsfeed, enter more search queries, watch more videos, and so on. This means that the platform has
more opportunities to show them adverts, increasing the inventory that they have available to sell.

46

•

2.12

Understanding preferences, purchasing intent and behaviour:
understanding the wants and needs of specific consumers at any point intime is valuable to advertisers as they can target their adverts towards
those individuals that they suspect are most likely to make a purchase.
This targeting – whether it is based on contextual information such as the
subject of a web page, or on personal data such as the individual’s age or
recent purchases – can result in a higher return on investment foradvertisers, and a willingness to pay higher prices. Similarly, advertisers
are more likely to be willing to pay high prices in the future if they are
given evidence that consumers exposed to adverts on a platform went on
to make a purchase. Platforms are therefore rewarded by advertisers forhaving extensive and up-to-date knowledge of their consumers’
characteristics, preferences and behaviour. The key input to thisknowledge is data. 26

The following sections of this chapter explain how Google and Facebook leadthe race to capture online consumers’ attention and to gather data on theirpreferences and intentions.

Consumer attention
2.13

Prior to the COVID-19 pandemic, UK internet users were spending an
average of 3 hours 24 minutes each day online, 27 with the majority of this timespent in a relatively narrow set of sites and services, including social media,
information, news, shopping, and entertainment such as videos, music, andgames. More recently in April 2020, while most households were confined totheir homes, the average UK internet user spent 3 hours 56 minutes online –an increase of 32 minutes each day.

2.14

The characteristics of many of these markets are such that they tend to tip
towards high levels of concentration. With a narrow set of highly concentrated
markets, the majority of internet users’ attention is captured by a small
number of very large companies and, in particular, mainly by Facebook and
Google.

2.15

In terms of reach, around 96% of UK internet users access at least one
Google site each month. Facebook’s reach is around 87%. Of the total timespent by UK users online in February 2020, 37% was on sites owned by

26 See Chapter 4 and Appendix F for more detail on the role of data in relation to the provision of contextual andpersonalised advertising.

27 Comscore, MMX Multi-Platform, Total Digital Audience, Desktop aged 6+, Mobile aged 13+, February 2020,

UK.

47

either Google (including YouTube) or Facebook (including Instagram andWhatsApp). 28
2.16

This success by Google and Facebook in attracting consumers’ attention is
illustrated by Figure 2.2 below, which shows consumer time spent on the top
1000 online ‘properties’ in February 2020. UK consumers spent around 83%of their total time online on these top 1000 properties, with the remaining 17%
split between an extremely long tail of websites. 29

Figure 2.2: UK consumer time spent on top 1000 online properties

Source: Comscore MMX Multi-Platform, Total Digital Population, Desktop aged 6+, Mobile aged 13+, February 2020, UK.
Notes: Top 1000 properties account for 83% of total user time spent online.
* Where ‘Google Sites’ includes all Google owned properties eg YouTube and Google Search.
†Where ‘Facebook’ includes Facebook, Instagram and WhatsApp.

2.17

Google’s and Facebook’s share of user attention has held up during the
COVID-19 pandemic, increasing to 39% in April 2020. This suggests theseplatforms’ market positions are likely to be resilient to the current crisis, a topic
we discuss further below.

28 Ibid.
29 Ibid.

48

Consumer preferences and purchasing intent
2.18

Although there are important differences in the data-gathering practices of
Google and Facebook, both companies are able to combine various sources
and types of data to build up a profile of an individual, which can be used tomake inferences about the types of products and services that they are likely
to purchase. These profiles can include information on a consumer’s
individual characteristics, likes and dislikes, political views, income, frequent
locations and journeys, and so on.

2.19

They can pool this information from a number of sources, including:

2.20

•

information that consumers explicitly volunteer about themselves whenregistering for a service, such as name and contact details;•

observed contextual information such as information about a device being
used to access the service or the precise location of the consumer at aparticular time;•observed data from tracking users’ activity across the web, from which
inferences can be drawn based on the articles they read or the websites
they visit; 30 and•conclusions about a consumer’s characteristics and preferences that are
inferred from observing their activity within the services, such as posts
they like or click on within Facebook, or videos they view on YouTube.

Our assessment of the scale of data collection by Google and Facebook, incomparison to some of their rivals, is illustrated in Figure 2.3 below, which
distinguishes between data gathered from the platforms’ own consumerfacing services and products (first party data), and data collected from third
parties, notably those that use the platforms’ services, such as advertisersand publishers (third party data). 31

30 See Appendix G for an explanation of how Google and Facebook are able to track internet users’ activity on
third-party websites and apps.
31 See Appendix F for more detail.

49

Figure 2.3: Illustration of the scale of data collection by certain platforms, split by first andthird-party data sources

Source: CMA.
Note: Small platforms include Twitter, Snap, TikTok and Pinterest.

2.21

The ability to serve targeted adverts to consumers is highly valuable toadvertisers. An important distinction we draw in this study is between‘contextual advertising’ (which is targeted on the basis of the content the user
is currently viewing, as in most traditional forms of non-digital advertising) and‘personalised advertising’ (which is targeted based on personal information
about the user, whether volunteered or observed from activity across the web
over time).

2.22

Similarly, the ability to demonstrate a link between exposure to an advert andconsumer purchasing behaviour (sometimes known as ‘attribution’) is key inattracting and retaining advertisers. Personalised advertising and attribution
both require user data, and this is why platforms are incentivised to gather as
much user data as they can on as many consumers as possible.

Regulations to protect privacy
2.23

There are tensions between these incentives to compete for increasing
amounts of user data, and the legal framework that is in place to protect
consumers’ privacy. Box 2.3 highlights some of the key elements of the lawthat governs the use of personal data for advertising purposes, while a moredetailed description of the legal and voluntary framework can be found in
Appendix A. We explore the relationship between data protection regulationand competition in Chapter 5.

50Box 2.3: data protection law
There are several aspects of law in the UK that relate to the protection of
consumers’ personal data. These include:•

The General Data Protection Regulation 2016/679 (the ‘GDPR’) – theGDPR provides the general framework for the protection of personal datathat applies in the UK. Coming into effect in May 2018, it built upon similar
principles derived from the Data Protection Directive 95/46/EC and in the
Data Protection Act 1998. Amongst other things, it sets out the range ofcircumstances in which processing of an individual’s personal data can be
lawful.

•The Consumer Rights Act 2015 (CRA) – Part 2 of the CRA requires theterms in consumer contracts and consumer notices to be fair and, if written,
transparent.

•

Unfair Contract Terms Directive (2005/29/EC) / Consumer Protection
from Unfair Trading Regulations 2008 (SI 2008/1277) (CPRs) – broadly
speaking, they prevent businesses (described as ‘traders’ in the CPRs) fromtreating consumers unfairly. Businesses are also responsible for thecommercial practices of anyone who acts on their behalf or in their name.
Both the business and those acting on their behalf may be held liable forbreaches of the CPRs.

Search, social media, and their ecosystems
2.24

Google and Facebook’s advantage in attracting consumers’ attention andcollecting their data, and their resultant high share in digital advertising
revenues, has been achieved primarily through their core services in generalsearch and social media respectively. These consumer-facing markets are
therefore the primary focus of our analysis in Chapter 3.

Understanding general search
The demand-side
2.25

Web-based search engines are a tool to help consumers to navigate theinternet and find useful information in response to a broad range of search
queries. They make money by serving these consumers with paid-for adverts.

51

2.26

2.27

Research by Ofcom shows that search engines are consumers’ preferred
method for finding what they are looking for online: 32•

97% of UK adults reported using a search engine in the previous year tolook for information online; and•50% of UK adults reported that the first place they usually go online is asearch engine.

Consumers access search engines in several ways:•

Web browsers – web browsers have default search engines in thenavigation bar; some consumers may choose their browser and searchengine at the same time.

•

Web navigation – in the course of a session, consumers may navigate toone or more search engines, and many have a search engine as theirhome page.

•

Search apps – on mobile devices, consumers tend to access searchengines via apps such as widgets. They may use default search apps thatcome installed on mobile devices, or choose to download their preferred
search app from an app store.

•

Voice assistants – via smart speakers such as Amazon Echo and
Google Home, as well as on some phones and tablets.

The supply side
2.28

General search engines work by maintaining an index of the websites that areavailable on the internet and returning a set of ranked, curated search results
when consumers enter search queries.

2.29

Google’s general search results pages return different categories of search
results, including generic search results and specialised search results. In
addition, Google Search may return a third category of results, namely online
search advertisements.

32 Ofcom (2019), Online Nation.

52

Understanding social media
The demand side
2.30

Social media platforms facilitate interaction between their users, allowing
them to communicate with each other, and share and discover engaging
content. Social media platforms are generally available through a mobile app,with some also available via a web browser. 33 As with general search,
providers of social media services make money by serving their consumers
with paid-for adverts.

2.31

Features commonly provided by social media platforms include: user profiles
or accounts; user ‘friends’ or connections; a personalised ‘feed’ of news orother content; content sharing features; comments; private messaging
features; and likes or ‘reactions’. 34 In a consumer survey by Ofcom, a variety
of factors were considered important by users of Facebook, Twitter,
Snapchat, Instagram and YouTube: 35

2.32

•

keeping in touch with friends and family;•browsing to pass the time;•sharing photos and videos;•keeping up-to-date with news and current affairs; and•watching videos.

As we discuss in Chapter 3, there are important differences in the reasonscited by users for using different social media platforms, with Facebook, forexample, used primarily to keep in touch with friends and family, andYouTube used primarily for watching videos. In Box 2.4 we highlight some of
the approaches that have been taken by other institutions to define social
media.

33 Some social media platforms may only be accessible via mobile eg TikTok or Snapchat.
34 Ofcom (2019), Online Nation.
35 Ofcom (2019), Online Nation.

53

Box 2.4: What is meant by ‘social media’?
This box sets out attempts by a selection of other institutions to define social media.
Ofcom’s Online Nation (2019)36‘Social media’ is often used generally to refer to a set of popular online services,encompassing a range including Facebook, Twitter, Snapchat, Instagram, YouTube,
Reddit, Tumblr, Pinterest and WhatsApp. Attempting to map the exact boundaries ofthe social media sector, however, is more difficult.
Communicating with others through user-generated text, photos and videos might
be considered the central function of ‘social media’ in its most basic terms – but,many online platforms facilitate these kinds of interactions. Further, whether aservice is considered ‘social media’ can often depend on the individual using it – forinstance, Reddit or YouTube could have primarily ‘social’ functions for some users
but not others. Some companies even reject the ‘social media’ label – Snapchat, forinstance, refers to itself as a camera company, while Pinterest’ recent IPO filingemphasised its uniqueness as a ‘media-rich utility’.
Consequently, the concept of ‘social media’ has blurred boundaries that intersectwith video-sharing services, blogging sites, messaging apps and forums.’
The ACCC (2019) 37‘Social media platforms are ‘online services that allow users to participate in social
networking, communicate with other users, and share and consume content
generated by other users (including professional publishers). Social media platforms
generally display content for consumption as linear ‘feeds’, curated by algorithms ordisplayed chronologically. Examples include Facebook, Instagram and Snapchat.
Platforms may also offer additional functions including instant messaging services.’
Bundeskartellamt Facebook decision (2019) 38‘It can be assumed that there is a specific demand for social networks, which isfundamentally different from the demand for other social media. The key purpose ofsocial networks is finding and networking with people the users already know, andto exchange on a daily basis experiences, opinions and contents among specificcontacts which the users define based on identity. Providers meet this demand byoffering the corresponding core functionalities which grant users a "rich social
experience".’54

The supply side
2.33

The broader social media sector is generally understood to include a range of
online services, including those offered by Facebook, Twitter, Snapchat,
Instagram, YouTube, Reddit, Tumblr, Pinterest and WhatsApp. 39

2.34

A differentiated service to consumers appears to be the main way in whichsocial media platforms compete for consumer attention. Differentiation can
incentivise consumers to access multiple platforms, allowing for the coexistence of platforms.

2.35

To create a service that is attractive to consumers, social media platforms
must be able to present their users with relevant content. Successful social
media platforms feature a vast quantity of content that may be shown toconsumers. To prevent congestion and maintain consumer attention,
platforms must determine the most relevant content for a given consumer,
and the order in which to present it. They do this using an algorithm, whichmakes decisions based on a range of data about the consumer and thecontent.

The importance of ecosystems
2.36

As illustrated in greater detail in Appendix E, it is significant that the mostsuccessful digital companies in recent years have increasingly been building
large ecosystems of complementary products and services around their coreservice. This strategy has been particularly evident for both Google andFacebook, enabling them to cement the position and strength of their coreservice, and to leverage this strength into other markets.

2.37

The expansion of these digital ecosystems is resulting in an increasing
proportion of our online activity being channelled through a small number ofcompanies. Integration of a wide range of products and services can deliver
efficiency savings, potentially reducing prices, and can also potentially
improve the consumer experience overall, by increasing the ease with which arange of different services are accessed.

2.38

However, this expansion can also give rise to competition concerns:

36 Ofcom (2019), Online Nation.

37 ACCC (2019), Digital platforms inquiry – final report.

38 Bundeskartellamt (2019), Bundeskartellamt prohibits Facebook from combining user data from different
sources.
39 Ofcom (2019), Online Nation.

55

2.39

•

Platforms with market power can leverage their position into downstream
or adjacent markets, giving themselves an advantage over potential
competitors and undermining competition in those markets. We haveheard numerous complaints about this form of activity, for example that
Facebook is using its position in social media to leverage into adjacentmarkets such as []. There have also been EU antitrust enforcementcases proving these types of issues regarding Google. 40•

By surrounding its core service with a large number of complementary
products and services, a platform will further insulate its most profitable
service from competition. If a platform can manage to convince
consumers to operate to a large degree within their ecosystem online,
then a new entrant would need to compete on many fronts to displacethem. For example, by launching its video calling ‘Portal’ products,
Facebook will secure demand for its services WhatsApp and Facebook
Messenger, the functionality of which are built into the devices. 41 Similarly,
with Google’s browser Chrome, or its smart speakers with Google
Assistant, Google is able to direct consumers towards its search engine
through the use of default settings and bundled services. By gaining
control of these adjacent markets, the platforms are able to control theentry points to their core markets, and in doing so protect the primarysource of their revenue.

•

By expanding the breadth and variety of online services provided, Google
and Facebook are able to gather increasing amounts of the two critical
inputs to the digital advertising market: consumer attention and data. Thisin turn results in greater advertising revenues, enabling them to invest at agreater rate than their rivals, which in turn creates a feedback loop thatfurther cements their powerful position.

Figures 2.4 and 2.5 illustrate the extent of the ecosystems that Google andFacebook have been able to create around their core consumer-facing
services of search and social media respectively. These diagrams are notintended to be exhaustive for the entities that these companies own, nor on
the functional interlinkages between them, and do not include their businessfacing digital advertising services.

40 European Commission anti-trust case, Google Search (Shopping).
41 Features of Facebook's Portal devices.

56

Figure 2.4: Illustration of Google’s online consumer-facing ecosystem

Source: CMA’s interpretation of a selection of Google’s products and services

Figure 2.5: Illustration of Facebook’s online consumer-facing ecosystem

Source: CMA’s interpretation of a selection of Facebook’s products and services

Digital advertising markets
2.40

Digital advertising is the largest and fastest growing segment in the UK
advertising sector. According to estimates by the Internet Advertising Bureau

57

(IAB) and PWC in the Digital Adspend Report, 42 the UK digital advertisingmarket was worth £15.7 billion in 2019 43 (up from £13.6 billion in 2018) andnow accounts for 62% of total advertising spend, up from 25% in 2010. 44 The
increasing proportion of advertising spend in the UK going through digitalchannels is demonstrated by Figure 2.6 below.
Figure 2.6: Digital advertising revenue in the UK as a share of total advertising revenue (in2019 prices)

Source: AA/WARC Expenditure Report.

2.41

Recent forecasts for 2020 – from the Advertising Association/WARC
Expenditure Report 45 – suggest that the negative impact of COVID-19 on total
advertising revenues will be substantial, with a year-on-year reduction of
16.7%, including a 20.5% decline for national newspapers, and a 24.1%
decline for regional newspapers. Strong positive growth is then expected toreturn the following year. Unsurprisingly, given the tendency for people tospend more time at home and online during the pandemic, digital advertising
revenues are expected to decline by less than other more traditional formats –a year-on-year reduction of around 12% is forecast for online search anddisplay advertising, including a 15% decline in online advertising revenues fornational newspapers, and a 19% decline for regional newspapers.

42 Digital Adspend Report (2019), provided to us by the IAB.

43 Our estimates that we have set out in this report suggest the total figure is lower, at around £14 billion.
44 AA/WARC Expenditure Report.
45 Ibid.

58

2.42

This increasing importance of online channels for advertising campaigns hascreated opportunities as well as challenges. Entirely new businesses andmarkets have developed in response to technological advancements offeredby online advertising. And small businesses now have much improved accessto flexible and targeted advertising opportunities. But on the other hand, there
are many existing businesses, such as newspapers, that previously relied on
traditional forms of advertising revenue that have had to adapt.

2.43

There are three broad types of digital advertising: search, display, andclassified. We explain these at a high level below, and consider the markets inmore detail in Chapter 5.

Search advertising
2.44

Search advertising is where an advertiser pays for its advert (typically in theform of a text link) to appear next to the results from a consumer’s search on
an internet search engine, although adverts may also appear in other forms ofsearch, for example on maps. The selection and targeting of these adverts isbased primarily on keywords entered by the user. Advertisers will pay for theiradverts to be displayed when consumers enter particular keywords orphrases, with payment typically made if the consumer clicks on the advert.

2.45

The advert shown to a consumer may also be influenced by some limited data
about the person such as their location at the time. For example, if a
consumer is searching for a ‘coffee shop near me’, the advert displayed will
depend on a combination of which companies have purchased impressions
for the keywords ‘coffee shop’, and on which of them are closest to thelocation of the user.

2.46

Consumers can then click on the text link, as they can with the other organic
search results (ie those that have not been paid for). In search advertising,advertisers or their agencies generally buy direct from search providers using
the providers’ self-service online sales interfaces, such as Google Ads.
Search advertising is aimed at driving consumers to take a particular action
such as clicking a link. It is therefore used for direct response campaigns andis normally paid for on a cost-per-click (CPC) basis.

Display advertising
2.47

Display advertising enables advertisers to place ads on websites or apps in avariety of formats, including banner-style adverts, ‘native’ advertising,59

sponsored content, and video advertising. 46 The space that the website or
app owners – referred to in this context as publishers 47 – sell for thisadvertising is referred to as inventory.
2.48

The display advertising sector is segmented into two channels: owned andoperated platforms; and the open display market.

2.49

The owned and operated channel is primarily made up of large social media
platforms, which sell their own advertising inventory directly to advertisers or
media agencies through self-service interfaces. For example, an advertiser
can purchase inventory directly through Facebook Ads Manager or Snapchat
Ads Manager.

2.50

In the open display market, a wide range of publishers (for example, including
online newspapers) sell their inventory to a wide range of advertisers througha complex chain of intermediaries that run auctions on behalf of the publishers
and advertisers. In practice, the largest intermediaries at each level of thiscomplex chain are owned by a single company – Google.

2.51

Though some direct deals for display advertising continue to be made throughtraditional channels (ie involving human interaction), the use of programmatic
technology has increased over time, with the result that almost all display
advertising is now sold programmatically (ie ad selection, and the pricing anddelivery of ads, are automated by computers using complex algorithms).

2.52

Programmatic display advertising provides an opportunity for businesses andother organisations to target their marketing messages to particular audienceson the basis of detailed consumer profiles. It is particularly associated withraising brand awareness and shifting brand perceptions. 48 Display advertising
may be sold on a CPC basis, but is more commonly sold on the basis of how
many times it is viewed, referred to as cost per impression, and typicallymeasured as cost per thousand impressions (CPM).

Classified advertising
2.53

Classified advertising involves advertisers paying online companies to list
specific products or services on a specialised website serving a particular

46 We explain these formats in more detail in Chapter 5.

47 Unless otherwise specified, in this study we distinguish between platforms and publishers, both of which sell
advertising inventory. In the case of platforms, including search and social media platforms, the inventory is soldthrough integrated sales interfaces, while in the case of publishers, including newspapers and other content
providers, inventory is sold through intermediaries on the open display market.
48 IAB (2018), Digital Advertising Effectiveness.

60

vertical market. Payments for classified advertising will typically consist oflisting fees or commissions.
2.54

We did not find that there was a consistent industry definition for what should
be included within classified advertising. For the purposes of our study, we
note that there is a broad range of online platforms focused on specificsectors that provide for advertisers the ability to list specific products andservices and for consumers the functionality to make comparisons acrossthese listings. Sectors where classified advertising is common include
recruitment, ecommerce, consumer finance, travel, property and cars. We
have considered the role of classified advertising previously in our market
study on Digital Comparison Tools, published in 2017. 49

2.55

Although the functioning of competition within the classified advertising market(eg competition between price comparison websites) has not been a central
focus of our study, we have analysed the competitive relationship between
these markets and both search and search advertising and social media anddisplay advertising.

Demand for digital advertising
2.56

Digital advertising has increasingly opened up flexible and affordable
opportunities for smaller companies. The scale of the large platforms, such as
Google and Facebook, provides the possibility for small advertisers to reachout more easily to potential customers on a national scale. These platforms
provide self-service interfaces that automate and simplify the complex
process of buying advertising.

2.57

This makes advertising accessible to businesses with very small budgets, oreven to individuals, resulting in Google and Facebook having a small numberof large advertiser buyers, along with an extremely long tails of customers
with relatively low expenditure. To illustrate this, Facebook has over a million
advertiser customers in the UK, and Google has over 200,000, 50 while the top[5-10]% of advertisers on Google and Facebook, based on value of spend,
made up more than 85% of each of their total revenues. This tells us that,while Google and Facebook have made advertising more accessible to a

49 CMA (2017), Digital comparison tools summary of final report. From the consumer’s perspective, classified

advertising is very closely associated with digital comparison tools, defined by the CMA previously as ‘digitalintermediary services used by consumers to compare and potentially to switch or purchase products or services
from a range of businesses’.
50 CMA calculations based on data provided by Facebook and Google for 2019. For more detail on this data andwhat it includes, see Appendix N.

61

large number of small businesses, the vast majority of their revenue stillcomes from a small number of large companies.
2.58

The use of media agencies is still common among larger advertisers runninglarge multi-channel campaigns. Based on information provided by media
agencies, we estimate that around a quarter of all digital advertisingexpenditure in the UK is channelled through media agencies. Decisionmaking by larger advertisers is becoming increasingly data-driven andsophisticated. The use of technology tools provided either by the platforms orintermediaries to target audiences and measure advertising outcomes at a
granular level is becoming increasingly common.

Market outcomes
2.59

As noted in Chapter 1, several bodies and independent reviews called on the
CMA to undertake this market study. One of the key reasons they gave was
the fact the CMA has legal powers to require the provision of information,
allowing us to collect data on issues and concerns where there is currently alack of evidence.

2.60

We have used these powers to gain a more detailed understanding of how
these markets work and of key outcomes within them. In this section, we set
out some of our key findings from three main areas: overall revenues in digitaladvertising; the fees charged by intermediaries in the open display market;
and the profitability of Google and Facebook.

Digital advertising revenues
2.61

Search advertising is the largest category of digital advertising in the UK, with
our estimates of total ad spend of £7.3 billion in 2019, of which we foundGoogle earned more than 90%.

2.62

Total spend in display advertising was worth £5.5 billion in 2019, of which weestimate more than half went directly to Facebook, and around 60% toFacebook and Google combined. Around a third of the total was sold throughthe open display channel. Video advertising accounted for £2.3 billion of
display advertising revenues.

2.63

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. This includes the revenue from advertising on eachof their own platforms, as well as from intermediation services.

62

2.64

These estimates, based on data for actual revenues provided by market
participants, are broadly comparable with other publicly-available estimates. 51
For example, the most recent IAB/PwC Digital Adspend Report estimated that
total spend on UK search advertising was around £8 billion in 2019, andspend on display advertising was around £6.2 billion. 52

2.65

Our high-level estimates are illustrated in Figure 2.7 below.

Figure 2.7: Types of digital advertising and channels of purchase

Source: CMA estimates for 2019 for search and display advertising. Estimate for classified comes from IAB/PwC Digital
Adspend Report 2019. 53 Figures may not sum due to rounding.

2.66

We have used information in Chapter 5 to estimate shares of supply for
different platforms. This analysis is described in more detail in Appendix C.

Fees charged by intermediaries
2.67

Several publishers have expressed concerns that a lack of transparency andcompetition in ad tech intermediation allows intermediaries to extract a large
share of advertisers’ expenditure, reducing the amount that is ultimately paid
to publishers. The difference between what advertisers pay and whatpublishers earn from digital advertising is sometimes referred to as the ‘adtech tax’. If publishers earn lower revenues than would be the case in a more

51 We note that differences in estimates will be down to the methodologies adopted. While we have been able torequest the data for actual revenues from the vast majority of companies in the market, other industry estimateshave been based partly on surveys.
52 IAB UK & PwC Digital Adspend Study 2019.
53 The IABUK / PWC report assesses classified advertising more narrowly than we have in our study. This figure
may therefore be an underestimate of what we have defined as classified advertising.

63

competitive and transparent market, this would reduce their ability andincentive to fund quality content that ultimately benefits consumers.
2.68

Past estimates of the proportion of revenue that makes its way through topublishers vary, but they all suggest that intermediaries capture a significant
portion of advertisers’ expenditure. For example, research by Plum consulting
indicated an average of 62% of advertiser spend was received bypublishers. 54 More recently, an ISBA/PWC study found that publishers receive
51% of advertising expenditure on average. 55

2.69

We have gathered our own data about fees and charges from most of the
major intermediaries that operate in the UK. We have used this data toestimate the average take rate by intermediaries at various levels of the open
display advertising supply chain, as a percentage of the initial expenditure byadvertisers.

2.70

Based on this evidence, we estimate that on average in 2019, publishers
received around 65% of initial advertising revenue that was paid byadvertisers (ie the overall ‘ad tech take’ was around 35 pence from every
pound spent by advertisers). As set out in Chapter 5, this estimate is basedon reported fees and may exclude some components of fees that will affectwhat publishers receive in practice. The findings of this analysis are
summarised in Figure 2.8, and explained in more detail in Chapter 5.

54 Plum Consulting (2019), Online advertising in the UK.

55 As discussed in Chapter 5, PWC highlighted in their report some inconsistencies which suggest their estimate

may understate the amount received by publishers.

64

Figure 2.8: CMA analysis of take rates across the open display supply chain (2019)

Source: CMA analysis of intermediary data

2.71

Although intermediaries are undoubtedly performing valuable functions,
including targeting advertising and evaluating bids from multiple demandsources in real time, it is striking that collectively they are able to take morethan a third of the total amount paid by advertisers. As noted earlier in thischapter, and discussed in detail in Chapter 5, Google owns the largest
intermediary in each of the main levels of the supply chain.

2.72

These findings, which are broadly consistent with previous studies withdiffering methodologies, strongly support the hypothesis that greater
competition in the ad tech supply chain would increase efficiency, benefitting
publishers and advertises alike.

Profitability of advertising-funded platforms
2.73

As highlighted in the sections above, Google and Facebook’s strong positionsin the general search and social media markets respectively have translated
into substantial revenues in the digital advertising market. This section
summarises our analysis of the profits earned by Google and Facebook fromthese core services.

2.74

We have focused on a few standard reporting metrics to inform our analysis ofthese companies’ revenues, costs, and profits. In particular:•

We have assessed the amount of profit each company has earned inabsolute terms using the metric ‘earnings before interest and taxation’(EBIT).

65

2.75

•

We have analysed the level of their profits with reference to the ‘return on
capital employed’ (ROCE). This approach compares accounting profit withthe size of investment made by firms to achieve those profits.

•

We have compared our findings against the companies’ weighted average
cost of capital (WACC), which is a widely used benchmark for returns on
an investment. The WACC is essentially the minimum return required on
an investment or asset to satisfy the owners and creditors.

We summarise the main findings of this analysis below, while a more detailed
explanation can be found in Appendix D.

Revenues and costs for Google and Facebook
2.76

Figure 2.9 shows the worldwide revenues and costs for Google and Facebook
from 2011 to 2019.

Figure 2.9: Alphabet Group and Facebook Revenues and Costs 2011 to 2019140

Revenue & Costs (£bn)

120
100
80
60
40
20
0

2011

2012

2013

2014

2015

2016

2017

Alphabet total costs (£)

FB Total costs (£)

Alphabet Revenues (£)

FB Revenues (£)

2018

2019

Source: CMA analysis of Alphabet Group and Facebook filed 10-K reports.

Profits earned by Google and Facebook
2.77

Figure 2.10 shows worldwide profits (measured using EBIT) in absolute terms
from 2009 to 2019 for each company at the group-level based on publishedinformation. Figure 2.11 then compares our estimates of the two companies’
ROCE with our estimates of their WACC – this analysis looks at the
profitability of individual segments within the groups (eg the profitability of
Google Search, rather than the whole of Alphabet). This is based on
information supplied to us by the companies.

66

Figure 2.10: Alphabet Group and Facebook EBIT 2009 to 2019
30
25

EBIT (£bn)

20
15
10
5
0

2009

2010

2011

2012

2013

Alphabet EBIT (£)

2014

2015

2016

2017

2018

2019

FB EBIT (£)

Source: CMA analysis of Alphabet Group and Facebook filed 10-K reports.

Figure 2.11: Google Search and Facebook ROCE vs WACC estimates (2018)60

WACC estimate
50

ROCE (%)

40
30
20
10
0

Google Search ROCE %FB ROCE %Source: CMA analysis of Alphabet Group and Facebook financial data submissions.

2.78

We have found through our profitability analysis that the global return on
capital employed for both Google and Facebook has been well above any
reasonable benchmarks for many years. We estimated that the cost of capitalfor both Google and Facebook in 2018 was around 9%, whereas their actual
returns have been substantially higher, at least 40% for Google’s search

67business and 50% for Facebook. 56 This evidence is consistent with the
exploitation of market power.
2.79

Both Facebook and Google raised some concerns with us over our
profitability analysis following publication of our interim report. Bothsubmissions highlighted the need to consider intangible assets in assessing
profitability of companies such as Google and Facebook, and argued that it
was important to reflect the risks taken by investors when making theinvestments required to develop the businesses. Google also provided
analysis of a number of other firms in related sectors which would also havehigh ROCE on our measure, indicating that high ROCE was not necessarily
indicative of market power.

2.80

Following further consideration of these issues, we are satisfied with theapproach we have taken. Our original analysis included material adjustments
to allow for the cost of investment in the assets, including intangible assets,required to operate a platform. We have compared a number of sensitivities
based on the submissions. The level of profit earned by the firms above that
required to repay investors is so high that any reasonable adjustments toreflect the points made in the responses do not materially change theconclusions that the profits are indicative of the ability to exploit market
power. 57

2.81

We explain this analysis, including sensitivities, and our response tochallenges from each company in more detail in Appendix D.

Implications for consumers
2.82

Competitive markets have the potential to deliver good outcomes for
consumers when sellers are incentivised to differentiate themselves from theirrivals through lower prices, higher quality, or innovative new offerings.

2.83

In this study, we have assessed whether problems such as market power,lack of transparency and conflicts of interest have the result that competition
is not working as well as it should. There are several ways in which
consumers could be harmed by weak competition in digital platform markets,

56 This analysis is based on Facebook’s whole business, where 99% of its revenues are from digital advertising,and a lower estimate of the ROCE of Google’s search business, which takes account of data provided by Google.
In order to minimise the burden of our information requests, we have not updated this analysis for 2019 as theoverall conclusion – that both companies are highly profitable – would be unaffected by a marginal change to theestimates.
57 UK profits estimated based on the share of UK revenue applied to a measure of overall profits.

68both directly and indirectly. These are shown in Figure 2.12 and explained in
more detail below.
Figure 2.12: Harm to consumers from a lack of competition

Source: CMA simplified assessment of consumer harm.

2.84

On one side of the platforms, consumers face a range of potential direct
impacts from a lack of competition, felt through the transactions between themand the platform. These could lead to the following harmful outcomes:•

Reduced innovation and choice – barriers to entry and expansion
weaken the incentives of new entrants and challenger platforms to comeforward with disruptive innovation. Instead, they might be limited toinvesting in innovations that complement the incumbents’ services. These
dynamics will also limit the incentives of incumbents to innovatethemselves. The result is that the range of new features and services
being brought to market will be more limited than it would otherwise havebeen. In essence, our concern is that consumers may miss out on thenext Google or Facebook because the conditions for continued
competition and innovation have been stifled.

•

Excessive extraction of data – consumers receive search and social
media services in exchange for the provision of their attention and theirdata. In a more competitive market, consumers might not need to provide
so much data in exchange for the services they value.

•

Lower quality of service – there are various ways that the quality ofservices offered by platforms would be enhanced if they were subject tomore intense competition. Looking beyond the immediate quality of thecore services provided (eg relevance of search results or ease ofcommunication with friends) a lack of competition may affect a range ofother factors, such as:

69

the extent to which they protect consumers’ privacy;
the extent that they shield users from harmful content, misinformation andfake news, or online abuse;
the volume and density of adverts that they carry;
how clearly and easily the adverts can be distinguished from organic
content; andhow easily the services can interoperate with other complementary ones.
•

2.85

Poor returns to consumers – the price charged by Google andFacebook to access their services is currently zero. It’s plausible that theprice charged in more competitive circumstances would be negative, with
consumers rewarded, financially or otherwise, for entering a search queryor scrolling through their news feed. 58

On the other side of the platforms, a lack of competition may result in direct
harm to business users. In the case of platforms funded by digital advertising,these businesses include advertisers, publishers, advertising intermediaries,
and content creators. In the absence of effective competition, these various
businesses could expect to face lower quality services, higher prices, or alower share of the revenues than they would receive in a more competitivemarket. We would expect these effects to be passed through to consumers
with the following indirect effects:•

Price of goods and services being advertised – online platforms withmarket power may be able to exploit advertisers (the vast majority ofwhich are likely to be SMEs, microbusinesses or private individuals)
through high prices and increasing the overall cost of advertising. If thecosts of digital advertising are higher than they would be in a morecompetitive market, we would expect this to be felt in the prices that
consumers pay for hotels, flights, consumer electronics, insurance andmany other products that make heavy use of digital advertising. 59•

Quality and range of creative content, including journalism – forcontent providers such as online newspapers, digital advertising is a vital
source of revenue. If problems in the digital advertising market mean thatsuch providers receive a lower share of advertising revenues than theyshould, this is likely to reduce their incentives and ability to invest in news

58 This idea has been discussed elsewhere such as Stigler Center study, the Furman Review and a paper by

Weyl et al (2017) on Should we treat data as labour?.
59 As set out in Appendix N, sectors that advertise heavily across both Google and Facebook include retail,entertainment & media, financial services and consumer packaged goods.

70and other online content, to the detriment of those who use and value
such content and to broader society.
•

Price, quality and choice in adjacent markets – a powerful platform
can leverage its strong position in its core market into other adjacentmarkets, ultimately giving itself an advantage over its rivals. The effects oflimited competition for consumers discussed above are then potentiallyspread out to a wider range of markets. Importantly, this could act as ahandbrake on innovation right across the ecosystem of online services
and related technology.

•

Social harms – competition concerns can also lead to and exacerbate a
range of broader online harms, including many of those addressed in lastyear’s government White Paper. 60 For example, a thriving and competitivemarket for independent news and journalism is essential for an effective
democracy: if the sustainability of authoritative journalism is undermined,
this is likely to worsen concerns around fake news and misleading
information. More generally, if users are to be truly empowered to keep
themselves and their children safe online, adequate choice over platforms
and other digital providers is indispensable.

2.86

This document sets out the basis of our findings that Google and Facebook
face limited competition, both in their consumer facing markets, and in digitaladvertising markets. We see from analysis of Google’s and Facebook’s
profitability that, even considering a relatively static snapshot of the world as it
is today, the potential gains for consumers from increased competition are
substantial. We discuss the assessment of potential consumer harm in moredetail in Chapter 6.

2.87

Looking to the future, we could expect the dynamic benefits to consumers
from a more competitive market to be far greater than the static gains, as thereal prize for consumers over the long term will come from increased
innovation and the new transformative products and services that will comeonline as a result.

2.88

Our increased dependence on digital services during the current coronavirus
pandemic demonstrates vividly how important these harms might be, and how
high are the stakes in ensuring vibrant, sustainable competition in digitalplatform markets in the future. We are spending more time online and areincreasingly dependent on the services offered by platforms to communicate
and engage with the outside world. Content providers such as newspapers

60 Online Harms White Paper, April 2019.

71

have seen digital advertising revenues collapse while the position of thelargest platforms has been consolidated. There is a real risk that, without
decisive action, these harms will lead to lasting competition damage, to thedetriment of consumers and broader society. Chapters 7 and 10 set out whatform we think this decisive action should take, by the government and the
CMA respectively.

72

3.

Competition in consumer services•

Google and Facebook initially grew by offering new and innovative
services. However, each now benefits from strong network effects
that insulate them from competition. Further, they have both beenable to take steps to limit the competitive threat that they face. In
combination, these create powerful, self-reinforcing barriers to entry
and expansion that have further consolidated their market positions.

•

Google has significant market power in the general search sector,
having had a share of supply of around 90% or higher in the UK for
more than a decade. Google’s strong position is primarily maintainedby three key barriers to entry and expansion: economies of scale indeveloping a web index; access to click-and-query data at scale; andGoogle’s extensive default positions.

•

Facebook has significant market power in social media. Strong
network effects mean that entry over the last decade has only beensuccessful where platforms have provided a sufficiently different
service, that does not compete closely with Facebook. By controlling(and sometimes degrading) the level of interoperability that it offers toother social platforms, Facebook has further insulated itself fromcompetitive pressure.

•

Google and Facebook have increasingly expanded from generalsearch and social media respectively into related markets. This canprovide benefits for consumers, for example by increasing choice, or
allowing them to access services with less friction. However, we areconcerned that Google and Facebook can leverage their market
power into adjacent markets in a way that further excludes rivals,
diminishing competition and reducing choice and innovation overtime. Concerns about such practices could be investigated under acode of conduct.

Introduction
3.1

Online platforms that are funded by digital advertising serve multiple usergroups, including consumers and advertisers. 61

3.2

As discussed in the previous chapter, the high revenues that Google andFacebook generate from digital advertising derive from their success in
capturing consumers’ attention and understanding their characteristics and

61 Some of these platforms also serve other user groups, such as publishers, retailers and app developers.

73

preferences. They achieve this primarily through their search and social
media platforms.
3.3

This chapter sets out our research and findings in relation to:•

the extent of market power enjoyed by Google and Facebook on the
consumer side of their search and social platforms; and•the key barriers to entry and expansion in these sectors.

Competition in search
3.4

Web-based search engines play an important role for consumers in themodern world, helping them to navigate the internet, and to find useful
information quickly and easily in response to a broad range of search queries.

3.5

Figure 3.1 below shows the key elements of a search engine results page.
When users enter queries into the search box, the search engine returns a setof organic links and may also return search adverts and other content andfeatures.

Figure 3.1: Illustration of a search engine results page

Source: CMA.

74

3.6

Search engines such as Google and Bing (which is owned by Microsoft)
maintain an index of websites and use algorithms to determine which results
to serve in response to a query. These steps can be summarised as follows:•

Crawling – search engines use automated bots to crawl the web for new
or updated webpages and bring data about those pages back to thesearch engine’s servers. These bots follow links from known webpages
and use known webpages’ URL addresses. Search engines also makeuse of crawl requests and sitemaps submitted by webmasters (ie people
who are responsible for maintaining websites) who want their website tobe found.

•Indexing – search engines record and organise data and metadata
collected from crawling into an index. The data can include the title of a
webpage, the words it contains and their location within the webpage, as
well as metadata on the author of the page and the time the page was last
updated. Search engines supplement data derived from web-crawling withother information and features. These may include, for example, maps,
local business directories, shopping tools, and live feeds of sports scoresand exchange rates.

•

Ranking and returning results – when users enter a search query,search engines use a series of algorithms in order to assess the intent
behind the query and instantly select and return the most relevant anduseful information from the index.

Figure 3.2: Web crawling and indexing

Source: CMA.

75

3.7

Aside from Google and Bing, other English-language search engines do not
maintain their own at-scale index of webpages, but instead buy organic links
and search adverts through syndication agreements. For example, Yahoo
Search (owned by Verizon Media), Ecosia, and DuckDuckGo access Bing’sorganic links and adverts through syndication deals. 62

Box 3.1: History of search
In the 1990s, at least fourteen search engines launched their services for the firsttime, deploying a range of different approaches to indexing and ranking webpages.
•

JumpStation (which launched in 1993) used a web-crawling technology tobuild an index of the web, 63 whereas Yahoo (which launched in 1994) reliedon staff categorising websites into a hierarchical structure.

•

Other early launches included Lycos in 1994, Ask Jeeves (which would later
become Ask.com) in 1997, and MSN Search (which would later becomeBing) and Google in 1998. 64

By the early 2000s, Google had established itself as one of the top search engines
in the world, alongside Yahoo and MSN Search. 65•

Google said that the initial innovation that drove its success was its
proprietary ‘PageRank’ algorithm, which judged relevance based on thenumber of websites linking to potentially relevant pages.

•

Google received a capital injection in 1997 66 and by 2000 it had developed
the world’s largest search index. 67

Through the 2000s, search engines innovated through the addition of features.
•

By 2005, Google, MSN and Yahoo all offered web, news and images searchfeatures. Google also had shopping sites (Froogle) and Maps. MSN Search
had Encarta. Yahoo’s features included Video, Directory and Products. 68

62 Verizon Media (owner of Yahoo Search and AOL) and Ecosia have syndication agreements with Microsoft.
DuckDuckGo previously had a sub-syndication agreement with Verizon Media and now syndicates directly fromMicrosoft.
63 Dynamic Competition in Online Platforms, BEIS, March 2017, page 32-33.
64 Dynamic Competition in Online Platforms, BEIS, March 2017, page 32-33.
65 The Guardian, ‘Google timeline: a 10 year anniversary’, 7 Sep 2008, Accessed 31.10.2019.
66 The Telegraph, ‘The man who Googled himself $1 billion’, 5 Oct 2004, Accessed 31.10.2019.
67 Google blog, ‘Google Launches World’s Largest Search Engine’, 26 Jun 2000, Accessed 31.10.2019.
68 The Guardian, ‘Online’s top 25 search engines’, 24 Feb 2005, Accessed 31.10.2019.

76

•

Google was the first search engine provider to launch a mapping product,with Maps for desktop launching in 2005 and Maps for mobile following in
2007. 69

There is a long history of search providers other than Google and Bing choosing tooutsource some or all of their search engine activities.
•

As early as 2000, Yahoo agreed to make Google its default search results
provider. Yahoo’s president said that ‘Google will provide its underlying Web
search engine to serve as a complement to Yahoo’s popular Web directoryand navigational guide’. 70,71•

By late 2010, Yahoo had outsourced its search results and advertising toMicrosoft 72 and Ask.com had refocused away from developing its own searchengine technology. 73•

This left Google and Microsoft (now Bing) as the only two large web-crawling
English-language search engines, which remains the case today.

3.8

We refer to Google, Bing, and the search engines that syndicate from them as‘general search’ providers. These are platforms that are used by consumers
to answer a broad range of search queries.

3.9

General search engines are not the only online platforms that help consumers
to find information online. Online marketplaces (such as Amazon and eBay)
and price comparison sites (such as Booking.com andComparethemarket.com) also help consumers to search for certain types of
information. We refer to platforms that specialise in a subset of consumer
queries as ‘specialised search’ providers.

3.10

We first set out below how general search platforms compete, before
presenting shares of supply and outlining competitive constraints faced by
Google Search. We then discuss potential barriers to entry and expansion.

69 Google blog, ‘Google announces launch of Google maps for mobile with ‘my location’ technology’, 28 Nov

2007, Accessed 31.10.2019.

70 Google blog, ‘Yahoo! Selects Google as its Default Search Engine Provider’, 26 Jun 2000, Accessed

1/11/2019.

71 The same press release noted that Yahoo! used a different indexing method compared to Google and others‘Unlike search engines, which use automated ‘spiders’ to electronically crawl the Web to capture and store sites
in the search engine’s index, Yahoo!’s staff of experts appropriately categorizes Web sites into an intuitive
hierarchical organizational structure’.
72 In 2009, Yahoo and Microsoft agreed that Microsoft would be the exclusive provider of algorithmic search
results and search advertising to Yahoo in EMEA. This partnership was renewed in 2018, subsequent to Verizon
Media’s acquisition of Yahoo’s operating business.
73 The Guardian, ‘Ask.com gives up on search as Google takes over – adieu Jeeves’, 9 Nov 2010, Accessed
1/11/2019.

77

Finally, we present our findings on the extent to which Google Search has
market power.
Parameters of competition
3.11

Search engines compete for consumers directly by seeking to provide highquality services. They also compete over access to consumers, through thedefault search positions on web-browsers and devices. 74

3.12

Search engines compete for consumers over the following dimensions ofquality:•

Relevance of results – the ability of a search engine to return useful,relevant results in response to a range of queries is a key dimension ofquality. Activities such as crawling and indexing, developing additionalfeatures, and refining algorithms each play a role in search relevance. 75•

Ease of use – consumers also want to be able to conduct their searches
effectively and efficiently. Many search engines have built ‘instant answer’boxes into the search results page, reducing the need for consumers toclick through to other web pages. Features such as autocomplete andvoice search also contribute to ease of use.

•

Attractiveness of interface – search engines also compete to provide
visually attractive interfaces, which can be another aspect of quality fromthe perspective of consumers.

•

Privacy and trust – privacy is important for some consumers; someconsumers prefer to accept less personalised (and potentially lessrelevant) search results and adverts, in return for their search engine
collecting and storing less data about their searches. Consumers may also
trust particular brands.

•

Rewards and incentives for users – price is not a key parameter ofcompetition in search; none of the general search engines that we heard
from charge users or pay them for searches undertaken. However, somesearch engines compete for consumers’ searches by offering nonmonetary rewards (such as promotional points that can be used to get
discounts on other products), or by making contributions to good causes.

74 For example, when a consumer buys a new mobile phone, search queries typed into the pre-installed browser
or search widget will be served by the default search engine, unless the consumer makes an active choice tomove away from the default. We discuss default search positions later in this chapter.
75 As discussed later on this chapter, search engines that access search results through syndication agreements
undertake these activities to a more limited extent.

78

Box 3.2: How search engines measure and improve search quality
Search engines engage in several types of experimentation and testing in order toiterate and improve search quality. 76
First, search engines may conduct live experiments, where they direct a proportionof user traffic to a new trial version of the search engine. For example, one group ofusers may be served results based on the current ranking algorithm, while anothergroup is served results based on a modified algorithm. The search engine analyses
interaction data (for example, data on what links the user clicked and whether they
hit the back button following a click) in order to build a picture of which version
works better for users. Later in this chapter, we discuss how ‘click and query data’(which includes interaction data) helps search engines to develop the quality andrelevance of their search results.
Secondly, some search engines seek qualitative feedback from dedicated panelsof human reviewers who have agreed to evaluate the product. For example,
reviewers may be asked to compare two candidate sets of search results (or two
candidate ways of presenting the results) and state which one they prefer. Somesearch engines also use human reviewers to judge various aspects of web-pagequality and trustworthiness.
We discuss search quality in more detail in Appendix I.
3.13

The evidence that we have reviewed suggests that search engines andconsumers generally see relevance of results as the most important aspect of
quality. 77 This suggests that, in addition to any points of differentiation thatthey offer, competitive search engines need at least to offer a similar level of
relevance to that of the market leader (Google).

3.14

Competition over quality in search plays out through various mechanisms,
including in-house innovation (for example, to improve search algorithms, ordesign new features), the acquisition of innovative companies and the signingof commercial partnerships with third parties that offer databases, maps orother features (to supplement organic links).

3.15

However, search default positions and competition over access to thesedefault positions is also a very important feature of the search sector. For
example, Google makes very large payments to Apple in particular in return76 See for example: Google, ‘How search works’ and ‘How our Quality Raters make Search results better’,Accessed 26 November 2019.

77 See for example survey conducted by DuckDuckGo.

79

for being the default search engine on its devices. We discuss access toconsumers and defaults later in this chapter.
3.16

Search engine providers also compete to attract advertisers to their platforms,
in order to fund the services that they supply to consumers. Google and Bing
own and operate their own search advertising infrastructure. Other searchengines rely in part or whole on search adverts that they access throughsyndication agreements. We discuss search advertising in Chapter 5.

Shares of supply
3.17

Google has persistently had a very high and stable share of general search in
the UK over the period for which data is available. As shown in Figure 3.3,
based on Statcounter data on website referrals, Google’s share of supply has
been between 89% and 93% throughout the last ten years. 78 MSN (nowknown as Bing) overtook Yahoo Search in 2009 and these search engines
have continued to be the second and third biggest providers in the UK
throughout the subsequent ten years.

78 Source: Statcounter Global Stats. Appendix C contains a chart showing this data. As explained in Appendix C,
Statcounter calculates shares of supply as the quantity of page referrals generated through a search engine, as aproportion of total page referrals generated through search engines.

80Figure 3.3: Shares of supply by page referrals from January 2009 to April 2020
100%
90%
80%
70%
60%

GoogleBing*

50%Yahoo!
DuckDuckGo

40%

EcosiaOther**

30%
20%
10%
0%

Source: Statcounter Global Stats.
Notes: UK data.
* Bing’s share represents that of Bing and MSN Search. MSN Search was rebranded as Bing in 1998.
** ‘Other’ consists of: AlotSearch; AOL; AskJeeves; AVGSearch; Babylon; Baidu; Conduit; NortonSafeSearch; Snapdo;
Webcrawler; WindowsLive; Yandex; and ‘other’.

3.18

A limitation to using Statcounter data to calculate shares is that page referrals
will not account for search engine usage where the answer desired by the
consumer is displayed directly on the results page, eg through ‘instantanswers’. Therefore, we have also calculated shares of supply on the basis ofvolume of searches using data provided by the parties. We consider that thismost accurately reflects the intensity with which users engage with a searchengine.

3.19

Our analysis using parties’ data on search volumes resulted in similar findings
to Figure 3.3, with some additional, more granular results, albeit over ashorter time period. The results are presented below. Google’s share of
supply in search was 93% in 2019. Bing and Yahoo Search had the next twohighest shares at 5% and 1% respectively. The next most used searchengines in the UK in 2019 were DuckDuckGo and Ecosia. DuckDuckGo waslaunched in 2008 and Ecosia launched in 2009. Both of these search engines

81use Bing search results and adverts and had a share of less than 1% ofgeneral search as of 2019. 79
3.20

Google’s share of supply is very high in desktop search and close to 100% in
mobile search. Bing has a larger share of desktop search than mobile search.
As of 2019:•

Google’s share of supply in search is 93% overall, 97% on mobile devices
and 84% on desktop devices.

•

Bing’s share of supply in search is 5% overall, less than 2% on mobile
devices and 13% on desktop devices. 80,81

3.21

We note that mobile searches account for a high and growing proportion of
total search activity; our analysis of parties’ data shows that 68% of all UK
searches in December 2019 were on mobile devices, up from 60% in January
2018. 82 Further growth in the importance of mobile devices is likely to further
strengthen Google’s overall position in general search.

3.22

The evidence we have seen suggests that many consumers mostly use one
general search engine per device. Google’s very high share of supply inmobile search in the UK suggests that the proportion of consumers using only
one search engine is higher still on mobile devices.

3.23

Several factors may explain why consumers do some searching on a second
search engine. First, they may face different defaults on different devices.
Secondly, some consumers may actively choose to use a different searchengine for certain tasks. 83

3.24

In the section below, we consider sources of competitive constraint on Google
Search, including from rival general search platforms and specialised searchplatforms.

Competition between general search platforms
3.25

We have not carried out a formal market definition assessment, but haveinstead looked at competitive constraints across the sector and have focusedon observing direct indicators of market power and barriers to entry and

79 Where shares are calculated on the basis of the number of searches made on search engines. CMA analysisof search engine’s data. See further Appendix C.
80 Where shares are calculated on the basis of the number of searches made on search engines. CMA analysisof search engines’ data. See further Appendix C.
81 Desktop devices include laptop devices. Mobile devices include tablet devices.
82 CMA analysis of search engines’ data. See further Appendix C.
83 For example, DuckDuckGo said that ‘some users choose to only use us when making perceived more-private
searches and choose to use Google the rest of the time’.

82

expansion. 84 An understanding of substitutability is important in assessing
how closely different providers compete and the nature of the competitive
constraint faced by Google. We consider these constraints as part of ourassessment of competition below.
3.26

Google Search has played an important role in helping consumers to navigate
the Internet since its launch in 1998 and is well-known for introducing
innovations to web-based search, including its ‘PageRank’ algorithm. As by
far the most-used general search engine in the UK, Google handles a larger
volume of UK search queries and operates a larger volume of UK searchadvertising inventory than its competitors.

3.27

Other general search engines identified Google as their main competitor or as
one of their main competitors (alongside Microsoft Bing). Microsoft submitted
that Google's perceived advantage on relevance among consumers especiallyapplies to uncommon queries (also known as 'tail queries') and that Google
has richer local and specialty results. As discussed in the sections below,
Google Search holds extensive default positions across nearly all UK mobile
devices. It also holds significant default positions on desktop, through Google
Search being set as the default on the Chrome browser.

3.28

Google submitted that Bing was the main competing general search engine to
Google Search in the UK. Aside from Google, Microsoft is the only othersearch engine provider that maintains an at-scale English-language index andproduces its own organic search results and search adverts. Bing holds
extensive default positions on Windows PCs, through Microsoft’s agreementswith Windows PC manufacturers. Microsoft said that Bing’s strengths relative
to Google are that it is a good alternative for consumers for most of their likely
search queries (ie common queries) and for those who dislike Google.

Quality and relevance of search results
3.29

As discussed above, relevance of results is generally viewed as the mostimportant aspect of quality for consumers. We reviewed a range of evidence
to understand how consumers and industry participants perceive Google’s

84 This is in common with the standard approach in CMA market studies, which do not seek to establish whether

a firm has dominance in a defined market, but are focussed on assessing the range of competitive constraints
applying to firms, and how these could be strengthened. In a market study, the CMA considers ‘the extent towhich a matter in relation to the acquisition or supply of goods or services of one or more than one description in
the United Kingdom has or may have effects adverse to the interests of consumers’ (Enterprise Act 2002, section
130A(2)).

83

search results to compare to those of other general search providers. 85 Thisevidence is summarised below and discussed in more detail in Appendix I.
3.30

Google submitted the results of its Information Satisfaction tests, in whichhuman raters score unbranded search results from mobile devices for arandom set of queries. 86•

Google submitted the results of 98 tests from the US between 2017 and2020. Google outscored Bing in each test; the gap stood at 8.1
percentage points in the most recent test and 7.3 percentage points on
average over the period.

•

Google submitted the results of 25 tests from the UK from 2019. Google
outscored Bing in each test; the gap stood at 10.0 percentage points inthe most recent test and was 8.5 percentage points on average over theperiod.

3.31

Google also submitted a Comparative Quality Analysis (dated July 2019), in
which users of mobile devices were asked to rate Google’s results side-byside alongside those of Bing, DuckDuckGo, Qwant and Ecosia. The document
concluded that ‘Google quality is much better than others in all locales tested’(which included the US and the UK).

3.32

Microsoft submitted results from its Bing Challenge consumer research inwhich desktop users compare Google and Bing results side-by-side. In themost recent period (Q4 19):•

When brands were visible, 42% preferred Google, 23% preferred Bing,and the remainder were draws.

•

When brands were hidden, 37% preferred Google, 35% preferred Bingand the remainder were draws.

3.33

Microsoft also submitted some qualitative research that indicated that theperceived relevance of results was a source of relative weakness for Bing in
the UK, and an internal memo stating that Bing was 'trailing' Google on
relevance in a number of regions outside of the US. 87

3.34

We also asked other commercial parties for their views on quality differences
between Bing and Google. Apple said that Google is ‘the best English

85 We note that relevance is subjective and there is no single measure that is used across the sector to compare
different search engines.
86 [].
87 [].

84

Language search engine’, while [a search engine] said that Google has the‘best algorithmic results’. The Horizon Digital Economy Research Unit
questioned the impartiality of consumer tests conducted by search engines
and suggested that ‘the dominance of Google in the general search engine
market is not necessarily an indication of its overall better performance’. 88
3.35

On the whole, the evidence that we reviewed suggested that Google’s search
results are generally perceived to be of higher quality than those of Bing.
However, the studies we reviewed were not entirely consistent. For example,
Google scored more highly than Bing in all Google studies (both when brands
were visible and when they were not), whereas Google and Bing received asimilar number of preferences in some unbranded tests commissioned byMicrosoft. We also note that, even in studies where Google scored more
highly than Bing, there were a significant number of instances in which users
did not express a strong preference for either Google or Bing’s results.

3.36

In relation to brand, we note that the ‘Google’ brand is closely associated withthe act of web-searching and several competitors highlighted this as a sourceof strength. DuckDuckGo submitted that ‘users have come to expect Google
as the default and think of it synonymously with search. Even die-hard
DuckDuckGo users still say they “Google it.”’ As set out in Appendix I, there isevidence that some consumers struggle to tell the difference between searchengines in the absence of brands and logos.

3.37

Some of the consumer studies we reviewed suggested that quality differences
between Google and other general search engines may be more pronounced
in relation to queries with a local dimension and certain other categories ofquery, including those where search features and specialist datasets (ie thatare not obtained from web-crawling) play a role in answering the query.
However, the studies that we reviewed did not categorise queries according towhether these were common (ie head queries) or rare (ie tail queries).

Features and incentives
3.38

Both Google Search and Bing offer a wide range of search features,alongside traditional organic links to websites. For example, both allow
consumers to make specific searches for images, videos, maps, shoppingand flights. 89,90 Google research comparing the search features of search

88 Horizon’s response to our consultation on our interim report.
89 Google, accessed on 9.10.2019.
90 Bing, accessed on 10.10.2019.

85

engines including Bing, DuckDuckGo and Ecosia stated that ‘Google leads insearch features (coverage and utility)’.
3.39

Google highlighted its recent innovations in areas such as ‘activity cards’, 91
visual previews and artificial intelligence. It said that the actions of its generalsearch engine competitors were not a significant consideration behind theseinvestments, because its main focus is innovating to improve the user
experience.

3.40

One way that Bing differentiates from Google is through ‘Microsoft Rewards’.
Under this scheme, signed-in Bing users receive a notional payment in theform of promotional reward points for undertaking searches. 92

Competition from syndication partners
3.41

Google also listed downstream search engines with syndication businessmodels, such as Yahoo Search, Ecosia and DuckDuckGo as being among its
competitors93. We note that [] and that some of these providers source
most of their customers from Google. 94

3.42

However, as explained above, each of these downstream search enginesrelies on search results and adverts from Bing. 95 These providers do not holdsignificant search default positions, or produce their own organic links, andinstead seek to attract consumers through other means. For example,
DuckDuckGo has a focus on privacy and describes itself as ‘the searchengine that doesn’t track you’, 96 while Ecosia is a ‘purpose company’, whose
advertising profits are reinvested or used to plant trees. 97 As set out above,these providers have very low shares of supply in the UK. Overall, we
consider that platforms that do not produce their own organic links andadverts provide only limited fringe competition to Google.

91 A Google Search feature that organises information about a user’s previous searches to help them to ‘pick up

where they left off’ when they start another search session. See Google (2019), Pick up where you left off on
Search, accessed on 3.12. 2019.
92 These can be redeemed for gift cards, donation and sweepstake entries, but do not have a monetary value.
93 For example, Google submitted that DuckDuckGo is one of the ‘privacy-focused players’ that it competes withand that ‘DuckDuckGo’s key advantage is the reputation it has cultivated amongst users for protecting user
privacy [and] choosing not to offer personalised search services’. It also submitted that Ecosia was one of thegeneral search engines that it competes with.
94 For example, most DuckDuckGo users have switched to it from Google Search.
95 Verizon Media (owner of Yahoo Search and AOL), Ecosia and DuckDuckGo have syndication agreements with
Microsoft.
96 DuckDuckGo, accessed 7.11.2019.
97 Ecosia (2019), Financial reports and tree-planting receipts, accessed on 10.10.2019.

86

Conclusion
3.43

Overall, we consider that Bing is Google’s closest competitor in generalsearch, but does not provide a strong constraint on Google Search on the
consumer side of its platform.

Competition between Google Search and specialised search platforms
3.44 Google told us that it faces strong competition from a range of different
specialised search providers who specialise in paid listings in particularsectors, eg Amazon in retail and Booking Holdings98 in travel. Google said that
because consumers search for particular things, different competitive
constraints are relevant to different query types. It said that [a small
proportion] of commercial search queries (eg shopping, credit cards, finance,
travel, hotels and plumbers) generate most of Google’s search revenues.
Specialised search services exist in each major commercial content category
and Google competes with these services. Google also said that the pressure
on it to innovate derives not just from competition in one category alone, butfrom the aggregate effect of competition across all categories.
3.45 This issue was addressed in the European Commission’s Google Shopping
investigation (2017), which considered whether specialised search services
were in the same market as general search. 99 It found the markets to be
distinct for a range of reasons. Most notably, the Commission found that thetwo types of service operate as complements rather than substitutes, as a
substantial number of consumers access specialised search via generalsearch rather than accessing them independently.
3.46 From a consumer perspective, there are substantial differences between
general search and specialised search. General search engines help
consumers with a wider range of queries including many that are not servedby specialised providers, while specialised search provides functionality thatallows consumers to compare listed products across multiple dimensions.
Specialised search providers told us that these differences mean thatspecialised search and general search are unlikely to be directly substitutablefor consumers.
3.47 Further, all the specialised search providers we contacted stressed that therelationship between them and Google Search is vertical rather than horizontal
in nature, with Google being a ‘gatekeeper’ for traffic to their websites. This is
supported by traffic data from specialised search providers which shows that

98 Booking Holdings is the owner of travel-related websites such as Booking.com, Agoda and OpenTable.

99 European Commission Decision AT39740 Google Search (Shopping), June 2017, paragraphs 166 to 177.

87

Google is an important source of traffic for these providers, with mostproviders relying on Google for at least 40% of their traffic. In turn, a large
proportion of Google’s revenues in sectors where specialised search providers
are present comes from the specialised search providers themselves, rather
than from other advertisers. 100
3.48 Notwithstanding this vertical relationship, we have considered the extent towhich specialised search exercises some competitive constraint on Google,
through attempting to attract consumer traffic directly to specialised search
websites rather than via Google’s search engine. For example, Money
Supermarket reported that it would prefer more people to go directly throughits own website, rather than through Google. Some specialised search
providers are becoming more successful in generating their own traffic throughpromoting their brands and mobile apps, particularly as mobile usage has
increased. However, our analysis of traffic data to specialised search
providers shows that in most cases they are still heavily reliant on Google as
the main route for access.
3.49 In addition, Google can employ strategies to influence this traffic andconsequently the competition it faces from specialised search providers overthe long term. These include changes to its organic search algorithms thathave the effect of demoting specialised search providers in organic searchrankings and self-preferencing of Google’s own specialised search services.
These strategies are discussed in more detail in Appendix P. By using them,
Google may be able to limit the traffic to specialised search providers, making
it more difficult for them to develop their services and brands and limiting thecompetition Google faces from specialised search providers over the longer
term.
3.50 There is some evidence suggesting that Google may face competition from
Amazon on Google’s search queries that relate to retail. We note that Amazon
is likely to have important competitive advantages from its broader role as anecommerce channel. The value of Amazon’s first-party data was stressed to
us by media agencies and several advertisers from the retail sector. However,Amazon submitted that it considers itself to be one of Google’s largest
customers, and that this illustrates that it does not compete with Google.
Some survey evidence suggests that Amazon is sometimes the preferredconsumer starting point for product search. 101 However, other survey evidence

100 For example, we note that Google’s largest five customers of search advertising are all specialised search

providers [].
101 For example, a BloomReach Survey, ‘State of Amazon 2016’, September 23, 2016, found that Amazon is thepreferred starting point for product search. The survey sought to determine where consumers begin their product88

has found that the percentage of shoppers starting their shopping journey on
Amazon is significantly lower than the percentage of shoppers starting on
Google. 102 Even if Amazon imposes some competitive constraint on Google inrelation to retail search advertising, we note that this would only apply toadvertising representing a minority of Google’s revenues in search. According
to IAB figures, around 19% of search revenues are derived from the retailsector. 103
3.51

Overall, we consider that specialised search providers provide only a limitedcompetitive constraint to Google Search on the consumer side of the platform.
We discuss specialised search later in this chapter in the section on Google’s
expansion into related markets.

Barriers to entry and expansion in search
3.52

Having considered current sources of competitive constraint on Google
Search, we now discuss barriers to entry and expansion that may prevent
search engines from acting as an effective constraint.

Web-crawling and indexing
3.53

In order to return relevant search results, search engines must be able todraw on an index that provides an up-to-date picture of a very wide range of
relevant webpages (or else syndicate results from a provider that does so).

3.54

Google and Microsoft are the only two search engine providers that maintainat-scale English-language web-indexes. 104 The main way that they acquire
information for their index is through their automated web-crawling bots.
These bots follow the links between webpages and bring data about thosepages back to the search engine’s servers.

3.55

Based on submissions from these parties, Google’s index contains around[500-600 billion] pages and Microsoft’s index contains around [100-200 billion]
pages. The total number of pages in a web-index is only one measure throughsearches and found that 55% of respondents reported Amazon, while 28% reported search engines and 16%reported retailers.
102 A 2018 study published by Publicis Sapient and Salesforce found that 28% of shoppers start their productsearch on marketplaces such as Amazon and eBay in 2018 (up from 22% in 2017), as compared to 48% forGoogle (up from 17% in 2017).
103 IAB UK & PwC Digital Adspend Study 2019. Amazon may also compete to some extent in other sectors
defined in the IAB report, such as consumer electronics.
104 Other web-crawling search engines include Yandex, Cliqz and Mojeek. Yandex is a Russian multinational thathas a more-than 40% share of search in Russia. Cliqz is a Germany-based search engine. Mojeek is a small UKbased search engine.

89

which indexes can be assessed; the relevance of the pages in an index isalso important, as is the extent to which an index is up-to-date.
3.56

Crawling and indexing the web represents a significant cost for those searchengines that do it. Microsoft estimated that its indexing investments added up
to billions of dollars over time, while other estimates have suggested that
Google and Bing spend hundreds of millions of dollars a year on thisactivity. 105

3.57

Developing a web-index is subject to economies of scale: the costs
associated with crawling and indexing do not increase proportionally with thenumber of users of the search engine. It is difficult for smaller search engines
to invest in at-scale crawling and indexing, since their ability to repay thesecosts and earn a return on investment is contingent on their ability to secure
the other inputs necessary to compete effectively in search. For example, theywould also need to achieve scale in both search queries and searchadvertising, in order to offer relevant results and monetise effectively.

3.58

Some parties suggested that crawler-blocking presents a problem for webcrawling search engines. The mechanism for crawler-blocking is thatwebmasters place robots.txt 106 files on their websites, requesting that some or
all crawlers do not access all or parts of the website. 107 We heard that website
owners may have legitimate motivations for doing so. For example,
motivations can include fraud prevention and avoiding the increased runningcosts that can result from a large number of automated bots crawling a
website.

3.59

When web-crawlers encounter blocking, search engine providers can contact
webmasters to seek a change of policy. However, the effort and cost of doing
so means that search engines that are subject to fewer blocking instructions
may have an advantage. Established search engines may benefit from crossside network effects, between users and webmasters (people who operate
and maintain websites), in that the more users a search engine has, the more

105 For example, the European Commission quoted DuckDuckGo as follows: ‘Bing and Google each spend
hundreds of millions of dollars a year crawling and indexing the deep Web. It costs so much that even big
companies like Yahoo and Ask are giving up general crawling and indexing. Therefore, it seems silly to compete
on crawling and, besides, we do not have the money to do so’. Source: Google Search (Shopping) Commission
Decision (non-confidential version), 27 June 2017, page 66.
106 See further: description of robots.txt files.
107 We heard that website owners may have legitimate motivations for doing so. For example, motivations can
include fraud prevention and avoiding the increased running costs that can result from a large number of
automated bots crawling a website.

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incentive webmasters have to design their website or take actions that maketheir website more easily found by that search engine. 108
3.60

Microsoft submitted that whereas, overall, its index was competitive with
Google’s, a small fraction of sites have robot.txt files that enable Google tocrawl the site but prohibit Bing. Microsoft gave several examples of important
websites that allow crawling by Google but prohibit crawling by Bing over allor part of the site. These include or have included eBay’s UK website, 109 the
UK Passport Service website, 110 and the London Stock Exchange website. 111
Its main concern was that user impression of Bing search quality would be
harmed if several high-profile websites were not properly searchable.

3.61

Yandex (which has a more-than 40% share of search in Russia) 112 andMojeek (a small UK-based search engine) indicated that crawler-blocking was
not the main barrier to them expanding their English-language web-indices.
Rather, economies of scale and other issues were more important. However,Cliqz said that it had incurred ’significant business development expenses’
over the last 5 years by having to contact popular publishers to gain
permission to crawl their websites.

3.62

Our own research into this issue (which is set out in Appendix I) found that the
web-crawler bot of a new search engine that honoured all robots.txt would
have access to approximately 0.2% fewer sites compared to Google and Bingand that Google had access to a slightly higher proportion (0.02%) of sites
than Bing. We note that, even if a small number of popular sites cannot be
crawled by some search engines, this could limit the ability of those searchengines to return high-quality search results to certain queries.

3.63

In summary, Google and Microsoft are the only two providers that undertake
English-language web-crawling and indexing at a scale that can support acompetitive search engine in the UK. We consider that this reflects substantial
scale economies in crawling and indexing, plus uncertainty for other searchengines as to whether they can secure the other inputs (including sufficientscale in search queries and adverts) needed to earn a return on theseinvestments. While network effects in indexing (and crawler-blocking) appear
to be a less significant issue than cost-based scale economies, in
combination, these factors represent a barrier to entry and expansion for

108This could include prioritising limited bandwidth to allow crawlers of popular search engines but not others to

crawl and index the website. It could also include prioritising submitting updated site maps and crawl requests topopular search engines but not others, which helps popular search engines have more up-to-date results.
109 eBay.co.uk robot.txt, accessed on 13 November 2019.
110 UK Passport Service robot.txt, accessed on 15 October 2019.
111 London Stock Exchange robot.txt, accessed on 15 October 2019.
112 Source: Statcounter Global Stats. Statcounter calculates shares on the basis of page referrals. For more
information please see Appendix C.

91

English language web-crawling search engines. We discuss scale-effects insearch queries below.
Scale effects in click-and-query data
3.64

Network effects occur when the value of a service to its users increases as
the total number of users increases. Search engines are subject to same-side
network effects, in the sense that users benefit from increased quality as thesearch engine acquires a greater number of users. 113 This is because searchengines can use data showing how users responded to past searches in orderto improve their ranking algorithms, and return more relevant results to users.

3.65

Search engines collect and store these aggregated ‘click-and-query’ datasets
containing information about what users searched for and how they interactedwith the results that they were served. They collect this data from searches
undertaken on their own platforms and, where applicable, searches
undertaken on the platforms of their downstream syndication partners.

3.66

Click-and-query data plays an important role in helping search engines toimprove the relevance of results. It helps search engines to understand how
well their product is performing and to identify and test potential
improvements, such as changes to ranking and spelling correction algorithms.
This data is particularly important to search engines that produce their own
organic links (for example, Google and Bing), but certain click-and-query datais also collected by syndicator search engines, for example, to test how wellinstant answers and other features that they control are performing.

3.67

We have considered to what extent Google enjoys scale advantages
associated with click-and-query data and whether these act as a barrier toexpansion in search, drawing on quantitative analysis we have conducted of
the scale and distribution of the click-and-query data seen by Google andBing, as well as evidence concerning the strength of the relationship between
data scale and search relevance. This is discussed in detail in Appendix I andsummarised below.

Quantitative analysis of queries
3.68

Search engines informally describe the 15-20% queries that they see mostfrequently in a period as ‘head’ queries and the 25-30% queries they see least

113 Further, the more websites optimise their website to be more easily found by a search engine, the better its

quality of search results which helps it to attract and retain more users. The evidence that we have reviewed
suggests that this cross-side network effect is not as significant as the same-side network effect from
improvements to returning more relevant results to a user detailed in this section.

92

frequently as ‘tail’ queries. 114 While these boundaries are not precise, theseconcepts are important because, as discussed below, the benefits ofadditional data scale are higher for uncommon (ie tail) queries than forcommon (ie head) queries.
3.69

We conducted a detailed analysis of all of the [3-4 billion] search events seen
by Google and Bing in a one-week period in the UK, in order to understandbetter the differences in the query data seen by these search engines. We
found that the number of distinct queries seen by Google in this period wasaround 16 times greater than the number of distinct queries seen by Bing. 115

3.70

We also assessed the extent of overlap in the search queries seen by thesesearch engines within our one-week sample. Figure 3.4 shows the distributionof Google search events which were for queries also seen by Bing, and viceversa. It shows that a relatively large proportion of Bing’s tail queries werealso present in the Google dataset. By contrast, a small proportion of
Google’s tail queries were present in the Bing dataset. For example:(a) Of the queries that Google only saw once or twice, only 1.0% were in the
Bing dataset.
(b) Of the queries that Bing only saw once or twice, 31.5% were in the
Google dataset.

3.71

These results are consistent with the fact that, in total, Google saw many
more distinct queries than Bing in the period. 116

114 Bing generally identifies the top 20% of queries that is sees as head and the bottom 30% as tail. Google

identifies those queries that are seen more than five times per day and account for 15% of queries in a given
period as head and those that are contained in a query set when adding together the least common queries until
they amount to 25% of total traffic as tail.
115 Each search that is undertaken is counted as a ‘search event’. The text that is associated with a search event
is a ‘query’. The set of queries that remain once duplicates have been removed are ‘distinct queries’. For
example, if a dataset was made up entirely of the query ‘apple’, which appeared 5 times, and the query ‘orange’,
which appeared 5 times, then the total number of search events would be 10 and the total number of distinct
queries would be 2.
116 It should be noted the data submitted to us by Google and Bing was for raw queries ie before the correction of
any spelling mistakes. Had we seen queries after the correction of spelling mistakes, we expect that the numberof distinct queries would have reduced significantly and that the degree of overlap between the datasets would
likely have increased.

93

Figure 3.4: Distribution of the percentage of Google search events which were for queries seen
by Bing, and vice versa, by the frequency of their search query

Source: CMA analysis of Google and Bing data
Notes: We define the head as the 15% of queries seen most often in a dataset and the tail as the 30% of queries seen least
often.

3.72

3.73

Google and Microsoft also submitted some other statistics regarding the
distribution of search queries that they receive:•

Google said that the proportion of its daily traffic which are queries that it
has never seen before ‘has remained constant at about 15% for many
years’.

•

Microsoft submitted that roughly 36% of the search queries run on Bingare entered 10 or fewer times in a month.

Although these statistics are not directly comparable to our analysis above,
they provide a further indication that relatively uncommon queries account fora significant proportion of the queries seen by search engines.

Parties’ views
3.74

There is some debate over the strength of scale effects in click-and-querydata. In part, this may reflect the challenges in objectively comparing therelevance of different search engines’ search results (as discussed earlier inthis chapter).

3.75

Microsoft submitted that Google's greater scale enables it more easily todeliver more relevant results for users. Microsoft submitted that scale effects
are important for search relevance including for ‘tail queries’ and ‘fresh94

queries’. 117 Google acknowledged that ‘there may be value to having agreater amount of click and query data for “tail queries’”, but submitted that‘relevance of search results is not strongly correlated with access to large
query datasets’. It also said that there are often more efficient approaches toimproving the results for tail queries than increasing scale of data. It said thatmajor improvements in the relevance of search results have come fromtechnological and analytical developments that do not depend on having moredata.
Our assessment
3.76

In addition to our own analysis, we reviewed submissions from parties andacademic research regarding the relationship between click-and-query datascale and relevance of search results. Overall, this evidence shows that: 118•

There are advantages to scale in click-and-query data – searchengines that see more queries (and more consumer responses to thosequeries) can engage in increased experimentation and learning about
what consumers want and have greater possibilities to iterate and improvetheir service.

•

The marginal benefit of additional data depends on the type of query– where a search engine sees a search query very frequently (sometimes
referred to as ‘head queries’), then the marginal benefit from seeing thatquery more often is relatively lower. Conversely the marginal benefit ofseeing a query more often is higher for uncommon queries (sometimes
referred to as ‘tail queries’).

3.77

Search technology has developed in various ways over the last decade andthe role of click-and-query data scale, more general cost-based economies ofscale, and other factors such as engineering expertise is likely to have varied
depending on the innovation in question. However, even where newtechnologies are initially developed without using click-and-query data, being
able to test and refine algorithm updates across a large volume of search
queries may support the deployment of these technologies.

3.78

Google – as the most used search engine – sees each uncommon query
more times than Bing in a given time period. We consider that, in particular,

117 For example, the query ‘weather’ is commonly seen by search engines (ie it is a ‘head query’). It is also a

relatively static query in the sense that the consumers of today, last week, and last year are all likely to have had
a similar intent when entering this query (ie the intent to find a weather forecast). By contrast, search queries
related to contemporary events, such as fashion trends and local news, may be less commonly seen (ie they may
be ‘tail queries’) and the results that consumers are seeking may be changeable over time (ie they may be ‘fresh
queries’).
118 We discuss this evidence further in Appendix I.

95this supports Google’s ability to serve more relevant results to uncommon
queries compared to Bing. Even if click-and-query data only helped Google
return more relevant results for a modest proportion of search queries, thiswould further reinforce consumers’ perceptions of Google as the highestquality search engine and make them less inclined to consider alternative
providers.
3.79

Overall, our assessment is that the greater scale of English-language queries
seen by Google supports its ability to deliver more relevant search resultscompared to its competitors. We consider that this effect is more material forparticular types of query, such as uncommon or ‘tail’ queries. Given theimportance of search relevance to consumers, the lack of comparable scale inclick-and-query data limits the ability of other search engines to compete with
Google.

Syndication agreements
3.80

As noted above, downstream search engines including Yahoo Search,
DuckDuckGo and Ecosia access Bing search results and adverts throughnegotiated syndication agreements.

3.81

Under syndication agreements, the upstream provider (Google or Bing)agrees to provide search results and adverts, and the downstream provider
incorporates these into its own search engine product, under its own
branding. 119 The downstream provider may supplement the syndicated results
and adverts with additional information and features.

119 From the agreements that we have seen, downstream search engines generally syndicate organic search

results and search adverts from the same upstream provider. However, in some cases, downstream searchengines have the possibility of buying organic search results without adverts. For example, Google’s WebsearchService allows website owners to use Google search results in exchange for a search fee. Website owners thenhave the option of also displaying Google search adverts through its AdSense for Search and AdSense for
Shopping services.

96

Box 3.3: The role of syndicators from a consumer perspective
Search engines that rely on syndication agreements present organic search results
produced by Bing or Google. So how do these syndicators differentiate themselves?
We understand that sources of differentiation include:•

Social purpose – some syndicators spend part of their search advertising
revenues on social or charitable causes.

•

Privacy – some syndicators say that they do not log or store information
about user searches.

•

Search features – when users enter search queries, syndicators and their
upstream partners alike often serve additional features (such as map
extracts, news clippings and weather forecasts), alongside organic links
and adverts. Some syndicators serve different features compared to their
upstream partner.

It is possible that syndicators could play a more distinct role in the sector in future.
For example, we are not aware of any current syndication agreements that allow
syndicators to re-rank the organic search results that they receive from Google or
Bing. If this were to change, then syndicator search engines may be able todifferentiate themselves more strongly.

3.82

In the agreements that we have seen, advertising revenues arising from clicks
on search adverts on the downstream search engine are generally shared
between the two parties. In addition, or instead, the downstream provider may
be charged a fixed fee per 1,000 search requests and certain additional fees.

3.83

From the perspective of upstream providers, syndication agreements act as a
distribution channel for their search results and adverts and help them toachieve greater scale. This may lead to direct benefits, in the form of revenueshare and other payments made by the downstream partner. In addition,these agreements help upstream providers to build greater scale in click-andquery data and in search advertising, which may in turn help the provider toimprove its search relevance and search advertising monetisation. 120, 121

120 For example, Microsoft submitted that: ‘a primary motivation for entering syndication deals is to help increase

our scale to improve competitiveness over time’.
121 We have seen some syndication agreements where the upstream provider receives only a low share ofsearch advertising revenues. In these cases, we consider that obtaining greater scale in click-and-query data andin search advertising volume may be the main benefits that the upstream provider derives from the syndicationagreement.

97

3.84

From the perspective of downstream providers, syndication agreements canprovide them with a viable means of competing in search. As highlighted
above, competitive web-crawling search engines have to overcome a series
of interrelated challenges including developing sufficiently relevant search
results (through at-scale crawling and indexing and at-scale access tocustomers and clicks) and developing an at-scale advertising platform (which
also requires at-scale access to customers and clicks). By contrast,
syndication strategies appear to be lower cost and lower risk. 122 Several
downstream providers indicated that, in combination, the barriers todeveloping their own competitive results and adverts were not surmountable,leaving syndication as the only viable option.

3.85

As the only at-scale English-language web-crawling search engines, Google
and Bing will naturally have a strong bargaining position in discussions withdownstream search engines. As a result, they may choose not to offer
agreements to some providers, or may insist on terms that limit the ability ofdownstream providers to compete. For example, Ecosia said that it had
approached Google many times over the years, but that Google had always
declined its request. In addition, none of the syndication agreements that we
reviewed allows downstream providers to re-rank the search results that theyreceived. Several downstream providers said that they would like to be able tomodify search results, in order to improve their ability to differentiate.

3.86

The reliance of downstream search engines with syndication business models
on Google or Bing, and the contractual terms that they face, acts as a barrier
to these providers expanding and playing a more substantial role in thecompetitive process.

Other supply-side barriers
3.87

Some parties highlighted additional supply-side barriers to entry andexpansion.

3.88

First, the development of search features is subject to cost-based economies
of scale. As with web-indexing, smaller search engines seeking to develop
competitive features would likely face higher unit costs than larger searchengines. In some cases, smaller players appear to have responded byobtaining search features and content from third parties. For example,
DuckDuckGo uses Wikipedia for answers, Yelp for businesses, and Apple formaps.

122 In addition, where syndication agreements are based on a revenue share, they provide downstream searchengines with a degree of hedging between costs and revenues.

98

3.89

Secondly, Microsoft suggested that accessing at-scale location data from user
devices is a critical input to providing relevant, localised results. It indicated its
belief that Google has unique advantages in this area, due to the location datathat it receives from the Android operating system and the location data it
receives when users access Google Search or other apps like Google
Maps/Waze. Bing also gets location data from searches undertaken by its
users, however far fewer searches are undertaken on Bing compared toGoogle.

3.90

Having location data as a dimension of click-and-query data helps searchengines to learn how best to factor location into their ranking algorithms. We
also saw some evidence that having location data (in real time), helps searchengines develop location-related search features. For example, consumer
research conducted by Microsoft suggested that Google has an advantage inlocal restaurant queries ‘from Android phone location tracking, allowing it to
track popular times and prompt users to submit reviews’.

3.91

We consider that cost-based scale economies in search features andGoogle’s greater access to location data may provide Google with anadvantage in relation to location-based queries and act as an additional
barrier to expansion for other providers.

Consumer access to search and default arrangements
3.92

Consumers access search engines through one or more of the ‘access points’on their mobile and desktop devices, such as web browsers, search widgets
and voice-activated assistants. 123

3.93

Mobile and desktop devices typically come with a set of access points preinstalled, each of which is associated with a default search engine. As
discussed below, access point owners (such as device manufacturers)
consider search engine quality and the financial compensation offered by thesearch engine when deciding which search engine to set as default.

3.94

Browsers and devices typically allow consumers to modify the search engine
that is associated with their device or browser, by entering a settings menu
and choosing from a list of secondary options. Consumers may also bypass
or supplement search defaults, for example by downloading additional webbrowsers (that use a different default search engine), or by navigating to an

123 Browsers and devices generally allow consumers to change the initial default search engine through asettings menu. Within these settings, consumers may be presented with several alternative options. Unlessotherwise stated, we use the term ‘default’ to refer to the initial or primary default on a browser or device and theterm 'secondary option' to describe the set of alternative search engines that are offered to consumers within thesettings menu of a device or browser.

99

alternative search engine within a web-browser. However, the defaults thatfeature on devices have a strong influence on the search engines that
consumers use and, in turn, act as a barrier to expansion for search enginesthat do not hold these positions.
3.95

Below, we briefly review the default positions held by search engines, therelationship between defaults and consumer search behaviour, and the extent
to which search engines other than Google can compete effectively for searchdefaults.

3.96

As part of our work on search defaults, we requested and analysed data from
Google and Microsoft regarding all of their search default positions andreviewed a sample of legal agreements concerning default positions(including those between Google and Apple, Google and Samsung, andMicrosoft and Windows PC manufacturers). We also considered submissions
from a range of parties. We assess search defaults in more detail in Appendix
H.

Default positions held by search engines
3.97

Google holds very extensive default positions in relation to mobile devices(including smartphones and tablet devices). 124 It has had a default
agreement 125 with Apple for over 15 years. 126 It also has default agreementswith many of the largest Android mobile phone manufacturers and mobile
phone networks. In combination, these agreements mean that Google Searchis the primary default on the vast majority of mobile devices in the UK.

3.98

Some of these agreements entitle the device manufacturer to earn a fee orsearch advertising revenue share, when the device manufacturer opts to preinstall Google Chrome and Google Search. Other agreements also entitle thedevice manufacturer to earn a share of search advertising revenues
generated through its own browser, if Google Search is set as the default
search engine (for example, this applies to Google’s agreements with Appleand Samsung, in relation to the UK).

3.99

Bing is the initial default on the majority of desktop PCs in the UK. Most
desktop PCs in the UK come with Microsoft Windows. Microsoft has
agreements with these manufacturers for the Microsoft Edge web-browser tobe set as the default and for Bing to be set as the default search engine.

124 Google also holds default positions on smart speakers.

125 We use the term ‘default agreement’ to describe commercial agreements that relate to the setting of particularsearch engines as the default at search access points.
126 Google has had a default search distribution agreement with Apple [].

100

Google Search is the initial default in the UK on desktop PCs made byApple. 127
3.100 The default positions held by Google and Bing on mobile and desktop devices
are summarised in Figure 3.5 below.
Figure 3.5: Search default positions on mobile and desktop devices, based on device usage,
February 2020
100%

Amazon, 1%

Unknown*, 2%

Unknown*, 5%

Chrome OS, 2%

Other (Google
90% Default), 1%
80%
70%

Xiaomi, 1%

Huawei, 9%Apple, 27%

Google, 1%Motorola, 2%
Sony, 2%Samsung, 26%

60%
50%
40%
30%

Windows, 68%Apple, 52%

20%
10%
0%

Mobile Devices

Desktop Devices
GoogleBing

Unknown*

Source: CMA analysis of Statcounter Global Stats data.
Notes: The data for mobile devices represents shares amongst mobile device manufacturers (including tablet
devices), calculated on the basis of ‘page referrals’. The data for desktop devices represents shares amongst
desktop operating systems (including laptop devices). ‘Unknown’ consists of all device manufacturers andoperating systems that accounted for a share of less than 1% and for which we were unable to identify the default
search engine. Google or Bing may hold additional default positions on these devices and browsers. See
Appendix H for further details.

Impact of defaults on user behaviour
3.101 The evidence that we have reviewed indicates that default positions have asignificant impact on consumer behaviour in search.
3.102 First, there is a positive correlation between default positions and shares ofsupply in search. As shown in Figure 3.5, Google Search holds the initial

127 Google Search is the default search service in the Safari browser, which is pre-installed on Apple devices.

101default position across nearly all of the mobile device sector, 128 and less thana third of the desktop PC sector. While Google is the largest search engine in
the UK across mobile and desktop devices, its share of search is relatively
higher in mobile, where it occupies more extensive default positions, than indesktop. A similar correlation can be observed for Bing.
•

Google Search has default agreements covering much more of the mobile
device sector (at least 94%) than the desktop PC sector (29%). In turn,
Google has a relatively higher share of supply in mobile search (97%)
than it does in desktop search (84%).

•

Bing is the initial default on around 68% of desktop PCs and almost noneof the mobile device sector. Bing’s share of supply is much higher indesktop search (13%) than in mobile search (less than 2%). 129

3.103 The results above show that Google’s default positions in mobile appear tohave a stronger impact than Bing’s default positions in desktop. We consider
that in part this may reflect Google’s status as market leader, with consumers
generally perceiving it to offer higher quality results than Bing. However,mobile defaults are also likely to be more powerful than desktop defaults, forexample because consumers are less likely to take steps to change or bypass
defaults when faced with a smaller screen. Evidence set out in Appendix H
further indicates that, holding the identity of the search engine constant,defaults are generally more powerful on mobile devices than on desktop
devices.
3.104 Several other case studies indicate a positive relationship between default
positions held and search queries and/or search advertising revenues:(a) For a period in the 2010s, a proportion of mobile phones used theWindows Mobile operating system and came with Bing as the default
search engine. Google received a much lower share of queries (and Bing
received a much higher share of queries) on Windows mobile devices
than on Android mobile devices. 130(b) In 2014, Mozilla switched the default search provider in its browser from
Google to Yahoo! in the United States. Google internal documents

128 Except for the default positions held by Bing in relation to certain tablets, we are not aware of any mobile

devices that have a non-Google default in the UK as of February 2020. We weren’t able to confirm which searchengine holds the default position on certain mobile devices with a less than 1% share of the mobile device sector
by usage. Therefore the ‘unknown’ category may contain further devices where Google Search is the default.
129 The shares given in this paragraph relating to search engines’ default positions are based on Statcounter’s
Global Stats for browsers. Statcounter calculates mobile device vendors’ and desktop operating systems’ sharesof supply on the basis of page referrals. The search engine shares related in this paragraph are based upon CMA
analysis of search engine data. See more detail on our market outcomes analysis in Appendix C.
130 Case AT.40099, Google Android, 18/07/2018.

102

indicate that [] of Google’s US Firefox default traffic and [] of
Google’s US Firefox default revenue was lost as a result of this switch.
(c) Google’s modelling from [the last five years] indicated that, if Apple wereto replace Google with another provider as the default search engine in2017, Google would experience a drop in search advertising revenue onApple devices of [] per year.
(d) Microsoft modelling [within the last five years] indicated that, if Bing were
the search default on iOS devices, it believed it could grow its share ofsearches on Apple iPhones from [] to [] in the United States.
3.105 Secondly, the high level of compensation, also known as ‘traffic acquisition
costs’, paid by Google in particular demonstrates that it values default
positions highly.
3.106 In 2019, Google paid around £1.2 billion for default positions in the UK alone.
This figure was more than 17% of Google’s total annual search revenues in
the UK, as reported in Chapter 5, and all of these payments were in return for
Google being set as the primary default. The substantial majority of the total
default payments made by Google were paid to Apple ([]), with a smaller
proportion going to Android mobile phone manufacturers ([]) or otherpartners ([]). 131
3.107 Microsoft made approximately [£50-100 million] in payments for default
positions in the UK in 2019. These include some payments for primary default
placements (including on Windows desktop PCs) and some payments to be asecondary option, within a settings menu. Microsoft, DuckDuckGo andVerizon Media pay for Bing, DuckDuckGo and Yahoo Search respectively toappear as secondary options within the Safari browser on Apple devices. 132
These providers pay a substantial percentage of search advertising revenue
to be a secondary option on Apple devices. However, these payments are far
lower in pound terms than the payments made by Google for the primarydefault position. This is consistent with primary default positions generating
more searches and more search advertising revenue, other things equal, thansecondary placements within a settings menu.

131 The payments quoted are Google’s best estimates. Google makes these payments on a revenue share basis.

This means that, when consumers undertake Google searches through specified search entry points, a share ofany search advertising revenues that are generated are payable to the relevant partner.
132 These payments are made on a revenue share basis. This means that, when consumers select the specified
search engine as their default in Safari and then make searches, a share of any search advertising revenues thatare generated are payable to Apple.

1033.108 Google told us that, in tenders for defaults, it determines the revenue share it
wishes to offer based on the value it believes it can generate from theopportunity on offer. []3.109 We also reviewed internal documents submitted by Google which suggestthat at least part of the rationale for entering into default agreements is tomake Google's search advertising revenues more secure. For example, aninternal document referred to search advertising revenues as being 'exposed'
where these came from mobile devices for which Google did not have adefault agreement in place.
3.110 Apple submitted that search engines do not pay Apple for the right to be set
as the primary default search engine on its devices. []. However, as set out
in Appendix H, our assessment is that Google does pay to be the primarydefault on Apple devices. The agreement between Google and Apple statesthat Google will be the default web search provider and the same agreement
states that Google will pay Apple a specified share of search advertising
revenues. We also note that Google does not pay compensation to any
partners that set Google Search as a secondary option. This further suggeststhat Google’s payment to Apple is in return for Apple setting Google as theprimary default.
3.111 Overall, we consider that the high levels of compensation paid by searchengines under default agreements further indicates that search defaults
influence consumer search behaviour and, in turn, search advertising
revenues. In particular, it is striking that the largest search engine, with astrong brand and high and sustained shares of supply, makes such significant
payments for default positions.
3.112 The finding that defaults are impactful in search is consistent with researchfrom other settings; the power of default settings is an area of behavioural
economics that has been well researched and is well-evidenced across awide range of settings, such as pension savings, medical insurance and foodconsumption. 133 There is a general recognition that the presence of status
quo bias means that individuals will often stick with the default choices they
are presented with.
3.113 We consider that the influence of defaults in general search is likely to beunderpinned by several factors. First, consumers may not understand thatthey can change the default search engine on a device or in a browser.

133 See for example: Thaler, R.H., and Sunstein, C. (2008) Nudge: Improving Decisions About Health, Wealthand Happiness, Yale University Press, New Haven, CT. The role of defaults in data collection in general searchand social media is discussed in this report in Chapter 4 and Appendix L.

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Secondly, they may be put off by complexity or other hassle factors. For
example, Ecosia told us that Google displays a warning notice when
consumers seek to change the default search engine in Chrome or on
Android devices and that this discourages consumers from following throughwith a switch. DuckDuckGo said that even when the consumer is convinced totake that action, it can be only a temporary change – the consumer’s device
and browser can roll back the search engine selection (eg with software
updates).Thirdly, consumers may perceive little benefit to changing defaults,
especially if the default search engine is the market leader (Google) and thealternatives are not well understood.
3.114 We received some submissions arguing that search defaults have a positive
impact on the consumer experience. For example, Google said that users
may value ‘having Google’s high quality search service available to answer
queries as a default straight ‘out of the box’.
3.115 An alternative approach to consumers being presented with a default searchengine on their browser or device is for consumers to face a choice screen,
prompting them to consider different options and to select an additional or
alternative search engine of their choosing. One example of a choice screen
is outlined in Box 3.4 below.
Box 3.4: Android choice screens
Following the European Commission’s Android decision in July 2018, Google
announced that users would be provided with a choice screen of general search
providers on all new Android phones and tablets in the European Economic Area,
including the UK, where the Google Search app is pre-installed. 134
From 1 March 2020 until 30 June 2020, a choice screen has appeared in the UK
during device set up, offering users with a choice of Bing, DuckDuckGo andinfo.com, in addition to Google as the default search engine on the Chrome webbrowser. 135 Future auction cycles determining which search engines will be madeavailable to users will occur on a quarterly basis.
The effect of a user selecting a search provider from the choice screen will be to (i)set the search provider in a home screen search box to the selected provider, (ii) set
the default search provider in Chrome (if installed) to the selected provider, and (iii)
install the search app of the selected provider (if not already installed).
Stakeholders’ views regarding the likely effectiveness of this choice screen at
improving competition are described in Appendix V.

134 Android (2019), About the choice screen, accessed on 26 November 2019.
135 Android (2020), Choice Screen winners, updated 1 June 2020.

105

3.116 While choice screens entail a small amount of additional effort for a consumer
compared to simply being presented with a default, we consider that any time
costs for consumers would be small and the potential competition benefits
substantial. We discuss choice screens further in Appendix V on search
remedies.
Ability of search engines to compete for default positions
3.117 As above, Google holds the most significant default positions in Englishlanguage search, Microsoft holds some default positions, and other providers
do not hold significant positions. Several search engines told us that they
were unable to compete with Google for default positions due to the scale ofpayments required.
3.118 The submissions that we received suggested that access point owners decide
which search engine to set as default based on a combination of searchengine quality and the level of compensation that a search engine canprovide. For example:•

Google said that providers such as Apple, Samsung, Opera, and Mozilla
all select search defaults based on competition between search providers,taking account of the quality of the service they offer and the amount ofrevenue they are willing to share.

•

Microsoft suggested that Google has been able to secure default
placement on Android and Apple devices and that this was likely due to its
ability to share large amounts of search revenues resulting from its market
position in search.

•

Apple told us that it selected Google as the default search engine on its
products because that is what most consumers want.

3.119 We consider that the default position on Apple devices is the most significant
in search in the UK, as indicated by the scale of devices covered and thescale of payments made to Apple. We requested detailed evidence fromApple, Google and Microsoft (which held discussions with Apple in [the last
five years] regarding the possibility of Bing becoming the default on Appledevices), in order to understand how competition for this position has
operated. We found that Apple’s negotiations with Google and Microsoft havebeen complex and multi-faceted, but that perceived search engine quality andrevenue offered to Apple were important components of these discussions.

106

3.120 In relation to revenue, modelling undertaken by Microsoft indicated that, if
Bing were the default search on iOS devices, the number of queries on Appledevices going to Bing would substantially increase and Bing’s monetisation
would improve. The modelling indicated that Bing would not generate as
many queries or as much search advertising revenue through the Apple
default position as Google could, if it continued to hold the default position.
Although Microsoft has been unsuccessful in winning the primary default
position on Apple devices, it still pays Apple a revenue share. This means
that, if consumers enter the settings menu, switch their search engine from
Google to Bing and undertake searches on Bing, a share of the resulting
search advertising revenue is payable to Apple.
3.121 Google’s default agreements with Android phone manufacturers are alsosignificant, in terms of the mobile devices covered and payments made to
manufacturers. Samsung said that it pre-installed Google Search and Chrome
and set Google as the default search engine on Samsung’s own web browser
considering user experience/preference as well as financial benefits, in theform of the advertising revenue share that it has agreed with Google.
Microsoft said that it believes no competitor, including Bing, can likely matchthe combination of upfront incentive and revenue share that it understands
that Google offers Android manufacturers. It said that despite the European
Commission’s Android decision in July 2018, it has still not been able tonegotiate pre-installation of Bing search as the default on Android devices andno new deals have been made possible by that decision.
3.122 As set out above, Microsoft holds default positions with desktop PC
manufacturers. Payments made under these agreements are smaller thanthose made by Google to Apple and to large Android manufacturers such as
Samsung. Microsoft suggested that it can compete for these PC defaults for
two reasons. First, it said it has strong business relationships with Windows
Original Equipment Manufacturers (OEMs) and []. Secondly, it said it
believes that Google may be less interested in PC distribution because it has
more attractive distribution options for Google Search and Chrome on PCs,for example, by prompting visitors to Google.com and YouTube to download
Chrome.
3.123 We consider that search engine quality and financial compensation are thekey components of how access point owners select defaults and that searchengines other than Google face barriers to competing on both of these.
3.124 Google has a strong brand and is generally perceived to be the highest quality
search engine. This suggests that, in practice, other search engines are likely
to have to offer at least as much financial compensation as Google in order to
win a default contract. However, given Google’s relative popularity with users,107

it can generate more queries through a given default position than othersearch engines can. For this reason, and because Google also has superiormonetisation per query due to its greater scale, 136 other search engines areunlikely to be able to offer as much financial compensation as Google can.
3.125 Further, whereas Google does not pay to be the secondary option on any
devices, search engines such as Microsoft have agreed to do so (for example,
Microsoft’s agreement with Apple). We consider that these payments forsecondary placement are indicative of the relatively weaker bargaining
position of search engines other than Google, and may also mean that searchengines such as Bing face an even higher bar when it comes to competing forthe primary default position, since, unlike Google, they will share revenues
with Apple whether or not they are the primary default.
3.126 In addition, there is a positive feedback loop between Google’s position as thelargest and most revenue-generating search engine and its ability to acquire
extensive default positions that further reinforce this position. Google’s scale
in search queries and search advertising supports its ability to offer higher
search quality and generate higher revenues compared to its competitors 137,
supporting its ability to secure primary default positions. The default positions
held by Google in turn make it more difficult for alternative search engines toaccess users and advertisers and improve their search quality andmonetisation rates.
3.127 We recognise that payments for defaults can lead to benefits in markets otherthan search. For example, default payments from search engines are asource of income for some web browsers and device manufacturers.
3.128 Where default payments take the form of revenue share payments, we would
expect recipients to pass these on to consumers to some extent, where they
are operating in competitive markets. However, any consumer benefits that
default payments create in browser and device markets are likely to be
outweighed by the costs that default payments create for consumers due toweaker competition in search. Particularly on mobile devices, the current
scale and breadth of payments by Google harms competition between searchengines. This reduced competition can lead to increased prices for goods andservices across the economy that use search advertising (as described in
Chapter 5), as well as weaker dynamic competition and innovation on theuser side. We also expect that Google would only agree to make substantial

136 This is the assumption adopted by Microsoft in modelling relating to the Apple default position. See further

Appendix H.

137 As set out in Chapter 5, CMA analysis suggests that Google is able to achieve significantly higher searchadvertising prices than Bing, its main competitor, on a like-for-like basis.

108

payments where the benefit to Google from doing so (for example in terms ofprotecting its profits in search) exceeds the level of the payment. Therefore,
we would expect these default payments to have a negative impact on welfare
overall. We discuss remedies relating to search defaults further in Chapter 8
and Appendix V.

Google’s expansion into related markets
3.129 As described in Appendix E, Google’s search product forms part of a wider
ecosystem of user-facing services. For example, Google has developed
several specialised search products over the last two decades – such as
Google Flights and Google Hotel Finder, a flight comparison and hotel
comparison websites, respectively, both launched in 2011. In parallel Google
has introduced a range of richer results on its search engine result pages(SERPs), such as ‘One-Boxes’ that induce the users to ‘find their answers
directly on Google’ instead of being directed to a third-party website. As partof this, Google has introduced ‘One-Boxes’ that link to its own specialised
search websites. Notable examples include shopping, news, local search,travel and jobs.
3.130 Google’s market power in general search, and the importance of generalsearch to related markets for complementary services, entail that Google may
have the ability to exclude rivals in related markets. Google may also have the
incentive to do so, for example in order to protect its position in generalsearch, by reducing the threat of entry into general search from related
markets. We set out below several concerns related to exclusionary behaviour
that have been raised by third parties. These relate to specialised search andto smart speakers.
Concerns raised by competitors in related markets
3.131 Concerns were expressed to us by several specialised search providers that
Google can engage in a range of practices that can make it more difficult forthem to compete. These are set out in more detail in Appendix P.
3.132 First, specialised search providers expressed concerns about Google selfpreferencing its Google Flights, Google Hotel Ads, and Google Local Search
One-Boxes. They submitted that Google places these boxes prominently at
the top of the SERP where the user is more inclined to click. They argued thatthe prominence of ‘One-Boxes’ has the effect of diverting traffic away from
specialised search providers, making it more difficult for them to compete. For
example, [a specialised search provider] estimated that, for certain queries,
being in position two rather than one (due to the Google Flights One Box109taking up the first position) reduced its click through rate (CTR) by 46.5%.
Although some providers can integrate with Google specialised search
products, they are ‘disintermediated’ as traffic is diverted from their websites.
3.133 Second, specialised search providers expressed concerns about Google
exploiting the data it collects from its ecosystem to get a competitive
advantage on specialised search rivals. They submitted that Google can use
the data it collects about their business (eg through Google Ads, Google
Flights) and their customers (eg Gmail), to improve and promote its own
specialised search products. They were also concerned that Google may
scrape data from their websites (eg consumer reviews) and feed this data into
its own products, as it used to do in local search.
3.134 Third, specialised search providers expressed concerns about Google
updating its organic search algorithms to demote traffic to specialised searchrivals, for example by pushing their organic links down the search results
page. Some suggested that some of Google’s organic algorithms (the socalled Panda algorithms) are particularly penalising specialised search
websites because of several factors including these websites’ nature as
aggregators and the fact that they display on-site duplicate content (ie,duplicate or similar content across specialised search websites). The
demotion of traffic to specialised search providers could decrease theirrevenues by reducing the revenues they get from ads placed on theirwebsites (eg display and classified advertising) and so could stifle their
incentives to invest in innovation. Google’s practices could also stifle potential
entry in specialised search as new entrants would find it difficult to compete
on the merit with Google specialised products.
3.135 Separately, in relation to voice search using smart speakers, Sonos has
raised a concern about contractual terms that restrict the concurrent use of
Google Assistant and Amazon’s Alexa on Sonos smart speakers. 138 Google
Assistant partly relies on results from Google’s search engine. Sonos argues
that this may be a way for Google to leverage its market power in search into
the adjacent markets such as smart speaker devices and voice assistantsoftware on smart speakers.
Google’s responses to the concerns raised
3.136 Google submitted that the introduction of ‘richer’ search results on the SERP
such as the Google One-Boxes are innovations that enable Google to show

138 Sonos smart speakers have both of these assistants built-in. However Sonos submitted that Google prevents

usage of the wake words for each assistant concurrently: only one assistant can be active at a given time.

110higher quality results and that serve to improve its general search service.
Google submitted that [].
3.137 Google said that concerns that it could foreclose voice recognition services
that compete with Google Assistant are unfounded. It submitted that Sonos
users can choose whether to use Google Assistant or Amazon Alexa at
device setup and can easily switch at any time after that. It suggested thathaving multiple wake-words for different assistants on a device would lead tomore false activations. It also noted that users have many other access points(aside from Sonos speakers) for voice recognition services.
Google’s ability and incentive to engage in exclusionary behaviour
3.138 The European Commission has looked at some of the practices above that
relate to specialised search previously in the context of its Google Shopping
investigation and found them to be anticompetitive. In 2017 the European
Commission imposed a €2.4 billion fine on Google for abusing its dominantposition in general search by giving preferential treatment to Google Shopping– Google’s own comparison shopping service (CSS) – on the SERP. The
Commission found that Google's conduct was abusive because it diverted
traffic away from competing CSS to Google's own comparison shopping
service by placing the Google Shopping One Box (which included only
Google’s results) prominently at the top of the SERP.
3.139 We have not sought to conclude on the merits of the specific concerns set out
above as part of this study. However, these are examples of potentiallyconcerning practices that could be investigated under the new regulatory
regime that we are advocating, through the enforceable code of conduct. 139
Appendix U sets out our assessment of potential practices to be tackled undera code.
3.140 We recognise that, where Google enters markets related to search, this canhave material benefits for consumers. However, we are concerned that
Google has the ability and incentive to engage in exclusionary practices andthat these could lead to harm to competition in markets related to generalsearch, such as specialised search, voice assistants and devices that use
these services.
3.141 Google’s ability to engage in these practices ultimately stems from the market
power of its search engine. All of the specialised search providers that we
spoke to told us that they are heavily reliant on Google as a key source of

139 Furman Review (2019), Unlocking digital competition111

user traffic and do not have alternatives. This is supported by traffic data from
specialised search providers which shows that Google is an important sourceof traffic for these providers, with most providers relying on Google for at least
40% of their traffic, both on desktop and mobile/tablet.
3.142 Google’s incentive to foreclose competition may arise in part from a desire tolimit the competition its general search engine faces over the longer term. In
addition, Google may have the incentive to gain additional profits from themost lucrative specialised search sectors by offering these products itself.
3.143 Harm to specialised search providers, rival voice assistants or device
manufacturers through any of these practices is likely to lead to harm toconsumers. Consumers are likely to be worse off in that they see a reduction
in choice and product innovation, and potentially an increase in prices in the
future. In addition, the competitive constraint imposed on Google’s generalsearch may be reduced.
3.144 We note that there may be some benefits from technical integration of generalsearch with specialised search – for example that users can locate andaccess information on the SERP more easily. These, and other technicalissues and justifications, would need to be taken into account and weighedagainst any anticompetitive effects in any investigation, either under the codeof conduct proposed in Chapter 7, or using existing ex post enforcement
powers.

Findings in search
3.145 Search engines play an important role for consumers in the modern world,
helping them to navigate the web, and quickly and easily find useful andinteresting information. Google Search in particular is well-known for providing
a high-quality search product and for introducing a series of search-related
innovations, from PageRank to Google Maps.
3.146 The evidence shows that Google has significant and enduring market powerin general search. Google has had very high and stable shares of supply insearch in the UK for at least the last ten years. Mobile searches are growing
faster than desktop searches – and Google’s share is even higher in mobile
search (97%) than in desktop search (84%). Innovation played an importantrole in helping Google to build its customer base in the early years of webbased search: it grew by offering a high-quality product that consumers
valued. However, general search is now subject to significant barriers to entry
and expansion, which together limit the current and potential competitive
threat faced by Google.

1123.147 In order to compete effectively, search engines must have the means toaccess consumer queries at scale and be able to deliver relevant results to awide range of queries. The key inputs to achieving relevant results include
click-and-query data and an extensive and up-to-date web-index.
3.148 Web-index development is subject to cost-based economies of scale; searchengines with a web-crawling business model need to make substantial
investments against a backdrop of uncertain returns. Click-and-query data isalso subject to scale effects. Google’s greater scale supports its ability toiterate and improve quicker than other search engines and maintain a lead on
search relevance. In contrast, rival search engines receive fewer queries andclicks, making it more challenging for them to improve the relevance of theirsearch results.
3.149 Google’s extensive default positions act as a significant barrier to expansion
for rival search engines, by limiting their ability to access consumers, build
their scale and grow into stronger competitors over time. Important default
positions, including those on Apple and Android mobile devices, are awarded
by device manufacturers on the basis of perceived service quality and thefinancial compensation that the search engine can offer. Having been by far
the largest search engine for more than a decade, Google benefits fromhigher perceived quality among many consumers, can generate more searchadvertising revenues from a given default, and is able to pay more for default
positions than other search engines. Given the influence that defaults have on
consumer behaviour, Google’s default positions help it to maintain high queryvolumes and make it more difficult for other search engines to attract morequeries and iteratively improve their search quality and search monetisation.
3.150 Therefore, existing rivals to Google and prospective entrants face a series ofself-reinforcing barriers to expansion, limiting the competitive threat faced by
Google. Google’s scale helps it to further improve the quality of its results andto pay for extensive default positions. In contrast, rivals lack the scale thatwould enable them to improve their quality and monetisation, which in turnrestricts their ability to access consumers, build their scale and compete more
effectively.
3.151 Weak competition in general search may negatively affect consumers inseveral ways. First, Google faces weaker incentives to keep improving
Google Search in the interests of consumers, compared to a scenario where it
faced a stronger competitive threat. For example, Google may choose toinvest less of its profits in innovating to further improve search relevancecompared to a more competitive scenario. Second, Google can to collect
more consumer data (or offer consumers worse terms in return for their data),
compared to a scenario where it faced a stronger competitive threat from113

other search engines. We discuss consumer control over data in Chapter 4.
Third, consumers are harmed indirectly through higher prices for other goods
and services, if Google is able to use its market power over consumers toraise search advertising prices above competitive levels. We discuss
competition in digital advertising in Chapter 5.
3.152 We are concerned that Google also has the ability and incentive to leverage
its market power from general search into related markets. Combining
Google’s general search service with complementary Google services may
provide some benefits for consumers, for example by allowing them toexperience a range of Google services in an integrated package. However, if
Google does so in a way that excludes efficient rivals from competing with
their own complementary services, then over time consumers may be left withworse services, both in related markets and in general search.

Competition in social media
3.153 As set out in Chapter 2, we use the term ‘social media’ in a broad sense todescribe a range of online platforms that allow consumers to interact witheach other and with engaging content.
3.154 These platforms tend to have some common features such as: consumer
accounts or profiles, which allow consumers to create an online persona; a‘feed’ or homepage where consumers can engage with content including
posts, photos and videos; and messaging features allowing consumers tocommunicate directly with others. Most social media platforms also featureadverts, as shown below in Figure 3.6.

114

Figure 3.6: Illustration of a social media homepage

Source: CMA.

3.155 Platforms that can be considered to be within a broad definition of social
media include Facebook; YouTube; Snapchat; WhatsApp (part of theFacebook group); Instagram (part of the Facebook group); TikTok; Twitter;
LinkedIn; Pinterest; Reddit; and Tumblr. 140 We found that, while theseplatforms have some common functionality, they are differentiated in terms of
the particular customer needs that they attend to and the design of thefeatures that they offer.
3.156 As Facebook is the largest supplier of display advertising in the UK, we haveassessed the extent of competitive constraint that it faces on the user side,both from the platforms above and from other sources. 141
3.157 We first set out below how social media platforms compete, before presenting
shares of supply and outlining competitive constraints faced by Facebook. We

140 As well as these 11 platforms there are a range of other, smaller platforms, that conform to this definition ofsocial media. For example, platforms such as House Party could be considered to meet a broad definition ofsocial media but account for less than 1% of time spent on the Facebook platform.
141 Our focus is on Facebook’s main social networking platform, which accounts for around [35-40]% of display
advertising in the UK. However we also consider the role of the wider Facebook ‘ecosystem’, including WhatsApp
and Instagram.

115

then discuss potential barriers to entry and expansion. Finally, we present ourfindings on the extent to which Facebook has market power on the user-side.
Parameters of competition
3.158 The social media platforms that we considered compete for consumers’
attention through a combination of the parameters below:•

Size and type of user network – generally, social media platforms with alarger network of users are more likely to be attractive to consumers as
there is a greater chance that other users they want to interact with are on
the platform. 142 Advertisers are also more likely to want to advertise on
platforms with more users as this gives them access to a wider audience.
Platforms may also choose to differentiate by focusing on attracting
particular types or groups of consumers.

•

Content – social media platforms compete to offer consumers interesting
content to keep them engaged. The type of content displayed by platforms
can vary. Social media platforms allow consumers to share their own
content, known as ‘user generated content’. Some content may be
personal to consumers, such as photos of themselves or their friends.
Other content may be related to consumers’ interests, such as posts on
sports or current events. Many platforms also feature professional content
produced by third parties. As discussed in the section on ’cross-side
network effects’ below, platforms may be able to show a greater range ofcontent by interoperating with other platforms.

•

Innovative features – offering innovative new ways to communicate orinteract with content may attract consumer attention. Platforms therefore
compete to offer new features that will attract consumers. Platforms may
also innovate by improving on existing features.

•

Ad load and quality of advertising – social media platforms need tomonetise to be successful in the long-term. Typically, they do this bydisplaying adverts. However, greater levels of advertising are generally
disliked by consumers, so platforms typically self-enforce rules on thequantity and quality of advertising that may be displayed. Platforms may
also provide consumers with controls over the advertising they are shown.

142 We discuss this further below as part of our assessment of network effects.

116

•

Privacy – consumers may wish to control the extent to which their activity
on platforms can be viewed by other users and external parties. Platforms
may therefore compete to offer better privacy controls to consumers. 143•

Platform ‘governance’ – as social media platforms allow consumers toshare content, it is possible that negative or harmful content may be
uploaded and displayed. Platforms must therefore moderate content
posted to prevent negative content from degrading consumers’
experience. 144•

Price – most social media platforms offer services to consumers at zeromonetary cost. However, some services can also be provided on a
subscription basis. 145

3.159 As shown by Table 3.1 below, in broad terms, social media platforms offer
similar types of functionality, enabling consumers to communicate with otherusers and experience engaging content.
Table 3.1: Social media platforms' functionalities
Profile/Account

Curated/
Personalised
Feed

Friends/
Contacts/
Connections

Followers/
Subscribers

Photo
SharingVideo
Sharing

Comments

Messaging

YouTube

Recommended













FacebookNews Feed













SnapchatDiscover











WhatsApp









Instagram

Explore

TwitterTimeline

LinkedIn

TikTok

PinterestReddit

Front Page

Tumblr

Dashboard














Replies

















For You















*



























Source: Adapted from Ofcom (2019), Online Nation.
* Available on iOS only

3.160 However, the closeness of competition between different platforms depends
on the degree to which consumers consider them substitutes, rather than the

143 Facebook and LinkedIn submitted that privacy is increasingly important to users. Facebook submitted that it isseeking to build a ‘privacy-focussed’ social platform, revolving around seven principles: private interactions;encryption; reducing permanence; safety; interoperability; secure data storage. LinkedIn noted that users’ ability
to protect their privacy and alter settings is increasingly important.
144 Google submitted that recent innovation on YouTube has focused on identifying and removing negative
content, and that it will prioritise responsibility to its users ie trust and safety. TikTok submitted that ‘ensuring asafe and positive in-app environment’ is a top priority. Verizon Media submitted in relation to Tumblr that content
moderation tech and staff is a required input. Tumblr was acquired by Automattic Inc. in August 2019.
145 Eg LinkedIn, or Friends Reunited.

117

extent to which they share common functionalities. Despite sharing basic
functionalities, we found that these platforms are differentiated in importantways, including in the user needs they meet. 146
3.161 We found that an important aspect of differentiation is the extent to which
platforms emphasise communication between users, versus the consumptionof engaging content. Social media platforms also differentiate based on thetype of communication and content consumption that they facilitate:•

Platforms encouraging communication may facilitate interactions amongst
different networks of value to consumers. For example: a consumer’s
close friends and family; wider communities that a consumer belongs to,
such as those living in their local area or their school/university cohort; orinterest-based groups rather than groups with pre-existing social ties.

•

Platforms oriented more strongly towards content may similarly be used byconsumers for content relating to their personal lives, content relating totheir interests, or some combination of the two. Consumers may accessthese platforms to create and share content and/or to passively consumeit.

3.162 For example, LinkedIn and Snapchat are two platforms that focus on different
types of user need. LinkedIn emphasises interactions among professional
networks, whereas Snapchat emphasises ‘authentic’ networking with closefriends.
3.163 Facebook’s portfolio of social media platforms (Facebook and Messenger;
Instagram; and WhatsApp) caters to a wide range of user needs across thecommunication-content spectrum. 147 The Facebook platform in particular
stands out as a platform that can serve a broad range of consumer needs, incontrast to other platforms which are more specialised in purpose. We discuss
how different social media platforms are differentiated in more detail in thesection on ‘Competition between Facebook and other social media platforms’
below.

146 In response to our interim report, Facebook submitted that assessing market definition by considering thesimilarity in platforms’ functional characteristics is incorrect and contradictory to the CMA’s merger guidelines. We
note that this is not the approach we have adopted, with our assessment of substitutability instead relying upon
third-party survey evidence and platforms’ internal documents, including their consumer research.
147 For example, Facebook-owned Instagram is primarily used by consumers for viewing and sharing visualcontent whilst Facebook-owned WhatsApp is generally used for private communication between (groups of)
consumers.

118

3.164 We consider that social media platforms that are generally accessed forsimilar reasons are likely to be closer substitutes from the perspective ofconsumers and, in turn, closer competitors.
Shares of supply
3.165 Facebook and YouTube (owned by Google) are by far the largest social
media platforms in the UK, both in terms of the number of consumers
accessing them and the amount of time that consumers spend on them.
3.166 Figure 3.7 shows that both Facebook and YouTube have consistently grown
their user bases. Facebook has an audience of over 43 million users in theUK, accounting for 84% of the British online population. 148 YouTube is evenlarger, with an audience of over 47 million users, accounting for over 92% of
the British online population. In contrast, WhatsApp and Instagram (both partof Facebook group), which have the next largest audiences, each reach justunder 55%. 149
Figure 3.7: Monthly active users in social media from July 2015 to February 2020 (including
YouTube)50
45
YouTubeUnique viewers (mn)40

Facebook*

35

WhatsApp30

Instagram

25

Twitter
LinkedIn

20

Pinterest

15

Snapchat

10

RedditTikTok5

Tumblr0

Source: Comscore MMX Multi-Platform, Total Digital Population, Desktop aged 6+, Mobile aged 13+, July 2015 – February
2020, UK
Notes: In November 2018, Comscore altered its methodology which contributes to the discontinuities in the data around thisdate.
* Including Messenger.

3.167 Facebook and Google-owned YouTube also account for the greatest amountof consumer time spent on social media platforms in the UK. As illustrated by

148 As of February 2020.

149 Combined, Facebook’s portfolio of platforms (Facebook, Messenger, Instagram and WhatsApp) have a reachof 87%.

119

Figure 3.8, the total time spent by consumers on YouTube and Facebook far
exceeds that spent on Snapchat, the next largest platform in terms of user
time spent.
Figure 3.8: Total user time spent on social media platforms from July 2015 to February 2020
(including YouTube)
60

50
YouTubeFacebook Group*

Minutes (bn)40

Facebook**
Snapchat
WhatsApp30

Instagram
Twitter
TikTok20

LinkedIn
Pinterest
Reddit10

Tumblr0

Source: Comscore MMX Multi-Platform, Total Digital Population, Desktop aged 6+, Mobile aged 13+, July 2015 – February
2020, UK Notes: In November 2018, Comscore altered its methodology which contributes to the discontinuities in the dataaround this date.
*Including Facebook, Messenger, Instagram and WhatsApp.
** Including Messenger

3.168 There is a significant degree of differentiation between social media platforms.
As discussed further below, of the platforms that we assessed, there areparticularly important differences between YouTube, which most consumers
use for video streaming, and platforms such as those of Facebook, which
focus more on consumer needs related to social networking. 150 Therefore, inorder to obtain a more meaningful indicator of Facebook’s market power, wehave not included YouTube when calculating shares of supply in social media
based on time spent. Therefore, in Figure 3.9, and henceforth in this report

150 We assess the competitive constraint imposed on Facebook by YouTube in more detail in the next section ofthis chapter.

120

unless otherwise stated, any statistics that we present for ‘social media’ donot include YouTube. 151
3.169 Figure 3.9 shows that Facebook had a share of 54% of time spent in social
media in the most recent period. Snapchat, which holds the next greatest
share, had only 11% of time spent. Facebook submitted that shares of supply
calculated on this basis overstate its position in the market, as it competes
with any online platform that captures user time and attention, rather than only
social media platforms. 152 We assess this argument in more detail in thesection on ‘Competitive constraints on Facebook’ below.
3.170 Facebook’s share of time spent in social media has declined over the last five
years, having fallen from 80% in July 2015. However, we note that the
number of users accessing Facebook has increased throughout the period. In
addition, the absolute time spent by users on Facebook has increased overthe last two years.
3.171 Combined, Facebook’s platforms (Facebook, Instagram and WhatsApp) had ashare of 73% of social media as of February 2020. 153

151 As discussed in the next section, there are also important differences between Facebook and the other third-

party social media platforms that we assessed, with none of these being a close substitute to Facebook. Thissuggests that, if anything, Facebook is part of a narrower market than the ‘social media’ set used in Figure 3.9
and has higher market shares than shown.
152 In response to our interim report, Facebook calculated and submitted alternative shares, which assessed user
time captured by Facebook as a percentage of total user time spent on the internet, including social media,
dating, news and search platforms. Facebook calculated separate shares for time spent on mobile and desktop
devices, reporting its own share to be [] and [] respectively.
153 Comscore MMX Multi-Platform, Total Digital Audience, Desktop aged 6+, Mobile aged 13+, February 2020,
UK.

121

Figure 3.9: Shares of supply by user time spent in social media from July 2015 to February
2020
100%
90%
80%

Facebook Group*
Facebook**

70%

Snapchat

60%

Whatsapp
Instagram

50%

Twitter

40%

TikTokLinkedin30%

Pinterest

20%

RedditTumblr

10%0%Source: Comscore MMX Mutli-Platform, Total Digital Population, Desktop aged 6+, Mobile aged 13+, July 2015 – February
2020, UK.
Notes: In November 2018, Comscore altered its methodology which contributes to the discontinuities in the data around thisdate.
*Including Facebook, Messenger, Instagram and WhatsApp.
** Including Messenger

3.172 Many consumers use more than one social media platform. We analysed
Comscore’s ‘cross-visiting’ data to assess the extent to which consumers do
so. A consumer is described as ‘cross-visiting’ between two platforms if they
access both of the specified platforms within a calendar month. The crossvisiting data does not allow us to assess consumers’ intensity of use; to be
counted as a consumer that has cross-visited, a user must simply access both
platforms once within the month. 154
3.173 We found that the majority of every social media platform’s audience ‘crossvisits’ with Facebook. For example, as shown by Figure 3.10 below, 86% of
TikTok’s audience cross-visited with Facebook, 90% of Snapchat’s audiencecross-visited with Facebook and 94% of Twitter’s audience cross-visited with
Facebook. The lowest proportion of a social media platform’s audience crossvisiting with Facebook was Tumblr at 81%. In contrast, only 13% ofFacebook’s audience cross-visited with TikTok, 26% cross-visited with
Snapchat and 53% cross-visited with Twitter. Therefore, each social media

154 See Appendix C for further detail on our market outcomes analysis.

122platform we analysed is generally used alongside (rather than as analternative to) Facebook.
Figure 3.10: Consumer cross-visiting behaviour, February 2020 UK

TikTokSnapchat

Twitter

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% of Facebook's audience accessing specified social media platform% of specified social media platform's audience accessing Facebook
Source: Comscore MMX Multi-Platform, Total Digital Population, Desktop aged 6+, Mobile aged 13+, February 2020, UK

Competitive constraints on Facebook
3.174 In the section below, we first set out the consumer needs that Facebook
fulfils. We then consider sources of competitive constraint on Facebook,including from YouTube, other social media platforms, and other consumer
services.
3.175 In response to our interim report, Facebook submitted that any market
definition analysis on the user side that relies only (or mainly) on a platform’s‘functional characteristics’ is not consistent with the CMA’s guidelines. 155
However, first, we do not agree that a structured market definition exercise isa necessary step to identifying whether Facebook has market power and it is
not required by the relevant legislation. 156 Secondly, we have not mainly reliedon functional characteristics to assess the competitive constraints faced by
Facebook. Rather, we consider that the key question is the extent to which
Facebook’s behaviour is constrained by other providers. The strongest
competitive constraints on Facebook will be imposed by providers that areclose substitutes, such that consumers can fulfil their needs using those
providers’ services instead of those of Facebook. We have considered a wide

155 Facebook’s response to our consultation on the Interim Report.

156 In a market study, the CMA considers ‘the extent to which a matter in relation to the acquisition or supply of

goods or services of one or more than one description in the United Kingdom has or may have effects adverse to
the interests of consumers’ (Enterprise Act 2002, section 130A(2)).

123set of potential competitors in our analysis below, to address Facebook’s
contention that it competes with any online platform that captures user timeand attention, rather than only social media platforms.
Why do consumers access Facebook?
3.176 Historically, Facebook entered by providing an innovative service that allowed
university students to connect with other students of the same university
online, providing a platform for them to recreate existing social circles on theinternet. 157
3.177 Contemporary research, as well as Facebook’s internal documents, show thatinteracting with existing close contacts (ie friends and family) remains themost important reason for which consumers access Facebook. 158 For
example:•Ofcom research found ‘keeping in touch with family and friends’ to be theactivity consumers most commonly identified as being the most importantwhen accessing Facebook. 159•

A Facebook internal document exploring the extent to which different
interactions on Facebook are ‘worth people’s time’ finds that the top fiveinteractions most valued by UK consumers all involved some form ofinteraction with close friends. 160 With the exception of the ninth ranked
interaction (‘to check a business page for info’) each of the remaining top
ten interactions also related to social interaction eg with acquaintances orgroups.

•Facebook consumer research found that UK consumers were most likely
to see the Facebook platform as helping them to ‘stay connected to friends
and family’, compared to a range of other potential benefits.

3.178 However, Facebook serves a wide range of consumer needs, in addition tosocial networking with friends and family. These include social networking
with more distant connections, content-related needs such as video
streaming, and other needs such as gaming and shopping. We discuss someof these below.

157 The Independent (2018), ‘When did Facebook Start?’, accessed 23/05/2020.

158 Facebook provides numerous services with which to accomplish this eg ‘Stories’, ‘Timeline’, ‘Newsfeed’, andits integrated Messenger app.
159 Ofcom (2019), Online Nation, p.132.
160 Eg sending a message to a close friend or interacting with posts from close friends.

124

3.179 Since entering, Facebook has amassed a more extensive social graph thanany other social media platform. 161 This allows Facebook to offer access to
the widest range of potential connections; its users can use the Facebook
platform to network with distant social ties, as well as close contacts. 162
3.180 Over time, Facebook has added features to the Facebook platform, using its
extensive consumer network to facilitate networking amongst wider
communities rather than just between existing friends and family. Internal
documents note the Facebook platform’s ‘Events’, ‘Groups’, ‘Local Pages’ and‘Pages’ features as examples of services connecting communities.
3.181 Facebook has also introduced more ‘content-oriented’ services aimed at
consumer entertainment and has sought to use its consumer network todifferentiate these. For example, the Facebook platform’s ‘Newsfeed’ offering
can be used to share and view posts made by friends and family. It can also
be used to consume wider media content eg news. 163
3.182 Facebook ‘Watch’ is an example of a content-oriented service introduced
more recently, which is integrated into Facebook and allows consumers toview ‘shows’, series of episodes following a consistent story-line or theme. 164
Internal documents describe the competitive advantage Facebook has overexisting video platforms as being its ability to ‘bring people together to bondaround the content they love and actively engage in the conversation’.
3.183 In recent years, Facebook has further diversified its consumer offerings byadding services that are more distinct from social media, further increasing
the range of consumer needs that it can cater to. For example, the Facebook
platform now features a platform allowing users to buy and sell goods(Facebook Marketplace), play games (Facebook Gaming) and in the US alsooffers a dating service (Facebook Dating). We describe some examples ofthese offerings below, and in Appendix E.
Competition between Facebook and YouTube
3.184 Facebook told us that YouTube (which is in the same corporate group as
Google) competes with Facebook, as well as other social media platforms.

161 Social graphs are used by social media platforms to describe networks of connected users. They capture

which users are in the network, and how these users are connected to each other by relevant relationships, suchas 'friendships' or 'follows'. YouTube has a similar reach to Facebook, but does not have a ‘social graph’identifying connections between friends and family. See further information on Facebook’s social graph inAppendix J.
162 See further our section on ‘Network effects’ below.
163 A Facebook internal document noted that of the [50-60%] of consumers seeking to access Facebook tobrowse, the majority were seeking posts from friends and family ([30-40%]). News content was the second mostpopular type of content ([20-30%]).
164 Facebook (2017), ‘Introducing Watch and Shows on Facebook’, accessed 23/05/2020.

125Facebook submitted that the estimated shares of supply of time spent, aspresented in our interim report, showed an association between decreasinguser time on Facebook and increasing user time on YouTube. Our view is that
this does not demonstrate that consumers are substituting Facebook's
services with YouTube's. We also note that, on a UK basis, Figure 3.8 aboveshows that both YouTube and Facebook have experienced an increase intotal user time spent on their platforms over recent years. Facebook also
submitted a number of documents including:
•

[]

•

[]

•

[]

3.185 Our assessment is that the documents above provide only limited evidence of
direct competition between YouTube and Facebook. In particular:
•

[]

•

Facebook found that relative increase in Facebook’s time spent resulting
from the YouTube ‘outage’ was []. We consider this indicates that
Facebook competes most closely with YouTube with respect to its video
watching features rather than its wider consumer offering.

3.186 Other evidence also suggests that many consumers use YouTube forparticularly distinctive reasons, compared to the reasons why they use
Facebook. Ofcom’s Online Nation research shows that users most commonlyvalued ‘Keeping in touch with friends and family’ when accessing Facebook,an activity not commonly valued when accessing YouTube. In contrast, users
most commonly value ‘Watching videos’ when accessing YouTube. 165 We
present a comparison of how important each of these activities are on
Facebook and YouTube in Table 3.2 below:

165 Ofcom, ‘Online Nation’, page 133.

126

Table 3.2: Principal uses of Facebook and YouTube

Keeping intouch withfriends andfamilyFacebook

1%

5%

3%

Neither
importantnorunimportant
12%

YouTube

4%

56%

10%

16%

9%

6%

Watching
VideosFacebook

2%

19%

11%

30%

29%

9%

YouTube

1%

4%

3%

15%

30%

46%

Don't
know

Not at allimportant

Fairlyunimportant

FairlyimportantVeryimportant

37%

42%

Source: Adapted from Ofcom’s Online Nation, Figure 5.10.
Notes: Figure compares consumer rankings for Facebook and YouTube regarding the importance of ‘Keeping intouch with friends and family’ and ‘Watching Videos’.

3.187 We also note that:•

Consistent with the Ofcom survey evidence outlined above, internal
documents submitted by Google indicate that the most common reasonsconsumers in the UK access YouTube are for entertainment and to view
‘how-to’ videos on the platform. 166•‘User generated content’ is a key feature of many social media platforms.
However, YouTube also provides access to a wider range of content,
including through its paid-for ‘premium’ music and video streaming
services.

•

We reviewed some evidence demonstrating that social media platforms
seem to view YouTube as a competitor in its capacity as a provider ofcontent rather than as a provider of the wider communication services
offered by social media platforms. For example, [] and a Pinterest
internal document describes YouTube’s ‘[f]ocus on media andentertainment to replace traditional TV’.

•

Finally, Google told us that YouTube does not have a social graph. Social
graphs give social media platforms the ability to identify connections
between consumers. Therefore, YouTube cannot recommend videos
based on consumers’ ‘friends’ viewing behaviour or recommend content
users may like based on friends’ activity, as done by other social media
platforms such as Facebook and Instagram. Moreover, this suggests that
YouTube is not a close substitute to the Facebook platform for users thatwish to network with friends and family.

3.188 We further note that consumers use social media platforms for a range ofreasons, and that YouTube may act as substitute for Facebook when it comes

166 This is consistent with Ofcom (2019), Online Nation, which found music videos and how-to vids to be most the

popular categories of video amongst UK consumers watching online video content.

127to some of these, such as watching entertaining videos. However, YouTube
does not have a social graph and does not appear to be a close substitutewhen it comes to important Facebook activities such as networking with awide range of friends and family. Overall, YouTube does not currently appear
to provide a strong competitive constraint on Facebook, despite its
comparable reach and levels of consumer engagement. 167
Competition between Facebook and other social media platforms
3.189 Aside from YouTube, the next two largest social media platforms to Facebook
in terms of number of users are WhatsApp and Instagram. As Facebookowned properties, these do not provide a competitive constraint on the
Facebook platform.
3.190 Other social media platforms do not appear to be close substitutes toFacebook when it comes to interacting with friends and family (the main
reason that consumers use the Facebook platform) and with more distantsocial ties. These platforms have differentiated to focus on different needs
and/or have significantly smaller networks.
3.191 In addition, none of the other social network platforms offer a comparable
portfolio of services to the Facebook platform or attend to as wide a range ofconsumer needs. Instead, each provides a more specialised offering thatcompetes with some aspect of Facebook’s services. For example:•

Reddit is a ‘network of communities’ and in this respect appears tocompete most closely with the Facebook platform’s ‘Group’ features.

•

TikTok is used to create and share short form videos that are set to music.
It seems to compete most closely with ‘Facebook Watch’.

•

LinkedIn is positioned as a social media platform for consumers’
professional networks. In this respect, LinkedIn has differentiated itself by
focussing on a specific aspect of consumers’ lives and type of consumer
network. It appears to compete most closely with Facebook ‘Jobs’.

•

Pinterest is a visual ‘discovery tool’ and is positioned for consumers
seeking to experience content relating to specific interests, including foodand drink, travel, style and beauty, and fitness.

•

Snapchat emphasises communication amongst close friends, throughvisual rather than text-based messages, and is commonly perceived as a

167 We discuss competition for ad spend between YouTube and Facebook in Chapter 5.

128

more ‘playful’ platform. Its ephemeral features mean that it is also
generally considered a more private platform than its competitors,
encouraging its users to present themselves more authentically. It seems
to compete most closely with Facebook’s Messenger product that allows
consumers to communicate privately.
•

Twitter is intended to facilitate ‘real-time global open platform discussions’and originally differentiated itself by limiting the length of its users’ posts,
with consumers only being able to make text posts of 140 characters or
less. 168 Twitter is distinctive in the degree to which consumers use its
services to keep up to date with news and other current affairs. 169 In thisregard, Twitter seems to compete most closely with Facebook’s featuresthat allow its users to consume news and other media eg Newsfeed.

3.192 Facebook submitted that consumers often use multiple social media platforms
and also ‘re-allocate’ the amount of time they spend on social media between
these platforms. Facebook told us that this enables new platforms to moreeasily attract users’ time. Our own analysis is consistent with Facebook’s
submissions that users access multiple social media platforms. However,consumers’ use of multiple platforms does not necessarily imply that theirservices can be used as substitutes by consumers and that these otherplatforms can meet the same consumer needs as Facebook. 170
3.193 The high proportions of other platforms’ audiences that cross-visit with
Facebook, and the significantly lower proportion of Facebook’s audience thatcross-visits with each of the other platforms, suggest that Facebook is a musthave platform. Cross-visiting statistics show that other platforms are used bysub-sets of users, but nearly always in combination with Facebook.
3.194 Facebook submitted that it should not be penalised for delivering a highquality service and that academic studies show that it delivers significant net
consumer benefits. However, we consider that the limited competitive
constraints faced by Facebook (and the barriers to competitive entry andexpansion set out below) mean that Facebook faces less pressure to innovate
and improve its services in the interests of consumers than it would if thesebarriers were addressed.

168 AdAge (2017), 140 characters, the defining quirk of Twitter, becomes a relic of the past, accessed 22/05/2020.
169 Ofcom (2019), Online Nation, page 131. ‘Twitter stands apart from Facebook, Instagram and Snapchat in thatpeople are more likely to value the platform for keeping up to date with news and current affairs or following
public figures…’
170 See further the section on network effects below.

1293.195 The wider ‘family’ of Facebook platforms reinforces Facebook’s competitive
position; consumers that ‘switch’ some of their time away from the Facebook
platform may remain within the Facebook ‘ecosystem’ of apps. 171 For
example, consumers wishing to undertake some social networking on a moreprivate basis than the Facebook ‘Newsfeed’ experience could choose to do sothrough a third-party platform such as Snapchat, or could choose to do sothrough a Facebook service such as Facebook Messenger or WhatsApp.
3.196 We note that the Facebook platform has a relatively lower share of time spentfor younger consumers. However, 18-24 year olds still spend the greatest
proportion of their time on social media platforms within the Facebook‘ecosystem’. 172 With respect to the Facebook platform in particular,
Facebook’s research into UK teens' use of social media in 2017 173 found thatits competitors tended to be specialised in purpose, with Facebook being
distinctive with respect to its status as a multi-functional app. UK teens
identifying Facebook as their favourite social media app were most likely toindicate the breadth of its user base and the wide range of purposes it can beused for as being the reason for this. 174
3.197 In summary, Facebook is a ‘must have’ platform for social media users; it has
a more extensive consumer network than other platforms and can serve awider range of needs. While some other platforms have been able to enter themarket and grow their user base by providing differentiated services, users ofthese platforms almost all still use Facebook.
Competition between Facebook and other consumer services
3.198 Facebook submitted that in addition to the social media platforms included in
the discussion above, it competes with any firm that ‘attracts user time awayfrom Facebook’. In a broad sense, we recognise that a range of different
online and offline providers that serve different consumer needs are all
seeking to capture user attention. However, we consider that the strongest
competitive constraints on Facebook will be imposed by providers that areclose substitutes, such that consumers can fulfil their needs using those
providers’ services instead of those of Facebook.
3.199 As set out above, the most important reasons consumers identify foraccessing the Facebook platform are to interact with family and friends. We

171 Where ‘switching’ describes reducing the proportion of time spent on the platform.

172 See Appendix C for social media platforms’ shares amongst consumers of different age groups.
173 [].
174 [].

130

consider that the platforms in our social network set above are likely be closer
substitutes to Facebook in this respect than other online and offline platforms.
3.200 As noted above, Facebook has diversified its offering on the Facebook
platform in recent years by providing consumer services in related sectors.
For example, Facebook Marketplace was launched in 2016, 175 Facebook
Gaming was launched on desktop in 2018, 176 and Facebook Dating waslaunched in the US in 2019. 177
3.201 Where Facebook has diversified into wider services, it may compete withincumbent providers in those sectors. Consistent with this, internal documents
submitted by Facebook identify [] as a competitor with respect to Facebook
Dating, and [] are noted with respect to Facebook Marketplace. However,providers in these sectors are unlikely to provide a strong constraint on
Facebook in relation to social media. We set out some of the wider consumer
services provided by Facebook in Appendix E.

Barriers to entry and expansion in social media
3.202 Having considered current sources of competitive constraint on Facebook, we
now discuss barriers to entry and expansion that may prevent other platforms
from acting as an effective constraint.
Network effects
3.203 In general, social media platforms are characterised by same-side and crossside network effects. Here we set out how social media platforms are affectedby network effects and discuss the extent to which these impose a barrier toentry and expansion for a platform seeking to compete with Facebook.
3.204 All of the social media platforms we contacted as part of the study agreed that
network effects are important to their services in some way. However, thenature and importance of network effects varies between different platforms.
This reflects the platforms’ differentiated strategies and the different purposes
for which consumers access their services. In particular, the Facebook
platform is unique in the extensive nature of its consumer network. 178
3.205 We found that network effects act as a barrier to entry and expansion forsocial media platforms and prevent smaller competitors from imposing a

175 Facebook (2019), ‘It’s Facebook Official, Dating is here’, accessed 22/05/2020.

176 Facebook (2020), ‘Facebook Gaming App Launching Worldwide on Google Play’, accessed 25/06/2020.

177 Facebook (2016), ‘Introducing Marketplace: Buy and sell with your local community’, accessed 22/05/2020.
178 YouTube has a similar number of active users to Facebook but lacks a social graph capturing connections

between users.

131

strong competitive constraint on the Facebook platform. As a result of theirless developed consumer networks, smaller competitors are unable to fulfil
the same range of consumer needs as Facebook. Therefore, consumers’ability to switch away from its services is restricted and Facebook experiences
limited direct competition from competitors.
Same-side network effects
3.206 Social media platforms, particularly those focussing on communication,
become more valuable to consumers if other consumers with whom they want
to interact join the platform. Consumers access social media platforms fordifferent reasons and need to interact with different (groups of) people foreach of these reasons. For example:•

Snapchat is primarily used to communicate with close friends and family
members. Snapchat’s services will become more valuable to a given
consumer if more of their close friends join the platform. In this case, thenetwork effects are ‘identity-based’ because Snapchat only becomes
more valuable to the consumer if specific people join the platform. As
people tend to only have a few close friends, each consumer’s network issmall, but every connection is highly valued.

•

LinkedIn’s services are used to interact with consumers’ professional
networks. Consumers will likely have a larger professional network than
network of close friends. To offer a valuable service, LinkedIn must beable to offer its users access to this wider network. Consumers may value
the presence of specific individuals, but generally value that their wider
industry is represented on the platform.

3.207 YouTube is used to consume and share video content. Consumers do nottend to access YouTube to interact with people they know personally before
watching their videos.179 Therefore, these same-side network effects do notappear to be strongly ‘identity based’. Instead, the presence of otherconsumers may be valued to the extent that they contribute either content orreactions.

179Ofcom (2019), Online Nation, page 152.

132

Box 3.5: Myspace
Strong same-side network effects lead to feedback loops. More users joining theplatform leads to still more user joining, whilst users leaving the platform leads to still
more users leaving. The decline of Myspace, which was once the largest social
media platform, is an example of this.
Launched in 2004, Myspace was overtaken in 2008 by Facebook. Myspace thenquickly lost its user base, with numbers falling from its peak of 100 million users to 73
million users by January 2011, and then to 63 million users in February 2011. 180 This
rapid and increasing decline in users shows the power of the network effects
affecting social media platforms.
Facebook told us that Myspace lost a significant proportion of users due to its focus
on maximising short-term revenue through advertising rather than delivering longterm value to its users. Facebook has argued that this shows that the largest social
media platforms’ competitive positions are not unassailable.
However, we consider that Myspace’s position in the early 2000s was materiallydifferent to Facebook’s current position:•

Facebook’s current scale of two billion global monthly active users is far
greater than Myspace’s peak of 100 million global monthly active users.
This implies that Facebook is currently much further away from a ‘tipping
point’ in its user base than Myspace was at its prime.

•

It is not clear that the market had fully ‘tipped’ to Myspace in the first place.
Myspace was the most popular platform for only a couple of years, atwhich time the social media market was growing rapidly and monetisationof social media was in its infancy. By contrast, Facebook has been themost popular social media platform for over a decade in a far more mature
market. 181

3.208 Facebook told us that in social media it is not necessary for new platforms toreplicate Facebook’s extensive user base to be attractive to consumers.
Rather, Facebook submitted that network effects in social media are‘localised’ with users most highly valuing the presence of their close
connections on social media platforms. Therefore, Facebook submitted that‘[l]ocalised network effects enable platforms to easily attract and retain users
by reducing the number of available connections that a platform needs inorder to entice a user to join’.

180 The Telegraph (2011), MySpace loses 10 million users in a month, accessed 28.11.19.
181 Furman Review (2019), Unlocking digital competition, paragraphs 1.101-1.102.

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3.209 As shown in box 3.6, whilst we have observed some examples of successful
entry to social media, this has only been achieved by platforms with highly
differentiated offerings.
Box 3.6: Recent entrants
In the last ten years only Instagram, Snapchat and TikTok have entered the social
media sector and grown to account for a share of more than 5% of consumer timespent on social media platforms in the UK. Each of these platforms entered byoffering consumers differentiated experiences and features:••Instagram began as a photo sharing app in 2010 and differentiated itself toconsumers through its emphasis on visual content. Though Instagram has thesecond largest consumer base it is not a competitive threat to the Facebook
platform, having been acquired by Facebook in 2012. As well as growing its
user base, Instagram has been successfully monetising its services.
However, it is unclear whether Instagram would have been as successful inmonetising without Facebook’s wider resources. Facebook told us that it has
experienced economies of scope resulting from Instagram using Facebook’s
advertising infrastructure, but that these do not serve as a barrier to entry.

•

Snapchat entered in 2011 with a then-unique offering that allowed
consumers to send contacts photos that would disappear after a specified
period of time. Snapchat has been successful in generating consumer
engagement and is particularly popular with younger demographics. However,Snapchat has been less successful than Instagram at monetising its services,
despite achieving comparable levels of consumer engagement in terms of
consumer time spent on the platforms. 182 This is suggestive of Facebook’s
wider resources having contributed to Instagram’s success.
TikTok is an even more recent example of entry into the social media sector,
having launched in the UK in 2014. 183 Similarly to Instagram and Snapchat,
TikTok entered with a differentiated strategy, by allowing consumers to createand share short-form videos of up to 15 seconds. 184 TikTok has grownquickly, but remains small with a share of 6% and only began displaying
digital advertising in the UK in July 2018.

We note that each of these platforms remains significantly smaller than the
Facebook platform.

3.210 Consistent with this, platforms told us that the most important ‘input’ to a newsocial media platform is a compelling idea. 185 This may persuade consumers

182 See Figure 3.8.

183 TikTok was formerly called musical.ly. It was rebranded as TikTok in August 2018.

184 Slate (2018), ‘A guide to TikTok for anyone who isn’t a teen’, accessed 04/11/2018.

185 Google told us in relation to YouTube that ‘Offering a popular and innovative service that attracts users ismore important than a pre-existing user database’.

134to sign-up despite the new service having a relatively limited consumer base,
thereby mitigating network effects as a barrier to entry. However, there aresome limitations to this strategy:•

existing platforms, such as Facebook, may experience an incumbency
advantage through their ability to copy the innovations of new entrants anddeliver those new services to a more developed consumer network. As aresult of their pre-existing reach amongst users, they are likely to be better
able to monetise the new innovation than the entrant. In turn, this may
reduce incentives for new entrants to innovate; 186 and•entering by providing consumers with a specialised service may limit thescale of the consumer base that new entrants can develop in the long-term
and may also result in consumers developing networks of connections on
the platform specific to a particular need. 187

3.211 Indeed, internal documents observe that the Facebook platform fulfils a muchbroader set of consumer needs compared to other social media platforms,
with its ability to do so being reliant, in part, on it having the ‘[l]argest network’.
Another document observes that ‘[w]hile intimate ties are critical, non-intimate
ties are critical to Facebook’s unique value’. Facebook is ‘the network foreveryone you know’, with its UK audience being roughly 1.8 times greaterthan Twitter’s, the next largest social media platform not owned by
Facebook. 188,189,190 This asset allows Facebook to fulfil a broader spectrum of
consumer needs, compared to smaller competitors with more specialised,differentiated offerings.
3.212 Entrants and competitors with smaller networks (and less extensive coverageof consumers’ closer and more distant contacts) will not be able to act as
close substitutes for Facebook’s services. Individual consumers may therefore
be unable to entirely replace the services they receive from Facebook by
switching to a new entrant. In this way consumers may be ‘locked in’ toFacebook. In particular:•

consumers may be unable to communicate with a comparable network byaccessing a different platform; and186 A possible example of this dynamic is when Facebook introduced a feature similar to Snapchat’s ‘Stories’

feature on its platforms.
187 For example, on LinkedIn users develop networks of their professional connections.
188 As of February 2020.
189 Excluding YouTube. YouTube lacks a social graph and appears to compete with Facebook with respect to theprovision of content rather than providing services to communicate with a user’s network.
190 The top four platforms ranked in order of user base are: Facebook; WhatsApp; Instagram; and Twitter.

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•

consumers may not have access to a similarly extensive or high-quality
body of ‘user-generated-content’ by accessing a different platform.

3.213 In this way, same-side network effects and the associated difficulties with
developing a consumer network, restrict direct competition to Facebook.
•

Overcoming same-side network effects

3.214 In markets characterised by network effects, consumer multi-homing can help
smaller platforms develop their customer base, increase the competitive
pressure faced by incumbents such as Facebook and prevent the market from‘tipping’.
3.215 Many consumers do use more than one social media platform, as shown by
the ‘cross-visiting’ statistics above. However, this does not constitute multihoming behaviour that acts as a genuine competitive constraint on Facebook,because the platforms that users cross-visit with are not close substitutes toFacebook.
3.216 There also appear to be some barriers to consumer multi-homing in the social
media sector, especially when it comes to multi-homing between platforms
that are relatively closer substitutes. Potential barriers include:•

Limited interoperability between social media platforms. As discussed
below, in many cases, friends on one platform cannot be contacted fromanother platform, nor can the content from one platform be consumed onanother platform. As a result, consumers have less of an incentive to‘multi-home’ with smaller platforms. 191•

The time cost to consumers of setting up an account on a new platformand (re)creating their networks of connections.

3.217 Platforms may be able to use certain strategies to help address these barriersand encourage user multi-homing. For example, social media platforms’
submissions set out the following as being potential options:•

Use of single sign-on tools – these allow consumers to sign-in to multiple
platforms using the same username and password. 192 By removing theneed for consumers to remember multiple usernames/passwords, the

191 Furman Review (2019), Unlocking digital competition, paragraphs 1.84-1.88.

192 Where these services are provided by a platform with an existing social media presence they are referred toas ‘social login’. These are most commonly provided by Google and Facebook ie Google and Facebook offer
services whereby consumers may sign-in to other platforms using their Google or Facebook username andpassword.

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service encourages consumers to access multiple platforms. We discuss
potential concerns associated with single sign-on tools in the‘Interoperability and competition’ section below.
•‘Cross-posting’ features – in some cases, consumers can post content
from one social media platform to a different social media platform.
Competitors to Facebook told us that this feature encourages consumers
to create and share content on platforms where they do not havedeveloped networks of ‘friends’, as it allows them to share the content with
networks outside of the platform. In this way, cross-posting mitigates thebarriers to consumer multi-homing imposed by platforms’ lack ofinteroperability. 193 Cross-posting may also increase the quantity anddiversity of content available on social media platforms, making them more
attractive to consumers. We discuss potential issues with current crossposting functionality below.

•

Importing contacts from user devices – this helps consumers findfriends or invite friends to the platform, for example through their phone
numbers or email addresses. However, this strategy seems limited toplatforms that seek to enable consumers to interact with close friends.
Consumers are unlikely to have access to wider networks on theirdevices.

•

Importing contacts from existing platforms – this can give users of
new social media platforms the ability to access the network ofconnections they have developed on incumbent platforms. For example, a‘social graph API’ could allow users to export lists of ‘friends’ from anexisting platform and invite them to join the new platform. In this way, a
new entrant could gain access not only to potential users, but also preexisting user networks. 194 We discuss potential issues around such APIs
and interoperability more widely below.

3.218 Though these strategies may be helpful in supporting the growth of platforms
in the social media sector, no entrant has been able to use these to develop aplatform that directly competes with Facebook.
3.219 In principle, entrants that have already developed a digital audience in an
adjacent market to social media may be able to use this user base to
overcome the barrier to entry imposed by network effects. In this case, the

193 One social media platform submitted that this functionality allows users to increase their reach and helps drive

traffic to their platform. Another submitted that this ability allows users to efficiently reach more people and also
overcomes or shares the benefits of network effects.
194 However, these users must decide to switch to the new platform.

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platform will already have access to an audience of potential users uponentry. However, the new platform may lack a social graph, such that
consumers will not be linked as ‘friends’ or ‘connections’ on the platform. In
this case, consumers will have to develop this network of connections
themselves over time. See Box 3.7 for a discussion of Google+, one of themost prominent examples of attempted entry from an adjacent market.
Box 3.7: Google+
In 2011, Google tried to launch its own social media platform ‘Google+’ as a directcompetitor to Facebook. Google+ offered its users a range of features including:
video chat; photo sharing; ‘circles’, a feature for connecting with social groups; a ‘+1’
feature similar to Facebook’s ‘like’ button; and a ‘check-in’ feature allowing users tolog their location.
However, ultimately Google+ failed to engage users, with the vast majority of
consumers’ sessions on Google+ lasting less than five seconds. Google told us thatits users ‘spent many more minutes on Facebook than they did logged into
Google+’.
The failure of Google+ to successfully enter the social media sector is particularly
notable given the extensive resources that were available to it through Google, andGoogle’s track record of success in the tech sector. Specifically, we consider that
Google+’s failure:• demonstrates that access to a wide base of potential users and consumer
data, as held by Google, is not determinative of successful entry to thesocial media sector; and• indicates that entry with a service similar to that provided by Facebook isvery difficult indeed.
Cross-side network effects
3.220 As well as depending on the number of other consumers active on theplatform, the value of a social media platform to its users may also depend on
the number of customers active on another ‘side’ of the platform. Other typesof customer include:•

Content providers – social media platforms often feature content createdby third-party providers. This content is often displayed alongside the‘user generated content’ and is typically of a similar format. Content
providers can include businesses, celebrities or users that acquired massaudiences on the platform. 195 The platforms we contacted explained that

195 These users are subsequently treated as content providers by the platform eg YouTube’s revenue sharing

arrangements.

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content is a ‘key input’ for their services and vital to gaining consumer
engagement.
•

Third-party developers – platforms may allow third-party developers todevelop apps, such as games, that consumers may use within theplatform. This increases the features available on the platform and canmake it more valuable to users. 196 Social media platforms may also
provide tools allowing third-party services to ‘interoperate’ with the social
media platform eg by allowing consumers to ‘cross-post’ from thedeveloper’s app to the social media platform.

3.221 Facebook offers consumers access to third-party games and apps embeddedin the social media platform. As well as this, the tools available on Facebook’s
developer platform (‘Platform’) give third-party developers the ability tointegrate their services with Facebook’s social media platform. 197 Facebook
told us that these capabilities allow third-party developers to ‘build and create
valuable content for Facebook’s users’, thereby enriching users’ experienceon Facebook.
3.222 We have also seen some evidence suggesting that third-party developers
receiving access to Facebook’s developer platform are reliant on its services
to promote user growth. As discussed below, in some circumstances
Facebook may have the ability and incentive to exclude third-party services.
3.223 Small platforms may struggle to assemble a wide array of third-party content
or an active developer community if they are unable to provide a large enoughconsumer audience. However, consumers may be less interested inaccessing platforms that cannot provide access to this diverse content.
Therefore, cross-side network effects can reinforce the positions of large
platforms and act as a barrier to entry and expansion for smaller platforms.
3.224 A further cross-side network effect operates between the consumer andadvertiser sides of social media platforms. Social media platforms that offer
access to a greater number of consumers will generally be more valuable toadvertisers. In addition, larger platforms with higher revenues have greater
scope to invest in their platform, further reinforcing their positions. Issues
related to advertising are discussed further in Chapter 5.
3.225 We consider that the cross-side network effects above further reinforce
Facebook’s position and act as a barrier to expansion for smaller platforms.

196 Social media platforms also exhibit cross-side network effects with respect to users and advertisers.
197 We discuss ‘Platform’ and interoperability with Facebook further in Appendix J.

139Interoperability and competition
3.226 Social media platforms sometimes allow their services to interoperate withthose offered by third parties. For example, through Facebook’s developer
platform, third-party developers can integrate their products with Facebook’s
services. 198 Such products include mobile apps, websites, messaging bots,
games and Page management tools. Interoperability between third-party
products and Facebook is generally achieved through open source APIs.
Facebook submitted that it operates in a largely open source environment,
and that this has ‘unlocked innovation and enriched users’ online experiences
significantly’.
3.227 The products created by third-party developers can include other social media
platforms. Through interoperating, platforms may be able to improve
consumers’ experiences by increasing the range of services available throughsocial media platforms. Interoperability can also promote competition by
mitigating the barriers imposed by network effects. For example, as discussed
earlier, cross-posting and social graph APIs may encourage consumers toaccess multiple platforms and single sign-on tools may encourage consumers
to try new platforms. 199
3.228 However, by controlling the interoperability that is available, incumbents canaffect the competitive threat they face. For example, Facebook is able toworsen smaller competitors’ offerings to consumers by degrading thefunctionalities enabled through interoperability or removing the service
entirely. As shown by the examples below, this may be done as part of ageneral policy change or on a targeted basis, where Facebook revokes
access to its APIs to specific third-party developers.
3.229 When Facebook removes capabilities as part of a general policy change, it
describes this as the ‘deprecation’ of the capability. 200 As explained inAppendix J, the deprecation of two particular functionalities appear to haveharmed the ability of other platforms to grow and improve user experiences:•‘Find Friends’ – which enabled the users of third-party developers to invite
their Facebook friends (including friends not using the relevant app) to use
an app through tools such as App Invites.

198 We note that Facebook is not the only social media platform which offers such developer tools.

199 We note that Facebook’s ‘Login’ functionality, available through Platform, is a ‘business tool’ rather than an

API.
200 The term ‘deprecation’ is used by Facebook to refer to the removal of software, technology or APIs, as part of
implementing updates to its platform. See for example: New Facebook Platform Product Changes and Policy
Updates, Facebook (2018), accessed 02/12/2019. It is also used in computer science more generally to describe
functionality and/or syntax that is no longer supported by a software developer.

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•

‘Publish Actions’ – which enabled third-party applications to publish posts
to Facebook as the logged in user so that users could easily share content
that they have created on Facebook.

3.230 Facebook said that its decision to deprecate certain APIs has been driven, inlarge part, by the changing policy and regulatory landscape, evolving user
preferences, and the impact of data leaks and the misuse of user data by
Cambridge Analytica in December 2015. 201
3.231 Facebook can also modify the interoperability that it offers in a way that istargeted at specific platforms. For example, in 2013 Twitter acquired a video
sharing platform called Vine. Prior to the acquisition, Vine users were able tofind friends they already knew on the Facebook platform through Facebook’s‘Find Contacts’ feature. However, following its acquisition by Twitter,
Facebook removed Vine’s access to this API. In doing so, Facebook was able
to degrade consumers’ experience of Vine and reduce the platform’s
competitive threat. Vine was discontinued by Twitter in 2016. 202, 203
3.232 Facebook submitted that the open nature of its developer platform means thatthird-party developers can access Facebook’s infrastructure and data without
paying any monetary fees. Facebook expressed concerns that this may leadto developers of third-party applications that ‘replicate’ Facebook’sfunctionality free riding on its investments. To prevent this from occurring,
Facebook said that it previously adopted a ‘non-replication’ principle in its
terms of access, under which some targeted restrictions were made. This
principle was removed in 2018. 204 Facebook submitted that such clauses arecommon across many digital platforms, such as eBay, Google, Pinterest andSnap.
3.233 The single sign-on functionalities described earlier in this chapter are anotherexample of a tool offered to third-party consumer services by Facebook (aswell as other large digital platforms such as Google). 205 We heard specificconcerns from social media platforms regarding the potential for the
discontinuation of these services to lead to a decline in consumer

201 See further Appendix J.

202 Twitter axes Vine video service, BBC (2016), accessed 02/12/2019.
203 We discuss additional examples of this behaviour in Appendix J.

204 Facebook submitted that with respect to this non-replication principle it primarily regarded Facebook’s corefunctionality to comprise of its newsfeed and messaging services.

205 Facebook’s ‘Facebook Login’ is one of the services that Facebook offers to developers.

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engagement for these platforms. This could reduce the competitive threat thatthese platforms pose to Facebook. 206
3.234 We further note that social media platforms may not offer APIs on a reciprocal
basis. For example, when Facebook featured the ‘Publish Actions’ API, whichallowed consumers to post content onto the Facebook platform from othersocial media platforms, consumers were unable to post content from theFacebook platform onto other social media platforms. This asymmetry inconsumers’ cross-posting abilities may have favoured Facebook by leading togreater and more varied content being shared on Facebook compared to thesocial media platforms from which content is shared. 207
3.235 Cross-posting capabilities between Facebook and other social media
platforms remain asymmetric, as shown by Figure 3.11. Facebook allows
users of many other social media platforms to post content onto the Facebook
platform. 208 However, the ability for Facebook users to post content fromFacebook to other social media platforms is limited. 209

206 We have also heard concerns that platforms providing access to these tools may be able to use them to gain

access to data that subsequently allows them to compete with the service provided by the platform receiving
access. We discuss this issue further in the section on Facebook’s expansion into related markets below.
207 This API has since been deprecated by Facebook.
208 Instagram, Twitter, TikTok and LinkedIn users can share content onto the Facebook platform. WhatsApp andSnapchat users cannot.
209 Facebook users can share posts to Messenger and Twitter. Facebook users cannot share posts to Instagram,WhatsApp, Snapchat, TikTok and LinkedIn.

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Figure 3.11: Current Facebook cross-posting functionality

Source: We created this image by taking a screengrab of the Facebook platform for the background and adding logos of othersocial media platforms, along with ticks or crosses based on whether cross-posting functionalities are possible from and onto
the Facebook platform.

Access to data for personalisation and targeting
3.236 Successful social media platforms feature a vast quantity of content that may
be shown to users. To prevent content congestion and maintain user
attention, platforms determine the most relevant content for a given user andhelp users to locate this content quickly, using algorithms. For example,
platforms may: select and rank the content shown in each user’s feed; makerecommendations as to what content the user may wish to consume next; orsuggest new connections they may wish to make. 210,211
3.237 By providing better recommendation and personalisation functionalities,
platforms may become more appealing to consumers and lead them to spend
more time on the platform.

210 Some platforms submitted that device and/or connection data may also be used to personalise content.

211 Certain functionalities offered by social media platforms may require further data, eg Snapchat’s ‘geo-filters’.

1433.238 Smaller platforms source the vast majority of the data they hold about
consumers’ likely demographic attributes, preferences and behaviours fromconsumers’ interactions with the platforms. It includes data submitted byusers, data on users’ interaction with a platform, and inferred data. 212
3.239 By contrast, Facebook has the ability to source data from a range of thirdparty providers, in addition to the data it collects from consumers’ interactions
with its own platforms. As discussed in Appendix F, Facebook’s ability tocollect a greater quantity and variety of high-quality data gives it a competitive
advantage.
3.240 Platforms also use data to target advertising. Social media platforms that offer
greater targeting capabilities are more valuable to advertisers. Platforms withgreater quantities of consumer data are better able to target advertising andmay be better able to successfully monetise their services. See Chapter 5 forfurther detail.

Facebook’s expansion into related markets
3.241 As set out above, Facebook has expanded from social media into related
markets, for example through its Marketplace and Gaming services and its
Portal devices. We set out below several concerns related to exclusionary
behaviour that have been raised by third parties in related markets.
Facebook’s ability and incentive to engage in exclusionary behaviour
3.242 Where Facebook enters markets related to social media, in the short run thismay improve consumer welfare, for example by reducing the cost ofaccessing services and by providing consumers with an additional option in
related markets.
3.243 However, we are concerned that Facebook has the ability and incentive toengage in exclusionary practices in related markets. If it does so, existing
services may be forced to exit as their businesses cease to be financially
viable, reducing both consumer choice and innovation in the sector.
Consumer harm from weaker competition over innovation could outweigh any
short run benefits, leading to a reduction in consumer welfare overall.
3.244 Facebook’s position in social media, in particular its very extensive reach andsocial graph, make it an important partner for businesses in related markets,
including those that rely on its ‘free’ developer tools and/or its advertising

212 Inferred data refers to additional information about a user, not directly provided by or observed from the user,

but which is derived or deduced from this information. See further Appendix F.

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services. This means that Facebook may have the ability to exclude
competitors in related markets. It may also have the incentive to do so, forexample to protect its position in social media, or to gain additional profits
from the most lucrative related markets by offering these products itself. In thefollowing section we consider concerns that have been put to us that
Facebook has acted in an exclusionary way in certain markets.
Concerns raised by competitors
3.245 We have heard concerns that, in the course of providing developer tools andadvertising services to other businesses, Facebook is able to obtain access todata on these businesses’ customers, which it can then use to replicate theconsumer-facing service of the business receiving access. Given theimportance of Facebook's services, we heard that some businesses had been
unable to negotiate restrictions in the purposes for which Facebook can use
their data. For example:•[A mid-sized tech company] told us that Facebook’s position in social
media means that its use of Facebook’s marketing tools is unavoidable. It
suspected that Facebook used data acquired from [mid-sized techcompany] through these tools to develop [] and compete with [mid-sizedtech company’s] consumer offering. [Mid-sized tech company] has
unsuccessfully sought agreements that would restrict Facebook’s ability touse [mid-sized tech company’s] data as an input to Facebook services thatcompete with [mid-sized tech company].

•[A mid-sized tech company] told us that its use of Facebook’s single signon functions and advertising services give Facebook access to data on[mid-sized tech company’s] user base. It alleged that this data was usedby Facebook to build [].

3.246 We also heard that Facebook’s market power in social media may allow it tooffer consumer services in related markets that other businesses are unable
to compete with. For example:•

Facebook can use its existing advertising revenues to cross-subsidise newservices in related markets. Whereas other competitors may require
customers to pay for access in order to be financially viable, Facebook
may be able to provide these new services for no immediate monetary
cost to consumers. In the long-run, this may mean that incumbent services
cease to become financially viable and exit, reducing consumer choice inthese markets.

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Facebook is able to integrate new services into its pre-existing social
media platform, with this ‘bundling’ promoting the new service amongst
Facebook’s extensive user network and driving usage. By contrast,competitors cannot bundle in this way and may have to pay for advertising
to promote their businesses. In this way, Facebook may be able to‘leverage’ its existing position in social media to enter other markets andexclude rivals in those markets.

3.247 When asked about this alleged use of the data extracted through Facebook’s
single sign-on features and through the Facebook Pixel, 213 Facebook told usthat it did not recognise the conduct.
3.248 We have not sought to conclude on the merits of these specific concerns aspart of this study. However, these are examples of potentially concerning
practices that could be investigated under a new pro-competition regulatory
regime, of the type envisaged by the Furman Review, and as proposed in
Chapter 7. 214 Appendix U sets out our assessment of potential practices to be
tackled under a new code of conduct.

Findings in social media
3.249 Consumers access social media platforms to interact with each other and withengaging content. However, social media platforms are differentiated inimportant ways, including in terms of the user needs that they attend to. This
limits the degree of substitutability between social media platforms for
consumers.
3.250 The evidence shows that Facebook has significant and enduring market
power in social media. Facebook initially grew through its innovative social
networking service and has now had a much larger network than otherplatforms for many years. Facebook’s large scale, and same-side and crossside network effects, mean that Facebook benefits from positive feedback
loops. For example, its large network of connected users helps it to attract
and retain more consumers, while also attracting developers and content
providers, which further increases its value to consumers.
3.251 Interacting with close contacts remains the most important reason for which
consumers access Facebook. However, Facebook’s extensive social network
has helped it to develop many additional features and services. No otherplatform can address a similarly broad set of consumer needs and consumers
are unlikely to be able to replace Facebook’s services entirely with another

213 Facebook Pixel is used to support Facebook’s advertising services.
214 Furman Review (2019), Unlocking digital competition’’.

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platform’s. In particular, third-party platforms are not close substitutes toFacebook when it comes to networking with a wide range of close and distantconnections. Cross-visiting statistics demonstrate that, while consumers doaccess other social media platforms, they nearly always do so in combination
with Facebook.
3.252 The competitive threat to Facebook from the entry and expansion of otherplatforms is limited by several self-reinforcing barriers to entry and expansion.
3.253 Same-side network effects act as a barrier to entry and expansion in social
media, because the extent to which consumers value a social network
increases with the presence of more users. Entrants have responded to thisby differentiating and building different types of services and consumer
networks, rather than networks that compete more directly with Facebook’s‘network for everyone you know’. Cross-side network effects also support
Facebook’s position.
3.254 The result of competitors’ differentiated strategies is that the constraint placedon Facebook, and the competitive threat that it faces, is limited. We note that
there has been no successful entry in the last 10 years by a direct competitor
with a comparable set of services to those provided by Facebook, with
Google’s attempt having failed.
3.255 The Facebook ‘family’ of apps (which includes WhatsApp and Instagram)further insulates Facebook from competitive pressure, because consumers
that switch some of their time away from the Facebook platform may remain
within the Facebook ‘ecosystem’ of apps.
3.256 Facebook is also able to affect the competitive conditions it faces. By
restricting other social media platforms’ ability to interoperate with Facebook’s
services, Facebook is able to reduce the competitive threat from new entrants
and smaller rivals. We are concerned that Facebook also has the ability andincentive to leverage its market power from social media into related markets.
Facebook’s entry into related markets may provide some benefits for
consumers, but if Facebook does so in a way that excludes efficient rivals,
then over time consumers may be left with worse services, both in related
markets and in social media. Harm to consumers from weaker competition
over innovation could outweigh any short run benefits, leading to a reduction
in consumer welfare overall.
3.257 In combination, we consider that the factors above limit the competitive
pressure on Facebook, and the nature of these factors is such that this willcontinue to be the case. This is likely to have several negative impacts for
consumers. First, Facebook has weaker incentives to innovate and to develop
its platforms in ways that are valued by consumers, compared to a more147

competitive scenario. Second, Facebook can extract more consumer data or
worsen the terms that it offers consumers for this data. We discuss consumer
control over data in Chapter 4. Third, consumers are harmed indirectly
through higher prices for other goods and services if Facebook is able to use
its market power over consumers to raise the prices it charges for display
advertising above competitive levels. We discuss competition in digitaladvertising in Chapter 5.

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4.

Consumer control over data•

For many consumers the major platforms have become ‘must haves’ – 37%of the total time spent by UK users online in February 2020 was on sites
owned by Google or Facebook – and there has been a notable rise in theiruse during the current COVID-19 pandemic.

•

It is important that consumers can make informed decisions about whether toagree to their personal data being used to target advertising, and that they
can control the use of their data and decide whether to provide access andshare it with others if they wish. Equally, it is important that consumers
receive the right level of protection when they do not, or cannot, engage.

•

Consumers want more control over their data: most say they value theirability to control access to their data, and only a small minority (13%) say
they are happy to share their data in return for relevant advertising. Despite
this, we have found consumer engagement with platforms’ privacy policies
and controls is generally very low – for instance only a very small percentageof new users who registered with Facebook in February 2020 engaged withthe ad preferences page over the 30 days from registration. We consider thatthe platforms themselves are largely responsible for this situation.

•

Platforms have strong incentives to maximise the amount of consumer data
they collect by limiting consumer engagement and control. The largest arevery profitable, and their users’ personal data is highly valuable to them forpersonalised advertising and developing user services. Some social media
platforms, such as Facebook, give consumers no choice but to accept
personalised advertising if they wish to use the service. And platforms’ choicearchitecture is likely to amplify the effect of natural behaviours that limit
consumer engagement through poor accessibility and clarity, unbalanced
presentation and barriers to making choices. Many of our findings on platform
design are similar to Google’s own research – confirming how hard
consumers can find it to navigate and understand controls.

•

As a result, people find themselves being signed up to the default settings ofthe platform. The impact of this is that the terms by which personal data is
being used are determined largely by the platforms themselves rather thanby consumers.

•

Several harms arise from this lack of control and barriers to engagement. In
particular, many consumers are likely to be sharing more data than theywould otherwise have decided to and not receiving a fair return for the data
they provide. If there were more choice for consumers over control of theirdata, there would be scope for platforms to compete actively to persuade
them of the benefits of personalised advertising or to adopt alternative
business models offering different options in respect of privacy choices andservices. The loss of competition and its benefits for consumers and theirlack of effective control may also mean that they have lower trust in digitalmarkets. These harms may be magnified for more vulnerable consumers.

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Introduction
4.1

Many consumers use a range of online platforms every day. They may use
Google to find a local restaurant, or access Facebook to see what their friends
are doing. When consumers use these services, platforms collect and use
information about them to serve personalised advertising. In return, these
services are typically free of charge for consumers to use and allow
consumers to do a range of things such as search the web, connect withfriends, share content and receive more relevant advertising.

4.2

While platforms provide services that are free to consumers when they use
them, some also generate very large revenues – and are extremely profitable.
Their business model relies on attracting consumers’ attention and gathering
data about them, which they use to sell personalised advertising.

4.3

Whereas some newspapers and commercial broadcast services have been
provided free to readers for many years, covering their costs by advertising
revenues, what is new is that digital platforms are much more able to collectand use personal data. This allows them to target adverts – or indeed provide
other services – based on what they know about the particular circumstancesof the individual consumer. Because personal data is highly valuable toplatforms for personalised advertising and developing user services, there is aconsiderable incentive for them to maximise the volume of data they collectfrom their users.

4.4

We recognise that, if consumers want high quality content and services
without paying money directly for them, platforms need to be able to generateenough revenue from other sources to fund them – and that revenue istypically derived from being able to offer advertisers the ability to advertise to
those consumers. This means that there is an important trade-off for
consumers to make in terms of sharing their data for personalised advertisingin return for access to the online services: how much do they value theservice and how much do they value control over their data?

4.5

It is important that consumers can make an informed decision over whether toaccept the terms of this exchange offered by platforms. This is essential bothfor people to be able to safeguard their privacy and in order to foster healthy
competition that benefits consumers.

4.6

Consumers’ attitudes towards privacy and personalised advertising are notuniform. Some consumers will be content to provide their data in return forbeing served personalised adverts. In contrast, other, more privacy-conscious
consumers would choose not to share their data and instead prefer to receive
contextualised advertising (ie relating to the content they were viewing). At
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present a number of platforms do not offer consumers this choice: it is simply
a condition of signing up to the service that their data is used for personalised
advertising.
4.7

To enable consumers to express a choice, it is important that they have upfront and ongoing control over the use of their data, so that they can decide
whether to provide or deny access to their data and share it with others if they
wish.

4.8

Ensuring that consumers have more control over the use of their data will not
only protect them but could also offer them benefits by increasing the potential
for competition between platforms. That is, firms could compete on the basisof the extent of control and choices over privacy they offer to consumers andcompete more actively to encourage consumers to allow their data to be used
for personalised advertising by explaining the benefits to them. Firms could
also differentiate themselves more in the range of services and benefits thatthey offer according to the extent to which consumers agree to allow theirdata to be used for personalised advertising. We consider these issues in
Chapter 8.

4.9

In the rest of this chapter, we:•Consider how consumers use and benefit from online platforms;•

Address how and why consumers’ data is used in digital advertising;•Set out the relevant regulatory framework;•

Consider consumers’ awareness, understanding and attitudes towards
the use of their data;•

Provide evidence of low engagement with current controls;•

Set out our concerns about barriers to effective consumer control – inparticular:oplatforms’ restrictions on choice;othe impact of platforms’ choice architecture; andothe implications for consumer welfare and competition.

Consumer use of online platforms
4.10

The online platforms we have considered in our market study have become
an important fixture of everyday life for many people. For instance, Ofcom
151

reported in 2019 that 98% of adult internet users had used a search engine
such as Google or Bing in the last year. 215
4.11

In 2019, Ofcom reported that 82% of all adult internet users had a social
media or messaging account – up from 54% in 2010. Usage was particularlyhigh for those aged 16 to 44, although proportionately the largest increases in
the last decade have been in the 45 to 74 age range (Figure 4.1). 216 Figure
4.1 also shows that 21% of all adults over 75 had a social media profile ormessaging account and separate Ofcom research reported that by the age of
13 (the minimum age restriction on most social media platforms) more thanhalf of children have a profile; and by the age of 15, almost all have one. 217

Figure 4.1: Incidence of having a social media profile / messaging accountSource: Ofcom

4.12

As noted in Chapter 2, social media platforms and search engines –especially Facebook and Google sites – are important to many consumers ona daily basis. For example:•

Even before the COVID-19 pandemic (which increased usage), UK
internet users were spending an average of 3 hours 24 minutes each day
online, 218 with the majority of this time spent in a relatively narrow set ofsites and services, including social media, information, news, shopping,

215 Ofcom, Adults’ Media Literacy research, 2019.

216 Ofcom, Adults’ Media Use and Attitudes Report 2020.

217 Ofcom, Children and parents: Media use and attitudes report 2019, February 2020.

218 Comscore, MMX MP, Total Digital Audience, Desktop aged 6+, Mobile aged 13+, February 2020, UK.

152

and entertainment. We also note reports of an increase in the use of
search and social media since the pandemic. 219•

As regards reach, during February 2020, 96% of the total UK internet
population accessed a Google site; and 87% accessed a Facebook
site. 220•

Of the total time spent by UK users online in February 2020, 37% was onsites owned by either Google (including YouTube) or Facebook (including
Instagram and WhatsApp). 221•

We found that in total in 2019, Facebook served [400 to 500] billion
personalised ads and Google served [400 to 500] billion search ads.
Facebook users on average see [50 to 60] ads per hour. 222

4.13

These latest developments illustrate the significant and growing importance of
search and social media to users – particularly in difficult circumstanceswhere physical restrictions can mean many people rely on them for
information and networking.

4.14

The substantial volume of overall usage of online platforms reliant on digitaladvertising across all age groups, coupled with the persistent share and highprofile of Google and Facebook, also underlines the importance ofconsidering consumers’ engagement with them, the extent to which they maylack control over the use of their data and whether harms may arise.

How consumers can benefit from social media and search
4.15

Platform services that are funded by digital advertising bring substantial
benefits to consumers, while being provided free of direct monetary costs forthe consumer.

4.16

Consumers benefit from many of the services provided by the platforms –including search, social media, information and entertainment. Some
respondents to our interim report noted that such digital services have createdlarge gains in wellbeing and consumer surplus – enabling users to findinformation, connect, communicate and share relevant information in ways

219 For instance, survey findings suggest 21% of UK internet user respondents were spending longer on social

media in March 2020. Source: Statista in-home media consumption online survey of 16 to 64 years old, March
2020.
220 Source: Comscore MMX MP, Total Digital Population, Desktop aged 6+, Mobile aged 13+, February 2020,
UK. In regard to Google, this represented 49,531,604 unique viewers and for Facebook 44,561,582 uniqueviewers.
221 Ibid.
222 These figures are based on Facebook and Google responses to CMA requests for information. The Google
numbers refer to Google search. The Facebook numbers exclude Instagram.

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that did not exist two decades ago. We acknowledge, as discussed in Chapter
2, that consumers benefit substantially from the range of services offered by
platforms.
4.17

Some respondents to our interim report also suggested that digital advertisingitself benefits consumers because it enables them to discover relevant
content and find products and services that are likely to be more meaningful
and engaging to them.

4.18

As we discuss below, digital advertising can be targeted at consumers in two
ways and there are important differences between these types of advertising:•contextual ads that reflect the contents of the page the consumer isviewing and require no or limited personal data; and•personalised ads that require the processing of the consumer’s personal
information.

4.19

For consumers, personalised ads may be more relevant to them, which may
make them less irritating and more likely to provide genuinely useful
information about products and services that they may be interested in. For
advertisers, personalised advertising offers benefits in terms of bettertargeting / less wastage. This should mean more efficient delivery ofadvertising which in turn should result in a greater return on their investment
as their adverts are likely to be viewed more often by their intended audienceor they can achieve campaign goals for a lower amount of advertisingexpenditure. 223 This is discussed in more detail in Chapter 5. Consumers may
also benefit from more efficient advertising spending, which may ultimately bereflected in lower prices for advertised products.

4.20

Overall, more relevant and better targeted adverts, through personalisation,
can be expected to result in more purchases, increasing consumer andproducer welfare as a result. Respondents also suggested that they can resultin lower product prices for consumers because more effective targeting lowers
firms’ costs which are, at least to some extent, passed onto consumers.

4.21

However, as we discuss below, these potential benefits rely on consumers
sharing their data for use in personalised advertising in a transaction thatsome consumers may be unaware of, or lack control over.

223 The evidence available to us indicates that advertisers are willing to pay higher prices to be able to target

consumers, which would tend to imply higher costs. However, to the extent that this targeting of consumers ismore efficient and less wasteful, then that could offset the higher costs. As a result, it is difficult to determine what
the overall impact on advertising expenditure might be. We recognise that some part of these advertising costs
could ultimately be reflected in the prices consumers pay for the products being advertised.

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The role of consumer data in digital advertising
4.22

We consider below the role of data for online platforms funded by digitaladvertising – in particular, what data is collected, how and why. Appendix G
provides further background on how consumers and their devices are tracked
for personalised advertising.

What consumer data is collected?
4.23

Data is collected online by a wide range of market participants, including
platforms, advertisers, publishers and data brokers. The data collection bysome platforms can be extensive. Google collects consumers’ names, contact
details and passwords volunteered when they create an account. It alsocollects data that consumers may be unaware of, such as device and browser
information, IP address, operating system; and information on the consumer’s
activity such as preferences, interaction data (eg clicks and mouse hovers),
search history and location data.

4.24

The individual level data collected by platforms such as Google and Facebook
remain under the control of these platforms and is generally not shared withother market participants. 224 However, outside of these ‘walled gardens’, 225
publishers and advertisers share data through a large number ofintermediaries to identify consumers and provide personalised advertising.

4.25

Advertisers, publishers, online platforms and data brokers can also collect andshare data once an ad is placed, such as: personal data (eg device andbrowser information; contextual data (the context in which the ad is served,
such as the page contents); campaign data (information on the reach andsuccess of an ad campaign); and search data (eg the search request, thenumber of clicks and purchases generated).

How is data collected?
4.26

Platforms such as Google and Facebook can collect large datasets directlyfrom their many users. 226 Google can also gather data, such as a consumer’s

224 Appendix F explains how platforms share aggregate-level data with other market participants.

225 ‘Walled gardens’ are a closed ecosystem in which a platform provides a complete end-to-end technicalsolution for advertisers and publishers, and advertisers and publishers are restricted in their ability to choose
other technical solutions. These ecosystems can be very large – for instance Google’s includes Android andChrome operating systems; YouTube, Gmail and Google Maps. Facebook’s ecosystem includes WhatsApp,
Instagram, Messenger and Marketplace. See Chapter 2 and Appendix E.
226 For example, Google collects data from more than 50 consumer-facing services, including Google Search,
and Android phones. Facebook collects data from Facebook, Instagram and WhatsApp. However, Facebook said
that it does not use WhatsApp account information in the European Region to improve consumers’ Facebook
product experiences or provide a more relevant Facebook ad experience. See also ICO WhatsApp undertakings,
given 12 March 2018.

155

location, from mobile devices running its Android operating system. Platforms
also collect data through services they offer on other websites and apps about
how consumers interact with these sites (Box 4.1).
Box 4.1: Platforms’ processing of data via other websites and apps•

Advertisers, publishers and data brokers can provide data they collect about
consumers visiting their sites to enable a better targeting of digital advertising.
Advertisers can also provide offline data on their customers.

•

Advertisers and publishers can allow platforms to collect observed andvolunteered data from their own online services through a range oftechnologies such as tags, cookies and Software Development Kits (SDKs) –enabling platforms to add it to information they already possess about theconsumers.

•

Platforms receive and process data when consumers sign into an app or
website using their sign in functionality, whereby consumers can securely
sign into third-party apps without having to create, authenticate andremember new usernames and passwords.

•

Platforms collect information such as device and browser information, bid
information and event information (impression, click or conversion data) fromthe ads placed on publisher websites.

4.27

As we set out in more detail in Appendix F, compared with Google andFacebook, other platforms’ data capabilities, which focus on user data fromtheir own services and limited reach on third-party websites and apps, arelimited in comparison.

How do platforms use consumer data?
4.28

The platforms we have considered in this market study collect consumer data
for a variety of reasons – but the primary purposes are to deliver and improvetheir consumer-facing services and to serve and measure digital advertising toconsumers. 227

4.29

Platforms use consumer data to deliver their own consumer-facing services:

227 Platforms also collect data from users to, for instance, enable functionality (eg data on the device being used)

and to improve their service, or to detect abuses.

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•

The larger search engines collate click and query data to train theiralgorithms – including what consumers search for, the results they select,
and the time spent on a page. They also use data on the context in which
the consumer is making a search – such as the time, date and location. 228•

Social media platforms rely on consumers sharing posts, comments and‘likes’. The platforms can also improve their services to consumers on thebasis of content data (consumer-generated information such as photos,
videos and posts), profile data (consumer information provided whensetting up an account) and interaction data (such as likes, shares andcomments).

4.30

Platforms that fund their services through digital advertising 229 also use
consumer data to target advertising and provide measurement and attribution
services to advertisers.

4.31

Targeted advertising can be broadly divided into contextual and personalised,of which the latter is considerably more reliant on historic and real-time
consumer data (Box 4.2).

228 As we note in Appendix K, some search engines offer consumers the ability to set up an account. To createan account, consumers need to provide more information such as their name, email address and date of birth.
However, being logged-in gives consumers additional controls over how their data is used.
229 In its response to our interim report, Facebook stated: ‘…Facebook’s valuable services are funded entirely by
advertising revenue. Accordingly, advertising (and in particular, personalised advertising) is not an “add-on”
service for consumers. Rather, it is an integral foundation for the multi-sided economic business model whichallows Facebook’s services to be offered to consumers at all.’ Source: Facebook’s response to the CMA’s Interim
Report, February 2020.

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Box 4.2: Types of targeting in digital advertising•Contextual advertising reflects the content of the page viewed and requires
no or only limited consumer data such as device, location and language.

•

Personalised advertising targets adverts on the basis of consumers’ personaldata, including demographic and interest-based data alongside data inferredfrom other consumers. The main types of personalised advertising areaudience segmentation (the grouping of consumer profiles into ‘audiences’
characterised by intent, demographics and interests) and retargeting (theserving of targeted ads to specific individuals whom advertisers identify as
customers or potential customers).

Contextual advert: reflecting the content
of the page viewed.

Personalised advert: reflecting theconsumer’s data, such as search history.

4.32

Platforms also use consumer data as part of the attribution process – tracking
what users do after being exposed to advertising, whether they make apurchase, register on a website etc – which is an important part of evaluating
the effectiveness of advertising.

4.33

The importance of personal data in digital advertising depends on the type ofadvertising used and the campaign objectives that advertisers want to meet.
In general, we have heard that personalised advertising is more important in
display than in search advertising 230 – because in search, the most valuable
data for selecting which ads to show is the search query itself, so that
contextual advertising performs very well without much need for additional
consumer data. The use of consumer data in the attribution process is likely to

230 Search advertising is where an advertiser pays for its advert to appear next to the results from a consumer’s

search query, based primarily on the keywords entered. Display advertising enables advertisers to place ads inspace sold by publishers (inventory) on websites or apps in a variety of formats, including banner-style adverts,‘native’ advertising, sponsored content, and video advertising.

158

be important to both search and display advertising in terms of tracking what
action consumers take after being exposed to the advertising.
4.34

Personalised advertising is sometimes considered more ‘relevant’ to theconsumer in the sense that the advertising they see is based on a profile
about the individual that has been compiled from information such as previous
browsing history, location etc and so should reflect the individual consumer’s
likely interests. However, contextual advertising can also be ‘relevant’ if itreflects the contents of a page that a consumer has decided is interestingenough to spend time reading. In the case of social media, if advertisingreflects the content of the page, such as a newsfeed, then it may effectively
be more ‘personalised’ simply by virtue of the fact that the page contents
themselves are likely to reflect the personal interests of the consumer.

4.35

As we discuss in Appendix X, we have also heard that contextual advertising
is becoming more sophisticated – for instance through the application ofsentiment analysis that uses Artificial Intelligence (AI) to analyse site contents
and optimise placements for advertisers on the basis of more detailed
assessment of the likely readership. This has the potential to improve how
effective it is compared to personalised advertising.

The relevant legal and regulatory framework
4.36

The use of personal data in digital advertising is governed by a data andePrivacy protection framework that addresses how and when personal data
can be used (Box 4.3). 231 Competition and consumer authorities are
increasingly considering competition and consumer law implications arisingout of the use of consumer data, 232 reflecting the close links between
consumer control over data, competition and consumer concerns moregenerally.

4.37

The regulation of data protection and privacy in the EU is the responsibility ofnational data protection authorities (DPAs) such as the ICO (Information
Commissioner’s Office) in the UK and the DPC (Data Protection Commission)in the Republic of Ireland. Under the UK’s Withdrawal Agreement with theEU, 233 setting out the terms of the UK’s exit from the EU, at the time of thismarket study we are in a transition period until the end of 2020 to allow time tonegotiate a new relationship with the EU. After the transition period ends, the

231 See Appendix A for more information on the legislative data protection framework.

232 For example the Bundeskartellamt prohibition decision B6-22/16 Facebook Inc. and others dated 15 February

2019 (currently under appeal),and the decision of the Autorità Garante della Concorrenza e del Mercato, dated
29/11/2018, against Facebook for violations of the Consumer Code.
233 New Withdrawal Agreement, October 2019.

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ICO will remain the independent supervisory authority for the UK’s dataprotection legislation. 234
Box 4.3: Data protection legislation
The role of data protection legislation is to protect consumers’ fundamental rights
and freedoms including their right to the protection of their personal data, in asystem that enables the free flow of personal data. The General Data Protection
Regulation (GDPR), the Data Protection Act 2018, and the Privacy and Electronic
Communications Regulations 2003 together provide the framework for the lawful,fair and transparent processing of personal data, setting overarching dataprotection principles and data protection rights.
The ICO explain that ‘Data protection is about the fair and proper use of information
about people. It’s part of the fundamental right to privacy – but on a more practicallevel, it’s really about building trust between people and organisations. It’s about
treating people fairly and openly, recognising their right to have control over theirown identity and their interactions with others, and striking a balance with the wider
interests of society. It’s also about removing unnecessary barriers to trade and cooperation. It exists in part because of international treaties for common standards
that enable the free flow of data across borders. The UK has been actively involved
in developing these standards’. 235
Integral to this framework is enabling consumers to have effective control over theprocessing of their personal data and to be empowered to make informed andgranular choices over its processing (who, what, when, for what purpose(s), for
how long, etc.) which includes rights like data portability, so that in certain
circumstances they can transfer their data to another service provider if they want.
In the context of personalised advertising, this means that there needs to be an
appropriate legal basis for processing personal data about consumers, consumers
need to be appropriately informed about the choices available to them, and to beable to exercise their rights so as to have appropriate control over how their data is
used.

234 The government intends to incorporate the GDPR into UK data protection law from the end of the transition

period – so there will be little immediate change to the core data protection principles, rights and obligations in
the GDPR. During this transition period the ICO will engage in the co-operation and consistency mechanism
under GDPR and continue to be a lead supervisory authority. Following transition, the Data Protection Act 2018
(DPA 2018), which currently supplements and tailors the GDPR within the UK, will continue to apply.
235 What is data protection?, Introduction to Data Protection, in the ICO’s Guide to Data Protection.

160

4.38

For processing of personal data to be lawful under the GDPR, it requires alawful basis. Under the GDPR, the lawful basis applies in the context ofgenerally applicable prescribed ‘data protection principles’ such as fairness,transparency, purpose limitation and data minimisation which apply to allprocessing of personal data. The main lawful basis identified by market
participants for the lawful processing of personal data in this market study
have been consent, contract and legitimate interests (Box 4.4). 236

Box 4.4: Potential lawful bases identified by market participants

4.39

•

Article 6(1)(a) Consent – which means a freely given, informed, specificand unambiguous indication of the consumer’s wishes by way of astatement or clear affirmative action, which signifies agreement to thespecific processing of their personal data, and is as easy to withdraw as togive. 237 For consent to be valid it has to be a genuine, free and appropriately
granular. It must be ‘opt-in’ not ‘opt-out’ and the consumer must haveongoing control over the specific processing of their personal data which istaking place.

•

Article 6(1)(b) Contract – which means the processing is necessary for the
performance of a contract with the consumer. The processing must be
objectively necessary to deliver the purpose of the contract. The fact thatprocessing may be covered by a contractual term does not automaticallymean that the processing will fulfil this requirement.

•

Article 6(1)(f) Legitimate interests – means processing can be lawful if it isnecessary for the legitimate interests pursued by the controller or a third
party. To rely on this basis the controller must properly carry out a three-partlegitimate interests assessment that includes a balancing exercise toestablish whether the interests and fundamental rights and freedoms of theconsumer override the legitimate interests in that situation.

The GDPR does not specify a ‘hierarchy’ within these types of lawful basis.
The ICO’s guidance clarifies that no single basis is ‘better’ or more important
than the others – the one that is most appropriate depends on the controller’s

236 See Appendix A for more information on the legislative data protection framework. Article 6 of the GDPR also

provides for processing where necessary (c) for compliance with a legal obligation (d) to protect vital interestsand (e) for the performance of a task carried out in the public interest or in the exercise of official authority. Thesebases were not identified as the basis for operating an online platform or for digital advertising.
237 As explained in Appendix A, consent is a defined term in the GDPR (Art. 4 (11)), with further provision madethroughout the GDPR for example Art.7 ‘Conditions for consent’.

161purpose and its relationship with the individual. However, in somecircumstances it will be appropriate to rely on one lawful basis over another.
4.40

We note that in the context of real time bidding the ICO’s view is that where
personalisation of advertising involves the placing of cookies or similar
technologies, consent is likely to be the most appropriate lawful basis. This isdue to the requirements of the Privacy and Electronic Communications
Regulations 2003. This is explained in the ICO’s Update Report into AdTech
and RTB 238 and its guidance on consent. 239 Where personalisation does not
involve the placing of cookies other lawful basis can be considered on a caseby case basis.

4.41

However the ICO, EDPB (European Data Protection Board) and other third
parties who responded to our study, have questioned whether contract orlegitimate interests are likely to provide appropriate legal bases for theprocessing of personal data for personalised advertising as currently
practised. For a contractual basis, clauses about advertising are likely to beancillary to the main purpose of the contract and therefore would not benecessary for the performance of the contract. 240

4.42

In relation to legitimate interests, the ICO’s view is that in the context of theintensive processing of personal data involved in personalised digitaladvertising, it is unlikely that the legitimate interests of a data controller toprocess consumers’ data to serve personalised advertising would override therights and freedoms of the consumer. 241

Consumers’ understanding and attitudes about the use of their
data
4.43

Information about how data is used is critical to consumers being able to
make effective decisions about how much data to share, which enables themto play an active role in the process of competition. Consumers may notchoose the most suitable products or services for their needs if they do nothave all the relevant information or technical knowledge they need when
making decisions. If consumers are engaged, this should enhance firms’

238 ICO update report into adtech & RTB, 20 June 2019.
239 ICO guidance on consent.

240 The ICO’s ‘Guide to the general data protection regulation’, page 65, example of online targeted advertising,which is consistent with the EDPB, ‘Guidelines 2/2019 on the processing of personal data under Article 6(1)(b)
GDPR in the context of the provision of online services to data subjects’, version 2, 8 October 2019, paragraphs
51 to 56.
241 ICO update report into adtech and RTB, 20 June 2019, page 18, which is consistent with the EDPB/Article 29
Working Party guidance, eg pages 46 and 47 of Opinion 06/2014 on the notion of legitimate interests of the data
controller under Article 7 of Directive 95/46/EC, 9 April 2014 and page 68 ‘Example 26’, and references therein.

162

incentives to compete to serve these customers and in turn drive up value formoney and innovation.
4.44

In this section we start with a discussion of the challenges facing consumers
when it comes to making decisions involving privacy and the use of theirpersonal data. We then move on to review the evidence – in terms of bothacademic and consumer survey research – on the extent of consumers’
knowledge, understanding of, and attitudes to, data processing; and whether
consumers are likely to be in a position to make informed decisions aboutsharing their data with online platforms. In particular, we consider theevidence on knowledge and attitudes towards personalised advertising. 242

4.45

Our overall finding is that consumers face significant challenges in choosing
the best course of action for them. These challenges can be exacerbated by
the actions of the platforms they are dealing with, especially if those firms
have market power.

Privacy decisions – the challenge facing consumers
4.46

Decisions about sharing personal information typically involve a trade-off forthe consumer. In order to access a service or to benefit from a price discountetc, the consumer has to disclose some data about themselves to the firm. It
is therefore up to the consumer to decide how much they value a service andwhether those benefits outweigh the costs that arise from that loss of privacy.
All other things being equal, we might expect that the more valuable theservice, the greater the privacy ‘cost’ a consumer would be willing to accept
and the more data they would be prepared to share.

4.47

We note that academic research on privacy-related decision-making (egBrown (2001), Acquisti (2004), Barnes (2006), Acquisti et al (2016), Kokolakis(2017), Barth and de Jong (2017)) has discussed the existence of what has
been termed a 'privacy paradox' in relation to the consumers in an online
environment. That is, in surveys consumers will report that they are very
concerned about their privacy but they then behave in a way that contradicts
this clearly stated preference eg by not taking advantage of privacy controlsthat are available to them. There is a debate as to whether this is in fact a
genuine paradox (eg consumers could be acting in a rational way andproperly evaluating the costs and benefits), or whether there are factors atwork which prevent consumers from being able to make effective choices.
This is explored below.

242 Appendix L provides a fuller review of the consumer survey and academic research in relation to consumers’

understanding, attitudes and behaviour in respect of the use of their data.

163

Consumers acting rationally
4.48

One argument is that consumers may be behaving rationally in the face of thescale of the transaction costs associated with fully evaluating the costs andbenefits associated with signing up to use an online service provider. When it
comes to not reading privacy policies, 243 consumers may be making therational calculation that the cost of reading the policy (in terms of the time it
would take to read it) exceeds the benefit of doing so and so choose to accept
the terms and conditions without reading the privacy policy to avoid incurringthat cost.

Consumers’ ability to act rationally is impeded
4.49

Another argument is that there are a range of factors which make it difficult for
consumers to make effective choices.

4.50

Decisions about privacy and the disclosure of personal information tend to beheavily context-specific. Decisions about privacy can be influenced both by
the nature of the personal information being shared and the organisation towhom that personal information is disclosed. For example, research indicatesthat consumers are more willing to share data with public authorities than they
are with private businesses. The upshot is that general statements about
privacy preferences may be of limited significance when it comes to trying topredict privacy decisions in specific circumstances.

4.51

There are also other factors which will make it difficult for consumers to makeproperly informed decisions relating to privacy trade-offs. One key factor isthat it is difficult for consumers to anticipate what the long-term implications
might be of sharing their data with platforms and so they are having to makedecisions based on imperfect or asymmetric information. The large amount of
information available online can make it difficult for consumers to identify
information that is most relevant to them and, in particular, the way in which
online services curate information may not be fully transparent.

4.52

In addition, behavioural biases and cognitive limitations can also impact on
consumers’ decision-making. Acquisti et al (2015) have argued that
uncertainty and context dependency mean that people may not be able tonavigate the complex trade-offs involving privacy in a self-interested fashion.

4.53

Research suggests that consumers with privacy concerns can be reluctant totake the necessary steps to become more informed, even when the

243 A ‘privacy policy’ is the statement or legal document which sets out the ways in which a firm will collect, use,

disclose and manage a consumer’s data. It informs the consumer what specific information is collected, andwhether it is kept confidential, shared with partners, or sold to other firms or enterprises.

164

information to protect their privacy is made readily available (Acquisti and
Grossklags, 2005). Other research has also found that where securing privacy
requires additional effort or comes at cost of a less smooth user experience,
consumers were quick to abandon technology that would offer them greater
protection (Athey et al, 2017).
4.54

There is also research which indicates that some consumers believe that a
privacy policy means that their privacy is protected as the default (Turow et al,
2007, Martin 2015). A majority of consumers believed that the term ‘privacy
policy’ described a baseline level of information practices that protected theirprivacy. 244 When consumers saw the term ‘privacy policy, ‘they believed that
their personal information would be protected and, in particular, they assumed
the website would not share their personal information.

4.55

The factors set out above would mean that making decisions involving privacy
considerations is challenging at the best of times. However, the same factors
also mean that consumers can be influenced in the decisions they makeabout what data they share and how much information they disclose on an
on-going basis. How platforms choose to make use of default settings, how
the choice of privacy setting is presented to consumers and what language isused to describe the privacy settings (the ‘choice architecture’) all have an
influence on consumer choices.

4.56

Thaler et al (2014) have pointed out that choice architects may not always
have the best interests of the people they are influencing in mind. In an online
environment, choice architecture can be employed to shift consumers towards
behaviours that primarily benefit data collection organizations (Acquisti et al,2015). Because personal data is highly valuable to platforms for personalised
advertising and developing user services, there is a considerable incentive forthem to maximise the volume of data they collect from their users. We
consider these issues further below.

Consumers are not in a position to make active choices
4.57

There is also an argument that consumers may simply not be making any
assessment of the risks involved in sharing their data. For instance, aconsumer may feel that they have no agency or control and have little choice
but to accept terms that are presented on a ‘take it or leave it’ basis. This will
be a particular issue where platforms have become ‘must haves’ for manyusers and have substantial market power.

165

4.58

In the case of decisions about privacy in an online setting, it is difficult a priori
to determine which of these explanations is most relevant. Barth and de Jong(2017) suggests that all three explanations (ie consumers acting rationally;
consumers’ rationality being impeded; and consumers not being in a position
to make active choices) are likely to be relevant to explaining consumer
behaviour with respect to privacy in an online environment. We assess eachof these factors in our discussion of concerns below and our assessment ofpotential interventions in Chapter 8.

Consumers’ understanding and attitudes about the use of their data
4.59

Given the challenges facing consumers in making privacy-related decisions
outlined above, we set out some of the key findings from our review of theconsumer survey evidence on consumers’ knowledge and understanding
about the use of their data.

4.60

We recognise that consumer survey evidence can involve consumers stating
preferences for particular positions or outcomes and that these statedpreferences might then differ from consumers’ actual behaviour. We base ourfindings on a range of available consumer surveys and look to identify thosefindings which are supported across a number of different surveys. We use
this review to inform our analysis of the issues facing consumers. 245 As set
out in more detail later in this chapter we also then take into accountinformation from a range of other sources including data on the levels of
consumer engagement and our analysis of the way in which platforms haveactually structured their privacy policies and controls.

Consumers have limited knowledge and understanding about the use of their data
4.61

Most consumers are not sure what information online platforms hold about
them, but there is a higher recognition for information that consumers actively
provide compared to information that is passively collected (eg IP addresses).

4.62

There is a common perception that platforms collect a large amount of data,
but few consumers are aware of the true volume of the data that is or can becollected. 246 Moreover, consumers generally appear only to have a basic

245 We note that many of the findings set out below echo the findings of the CMA’s 2015 report, ‘The Commercial

Use of Consumer Data’ which assessed a large number of survey findings and found that consumers lacked
awareness of how and why their data was collected and were unhappy with how well firms explained this. Many
consumers felt they lacked control over the collection and use of their data and wanted more control; but many
also did not actively engage with these mechanisms and, where they did, were not always sure what they wereagreeing to. Many consumers shared data despite their concerns, possibly because they felt they had no choice.
246 Ipsos MORI (2016a). Digital footprints: Consumer concerns about privacy and security.

166

understanding of what is involved in the processing of their data 247 and that
understanding may be shallow. 248 Few consumers are aware of the extent towhich data sharing occurs or that data can be combined to form profiles
before being shared. 249 Given advances in data processing and computing
power, it seems unrealistic that consumers can anticipate how their data will
be used. 250
Consumers have concerns about data processing
4.63

Most consumers say they are either uncomfortable with data processing or
have concerns about their privacy. 251 For example, consumers say that they
are concerned about their data being shared and this concern is magnified
when the data sharing is perceived to be happening without their consent. 252
These concerns are not assuaged when consumers find out what is really
happening with their data – the evidence suggests that as consumers learn
more about data processing, they become increasingly concerned. 253

4.64

In addition to concerns about how their data is used, consumers also reportthat they lack trust in the platforms they use, with only a minority stating they
trust the platforms they use with their data. Social media platforms inparticular are consistently ranked as the least trusted platform in surveys – as
low as 9% stating that they trust them in one survey. 254

4.65

Consumer attitudes and concerns about the use of their data may change
depending on the use of the data – for example, consumers may be happy for
their data to be shared for public health reasons, but less so for commercial
products and services.

Consumers have concerns about the data processing involved in personalised
advertising
4.66

In terms of consumers’ attitudes to personalised advertising, consumers
generally report that they prefer to receive advertising that is relevant to themand their interests. However, as they learn more about the data processing

247 Which? (2018). Control, Alt or Delete? Consumer research on attitudes to data collection and use.
248 DotEveryone (2020) People, Power and Technology: The 2020 Digital Attitudes Report.

249 Which? (2018). Control, Alt or Delete? Consumer research on attitudes to data collection and use.

250 Stigler Center (2019). Stigler Center committee on digital platforms – Market structure and antitrust
subcommittee.
251 The European Commission (2016c). Special Eurobarometer 447: Online platforms; and Ipsos MORI (2016a).
Digital footprints: Consumer concerns about privacy and security.
252 Ipsos MORI (2016a). Digital footprints: Consumer concerns about privacy and security.
253 Which? (2019). Data dozen segmentation update; and Harris Interactive (2019). Adtech – Market research
report.
254 Information Commissioner's Office (2018). Information Rights Strategic Plan: Trust and Confidence; and Ipsos
MORI (2016a). Digital footprints: Consumer concerns about privacy and security.

167

that is involved in serving personalised advertising, they become more
uncomfortable with the use of their data for this purpose.
4.67

It is important to note that not all consumers are aware of the role thatadvertising plays in the business models of online platforms. A survey by
Ofcom found that only about half (53%) of all adults identified advertising as
the main source of funding for search engines. 255 This suggests that not all
consumers will be aware that their data is used in a way that helps fund these
services.

Consumers prefer relevant advertising until they understand it involves their data
4.68

When asked about their attitudes to digital advertising, a majority of
consumers report that they prefer advertising to be ‘relevant’ to them. For
example, in a report for Ofcom and the ICO, Harris Interactive found that 54%
of participants reported that they prefer advertising that was relevant to themrather than seemingly random ads. 256 Focus groups run for Which? also foundthat most participants preferred targeted advertising and personalised
discounts to non-targeted advertising and generic discounts. 257 However, weconsider that this stated preference for ‘relevant’ advertising does not reflect
the full picture of consumer attitudes. In particular:•

Research by Ipsos MORI found that only 5% of respondents felt that they
benefited greatly from companies using their personal information to send
personalised adverts and marketing material. In addition, only a small
minority of all consumers say that they are happy to share their data inorder to receive relevant advertising. For example, Ofcom found that only
13% of respondents said that they were happy for online companies tocollect and use their data to show more relevant adverts or information. 258

255 Ofcom, Online Nation 2020.

256 Harris Interactive (2019). Adtech – Market research report.

257 Which? (2018). Control, Alt or Delete? Consumer research on attitudes to data collection and use.
258 Ofcom, Online Nation 2020.

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•

Furthermore, surveys indicate that once consumers understand more
about how targeted advertising works, they become more concerned
about the data processing that is involved and can potentially be lesswilling to receive advertising that is personalised. For instance, the HarrisInteractive research for ICO and Ofcom referred to above found that after
providing a description of how 'real-time bidding' in advertising worked,
the percentage of respondents who said they did not prefer relevant ads
increased from 20% to 61% and they felt less in control of their data. The
research for Which? also found that the more consumers understood
about how targeted advertising works, the more they became
uncomfortable with. In addition, consumers could then become less willing
to receive personalised advertising.

4.69

The surveys of UK consumers that we have reviewed tend to focus on issuesof consumers’ knowledge, understanding and attitudes to data processing andprivacy issues in general. The number of surveys which specifically deal withattitudes towards online advertising is limited and we have reported all the
recent evidence that we are aware of.

4.70

Facebook has argued that this evidence is insufficient to support the
proposals set out in our interim report, but it has not provided us with any
evidence which contradicts the evidence set out above. As indicated above,
we do not rely just on evidence from consumer surveys to inform our analysisof the issues facing consumers but we have also considered various metrics
on the levels of user engagement and reviewed the way in which choices arepresented to consumers.

Consumers do not feel they have control
4.71

Given the concerns outlined above, we consider the extent to which
consumers feel that control over their data is important to them and that they
are able to exercise control over the use of their data.

4.72

Consumers place importance on their ability to control access to their data: a
2016 survey by the European Commission found that 96% of UK consumers
thought that it was important that their personal information on their computer,tablet or smartphone could only be accessed with their permission. 259

4.73

Many people see data collection as a part of modern life: both Which? and the
Direct Marketing Association (DMA) found that the majority of respondents in

259 European Commission (2016). Flash Eurobarometer 443: e-Privacy.

169their qualitative interviews believed that data processing was a part ofeveryday life. 260
4.74

At the same time, the majority of people feel that they have little control of thedata collected about them. For instance, Ipsos Mori found that 69% of
consumers felt they had little or no control over their online data. 261 Similarly,
in 2019 a survey by the European Commission found that 84% of UK
respondents felt that they had only partial or no control over their online
data. 262

4.75

Consumers have also reported that it was hard to effectively engage withcompanies who collect and use their data because of a perceived lack ofalternatives if they want to stop using specific companies whose datacollection they are concerned by. 263

4.76

Other evidence indicates that a significant majority of consumers would likemore control – for instance the DMA found that 86% of respondents wanted
more control over the personal information they give companies. 264 We
consider that the available evidence supports the conclusion that consumers
want more control over the use of their data.

Consumer attitudes differ according to demographic and other factors
4.77

Within these overall results, the survey evidence suggests that consumer
attitudes towards data differ according to a range of factors. In particular,
consumers’ acceptance of data processing is heavily influenced bydemographic factors, the nature of the data involved, and with whom the data
is being shared.
•

Overall, younger consumers and those who describe themselves asconfident internet users are more likely to be comfortable with dataprocessing. In 2019, Ofcom found that 33% of respondents aged between
16-24 were unhappy with companies collecting and using personal
information for any reason, compared to 55% of those between 55-64. 265•

Consumers tend to be reluctant to share sensitive personal information.
The Open Data Institute found that while 53% of respondents were

260 See Data and Marketing Association and Acxiom (2018). Data privacy: What the consumer really thinks; andWhich? (2018). Control, Alt or Delete? Consumer research on attitudes to data collection and use.

261 Ipsos MORI (2016). Digital footprints: Consumer concerns about privacy and security.

262 European Commission (2019). Special Eurobarometer 487a: The General Data Protection Regulation.
263 Which? (2018). Control, Alt or Delete? Consumer research on attitudes to data collection and use.
264 Data & Marketing Association and Acxiom (2018), GDPR: A Consumer Perspective.
265 Ofcom, Adults’ Media Literacy research (2019).

170

comfortable sharing their name with an organisation they knew, only 22%
were comfortable sharing their medical records. 266•

Consumers say that they generally trust public organisations more thanmany private sector organisations. The European Commission asked UK
respondents who they trusted to protect their personal information andfound that 81% trusted health and medical institutions compared to 32%
that trusted online businesses. 267

Consumer engagement with privacy policies and controls
4.78

As indicated above, consumers express concerns over privacy and a lack ofcontrol over the use of their data. In this section we look at the evidence wehave gathered from the platforms, and from third party research, on how
consumers actually behave when it comes to engaging with privacy policies
and the privacy controls and settings that are available to them.

4.79

We have considered a range of metrics, including numbers of users who
access privacy policies or who engage with different privacy controls andsettings and time spent on privacy policies. Taken together we consider that
this information points to the fact that consumer engagement with privacy
policies and settings is very low.

There is limited data on consumer engagement
4.80

We found it surprising that most of the platforms we contacted 268 were only
able to provide limited data about consumer engagement with privacy policies
or controls. In some cases, platforms do not collect data. In other cases, suchdata is only retained for a very short period of time. For instance, none of thetwelve platforms we contacted could tell us how many consumers accessed
their privacy policy during registration.

4.81

Moreover, only a limited number of platforms (Facebook, Google, Verizon
Media and TikTok) could provide data about how consumers use the settingsand controls that are available to them. Even then, that data was often limited
in detail or deleted after a short period of time. For example, Google wasunable to provide historic data as it usually only maintains this data for 28
days before being deleted.

266 Open Data Institute (2018). Attitude towards data sharing – Europe.

267 European Commission (2015). Special Eurobarometer 431: Data protection.
268 We requested information from 12 leading platforms.

171

4.82

The lack of data collected by platforms stands in stark contrast to thesubstantial collection of data in other parts of their business and means there
is very little evidence on how consumers behave in practice. This makes it
hard to determine how much consumers care about privacy and whether an
online platform’s approach to privacy is effective in promoting consumer
engagement.

4.83

Further, this lack of evidence suggests that understanding consumers’
engagement with privacy controls is less of a priority for these platforms thanother aspects of their business. This approach does not appear consistent
with ICO guidance issued to platforms which suggests that collecting suchdata ‘will help you improve the effectiveness of your delivery of theinformation’. 269

Few consumers engage with privacy policies or controls on a regular basis
4.84

As we noted above, survey evidence suggests that consumers want to control
the use of their data, but their engagement with information about how theirdata is used or the controls that are available to them is very low.

Engagement with privacy policies
4.85

Despite their concerns with how their data is used, few consumers report
engaging with privacy policies, settings and controls270 on a regular basis. For
instance, research by the ICO found that only a small minority of consumers
reported that they always read privacy policies or terms and conditions. 271

4.86

Academic research supports the proposition that consumers do not typicallyaccess privacy policies and suggests that the actual levels of engagement
may be very low indeed. Bakos et al (2014) found that only 0.05% ofagreements were accessed by consumers before they consented to them.
More recently in an experimental study, Obar & Oeldorf-Hirsch (2018) foundthat 74% of respondents did not open the privacy policy.

4.87

When consumers sign up to a service, they are asked to review the privacy
policy. However, no platforms were able to tell us the proportion of consumers
who accessed their privacy policy when first using their service or creating an
account.

269 ICO general guidance on GDPR – 'how should we draft our privacy information.

270 By privacy settings and controls, we mean the tools by which consumers can control or restrict the data whichfirms collect about them, such as whether or not they receive personalised advertising and what location
information is collected about them.
271 Information Commissioner’s Office (2019). Information Rights Strategic Plan: Trust and Confidence.

172

Consumers’ time spent on privacy policies
4.88

As well as indicating that consumers do not typically access or read privacy
policies, academic research has also measured the amount of time that those
consumers who do access privacy policies spend reading them. The Bakos etal (2014) study referred to above found that the consumers who did access an
End User Licensing Agreement (‘EULA’) spent an average of just over one
minute on the EULA page (with the median time being just over 30 seconds).
Similarly, the Obar & Oeldorf-Hirsch (2018) study found that of the users who
accessed the privacy policy, the reading time was 73 seconds.

4.89

We have limited data available on the time spent by consumers on privacy
policies but it appears to be in line with the findings of the academic researchthat the time consumers spend on privacy policies is very short.

4.90

Data provided by Google for a 28-day period across September and October
2019 showed that the average visit to the Privacy Policy Web page lasted 47
seconds with 85% of visits lasting less than 10 seconds and only 0.4% ofvisits lasting over 30 minutes. Given that for UK consumers Google’s privacy
policy totals over 4,500 words this is a very short time for reading the policy
and indicates that consumers are not able or willing to engage with privacy
policies of this length or complexity.

4.91

To explore this further, we also asked Google for information on the ‘bounce
rate’ for its Privacy Policy page. A bounce is defined as a single-page session
on a website. In Google Analytics, 272 a bounce is calculated specifically as asession that triggers only a single request to the Analytics server, such as
when a user opens a single page on the website and then exits without
triggering any other requests to the Analytics server during that session. The
bounce rate is defined as the percentage of all sessions on the site in whichusers viewed only a single page and triggered only a single request to theAnalytics server as opposed to clicking through to view other linked pages.
The bounce rate for Google’s Privacy Policy page for users in the UK for the
28-day period to the end of 28 February 2020 was [over 75%]. This suggeststhat most viewers only looked at the page and did not follow up any links orengage with the additional material there about how their data is used.

4.92

We note that Google considers that the bounce rate is not an adequate way ofmeasuring engagement with the Privacy Policy, given that the metric does notdistinguish between sessions in which users i) read the entire Privacy Policy;
and ii) sessions where users navigate from the Privacy Policy page to external

272 See: Google analytics help – bounce rate.

173

controls. However, we note – from internal documents – that the bounce rate
is a metric which Google has itself taken into account when considering thedesign of its Privacy Policy.
4.93

Taken together with the data on the amount of time that consumers spend on
the Privacy Policy web page, we consider that this indicates that consumers
do not spend time further investigating information – in particular where this ispresented in a ‘layered’ form that requires them to click through to find out
more. As a result, consumers are not engaging in a meaningful way with
Privacy Policies.

Engagement with privacy settings and controls at sign-up
4.94

We also wanted to understand the choices consumers make about specificprivacy controls and settings when they sign up to platforms.

4.95

From the data that platforms were able to provide, it is clear that consumer
engagement with privacy settings is very low at registration: very few
consumers change the default settings at registration or within 30-days ofregistering.

4.96

For example, Table 4.1 below sets out data from Google which indicates that
only a very small percentage of consumers engage with privacy settings
during the account creation phase. 273 Where consumers do engage withprivacy controls at this stage, they are more likely to disable features thanenable them.

Table 4.1: settings changed by Google’s UK consumers during account creation 274
Change[]
Enable location history[]Enable voice and audio activity
Disable ads personalisation

Percentage of total user accounts whomake this change during account creation[0–5]%[0–5]%[0–5]%[0–5]%[5-10]%

Source: Submitted to the CMA by Google in response to a request for information.

4.97

We asked Facebook for similar data for new users over a broadly comparable
28-day time period. The data from Facebook, in Table 4.2, shows a similar
picture in terms of a very low proportion of new users engaging with a setting
or tool.

273 The data in this and the following tables have all been rounded to the first decimal point.
274 The data provided spans a 28-day period across February and March 2020.

174

Table 4.2: Facebook UK users who view a settings page or control within 30 days of creating
an accountPrivacy setting or control
Facebook ad preferences
Facebook privacy check-up

New users who registered over 28-day period to 28th February 2020and viewed a setting or tool within 30 days of creating an account[0–5]%[0–5]%

Source: CMA calculations based on data submitted by Facebook in response to a request for information.

Engagement with privacy settings and controls across all active users
4.98

4.99

Consumer engagement with privacy settings and controls varies between
different controls. Data provided by Google indicates that in a 28-day period
across February and March 2020:•[0-5]% of its active UK customer base engaged with their Google Account(Data & Personalisation tab).

•[0-5]% engaged with Privacy Checkup.

•

Overall, [5-10]% of its active UK customer base accessed at least one of
the following privacy controls or settings over a 28-day period: 275 Privacy
Checkup, Privacy Advisor, My Activity, Activity Controls, Ads Settings,
Google Dashboard, Takeout, Google Account (Data & Personalisationtab) or Privacy Policy.

For Facebook, over the 28-day period (to 28 February 2020) [0-5%] of its
overall active UK user base engaged with the Ad Preferences setting and [05]% engaged the Privacy Checkup tool. The tool with the highest level ofengagement over this period was the ‘Why Am I Seeing This Advert’ tool with
[0-5]% of users engaging with it. We note that engagement with the Privacy
Check-Up tool is broadly similar to the data reported by Google for acomparable period.

4.100 We also note that Facebook introduced an ‘Off-Facebook Activity’ feature for
its users in 2019, allowing users to: (i) view a summary of their off-Facebook
activity; (ii) disconnect this information (ie in relation to past data) from their
Facebook account; and/or (iii) disassociate this data from their Facebook
account going forward (disconnected or disassociated data is not used totarget an ad to a user). Users were required to opt-out on their settings page ifthey wanted to exercise this option, and we found that [0-5]% of users who
were given this option at the end of 2019 exercised it. 276 This is a clear
example of the power of defaults in influencing decision making. We note also

275 The 28-day period was the period to 6th March 2020.

276 The feature was only rolled out to a sample of users towards the end of 2019.

175

that recent qualitative research by Which? that none of the participants in that
research were aware of this tool despite being selected on the basis that they
were regular users of Facebook. Furthermore, the participants in that
research reported a clear preference for opting-in, rather than opting-out, todata collection for targeted advertising. 277
Parties’ views
4.101 Google has argued that it does not consider that user engagement statistics
are, on their own, generally a good proxy for the degree to which users areengaging with their privacy options and feel in control of how their data areused. It argues that there are many other factors that determine user
engagement and that it uses a range of tools to bring privacy settings tousers’ attention – for example, regular emails reminding users to check their
settings or in-time product notices.
4.102 Google has also argued that when assessing user engagement with privacy
controls, we should give consideration to an organisation’s adoption of thistype of layered transparency and steps taken to bring users’ attention to
information about data collection and controls at the most opportune times
when they interact with services and features. This reduces the need for users
to visit underlying account settings and controls
4.103 We invited Google to suggest other metrics that would better measure user
engagement. Google has responded to say that it is actively considering new
metrics. One example of such a metric that Google has recently generated isthe percentage of users who have visited the Google Account (or Android Me
Screen) in the previous year out of those users who have been active in theprevious 28 days. Google reports that around 64% of users have done this.
4.104 Similarly, Facebook has argued that considering figures on user engagement
in isolation would underestimate overall user engagement with Facebook’s
privacy tools. It has argued that the data on user engagement:•

do not account for users who engaged with Facebook’s other numerous
privacy settings, such as those available in every post on News Feed;•

do not include users who provided limited information to Facebook at
sign-up and therefore had no desire to engage with their privacy settings
subsequently; and277 Which?, Are you following me? - Consumer attitudes towards data collection methods for targeted advertising,June 2020.

176

•

do not account for the fact that many users may have reviewed theFacebook Data Policy prior to registration and, being content with this,have not had an interest in further engaging with Facebook’s privacy
settings, controls and tools.

4.105 However, Facebook has not provided any data on overall user engagementwith these other privacy tools to support its arguments above.
4.106 We recognise the argument that any one specific statistic on user
engagement on its own may not be a good proxy for the actual levels of
consumer engagement. However, when taken together the various statistics
presented above do point towards a consistent lack of meaningful
engagement with privacy policies and privacy controls and settings on the partof UK consumers.
4.107 As before we recognise that these results are only for two online platforms –albeit the major ones – and that consumers may engage with policies orsettings on other platforms differently. However, consumer survey andacademic research suggests that consumers do not generally engage withprivacy policies so this behaviour is likely to be common across otherplatforms as well.
4.108 Given consumers’ expectations and concerns, we address below platforms’
practices in terms of the level of control they provide over the use of theirusers’ personal information.

Our concerns about consumer control
4.109 We are concerned that consumers have limited control over how their data isused, and are often compelled or nudged to agree to their data being used for
personalised advertising when many may prefer a different option. As a result,people can find themselves being signed up to the default settings of theplatform. The impact of this is that the terms by which personal data is being
used are largely determined by the platforms themselves rather than by
consumers – with negative implications both for consumer welfare andcompetition. This is set out in Figure 4.2.

177

Figure 4.2: Factors driving a lack of consumer control

Source: CMA assessment.

4.110 Platforms could give clearer up-front explanations of how they use
consumers’ data as well as providing their users with choice and control, butinstead have tended to limit consumer engagement and control by:•

Setting a requirement such that consumers often have no choice but toaccept personalised advertising if they wish to use the service at all(this is the case for many social media platforms) or by using primarydefault settings that require consumers to make the effort to opt out.

•

Using wider choice architecture that has the effect of discouraging easy
engagement – through poor accessibility and clarity, unbalanced
presentation and barriers to consumer action.

Consumer harm from barriers to engagement
4.111 Several harms are likely to arise from the lack of control and barriers toeffective engagement we have identified. In summary, consumers may:•

Use a platform that, with greater knowledge or ability to make choices
about the use of their data, they would not have used.

•

Share more data than they might otherwise choose to.

•Not receive a fair return for their data (which platforms can monetisethrough advertising).

178

•

Not experience the benefits of competition, such as more choice andinnovation.

•

Have lower trust generally in the internet and digital service providers.

4.112 These harms may be magnified for more vulnerable consumers, who may
have more constrained capacity to make informed decisions and be more
susceptible to techniques which nudge them; and who in some cases may beparticularly reliant on services such as social media.
4.113 A recent study by the Centre for Data Ethics and Innovation specificallyaddressed the issue of online targeting. 278 This found that although the public
appreciated the benefits from targeting, it also identified that there was a‘…deep concern about the potential for people’s vulnerabilities to be
exploited; an expectation that organisations using targeting systems shouldbe held to account for harm they cause; and a desire to be able to exercise
more control over the way they are targeted’. The report noted that whilst
most people did not want targeting stopped, they did want to know that it isbeing done safely and ethically; and they wanted more control.
4.114 The complex ecosystem around digital advertising means that data has to beshared in order to target advertising and platforms are incentivised to collectpersonal data in order to target ads as well as delivering their core services.
However, by restricting consumers’ ability to exercise effective choice orcontrol over the amount of data they share and the purposes that this will be
used for, we consider that platforms are preventing consumers from making
active choices between different services on the basis of amount of dataprocessing that the firms are undertaking. This will undermine competition in
online markets.
4.115 Where platforms do allow consumers to opt out of personalised ads, we foundthat almost all the platforms we reviewed did not make it clear to consumers
whether their data may continue to be collected and processed as before.
Firms with market power
4.116 For firms with market power, consumers will be in less of a position to switch
away to use other services, so it is even more important that consumers canengage effectively with decisions about how their data is processed. Due to
network effects, the largest platforms are ‘must haves’ for many people

278 Centre for Data Ethics and Innovation, Review of Online Targeting, February 2020.

179

wanting to stay in touch with friends and family. Other survey evidence
suggests that consumers feel:•

reliant on data-driven services which they do not believe they can giveup; 279 and•a perceived lack of alternatives if they want to stop using specificcompanies whose data collection they are concerned by. 280

4.117 This suggests that many consumers who sign up are likely to feel that they do
not have the choice of switching away to an alternative platform to avoid theirdata being used in personalised advertising. As we note above, recent
research found that nearly half of respondents (47%) felt that they had nochoice but to sign up to services despite concerns. The same research foundthat 45% of respondents felt that there was no point reading terms andconditions because companies would do what they wanted anyway. 281
4.118 The net effect in terms of consumer harm is that a large proportion of
consumers may make decisions about platforms that they might not otherwise
make – that is they may use platforms despite their concerns because they
feel they have little choice. In doing so, they will be sharing more data thanthey might otherwise wish to – particularly where this enables personalised
advertising rather than improving the core service.
4.119 Giving consumers more agency and control over the use of their data could
mean that platforms have to do more to persuade them of the benefits ofcontinuing to receive personalised advertising. As set out in Chapter 2, thelargest platforms are very profitable and so it is possible that consumers are
not receiving a fair return for their data, where it is being monetised by theplatforms through advertising. For example, in 2019 Facebook made [£50-60]
of revenue per user of its platform in the UK. 282 We recognise that if
consumers were aware of their value to social media platforms, then many
may well consider this a fair exchange given the benefits they derive fromsocial media. However, other consumers might not consider it reasonable. At
present, however, consumers are unable to reach a judgement because they
are not made aware.
4.120 Given the must-have status of the largest platforms, our concern is that
consumers do not have an effective choice about using their platform or not

279 Miller, C., Coldicutt, R., & Kitcher, H. (2018). People, Power and Technology: The 2018 Digital Understanding

Report.

280 Which? (2018). Control, Alt or Delete? Consumer research on attitudes to data collection and use.
281 DotEveryone (2020). People, Power and Technology: The 2020 Digital Attitudes Report.
282 See Appendix C.

180and so are not in a position to make a choice about having their personal data
used for personalised advertising. These platforms benefit in terms of theamount of consumer data that they can collect and the resultant value of theirservices to advertisers.
4.121 If there were more choice for consumers, then there could be scope for morecompetition between platforms as platforms would need to compete more
actively to persuade consumers of the benefits of personalised advertising.
There would also be scope for other platforms to compete for consumers on
the basis of alternative business models offering different options in respect ofthe privacy choices and the services that they offer. At present, consumers do
not experience the full benefits of competition in terms of more quality, choice
and innovation. Given the sheer scale of social media and Facebook, as wellas the prevalence of Google as a search engine, the extent of potential
consumer harm is considerable.
4.122 In turn this may contribute to the wider potential harms identified in the CMA’s
2015 report on ‘The Commercial Use of Consumer Data’ – including data
loss; low trust; and the potential for discrimination. 283
4.123 As noted above, we also recognise that there could be potential costs to theplatforms if consumers choose not to allow their data to be used for
personalised advertising and the platforms have to rely on other contextual
forms of digital advertising instead. We consider these trade-offs in our
discussion of potential remedies in Chapter 8.

Consumer choice over personalised advertising
4.124 We are concerned that platforms often limit consumer engagement andcontrol through either:•a requirement for users of social media platforms that they accept
personalised advertising if they wish to use the service; or•

primary default settings for users of search engines that can mean
consumers need to make the effort to opt out.

4.125 The controls available on search engines and social media platforms differ
greatly because of their respective business models. Furthermore, althoughconsumers can also use other controls via the browser or operating system,
we find that this is potentially confusing and may not meet consumers’

283 CMA (2015), ‘Commercial use of consumer data’ (2015).

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expectations of what controls will do. We consider these issues in more detailbelow. 284
Search engines
4.126 Unless consumers actively opt out, the most popular search engines serve
them personalised advertising. In the case of Google, the user’s search queryis a key driver of the targeting of advertising, but consumers’ data is also usedin serving personalised advertising. This typically involves the use of previous
activity such as searches and site visits, 285 demographic information andinterests, as well as other information such as location, time of day andinteractions (for example agreeing to receive updates from an advertiser). As
we note above, search engines can process additional data for logged-in
consumers.
4.127 Search engines also use location information by default. For example, a nonlogged in consumer on Google will receive ads based on their location
whether or not they have chosen to see personalised advertising.
4.128 Search engines, including Google and Bing, do allow consumers to turn off
personalised advertising, irrespective of whether they are logged in or not, but
this requires the consumer to take action. As discussed below this requiresconsiderable effort by consumers and results in most accepting the default
chosen by the platform. 286
4.129 Not all search engines use consumer data for personalised advertising or set
that as the default; for example, DuckDuckGo (DDG) does not use
personalised advertising at all and instead serves contextual ads based on
consumers’ search queries.
Social media
4.130 In almost all cases across the social media platforms that we reviewed 287
including Facebook and Instagram, consumers automatically have their data
used for personalised advertising. With the exception of TikTok, all other

284 Appendix K provides further and more detailed information on the consumer journey. We reviewed theexperience consumers may have when using a range of search and social platforms. We looked at the control
they have over the collection and use of their data, how easy it is to exercise those choices and how theplatforms treat the data of those consumers that do not engage with these. We also considered the wider controls
available to consumers, including at device and browser levels.
285 This includes visits to non-Google websites and apps that have serve ads using Google’s ad services(AdSense and AdMob).
286 We note that Google and Bing provide consumers who have accounts more granular controls over the use of
their data for personalised advertising but, in return, this requires the consumer to volunteer information in orderto create an account.
287 Facebook, Instagram, Pinterest, Snapchat, TikTok and Twitter.

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social media platforms make this a pre-condition of using their services andconsumers are unable to turn off personalised advertising (Box 4.5).
Box 4.5: Social media default settings for personalised advertising
Consumers must accept personalised advertising to access most social media
platforms we examined.
•

Facebook and Instagram users cannot turn off personalised advertising.
Consumers’ activity is used to personalise ads on Facebook and third-party
websites and apps. Device-based location settings and facial recognition isturned off by default.

•

On Snapchat, consumers are opted in by default to being shown ‘AudienceBased Ads’, ‘Activity-Based Ads’, and ‘Third-Party Ad Networks’.

•Twitter always uses information from consumers’ activity on the platform,
including the location where they signed up and current location, topersonalise the ads they see and their experience on the platform.

•

Pinterest uses information regarding a consumer which has been provided
by its partner organisations to personalise that consumer’s experience on
the platform, including to show them personalised ads.

•

By default, personalised ads are not shown to consumers on TikTok.
Consumers are prompted to review this setting the first time they use theapp.

Platforms’ granular controls
4.131 For Google and Bing, logged-in consumers volunteer additional information inorder to open an account, but also receive more granular controls over theuse of their data. For example, logged-in consumers can adjust the interests,
and in some cases demographic information, that the platforms assign tothem and which are used to tailor ads.
4.132 Social media users typically have no option other than to have their personal
data used for advertising in order to use the service. However, consumers dohave some controls over the more detailed use of their data.
•

On Facebook and Instagram, consumers can see what interest segments
they are placed in and manually switch these off, such as removing ads
based on a football team. Consumers can opt out of seeing ads on otherwebsites and apps that are based on their Facebook activity and are not183

shown ads based on data provided by Facebook’s partners but can opt in
via Facebook’s Ad Preferences. Device-based location settings and facialrecognition is turned off by default but can be turned on. 288•

On Snapchat, users can turn off ads based on information collected about
them on third-party services. 289•

Twitter users can adjust their settings to prevent Twitter from combining
their platform activity with personal information obtained by Twitter from its
partner organisations.

Other non-platform controls available to consumers
4.133 In addition to platform controls, consumers can control the use of their data inother ways – notably through the browser they use and their device. 290•

Mobile device / operating systems: Most mobile devices use either theApple iOS or Android operating systems (OS). Both provide consumers
with some options to control the collection of their data and its use for
personalised advertising.

•

Browsers: The most widely used web browsers allow consumers varying
amounts of control over the collection and use of their data, including forthe purposes of personalised advertising. For example, Chrome, the webbrowser developed by Google, which is generally the default browser for
Android devices, offers some of the same functions and privacy settings
as those available to consumers using Google’s products elsewhere (ifthe user chooses to sync Chrome with their Google Account).

288 As we note above, Facebook has also recently introduced an ‘Off-Facebook Activity’ tool.

289 These include: ‘Audience-Based’ ads, based on third-party advertisers’ audience lists; ‘Activity-Based’ ads ,based on consumers’ activities outside of Snapchat; and ‘Third-party Ad Networks’, where ad networks are sent
data by Snap on consumers which the ad networks then use to provide ad targeting and measurement for
Snapchat.
290 These issues are considered in more detail in Appendix G.

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•

Consent Management Platforms (CMPs): These are an advertising techtool which normally appears as a pop-up on a website at the point a
consumer visits it. Their primary purpose is to help publishers collect andmanage consumer consents via a menu interface, and to pass these on to
downstream advertisers and other ad tech intermediaries, to ensure
consent is secured for processing data in support of real time bidding(RTB). Compliant websites and apps need to obtain valid user consent
before setting cookies and triggering tags or pixels to send bid
requests. 291 Consumers are typically asked if they are willing to accept all
cookies or to adjust their settings (Figure 4.3). Many sites use the IAB
Transparency and Consent Framework (TCF) to collect and shareconsent. 292

Figure 4.3: Consent Management Platform

Screenshot: IAB

291 Consent must always be obtained before the controller starts processing personal data for which consent isneeded. See Article 29 Working Party, Guidelines on Consent under Regulation 2016/679, pp.17-18.
292 The TCF is a framework, developed by IAB Europe with the digital advertising industry, to help publishers,
technology vendors, agencies and advertisers meet GDPR and ePrivacy transparency and user choice
requirements, by collecting and transmitting signals of consent from an individual to third party vendors. Site andapp operators provide disclosures and seek consumers’ consents through a CMP and pass this through the
supply chain. IAB Europe maintains a list of registered and compliant CMPs and a Global Vendor List (GVL), of
all registered and approved third parties (‘Vendors’) participating in the TCF. IAB told us that TCF v2.0 enables
consumers to grant or withhold consent and exercise their ‘right to object’ to data being processed on the basis oflegitimate interest. In addition to signalling a user’s consent choices, the TCF will signal whether a vendor’s
legitimate interest has been disclosed and whether the user has exercised their right to object. We consider
CMPs in more detail in Appendix G.

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4.134 These controls can provide additional ways for consumers to address the useof their data. For example, the iOS and Android OS give controls to theirusers to let them decide about certain data deemed sensitive by the OS
permissions models, 293 such as location data.
4.135 Browsers have also taken measures to counter tracking for example, byallowing consumers to clear cookies. Apple and Mozilla have recently started
to block third party cookies by default for their Safari294 and Firefox 295
browsers respectively. Google has announced that it plans to phase out
support for third-party cookies for its Chrome browser within two years. 296 We
return to discuss this development and its possible impacts in Chapter 5.
4.136 However, there are limits on the controls provided to consumers even via
these routes. For instance, Facebook encourages publishers and advertisers
to implement its tracking Pixel using first-party cookies instead of third-party
cookies, which circumvents browsers blocking third-party cookies. 297
4.137 To take another example, mobile users are issued with a mobile advertising
ID (MAID) 298 which makes cookies unnecessary for mobile in-app advertising
and which consumers cannot remove. The controls are also ‘uneven’ acrossthe different mobile OS and devices – for instance, on iOS, the user canremove their IDFA (the MAID for iOS) by turning on ‘Limit Ad Tracking’.
Android gives the option to reset the AAID (the MAID for Android), but not toturn it off completely.
4.138 Furthermore, in Appendix G, we note some concerns we have about how
effectively CMPs may work for consumers. In particular, some of the choicearchitecture concerns we set out below are also likely to be relevant to CMPs
and thus the extent to which consumers engage and make informed decisions
about the use of their data for digital advertising.
4.139 Finally, the ways in which these different controls can interact is varied andcomplex, depending on device manufacturers and how developers have

293 Permissions models are provided to app developers by the iOS and Android OS and describe how thedeveloper should request user data from the device. Depending on the data the OS may require the app to getuser consent or just grant the permission automatically. Permission models are discussed in Appendix G.
294 WebKit, Intelligent Tracking Prevention (ITP). WebKit is the browser engine developed by Apple and primarily
used in its Safari browser. ITP also detects usages of first party cookies used in a third party context, as
discussed in Appendix G.
295 Mozilla, Enhanced Tracking Protection.
296 Chromium Blog, ‘Building a more private web: A path towards making third party cookies obsolete’
297 Digiday, WTF are Facebook’s first-party cookies for pixel?, October 2018.
298 Identifiers are pieces of data which help identify an individual, or their device. Advertising Identifiers, also
known as IDFAs on devices running Apple’s iOS and more widely as mobile advertising IDs (or MAIDs) are
unique and available to all mobile apps (without the need for asking the user’s permission) and advertisers orother third parties who embed code in those apps.

186designed their software. There is no ‘hierarchy’ in the sense that setting acontrol in one level necessarily overrides another. For instance, opting out of
personalised advertising in Android settings would not stop Facebook or otherapps accessing user data from the device. 299
4.140 In practice, there appears to be no clear way to use either device or browser
settings to prevent Facebook from personalising ads on Facebook:•

Blocking third-party cookies and switching off the MAIDs (in the case ofthe ‘Limit Ad Tracking’ setting on iOS mobile devices) does not affect thepersonalisation of ads on Facebook, regardless of browser or device. Thisis because Facebook uses first-party cookies and the fact that theconsumer is logged in to record their activity on Facebook’s properties,
and select personalised ads.

•

Furthermore, whilst blocking third-party cookies does disrupt Facebook’s
ability to track and use consumers’ off-Facebook activity for somewebsites (eg Facebook Audience Network websites and apps) topersonalise ads, for many other websites in practice the Facebook Pixel
can be implemented using first-party cookies – a feature which Facebook
introduced following recent moves by browsers to block third-party
cookies. Facebook told us this was ‘to maintain choice for third parties tobe able to share data with Facebook, similar data to which may otherwise
not be available from browsers blocking third-party cookies’.

4.141 On Android, apps pre-installed by the device manufacturer may write theirown custom permissions to access user data, and Facebook has done so as
discussed in Appendix G. However, custom permissions in pre-installedsoftware may circumvent the controls of Android’s permissions model. Device
manufacturers do not require Google's approval to add pre-installed softwarewith custom permissions.
4.142 There is some evidence that consumers engage with other controls, but still
only to a limited degree – for instance 17% of UK iOS10 users were reported
as having enabled its Limit Ad Tracking feature in its first month; 300 and more
recent research found that 30% of respondents said they used an ad blocker
in their browser most or all of the time, to stop organisations from being able
to target advertising to them. 301
4.143 Overall, we think the picture is complex for consumers, particularly when theyuse multiple devices and browsers. Consumers that do not wish to have their

299 Although Android asks apps not to use consumer data for personalised advertising in its Developer

Guidelines, it makes compliance with this the responsibility of the apps.
300 Adjust, 28 days later: What happened to Limit Ad Tracking?, October 2016.
301 DotEveryone (2020) People, Power and Technology: The 2020 Digital Attitudes Report.

187

data used for personalised advertising face a wide range of options, some ofwhich are unclear or do not work in the way they would expect, and that it is
not reasonable to expect them to navigate.
4.144 In Chapter 8, we consider some alternative consumer control mechanisms,
such as PETS and PIMS that may, in part, help consumers to manage theirdata across devices, browsers and platforms and address the complexity wehave identified.
Concerns with consumer control
4.145 We are concerned that some platforms do not give consumers any choice
about the use of their data for personalised advertising. That is, consumers
cannot use services without agreeing to the use of their data for personalised
advertising – there is no alternative option of being shown non-personalised
advertising. We are also concerned that, where platforms do offer a choice toconsumers, the way it is done is not transparent to consumers and has theeffect of promoting the interests of the platform. We set these out below andconsider the issue in more depth, with examples, in Appendix X.
Platforms that provide no control over receiving personalised advertising
4.146 We are concerned about requirements that mean consumers cannot use aservice at all without agreeing to the use of their data for personalised
advertising. This is a particular issue for social media platforms.
4.147 Potential users of social media typically have only one choice in relation towhether their data can be used to serve them personalised advertising – theycan either agree to this or they have to decide not to use social media at
all. 302
4.148 Only a small percentage of consumers are happy for online companies tocollect and use their data for personalised advertising 303 and there isextensive survey evidence that shows that consumers’ concerns about data
sharing are magnified when it is perceived to be happening without theconsumer’s consent. 304
4.149 Where platforms have achieved a ‘must-have’ position and have market
power, we think that consumers should have the option of not having to

302 TikTok prompts consumers to make a selection regarding personalised advertising during the sign-up

process.

303 Ofcom, Online Nation 2020.

304 Ipsos MORI Digital Footprints: Consumer concerns about privacy and security.

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receive personalised advertising. Platforms in this position would still be able
to serve contextualised advertising or to introduce additional or alternative
funding mechanisms, but consumers would have a range of options and so
could make a more informed decision about the trade-off between the value of
their privacy and the value of the service. 305
Platforms that provide some control over receiving personalised advertising
4.150 Where platforms do offer a choice to consumers, we are concerned that this is
not made sufficiently prominent to users. 306 Although the search engines wereviewed inform consumers that their services are supported by advertising,
the prominence of this information varied, with users having to actively want toknow about and to navigate to it.
4.151 A consumer visiting Google’s search page for the first time, and who is not
signed into an existing Google account, will see a prominent statement on
privacy, the ‘Privacy Reminder’, as well as less prominent privacy, terms andsettings links available on each page. The Privacy Reminder can temporarily
be ignored; postponed; or reviewed. Once a consumer engages with thePrivacy Reminder section, there is summary information about the processingof information by Google, why it is processed (including to ‘Deliver ads basedon your interests’) and a link to ‘Adjust the types of ads you see from Google’.
4.152 This immediate high-level information does not clearly state up front whattypes of personal information might be shared and that this will be used for
personalised advertising. Furthermore, the positive framing of the language
and choice architecture encourages acceptance and to set up an account,which although providing more functionality such as control over preferences,involves volunteering more information.
4.153 A consumer visiting Bing’s search page for the first time will see an initialcookie notice displayed. The notice is more prominent in mobile displays thanon desktop, but on both disappears without active engagement from theconsumer as the site is used. Consumers are able to access privacy
information via a menu button or a ‘Privacy and Cookies’ link available oneach page. Bing collects consumer’s information by default and, while acontrol to opt out of personalised Ads is provided, it does not seem likely that
consumers will know of its existence.

305 In the case of Google and other search engines, if a consumer chooses to opt-out of receiving personalised

advertising, they will continue to receive contextualised advertising. Google also suggests that the consumer may
see more adverts if they choose to opt-out of personalised advertising on Google Search.
306 We discuss this in more detail in Appendix K.

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4.154 Whilst there are some prompts, therefore, consumers will need to hunt to findand amend their settings. Again, it is our view that in these cases the lack ofeffective, upfront, control is likely to cause consumer harm – for instance interms of consumers sharing more data than they might otherwise have sharedbecause they are unaware of the nature of the exchange they are entering
into. 307
The use of ‘click wrap’ agreements and aggregating consents within a platform
4.155 We are also concerned about how some platforms can combine important
information and require consumers to agree to significant use of their data aspart of their initial use of the platform – in particular through the use of‘clickwrap’ agreements and consent which does not provide sufficiently
granular choices (inappropriately aggregating consent). We consider these inturn below.
•

The use of ‘clickwrap’ agreements

4.156 All of the social media platforms we looked at require consumers to accept‘clickwrap’ agreements’, which effectively make acceptance of the platform’s
terms implicit in the act of signing up.
4.157 Some platforms directly bundle together agreement to their Terms andConditions, Privacy Policy, Data Policy and Cookie Policy; whereas
Facebook-owned platforms state that by signing up the consumer has agreed
to their Terms, and they can ‘learn’ about the platform’s data and cookie
policies by clicking on separate links (see Figure 4.4). 308

307 Whilst our focus in this section is on the limitations placed on consumers’ up-front choices about whether to

use a platform given that it may involve the processing of their data, we also note that the issues we set out here
are also relevant more generally to our concerns about choice architecture in the next section.
308 Facebook told us that, unlike its Terms of Service, as its Data Policy is a privacy notice and relies on anumber of legal bases under the GDPR to process consumer data, and as the privacy policy is also not acontract, Facebook is not required to obtain consent from consumers to this policy, either on creation of an
account or following any changes to the policy once they had created an account.

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Figure 4.4: Clickwrap agreements

Source: screenshot, Facebook.

4.158 We are concerned that this practice does not give sufficient prominence to theterms consumers are signing up to. The practice is likely to enhance theimpact of not presenting any choice to consumers, by failing adequately toalert consumers that they are signing up to the use of their data. 309
4.159 The examples we looked at presented the existence of the terms theconsumer was signing up to in far smaller and fainter text than the prominent
buttons to ‘sign up’ that must be clicked to continue the process. 310 For
platforms which are either only accessible via a mobile app, or most likely tobe accessed via a consumer’s mobile device, it is even more unlikely aconsumer will read the relevant terms of service and privacy policies in full
before agreeing to sign up. For these platforms, a consumer would either
need to review the platform’s terms and privacy policy on the small screen of
their mobile device or access them via a separate laptop or desktop computerfor review there, whilst in the process of signing up.
4.160 We are also concerned that the effect of wrapping acceptance of terms into asign-up process may risk consumers overlooking the importance of what they
are agreeing to. At the point of sign-up, many consumers are likely to be

309 We also note that we have also concerns about how effectively the clickwrap agreements are presented. We

address our concerns about presentational practices in the section below on platforms’ choice architecture.
310 See Appendix K on the consumer journey; and Appendix Y on Fairness by Design.

191

focused on completing the process of registration so that they can quickly use
the service.
•

Aggregating consents within a platform

4.161 As part of their registration process, some platforms require consumers toagree to the use of their data across other parts of their business. For
example, Google and Microsoft aggregate consents across all their services
should a consumer choose to sign up to one of their individual services. Bothcompanies confirm in their privacy policies that they combine data across theirservices and products.
4.162 Figure 4.5 is a screenshot of Google’s Privacy and Terms, displayed during
the sign-up process via a mobile device. This sets out that Google will
combine consumers’ data among its services and across their devices for the
purposes described.
Figure 4.5: Google’s Privacy and Terms as viewed on a mobile device

Source: Screenshot of Google’s sign-up process captured on a mobile device.

4.163 Similarly, Facebook allows consumers with an existing account for one of its
products to log in and use this account on another of its products (forinstance, a Facebook account holder can use their existing account details toaccess Instagram). Facebook’s same terms of service, data and cookie
192

policies apply for all of their products however some actions, such as the
management of a consumer’s ad preferences, can only be conducted in the
primary Facebook product, Facebook.com.
•

The impact of ‘clickwrap’ agreements and aggregated consent

4.164 We acknowledge that there can be benefits for consumers in being able toexercise control only once and have their preference adopted across theplatform or a number of the platform’s businesses. Essentially, this reduces
hassle costs, and can therefore reduce overall ‘consent fatigue’ (ie theannoyance at having to click on multiple consents in order to access a productor service). We are concerned however that this is only beneficial if:•

it is clear to the consumer how their data will be used (ie the way in which
the sign-up is presented makes it very clear what the consumer isagreeing to); and•consumers also have granular controls so they can choose to not havetheir data used for some parts of the platform’s business if they so wish
and are made aware of any consequences.

4.165 The use of clickwrap agreements and aggregated consent without the optionof using granular controls is likely to mean that consumers do not engage inconsideration of the terms and other requirements they are signing up towhen they register. For instance, in the case of Pinterest, consumers are
simultaneously signing up to three sets of policies (with a combined length of
8,500 words).
4.166 These issues are common across platforms, but are a particular concern for
informed consumer decision-making at the point of first contact – in effectmagnifying the concerns we have in relation to requirements for consumers toaccept personalised advertising if they wish to use the service; or primarydefaults that mean consumers are likely simply to accept personalised
advertising. Consumers may as a result use a platform that they might nototherwise have used; and share more data than they might otherwise haveshared or share information that does not align with their preferences.
4.167 In relation to the question of ‘aggregated’ consents, aggregating theprocessing to which a consumer consents needs to be deployed in a way thatallows sufficiently granular control over the purposes for which their data isused. Where data will be used for several purposes the consumer should be
able to consent to some but not others. In Chapter 8, we return to the issue of
how to give effective control to consumers, by balancing the need for specific,
informed and granular consent, against the risk of consent fatigue.
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Platforms’ choice architecture
4.168 It is important that consumers are not put off from engaging in decisions about
the use of their data and that, for those consumers who would like to engage
actively, they are able to access and understand information easily and face
low transaction burdens in the course of their engagement.
4.169 As we note above, however, there is a considerable incentive for platforms tomaximise the number of users and the volume of data collected from them.
We are concerned that platforms’ wider choice architecture encourages
consumers to agree to the use of their data for personalised advertising, byeffectively inhibiting informed choice – through poor accessibility and clarity,
unbalanced presentation and barriers to consumer action.
Consumer behaviour
4.170 Making decisions about privacy settings in the online world is likely to be
subject to the same sorts of behavioural biases as are present in the offline
environment. However, the online environment may exacerbate the impact of
behavioural biases because consumers have to deal with more informationand face more decisions. Consumers can find it hard to process substantial
volumes of information; be sensitive to how information is presented orframed; and find it difficult to enact their intentions. Consumers naturally andunconsciously tend to rely on heuristics (mental shortcuts) to process
information quickly but with the risk that they reach the wrong conclusions.
4.171 More specifically, academic research has identified a range of consumer
behavioural biases that can impact on consumers’ decision-making in an
online context. These include consumers’ inclination to stick with default
settings that are presented to them (status quo bias); and tendency to focus
more on the near-term implications of their decisions and discount the longterm implications (myopia). 311
4.172 Putting aside choice architecture, therefore, natural consumer biases andbehaviours are likely to mean that many consumers do not engage in thecontrol of their data – to the advantage of the platforms.

311 Appendix L and Appendix Y consider the academic literature on behavioural biases and their implications forchoice architecture respectively.

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Choice architecture and consumer engagement
4.173 Choice architecture can be designed to help mitigate and overcome
consumers’ natural biases by providing clear, balanced information andchoices as well as smooth processes. However, we have found that theplatforms’ choice architectures are instead more likely to exacerbate biases.
We consider this below, as well as the consumer harms that can arise. 312
4.174 As we note above, academic literature has identified how choice architecture
design may affect human decision-making. Some examples of these include:•

Defaults – when one option within a choice setting is pre-selected,
consumers tend to stick to the pre-selected option. This is most strongly
observed when an option is pre-selected or opted in for a user and thenimplemented by a platform.

•

Framing – when information is framed in a certain way (eg personalised
advertising is framed as relevant advertising), consumers interpret the
information in the context of how it is framed, and not purely on thepresented facts.

4.175 While examples of how choice architecture can affect engagement are
numerous and evolving, they can all be evidentially grounded in theoverarching finding that it can influence people because it interacts with how
people naturally process information and especially with their naturally
occurring biases. 313
4.176 We consider that, overall, the choice architectures adopted by the platforms
we have addressed in this market study can have the effect of restricting
active, informed engagement to levels below what we would expect given theevidence that consumers value having control. Table 4.3 offers examples ofoverarching categories of choice architecture observed on platforms andspecific illustrations of these categories.

312 It is important to note that choice architecture is not only relevant to consumers who use platforms, but also

other users. In Chapter 5 we note how business users of the advertising self-service tools provided by the main
platforms we have considered in our study can also be influenced by how information and options are presented.
For further discussion of the choice architecture of Google and Facebook’s advertising interfaces and views
expressed by advertisers, see Appendix N.
313 Appendix Y explains in more detail how choice architecture interacts with consumers’ biases andsubsequently affects their engagement.

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Table 4.3: Examples of platform choice architecture and consumer behaviour
Platforms’ choice architecture

The likely effect on
consumers

Platforms may present more
information on privacy than othertopics.

The volume of information
can exceed consumers’abilities to filter out what isrelevant.
When making a choice,consumers are likely to be
influenced by frames /presentation.

Platforms frame / present
information about personalised
advertising that has the effect ofsteering consumers towards
specific interpretations of theinformation.
Platforms’ design may have theeffect of focusing the consumer’s
attention on immediate benefits
and discounts the futureconsequences of data sharing.
Source: CMA analysis

This may encourage
consumers to be myopic: ievalue immediate.
consequences much morethan future ones.

Examples of choicearchitecture that may restrict
consumers’ engagement• Privacy settings that incorporate
non-essential information• Long and dense Terms andConditions, in multiple locations.
• Personalised advertising is
described as ‘relevant’ whilst
contextual advertising is not.

• Attention is directed towards
direct benefits.
• Consequences are indirect andintangible to the average user.

4.177 We have also considered how platforms’ choice architecture may have theeffect of hindering consumer engagement in a way that in part helps to
explain the ‘privacy paradox’ referred to above. Overall, as we set out below,
we have found that there are numerous potential ways by which platforms
may effectively hinder consumers’ engagement and ability to take control of
their data. We consider these specific choice architecture features and thepotential consumer harms that may arise below. Further information can befound in Appendix Y.
••

Lack of accessibility and clarity:oRequiring consumers to navigate a complex route to find information
about the use of their data and the ability to change their settings;oProviding consumers with complex sets of options and controls;oPresenting long, complex privacy policies and terms, which
consumers are unlikely to read; andoUsing unclear language and links that do not match reasonable
expectations.

Lack of balance:oProviding limited up-front explanations of their use of consumers’
personal data to serve them with personalised advertising;oPresenting information and choices in ways that could ‘nudge’consumers to make decisions favourable to the platforms;

196

•

o

Setting defaults that are more likely to benefit the platform than the
consumer, and which most consumers are unlikely to change; 314 andoUsing language that focuses on the benefits; and phrasing that may
nudge consumers in a particular direction.

Lack of consistency and not enabling consumer choice:oProviding insufficient opportunities to review choices and withdraw
consent; andoDesigns that can encourage consumers to revert to agreeing topersonalised ads.

Lack of accessibility
4.178 Lack of accessibility refers to where the platforms’ choice architecture makes
it difficult for consumers to access relevant information and options regarding
personalised advertising. In general, accessibility of information and options isparticularly affected by factors such as their volume and complexity, as well
as lower prominence. We set these out below, and we consider the issue inmore depth, with examples, in Appendix Y.
Complex navigation
4.179 For consumers to engage with the privacy settings that platforms provide theyneed to be able to locate them easily. We found that this was morestraightforward with search engines than social media platforms, although theformat varied according to the device. 315
4.180 For example, all social media platforms that we reviewed purported to provide
consumers with easy access to their privacy settings, but we found that it was
not obvious how to access these settings and the settings themselves might
only be visible after navigating through multiple menus.
4.181 A recent survey found that most consumers reported that they did not find it
easy to access and change the personal information held by businesses, 316
and that a feeling of a lack of control arose out of difficulty with navigating to
the choices available and exercising them.

314 Using defaults, and the way in which they are presented, can also be relevant to our concerns about

accessibility and not enabling effective consumer choice.
315 Bing included a privacy option in a top-of-the-screen menu on mobile and desktop, while Google did this only
on mobile.
316 Information Commissioner’s Office (2019). Information rights strategic plan: Trust and confidence.

197

4.182 The effect of navigation towards privacy settings and the selection ofalternative options to the default being a multi-stepped and partiallyobfuscated process is likely to mean fewer consumers engage with thesettings and as a result some may share more data than they might otherwise
have shared.
Complex options and controls in multiple locations
4.183 On some platforms we examined, consumers are presented with a large
number of options in relation to their privacy settings – sometimes in multiple
locations.
4.184 For example, Google told us that consumers can ‘access privacy settings in a
number of ways, including via Google Account (available in the header of
Google services), Privacy Checkup, My Activity, Activity Controls or via
product-specific settings’. We found that ‘Privacy Checkup’ provides settings
across five themes, with around 15 options in total. Bing’s ‘Privacy
Dashboard’ offers 10 areas where consumers can express a choice in relation
to data processing with a further eight options provided on other settings.
4.185 Firms need to comply with data protection requirements, but it is important to
get the balance right so that consumers are empowered. Presenting multiple
options can overwhelm consumers’ abilities to process information, filter out
what is relevant and assess large numbers of choices. There is a risk thatusers are put off from engaging in the options presented, with the effect thatthey leave settings as they are. As we note below, these default settings may
not always reflect consumers’ actual preferences and mean that they share
more data than they might otherwise want to.
Length and complexity of Privacy Policies and Terms and Conditions
4.186 As we note above, from the evidence available to us, it is clear that few
consumers engage with privacy policies on sign-up to platforms. We consider
the same is likely to be true for consumer engagement with terms andconditions. As well as ease of access to this information, a critical factor is
likely to be the length and format of these documents.
4.187 As demonstrated by Table 4.4, we found that platforms’ terms and conditions
were long and typically located in several places. Bing had the longest set ofterms and conditions, totalling 19,200 words, in two separate places on its
platform.

198

Table 4.4: Overview of social media platforms’ terms of service and privacy/data policies
Social Media
Terms/policies visible
on front/main page?
Approx. length in
Words
Flesch reading easescore 323
Clickwrap

SearchFacebook

Snapchat

Twitter

Instagram

GoogleBing

Duck
DuckGo

Yes

Yes

Yes

Yes

Yes

Yes

No 317

10,100 in
3 parts

8,200 in 2
parts 318

11,300 in 3
parts

9,100 in 3
parts 319

8,100 320

19,200 in 2
parts 321

2,200 322

44.1(‘Difficult toread’)

48.7(‘Difficult toread’)

38.7(‘Difficult toread’)

41.6(‘Difficult toread’)

44.1(‘Difficult toread’)

41.8(‘Difficult toread’)

Yes

Yes

Yes

Yes

No 324, 325

Yes 326, 327

58.6(‘Fairly
difficult toread’)
N/A 328

Source: CMA analysis.

4.188 All of the platforms we examined had terms of services and privacy/data
policies that were 'difficult to read’ in terms of the widely-used Flesch readingease test, with one exception that was ‘fairly difficult to read’.
4.189 Faced with this level of text on multiple platforms that may be used every day,it is not surprising that consumer engagement with privacy policies is low. A
consistent finding in many surveys is that only a minority of consumers claim
always to read privacy policies and academic research has shown that very
few consumers read privacy policies when signing up to an online service.
Unclear language and presentation
4.190 We found examples of language that could be considered hard to read,
unclear and ambiguous, and which in some circumstances could lead
consumers to draw erroneous conclusions and make decisions they might nototherwise make.

317 On desktops this is behind a pop-up encouraging the download of DuckDuckGo to Chrome.

318 Snap Inc. updated its Terms of Service and Privacy Policy, with effect from 30 October 2019.

319 Instagram shares Facebook’s Data Policy but has its own Terms of Service and Platform Policy.
320 Google includes four short videos in their Privacy page and an alternative pdf page.

321 The Bing figure is based on the most relevant parts of Microsoft’s 32,000-word privacy and cookie statement(excluding products other than Bing) plus the 15,000-word legal statement.
322 The DuckDuckGo (DDG) figure is not directly comparable: the 2,100 words are in its Privacy statement but
much of this is commentary on how Search works and how it does not collect information that others do.
323 We calculated the Flesch reading-ease scores for each of the platforms’ policies by importing their text into
Microsoft Word and using the ‘Readability Statistics’ tool. The Flesch scale ranges from 0.0 to 100.00 and isdivided into seven bands each assigned a (US educational system equivalent) level of education that is typicallyrequired to understand the material. For example, material scoring 90.00 to 100.00 is described as ‘very easy toread’ and easily understandable by an average 5th grade (11-year-old school pupil), whilst material scoring 0.0 to
30.0 is described as ‘very difficult to read’ and most likely to be understandable only by university graduates.
324 The Google signup process breaks out permissions beyond a single ‘accept and use’ approach.
325 Google can be used without creating an account, which would not involve a clickwrap agreement.
326 Creation of a Microsoft account includes a clickwrap agreement to Privacy and cookies statement andServices Agreement. Bing displays a Browsewrap agreement for cookies for non-logged in use.
327 Note that Bing can be used without creating an account, which would not involve a clickwrap agreement.
328 It is not possible to create a DDG account so there are no terms to agree.

199

4.191 Unclear language and presentation as well as lengthy and complex terms andpolicies, could have implications for vulnerable consumers who may be lesslikely to engage or find it harder to engage with complex navigation andinformation than others; and may be more susceptible to techniques which
nudge them.
4.192 As noted above, by the age of 15 almost all children have a social media
profile; 329 as do one in five people aged 75 or over. 330 Furthermore, Ofcom
reported in 2019 that although most social media sites including Facebook,
Twitter, Instagram and Snapchat have a minimum age requirement of 13,
21% of 10-year-olds and 34% of 11-year-olds say they have a profile. 331
Unclear links
4.193 We found examples where links did not clearly indicate the nature of thecontent they linked to. For example:•

Facebook’s Settings webpage, which itself can only be reached via amenu whose location is not prominently displayed, contains multiple links
to other areas of the website at the bottom of the page. These include alink entitled ‘Privacy’ which, when clicked, directs consumers toFacebook’s Data Policy, an extremely long and dense document
describing the information processed by Facebook’s products, rather thanFacebook’s consumer controllable privacy settings.

•

Options in Snapchat’s Settings within its app are numerous and it may not
be clear to consumers where certain controls are located within this. For
example, controls relating to consumers’ preferences regarding
advertising are located via the ‘Manage’ button in the Additional Services
section of the Settings menu.

Lack of balance
4.194 Even if consumers are able to access information and options, the platforms’
choice architecture may still make it difficult for them to process and assess
the information independently without being unduly influenced. In particular,
how information is presented and framed can sway how consumers interpret
it. We set these out below and consider the issue in more depth, with
examples, in Appendix Y.

329 Ofcom, Children and parents: Media use and attitudes report 2019, February 2020.
330 Ofcom, Adults’ Media Use and Attitudes Report 2020.
331 Ofcom, Online Nation 2019.

200

Limited up-front explanations
4.195 Ofcom research shows that only just over half (53%) of adults are aware thatthe major search engines offer their services at no monetary cost because
they gain consumers’ attention and data, 332 to monetise by selling advertising.
4.196 We found that most platforms promoted the benefits of their service, rather
than the nature of the exchange between the platform and the consumer.
While information about the funding relationship could be found, it was notpresented prominently to casual users of platforms and only rarely referred toas part of the account creation process.
4.197 Although platforms do provide explanations of how they are funded, thesetypically require consumers to click on relevant links (that do not themselves
prominently explain that they address how the platform is funded). Few
consumers click on such links. Consumers are therefore only likely to
encounter this information if they actively look for it or ‘stumble’ across it. As aresult, it is likely that at least some consumers sign up to platforms and sharedata when they might not otherwise have done so had they been informed of
the consequences.
’Nudge’ techniques
4.198 ‘Nudge techniques’ are another example of choice architecture that may sway
how consumers behave. It is well documented that platforms can have choicearchitecture that has the effect of giving some options more emphasis thanothers.
4.199 We have identified instances where consumers may be ‘nudged’ to makeparticular decisions. For example, Google’s Android sign up uses a blue
button which is visually more prominent than any other buttons or links (suchas to Privacy or Terms) and thus likely to encourage the consumer to click‘next’ rather than consider privacy policy and terms. This is illustrated in
Figure 4.6 below.

332 Ofcom, Adults’ Media Literacy research (2019).

201

Figure 4.6: Screenshot of Google’s Android sign-up process

Source: screenshot, Google.

4.200 Platforms may not be the only part of a consumers’ journey where they may
be nudged into sharing data. Some qualitative features of the CMPs we
examined also appeared to be designed to encourage consumers to makechoices which may not reflect their actual preferences. For example, as wenote in Appendix G, several CMPs allow the size and/or prominence of an‘accept all’ button to be significantly greater than an equivalent ‘reject all’button.
4.201 Authorities have undertaken work in this sector. For instance the ICO’s Age
Appropriate Design Code, which is awaiting Parliamentary approval, is astatutory code of practice setting out standards for age appropriate design of
online services which are likely to be accessed by children in the UK. 333 The
code includes a standard that firms should not use nudge techniques to leador encourage children to provide unnecessary personal data or turn off
privacy protections. It provides examples, such as in Figure 4.7, and statesthat using techniques based on the exploitation of human psychological bias
in this way goes against the ‘fairness’ and ‘transparency’ provisions of the
GDPR as well as the child specific considerations set out in Recital 38.

333 See: ICO, Age Appropriate Design: A code of practice for online services, 2019.

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Figure 4.7: Example of a ‘nudge’ technique

Source: ICO.

Language that may ‘nudge’ consumers
4.202 We have seen evidence that platforms use language that promotes thebenefits of using them and may prompt users to make specific choices thatare likely to be beneficial to the platform. For example:•

Google’s Privacy Reminder, which summarises what consumer data
Google processes and why, utilises noticeably positive language todescribe these processes before providing consumers links to some of
the controls available to them. For example, the first four of the fivereasons Google gives for processing consumer data are all presented as
beneficial to consumers. 334•

Facebook’s ad settings in its ad preferences menu use more positive
language to frame the consumer selections which involve sharing andpermitting the use of a greater amount of their personal data. For thesetting regarding ‘Ads based on data from partners’, Facebook states that‘to show you better ads, we [will] use data that advertisers and otherpartners provide us about your activity off Facebook Company Products’,
if consumers allow this.

4.203 We have also seen examples of how platforms can present information in
ways that may dissuade consumers from making choices that could mean
they share less information. For instance, Google presents a warning to users
before they proceed with turning off personalised advertising that employs
negative language – including a warning that they will ‘still see ads, but they’ll
be less useful’, and they ‘may see more ads’. The warning does not include a

334 In summary, these are: to help Google’s services deliver more useful and customised content; improve thequality of Google’s services; deliver adverts based on consumers’ interests; and improve security by protecting
against fraud.

203

direct reference to the platform no longer using the consumer’s data foradvertising, which some users could consider a positive benefit.
The use of defaults
4.204 We found many examples of platforms setting defaults that will primarily workin the interests of the platform. For instance:•

Bing collects consumers’ information by default and, while a control to opt
out of personalised ads is provided, it does not seem likely that
consumers will know of its existence.

•

In Snapchat’s ‘Advert Preferences’ section of a consumer’s settings,
users are opted in by default to being shown ‘Audience-Based Ads’,‘Activity-Based Ads’, and ‘Third-Party Ad Networks’.

•Twitter enables personalised ads for consumers using the platform for the
first time by default. Consumers must visit Twitter's 'Personalization anddata' settings and make an active choice to adjust these.

4.205 There is a general recognition that consumers’ ‘status quo bias’ means that
individuals generally stick with the default choices they are presented with.
From a policy perspective, this bias can be used for beneficial purposes, 335
but studies have also suggested that firms may exploit it so that consumers
make decisions they might not make with fuller consideration – including in
relation to their privacy. 336 There is also some evidence that users may
assume that default settings are configured to protect them and so do notreview the actual settings. 337
4.206 The evidence above suggests that consumer engagement is very low atregistration, which means that most consumers accept the default settings
which are likely to be set to favour the platforms.
Not enabling or respecting consumer choices
4.207 These examples reflect where platforms’ choice architecture may have theeffect of making it harder for consumers who want to engage with the privacy
settings to actually do so and to do so consistently. In general, consumers’ability to act upon their intentions may be inhibited through friction, and where

335 For example, the Behavioural Insights Team report that the change in pensions defaults, from opt-in to an optout system, has led to 10 million people in the UK newly saving for retirement – see Nudge 2.0 blog, April 2019.
336 Goldstein et al (2008)
337 Leon et al (2012) used a lab experiment to study how well users were able to make use of tools to control data
sharing. As part of that study they found that a number of participants assumed that the default configurations of
those tools were designed to protect them without reviewing the settings.

204consumers may be encouraged to revisit and amend settings in ways that
may not meet their original and ongoing preferences. We set these out below
and consider the issue in more depth, with examples, in Appendix Y.
Limiting or hindering consumer review and consent withdrawal
4.208 We found that, based on the platforms we reviewed, search engines provided
more prompts and reminders to users that they could adjust their settings than
did social media platforms. Both Google and Microsoft have procedures for
consumers to delete their accounts and download their data, although for
Google it takes a minimum of 5 clicks to reach the relevant page and 3 clicks
to enact the decision to delete; and 7 and 13 clicks respectively for Bing.
4.209 Furthermore, as we note above, the level of consumer engagement with toolsthat enable them to disable search and location history is very low. During thesign-up process (a time when consumers might be expected to engage with
their settings) none of the social media platforms we reviewed prompted
consumers to engage properly with their privacy settings, beyond providing alink to their respective polices. They often however prompted consumers toprovide additional personal information to the platforms.
4.210 As we note earlier in this Chapter, where consent is the legal basis, it should
be as easy for consumers to withdraw their agreement to the specificprocessing of their personal data as it is to give it. 338 However, as we note
above, navigation can be complex and unclear. In our view, platforms could
do more to prompt users’ review of their settings and enable them to vary
what they consent to. Where consumers are hindered in their ability to vary
their consent, many will through inertia stick with the status quo. This meansthat some may continue to use platforms and share data when they might nototherwise do so.
Designs that can encourage consumers to revert to agreeing to personalised ads
4.211 We also identified examples where after consumers have made choices inrelation to their privacy settings, they are prompted potentially to reverse
them, or the timescales for how long their choices are maintained is unclear.
4.212 For example, Google asks an Android user to turn on Location History on anumber of instances, even after they have made their choice. This includes
when the consumer is setting up the Android device, when using Google
maps and when accessing photos. Every instance of the request lists the338 As explained in Appendix A, consent is a defined term in the GDPR (Art. 4 (11)), with further provision madethroughout the GDPR for example Art.7 ‘Conditions for consent’.

205benefits of turning this function on, but does not explicitly state that the datacollection may be used for personalised advertising, unless the consumer
chooses to click on a small arrow to see further details. Conversely, we did
not observe similar prompts asking whether users wish to turn off Location
History when it is on and noting that their data may be being used for
personalised advertising.
Examples of better practice4.213 We have heard from platforms that they work hard to ensure their services areeasy to use and consumers are clear about what data they collect and thecontrols available. For example, Facebook emphasised that their terms andconditions have ‘been specifically designed to be clear’. 339 As recommended
by the EDPB, they said they adopted a layered approach to their terms andconditions. Google also noted that they used ‘clear, plain language’ in theirterms and conditions explanatory videos and infographics, and periodicallyreminded consumers that they could undertake a privacy check-up. 340
4.214 We accept that it can be difficult for platforms to communicate a large amountof complex information to consumers, although we have seen some elementsof better practice where platforms for instance present content in a visual aswell as text format and use plain language. For instance, in our interim report,
we noted that Google’s ‘Privacy Reminder’ is prominent and provides
information in short summaries with links to further detail. TikTok prompts
consumers to make a selection regarding personalised advertising during thesign-up process, however they can complete the process without doing so
and personalised advertising will remain switched off by default if so.
4.215 And we have seen some evidence of improvements following research byplatforms – for instance, Google added a button to promote the accountsettings and other options when research participants responded in 2015 thatthey felt they only had the option to agree.
4.216 However, overall, we consider that platforms could do more to enableeffective consumer engagement and we return to this point in Chapter 8.
Summary of our assessment of choice architecture
4.217 Even where they are given a choice about the use of their data for
personalised advertising, consumers are only able to judge whether they arecontent to share their data if they are provided with clear and fairly presented

339 Facebook’s response to the Statement of Scope, para 6.6.
340 Google’s response to our Statement of Scope, page 15.

206information and options about the implications for them. Moreover, they can
only truly make an informed choice if they can act on their preferences andwithhold or share data as they wish.
4.218 Platforms are incentivised to maximise the use of consumer data foradvertising. Consumers are often time poor and have natural behaviouralbiases that are likely to limit their engagement. Our study has found that
platforms also do not give consumers the right information in a consumerfriendly way and frequently have platform designs that are likely to impede
consumer engagement and favour the collection and use of data foradvertising.
4.219 We are therefore concerned that platforms’ choice architecture can have theeffect of inhibiting effective consumer engagement rather than assisting it – sothat some consumers are likely to share more data than they might otherwise
wish to.
4.220 Some of the designs we have identified could be expected to have particularimpacts on the vulnerable, who may find it harder to engage or process
information. Furthermore, in some circumstances, such as the current COVID19 pandemic, people may be particularly reliant on services such as social
media and thus be more likely to be affected by the issues we have identified.
Evidence of trialling and testing choice architecture
4.221 We expressed surprise in our interim report over how little trialling and testing
was carried out by platforms in relation to consumer control over data and useof privacy settings. This was in contrast to the very extensive trialling done ona daily basis in other parts of the business. 341 For example, in 2019 Google
ran over 464,000 experiments when looking to make improvements to Google
Search. 342
4.222 Further CMA requests for information and discussions with platforms haveindicated that some do carry out more research than the initial evidence
provided to us. Various parties have now submitted evidence of the use ofdifferent types of user research, including moderated usability testing,contextual research and A/B testing. 343
4.223 We note that the findings of research carried out by Google echoed thefindings from our review of the consumer survey and academic research.

341 Para 6.117 CMA Online platforms and digital advertising: Market study interim report.
342 How Google Search Works.

343 A/B tests are randomised control trials of alternative design patterns in the live platform.

207

Google found that in navigating Privacy Policies generally, users faced issues
such as: complex and ambiguous language; difficulty in knowing what mattersand navigating there; no clear incentive to read; and, perception of power
asymmetry.
4.224 It is also notable from this evidence that what users want from platforms onthese issues is consistent with the concerns we have set out above. The
following common themes emerge from platforms' own research findings
provided to us:•

Clarity: Users often reported the importance of having clarity when being
asked to make decisions. Having opt-out options upfront on main pages
rather than in later pages further down the user journey would also aid
users. Further, platforms’ own research acknowledges privacy controls
can be complex for users.

•

Transparency: platforms' own research identified a need for transparency
on default settings and that ideally, they should be presented upfront inany sign up or reminder process. The need for transparency in how
personal data would be shared with third parties and vice-versa in
exchange for platform access was also reported. Users were sometimes
surprised and concerned when they discovered in usability studies that
this was happening without their knowledge.

•

Choice: research indicates that including more granular levels of choice
when presenting data sharing options could lead to a more informed
choice by users. Users were critical when only one choice 'I agree' wasobvious in specific designs of platform access pages. Further, asking
consumers to make an active opt-in choice, for example on data retention
settings, encouraged them to 'stop and think' about their privacy and led
to increased engagement.

•

Control: wider contextual research provided by the platforms reported that
consumers value having control over their data even more than datatransparency – although both were important. Examples from usability
testing on some platforms re-enforced this, with certain user groups
seeing control over their privacy as a major part of feeling safe on theplatform.

4.225 Even though platforms have provided more evidence of the extent of thetrialling and testing that they carry out, we do note some limitations of thisresearch. For instance, in the submitted research studies, sampling appears
to be generally focussed towards frequent users and more ‘tech savvy’consumers, as opposed to attempts to research more representative or208

inclusive samples. We also note that research objectives are not always
clearly defined and commercial goals (eg brand perception) can be conflatedwith other objectives.
4.226 It is not clear the extent to which the findings of the research then translate
into changes to privacy policies or privacy controls / settings but there arecertainly some examples where platforms have clearly responded to researchfindings. We note that some platforms have started to put more emphasis onwhat would be in the interests of consumers and to develop user focusedpolicies and settings.
4.227 Our findings on the evidence of trialling and testing is set out in more detail in
Appendix Y dealing with the Fairness by Design Duty remedy.

Conclusions
4.228 It is particularly important that platforms give consumers the opportunity, if
they want it, to make informed choices about whether to allow their personal
data to be used for advertising. Survey evidence is clear that consumers want
to be able to control the use of their data and that they feel that they lack thiscontrol.
4.229 We recognise that, if consumers want high quality content and services
without paying money directly for them, platforms need to be able to generate
revenue, such as through advertising, and that the use of consumers’ data
can increase the value of this advertising. However, consumers should be incontrol of how their data is used.
4.230 Some platforms do not allow consumers to turn off personalised advertising at
all. For these consumers there is no choice but to provide their personal data
for advertising if they wish to use the service. Even where they are given a
choice about the use of their data, consumers are only able to judge whether
they are content to share their data if they are provided with clear and fairly
presented information and options about the implications for them. Moreover,they can only truly make an informed choice if they can act on theirpreferences and withhold or share data as they wish.
4.231 Because personalised advertising is an important revenue stream for theseplatforms, there is a considerable incentive for them to maximise the volumeof data they collect from their users by limiting consumer engagement andcontrol.
4.232 This market study has found that platforms do not give consumers the rightinformation in a consumer-friendly way and frequently rely on choice209architecture that is likely to impede consumer engagement and which favour
the collection and use of data for advertising.
4.233 In addition, consumers tend to behave in ways that the platforms can turn totheir advantage. In particular, consumers are often ‘time-poor’ and havenatural behavioural biases that affect their decision making. The largest
platforms have therefore effectively taken control of consumers’ data on theirbehalf – through requirements that users share their data to be able to accessthe service; and platform designs that nudge consumers to share theirpersonal information.
4.234 We consider that the low levels of actual consumer engagement reflect to agreat extent the limitations and choice architecture put in place by platforms;
and thus contrast with the clear survey findings that consumers want tocontrol how their data is used. As a result, we think that many consumers may
use services and share more data than they might otherwise have decided to.
4.235 More indirectly, because of the incumbents’ market power, consumers may
not experience the benefits of competition; and may have lower trust generally
in the internet and service providers. These harms may be magnified for more
vulnerable consumers.
4.236 In Chapter 8, we set out how we propose that this situation be remedied, witha number of practical interventions that the proposed Digital Market Unit could
implement.

210

5.

Competition in digital advertising•

Google and Facebook monetise their user-facing services by selling digitaladvertising. As a result of their scale and unique position in search anddisplay advertising they have market power, earning significant revenues andreinforcing their market power on the user side. This makes it very difficult for
platforms offering innovative new services to enter and compete. Lack ofcompetition in digital advertising can result in substantial detriment to
consumers, through increasing the price of goods and services across the
economy, and through undermining the sustainability of news media.

•

Google has significant market power in search advertising. It accounts forover 90% of search advertising revenues and faces limited competitive
constraints from other forms of advertising. Its rivals face significant barriers
to attracting advertisers, in addition to the barriers on the consumer side.
Google’s market power has allowed it to charge higher prices to advertisers
than its competitors. On a like-for-like basis, Google’s prices are on average[30-40]% higher on desktop and [30-40]% higher on mobile than those of
Bing.

•

Facebook has significant market power in display advertising. It accounts forover half of display advertising revenues and is seen as a ‘must have’platform for many advertisers because of its reach. It has a significant dataadvantage over smaller platforms and publishers, which both increases thevalue of its advertising inventory and creates additional barriers for its
competitors to overcome. This has allowed Facebook to earn significantly
higher revenues per user than its competitors, increasing from an average of[£0-5] in 2011 to £[50-60] in 2019.

•

Online publishers such as newspapers sell their inventory through the open
display advertising market. This market relies on a complex chain ofintermediaries to auction advertising in real time. Google holds a strong
position at each stage of the intermediation chain, particularly as a publisher
ad server. In acting simultaneously on behalf of publishers and advertisers,
Google faces strong conflicts of interest. It has been able to leverage themarket power from its owned-and-operated advertising inventory into theopen display market and within the ad tech stack, making it harder for thirdparty intermediaries to compete.

•

Advertisers and publishers face a lack of transparency over key aspects ofmarket functioning, including the quality and effectiveness of advertising, theway auctions are carried out and prices determined, and the remuneration ofintermediaries. We estimate that intermediaries capture, on average, at least
35% of the value of advertising bought through the open display channel;
greater competition and transparency would put downward pressure on thesefees and help ensure that publishers can get a better deal.

211

Introduction
5.1

This chapter sets out our analysis of competition in the digital advertisingmarket. Digital advertising plays a crucial role in funding online content – notjust for large platforms such as Google and Facebook, but also for smaller
publishers such as news websites and app providers. Competition in digitaladvertising matters because it can drive down costs to advertisers, and hence
final consumers, and enable platforms and publishers to use advertising tofund the services that consumers value.

5.2

Google and Facebook between them accounted for around 80% of total UK
digital advertising revenues in 2019. In part this reflects their scale in user sidemarkets – search and social media respectively, as outlined in Chapter 3. The
more user attention a platform or publisher has, the more advertising it will beable to show, and the more revenue it will earn.

5.3

However, Google and Facebook’s collective share of digital advertising
revenues is significantly greater than the share of time spent by users onthese platforms, suggesting that their ability to monetise through advertising is
not simply a function of scale. This chapter shows how a lack of competition indigital advertising, combined with other features of the market including lack oftransparency and the role of data, creates an ability for Google and Facebook
to exercise market power and leads to worse outcomes for advertisers andpublishers.

5.4

The remainder of the chapter sets out our research and findings in relation to:•

key characteristics of digital advertising markets, including how
advertisers buy advertising and how advertising is sold;•competition in search advertising and Google’s market power;•

competition in display advertising and Facebook’s market power;•

competition in open display, including the role of Google as anintermediary providing services for publishers and advertisers; and•cross-cutting market concerns that have been prominent in the publicdebate around digital advertising, relating to: data advantages of the large
platforms and the interaction with competition concerns and dataprotection regulation; lack of transparency; and the relationship between
platforms and publishers.

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Characteristics of digital advertising markets
5.5This section identifies the key characteristics of digital advertising markets
which are relevant to our assessment of competition. It describes how
advertisers buy digital advertising. It then describes the main functions
involved in the sale of digital advertising.

Types and sources of digital advertising
5.6

As described in Chapter 2, there are three main types of digital advertising:•search advertising – where advertisers pay online companies to link theircompany website to a specific search word or phrase so that it appears in
relevant search engine results;•

display advertising – where advertisers pay online companies to display
advertising using a range of advertising content types shown within
defined ad units on web pages or mobile apps; and•classified advertising – where advertisers pay online companies to list
specific products or services on a specialised website serving a particularmarket segment.

5.7

Search advertising is the largest category of digital advertising, with total ad
spend of around £7.3 billion in 2019 based on data gathered from market
participants. Search advertising is sold predominately by two leading searchengines – Google and Bing.

5.8

Total spend in display advertising was around £5.5 billion in the UK in 2019.
Over half of display expenditure is generated by Facebook, which owns both
the Facebook platform and Instagram. YouTube has the second highest shareof display advertising and is owned by Google. The open display market, inwhich advertisers buy inventory from many publishers of smaller scale (forexample, newspapers and app providers) comprises around 32% of display
expenditure.

5.9

Google and Facebook are active in display advertising both through theirowned-and-operated platforms (YouTube in the case of Google, Facebook
and Instagram in the case of Facebook) and through activities providing
various intermediation and technology services, which are discussed in moredetail within our assessment of open display advertising.

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5.10 The CMA considered the role of classified advertising previously in the its
2017 market study on Digital comparison tools. 344 In our analysis for thepresent market study we have focused on competition in search and display
advertising. In doing so, we have considered the role of classified advertisingand specialised search in providing competition to other forms of digitaladvertising and have examined the broader relationship between generalsearch and specialised search providers.
Demand for digital advertisingCharacteristics of advertisers
5.11 Digital advertising is bought by a diverse range of businesses, with very
different rates of spend and levels of sophistication in their approach to ad
buying. The total number of UK-served parent entities (ie advertisers) in 2019was [200,000-250,000] for Google Ads. 345 The total number of UK-based
advertisers who targeted exclusively UK-based users in 2019 was [over 1
million] for Facebook. 346 In broad terms, the demand side can becharacterised as consisting of a small number of large advertiser buyers, anda long tail of smaller advertisers.
5.12 For example, for both Google and Facebook, a relatively small number oflarge advertisers account for a high proportion of overall revenues. The largest[5-10]% of advertisers account for over 85% of Google and Facebook’s
advertising revenues, while the remainder of the revenue is made up of a longtail of smaller advertisers. 347 Further details of our analysis of the parties’
advertiser customer data is set out in Appendix N.
5.13 Larger, more sophisticated advertisers often use media agencies andtechnology tools to purchase inventory from multiple sources. The large fivemedia agencies 348 directly account for approximately one quarter of overall
expenditure on digital advertising, though this is higher for display advertising(44%) than for search advertising (13%). 349

344 CMA (2017) Digital comparison tools market study. From the consumer’s perspective, classified advertising isvery closely associated with digital comparison tools, defined by the CMA previously as ‘digital intermediaryservices used by consumers to compare and potentially to switch or purchase products or services from a rangeof businesses’.
345 CMA calculations based on data provided by Google on Google Ads. See Appendix N for discussion of theGoogle dataset and its limitations, including why this dataset may not uniquely identify advertisers.
346 CMA calculations based on data provided by Facebook. See Appendix N for more detail.
347 Facebook’s data only includes UK-based advertisers who target exclusively UK-based users.
348 Publicis, Interpublic, Dentsu Aegis, Omnicom, WPP.
349 CMA calculations based on data provided by suppliers and media agencies. See Appendix C for more detail.

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5.14 Almost all the larger advertisers which responded to our questionnaire use a
media agency and highlighted the following benefits of doing so: 350•

best practice advice and external expertise in designing campaigns andallocating budget across advertising channels;•

greater economies of scale and scope in resource requirements(manpower, technology and expertise); and•preferred trading arrangements, eg volume discounts, negotiated by theagency.

5.15 Larger advertisers told us that the benefits of using multiple platforms topurchase advertising from various sources was that this provided them with agreater variety of audience and more flexibility in optimising targeting
capability and cost effectiveness. Some advertisers also mentioned that a
multi-platform approach avoided them being overly reliant on a single platform.
Most suggested that, while there were some issues in comparing advertising
performance across platforms, these were not sufficient to stop them multihoming.
5.16 Smaller, less sophisticated advertisers are less likely to multi-home acrossplatforms or use media agencies, due to the proportionally greater transaction
costs in doing so. Instead, they more commonly go directly to Google andFacebook due to their wide reach and their simple self-service interfaces, eg
Google Ads or Facebook Ads Manager.
5.17 Evidence from the qualitative survey of advertisers 351 was consistent with thefinding that multi-homing by small advertisers is relatively rare – of the sample
of 24 advertisers, only a minority multi-homed on platforms aside from Google
or Facebook. The survey explored some of the reasons for single homing.
These included a perceived feeling that they had no need to advertiseelsewhere, as they viewed their current situation as ‘good enough’, withacceptable return on investment and value for money. However, someadvertisers acknowledged that they single-homed due to a lack of knowledgeof effective alternatives, or that they had already put in the time to learn to use
one platform and did not want to spend additional time learning to use a newone.

350 See Appendix N for further detail.

351 The qualitative research report is published under the CMA Online Platforms and Digital Advertising Market

Study case page.

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Advertiser objectives and decision-making
5.18 Advertising campaigns are typically planned by first defining the business’s
objectives (for example, to increase sales or raise awareness) and available
budget to achieve these objectives. Advertisers then determine a series of
metrics, or key performance indicators (KPIs), relating to the outcomes theadvertising campaign is hoping to achieve.
5.19 KPIs can relate either to the impact of the advertising on brand awareness at
one extreme or to driving specific consumer actions (eg sales or enquiries) at
the other. Several advertisers and media agencies referred to the ‘marketing
funnel’ or ‘purchase funnel’. At the top of the funnel, KPIs relate to improving
the awareness of consumers that are ‘out-of-market’ and are not currently
aware of the product or service. At the bottom of the funnel, KPIs relate toselling to those customers who are ‘in-market’, in that they may haveexpressed some preference for the product or service but have not yet boughtit.
Figure 5.1: The purchase funnel

Source: CMA.

5.20 KPIs may often relate to specific audiences that advertisers target using user
data, as described in Chapter 4. The choice of appropriate digital advertisinginventory is largely based on optimising the KPIs being targeted. In order toassess this, advertisers or their agents need to be able to measure outcomes.
This means that, in addition to the performance of media in meeting KPIs

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efficiently (at low-cost), principles of accountability 352 and measurability 353 arealso important in driving advertiser choice. Advertisers and their agents will
choose the media that best meet their specific objectives, but may facediminishing returns in each media channel they use.
5.21 In some cases, choice of inventory is driven by attributes that are exclusively
available within a certain advertising channel. Certain channels may haveaccess to inventory, data or technology that allows for the targeting of specificaudiences not available elsewhere. Advertisers can also be motivated byvarious distinct factors in their choice of platforms, for example commercial
agreements or restrictions due to the nature of their products (eg gamblingand pharmaceuticals).
Substitutability between advertising media
5.22 We sought the views of advertisers and media agencies on how decisions toallocate budget between different types of media are made and what this
implied for substitutability. We also commissioned a qualitative survey tounderstand better the views of smaller advertisers. While media agencies said
that substitutability between different media depends on the nature of eachadvertiser and the specific objectives of their campaign, both agencies andadvertisers identified some areas where substitutability is likely to be more
limited.
5.23 As discussed in more detail in Appendix N and below in relation to search anddisplay advertising, we have found that:•

There is limited substitutability between digital advertising andtraditional advertising media – Although some platforms have argued
that advertisers can choose between any advertising media for theircampaigns, the ability of advertisers to use data to target specificaudiences through digital (or online) advertising substantially
distinguishes digital from traditional advertising media. We have foundthat advertisers may treat offline and online advertising as complementarychannels within their campaigns to achieve certain objectives, rather thansubstitutes.

•

There is limited substitutability between search and display
advertising – All media agencies and most advertisers told us that search

352 The ability to track and report back on the delivery of marketing investment against delivered media granulartargeting.
353 The ability to report back on the success and effect on a client’s business at broad reach awarenesscampaigns and down to highly targeted performance media buys looking at online sales.

217and display advertising are not substitutable, mainly because they
perform different roles within the customer purchase journey. Search isprimarily intent-based advertising designed to provide immediate answers
to consumers who have already shown interest in buying the product andare at the end of the purchase funnel (‘in-market consumers’), whereas
display is suitable for raising brand awareness and reaching new
audiences that might not yet have shown interest (‘out-of-market
consumers’). Most advertisers set budgets for search and display
advertising independently and do not allocate them interchangeably.
These findings were also reflected in the qualitative survey of smaller
advertisers. We note, however, that there is some evidence that display
advertising, particularly on Facebook, is increasingly being used fortargeting in-market conversions. We consider the nature of these
constraints in our analysis of search and display advertising below.
•

There is limited substitutability between video and non-video display
advertising – Media agencies told us that decisions between video andnon-video advertising were typically likely to be driven by the need toconvey the advertiser’s message in the best way. These decisions werelikely to be taken at an early stage of the planning process, driven by input
from the creative agency. This would limit substitutability between video
and non-video advertising.

•

There is substitutability between owned-and-operated and open
display – Media agencies told us that similar advertising formats andaudiences are available on owned-and-operated platforms and in open
display advertising and that the targeting techniques available are alsoroughly the same. Consequently, advertisers would largely see thesechannels as substitutable and decisions would be driven by the ability of
the inventory chosen to meet specific KPIs.

5.24 Given these advertiser views, we have carried out a separate substantive
assessment of competition in search and display advertising and considered
the extent to which other forms of advertising impose a competitive constraint
as part of these assessments below.
How advertising is sold
5.25 A key characteristic of digital advertising is the real-time nature of thetechnology involved in showing an advert. An advert is shown when a user
opens a web page or submits a search query. In some cases, the decision onwhich advert to show may be determined before the web page is accessed,
for example when an advertiser has agreed a direct deal with a publisher.
However, in most cases the decision is made in real time, either in response218to the search term entered by the user (in the case of search advertising) or in
response to information about likely characteristics of the person viewing theadvert (in the case of display advertising) or the context of the page being
viewed.
5.26 This process of allocating ad inventory, showing an advert and verifying thatthe advert has been shown requires several different functions to be carriedout, which we have defined in the following way:•advertiser function – commissioning and supply creative content andpaying the publishers for the opportunity to display an ad;•

publisher function – selling inventory (space on their site) to advertisers;•

targeting function – targeting adverts at particular users or groups of users(particularly in the case of display advertising);•

advertiser advisory function – determining buying and bidding strategies,
based on the advertiser’s objectives and the available information;•

publisher sales function – setting the rules for the selling process,contacting potential buyers, collecting and ranking their offers,
determining who the inventory is allocated to and the price to be charged;•

verification, attribution and evaluation – verifying that advertisers received
what they paid for and evaluating the performance of their campaigns;
and•delivery – the basic task of serving the ad in real time.

5.27 Figure 5.2 illustrates how these functions fit together in a typical digitaladvertising sales process.
Figure 5.2: Illustration of core functions in digital advertising

Source: CMA.

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5.28 The way these functions are carried out varies across different parts of thedigital advertising market, depending partly on the type of advertising being
sold and partly on publishers’ and advertisers’ choices about how they wish toorganise the sales process.
5.29 Owned-and-operated platforms are able to integrate several of the functions
within their ‘walled gardens’. For example, large social media platforms suchas Facebook operate self-service interfaces for programmatic trading. These
allow an advertiser to set its bidding strategies directly, with the platform
effectively running the process to decide which advert to show, managing thephysical delivery of the bid and providing verification and attribution data backto the advertiser. Similarly, in relation to search advertising Google runs its
own auction to decide which adverts to show in response to a given search
query and places the advert on its search results page.
5.30 At the other end of the scale, a small publisher wishing to sell advertisinginventory without having its own infrastructure for carrying out the physicaldelivery and financial sales functions will rely on intermediaries to performthese roles. Broadly a publisher has two options:•sell its inventory through the ad networks of one of the owned-andoperated platforms, such as Google AdSense or Facebook Audience
Network – in this case the platform takes on most of the core functions
and serves advertising directly on the publisher’s website; or•sell its inventory via ad tech intermediaries, enabling advertisers to bid
directly for publishers’ inventory.

5.31 We include both these routes within our definition of ‘open display’. The adtech ecosystem is described in more detail in the section on competition inopen display below, and in Appendix M.
5.32 From the advertiser perspective, advertisers have the option of buying directlyfrom the large platforms’ self-service interfaces. However, larger or moresophisticated advertisers will often use other intermediaries to help with theadvertiser advisory function, ad targeting, and verification, attribution andevaluation. These intermediaries include media agencies, demand-side
platforms (DSPs) and data management platforms (DMPs), which are definedin the discussion of open display below. The chain of specialised providers

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that perform these various functions for both publishers and advertisers is
known as the ‘ad tech stack’. 354
The role of auctions
5.33 Within the sales process outlined above, auctions have developed as a key
mechanism for making real-time allocation decisions. Auctions are used bothin the sale of owned-and-operated inventory and in open display. Auctions
enable advertisers (or their agents) to place bids for a given ad impression,and for the inventory owner (or its agent) to decide which bid to accept, andhence which ad to show. The outcome of the auction also determines how
much the winning advertiser pays to show the ad. Pricing decisions are
therefore made on an impression-by-impression basis, rather than being set
by the inventory owner in advance.
5.34 Auction outcomes typically do not depend only on price. In most ad auctions,
measures of ad quality also play a part in determining the outcome.
Parameters of quality might include an assessment of the quality of the adcontent and its relevance to a given context or the person viewing the ad.
5.35 The role of auctions has important implications for the way the market works.
In particular, the complexity of the real-time bidding process has added to theinformation asymmetry between advertisers and publishers on the one hand,
and the large platforms and other intermediaries on the other. Outcomes foradvertisers and publishers are heavily dependent on the precise way in which
the auctions work. Particularly where auctions take account of quality factors
as well as price, and where auction operators themselves submit bids onadvertisers’ behalf, bidders typically do not have full transparency over exactly
how the winning bid is determined. We have considered the issue of lack oftransparency further in our assessment of competition in different parts of thedigital advertising market below.
5.36 Another important implication of the use of auctions is that prices are set
independently for different advertising inventory. This means that thecompetitive constraints faced by advertising platforms may differ for theinventory sold to different customers. This is relevant both to searchadvertising, where competitive conditions may vary for different search
queries, and to display advertising, where competitive conditions may varydepending on the audience being targeted. An advertising platform may havemarket power over certain groups of customers, even if it faces strong

354 This is described in more detail in the section on competition in open display below (see Figure 5.19) and in

Appendix M.

221competition for other groups. This is important when we consider thecompetitive constraints on Google and Facebook below.

Competition in search advertising
5.37 This section sets out our findings on competition in search advertising. It
covers:•our understanding of the competitive process, including how advertiserschoose between search engines and how search engines may respond tocompetition;•evidence on market outcomes in search advertising;•

the competitive constraints on Google search advertising, including from
specialised search;•barriers to entry and expansion;•

how Google is able to exploit its market power; and•how Google leverages its market power in search into other advertisingrelated markets.

Competitive process
How search advertising is sold
5.38 In search advertising, advertisers bid to link their company website to specifickeywords so that the links appear in relevant search engine results. In the vast
majority of cases, advertisers will only pay when a consumer clicks on theirlink (cost-per-click).
5.39 Search engines use second-price auctions to set prices for advertisinginventory, where the price paid by the advertiser that wins the auction (and so
the right to display the link in relevant search results) is determined in part by
the value of the second-highest bid. A key feature of the auctions used insearch advertising is that outcomes are also determined by the relevance tothe search query of the underlying content of the advertiser website to which
the advertising links. 355 Search engines assess relevance directly and use this355 Both Google and Bing both refer to the ‘quality’ of the consumer experience when describing the relevance of

search advertising.

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assessment to weight bids from different advertisers on a real-time, in-auction
basis.
How search engines compete for advertisers5.40 Search engines are two-sided platforms that compete for both consumers andadvertisers. Search engines attract consumer attention through offering highquality, relevant search results and then monetise this attention by offering theopportunity for advertisers to incorporate relevant advertising into theseresults.
5.41 Search engines compete over quality to attract users and increase the numberof searches carried out. This allows search engines to sell a greater quantityof advertising inventory and generate more revenue. As set out in Chapter 3,
we have identified five main dimensions of quality: the relevance of results;ease of use; the attractiveness of the interface; privacy and trust; and user
rewards and incentives.
5.42 Search engines also compete more directly for advertisers, through various
mechanisms. They compete through the quality of the interface offered toadvertisers and through the use of data to offer higher ROIs, more granularaudience targeting and better measurement of advertising outcomes.
5.43 An important trade-off faced by a search engine is between the number of ads
shown, known as the ‘ad load’, and the quality of search results to users.
Showing a greater proportion of ads relative to organic search results canincrease the propensity of users to click on ads, driving up the quantity of ads
sold and generating revenues for the search engine. However, the more ads
are shown, the more likely it is that some will be less relevant to the user
search query, compromising the quality experienced by the user. This results
in an important mechanism for competition to occur. Users may respond toincreased ad load by switching to rival search engines where quality isperceived to be higher, limiting the ability of the search engine to generate
revenue.
5.44 While search engines use auctions rather than setting prices directly, we haveidentified various levers at their disposal to influence advertising revenues. We
discuss these levers in more detail in the section on exploitation of market
power in search below.
Market structure and outcomes in search advertising
5.45 In addition to shares of consumer attention and search traffic described in
Chapter 3, we have looked at evidence on various market outcomes in search223advertising. This evidence and the supporting data are set out in more detail in
Appendix C.
5.46 Figure 5.3 below shows that UK search advertising revenues have grownsteadily over the last few years. Google’s UK search revenues grew from £2.1
billion in 2010 to £6.8 billion in 2019, reflecting a compound annual growthrate 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. In our view this evidence strongly suggests that Google
benefits from market power, particularly when interpreted in the light of thescale advantages discussed in Chapter 3 and further below.
Figure 5.3: Estimated UK search advertising revenues by year (2010-2019)

Source: CMA analysis of parties’ data.

5.47 Our analysis of market outcomes also shows that there has been a substantial
shift over time from advertising delivered to consumers on desktop toadvertising delivered to consumers on mobile. This is consistent with othermarket reports we have seen 356 and reflects the underlying increased usageof mobile devices. We note that this shift may benefit Google over its rivals,
due to Google’s default status on nearly all mobile devices and higher share ofmobile searches The continuation of this trend would mean that Google is able
to gain an increasing overall share of search queries and advertising revenues
as well as gain an advantage over rivals from the data it can gather frommobile devices.

356 For example, IAB UK & PwC Digital Adspend Study 2019.

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5.48 We discuss other market outcomes, including revenues and prices, in thesection on exploitation of market power in search below.
Competitive constraints on Google
5.49 This section sets out our assessment of the current competitive constraints on
Google and the extent to which it has market power in relation to searchadvertising. We consider in turn the competitive constraints from:•other general search providers – notably Bing and its syndication
partners;•

specialised search providers – such as Amazon and Booking.com; and•display and other forms of advertising.

Competition from other search providers
5.50 Google competes in a duopoly with Bing and its syndication partners, though
Google accounts for more than 90% of search advertising revenues, an orderof magnitude greater than Bing. This reflects that Google has been more
successful in attracting user attention through the quality of its search engine
to users. Since advertisers need to access user attention, the difference inscale suggests that the competitive constraint imposed by Bing on Google isvery limited.
5.51 Evidence from advertisers we contacted suggested that this is one of several
advantages Google has over Bing. Several advertisers said that they use
Google due to it having a better scale and reach achievable than Bing. They
pointed to a range of other advantages, including better targeting options,better analytics capacity and earlier release of new features. Some told us that
Bing had some benefits, in particular that it was useful for targeting older, lesstech savvy audiences. All advertisers we received evidence from viewed
Google as being comparatively better overall than Bing in satisfying theirobjectives.
Competitive constraint from specialised search
5.52 The advertisers we contacted all said that specialised and general searchadvertising are not substitutable but are used in tandem to achieve
advertisers’ goals. This is because they perform different functions at different
points of the purchase funnel and can be used to reach different audiences.
General search has a higher reach, is cheaper and is best used to attract
traffic from a wider audience that has demonstrated general intent, while225

specialised search is more expensive, has lower reach and is used to directly
make sales to a narrower audience that are engaged in actively researching
and comparing specific products or services. All of the specialised search
providers we contacted also told us that they see general and specialised
search as performing two different functions for advertisers. Further evidence
on the competitive constraint from specialised search is set out in Appendix P.
5.53 Based on this evidence, specialised search does not appear to compete with
Google’s general search engine directly for advertisers. Further, as set out in
Chapter 3, we have found that specialised search providers provide only alimited competitive constraint to Google Search on the consumer side of theplatform.
Competitive constraints from display and other forms of advertising
5.54 Evidence from advertisers we contacted suggests that there is little
competitive constraint from display advertising on search advertising. As set
out in Appendix N, all the major media agencies and most large advertisers
told us that search and display advertising are not substitutable, mainly
because they perform different roles within the customer purchase journey.
Specialised search providers, who are some of Google’s largest customers,
considered Google to be an essential source of user traffic and did notconsider display advertising to be an alternative.
5.55 There is some evidence that display advertising, particularly on Facebook, isincreasingly being used for targeting in-market conversions. This suggeststhat Facebook may become an increasing competitive constraint on Google in
the future. However, based on the advertiser views we have received, thiscompetitive constraint currently does not appear to be significant for mostadvertisers. For many, display advertising is unlikely to be an option given that
it is not shown in response to user intent. For example, we note thatspecialised search providers rely heavily on accessing user traffic from searchengines. Given that prices for advertising inventory on Google are set by
auction for different search queries, the competitive constraints faced by
Google for certain search queries do not extend to other queries where it
faces less competition.
Barriers to entry and expansion
5.56 In this section we assess the barriers to entry faced by potential competitors toGoogle in general search. We find that there are several material barriers
giving Google a significant incumbency advantage, such that there is a weak
constraint on Google from potential entry into general search.

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User-side barriers
5.57 In order to sell search advertising, potential entrants need to be successful inattracting search queries from consumers. This means that the barriers toentry on the consumer side of the market, derived from the need for access toa search index, from economies of scale and scope in click-and-query data
and from defaults as described in Chapter 3, are also relevant to potential
entrants wanting to supply search advertising.
Advertiser behaviour
5.58 Transaction costs faced by advertisers in using multiple search engines
appear likely to benefit Google and create a barrier to entry for smaller rivals.
Most of the larger advertisers we contacted did not suggest there was adifficulty in multi-homing across multiple search engines and they used tools
such as SA360, or those provided by third parties such as Marin andKenshoo, to do so. However, a minority of the larger advertisers who
responded to our questionnaire choose to single-home as Google had asufficiently large market share and reach to meet all their needs. Based onevidence from the qualitative research set out in Appendix N, many smaller
advertisers choose to single-home, using the simple interface provided by
Google Ads and benefiting from its broad reach.
5.59 Access to demand from a significant proportion of advertisers that singlehome may also provide Google with greater advertiser density, allowing it to
run more competitive auctions that generate higher prices and more relevant
ads. This is likely to be of particular benefit for more specific keywords relating
to the ‘tail’ of less common search queries. These keywords (which forexample might include more detail on product characteristics desired by the
consumer) tend to be preferred by advertisers as they can allow for more
specific targeting, resulting in higher conversion rates and returns on
investment. 357
Data advantages
5.60 Google’s extensive first-party data 358 is likely to give it a substantial advantage
over smaller rivals, creating a barrier to entry and expansion. As a result of
Google’s first-party data, advertisers on Google can target search advertising
to particular audiences (and have confidence in the composition of thoseaudiences), allowing improved performance for their advertising. Google also

357 Our analysis of pricing for search queries on Google and Bing, set out in Appendix C, suggests that lesscommon monetised search queries tended to have higher CPC than more common monetised search queries.
358 First-party data is information that a business collects directly from its users rather than via a third party.

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has access to extensive data on user location, including through Android
phones, on which half to two thirds of users have location services activated;
this allows search advertising to be more effectively targeted based on
location.
5.61 Google’s data further allows it to offer more accurate attribution services toadvertisers. Google has tags (including as a third-party) on over 80% of
websites and over 85% of apps on the Play Store, which allows it to form amore complete picture of users’ ad exposures, across its own properties and asubstantial proportion of other non-Google websites. This allows Google toattribute conversions more accurately to the multiple ad exposures. Its location
data also creates the potential to monitor some offline as well as online activity– for example by tracking whether someone is in a particular store.
5.62 Several advertisers highlighted Google’s first-party data as an advantage over
Bing. The large platforms’ advantages in data are discussed further below.
Exploitation of market power in search
5.63 This section sets out the evidence on Google’s ability and incentive to exploit
its market power. Our analysis is set out in more detail in Appendix Q.
Google’s ability and incentive to exercise market power
5.64 Search advertising prices are set by auction, based on the bids submitted byadvertisers, rather than being set directly by the search engine. However, thisdoes not mean a seller’s market power does not affect prices paid. Where asearch advertising platform has market power, the lack of substitutable
alternatives will mean that advertiser bids in its auctions are higher, resulting
in higher prices.
5.65 In addition, within the auction framework, Google has several levers throughwhich it can influence market outcomes such as the quantity of advertisingand advertising prices. These fall into three broad categories:•

levers over the quantity and presentation of ads shown;•levers over the quality/price trade-off; and•levers over auction mechanisms and bid prices.

5.66 Google’s incentives over how it flexes these levers are affected by its market
power both on the user side of the platform (ie in search) and on the digitaladvertising side.

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•

Quantity of ads shown and ad presentation

5.67 Search engines can determine the overall limit on the number of ads thatappear in search results and how these ads are presented alongside organic
search results. Showing a greater proportion of ads relative to organic search
results can increase the propensity of users to click on ads, driving up thequantity of ads sold. Both text ads359 and product listing ads (PLA) can beshown at the top of the search engine results page (SERP) where consumers
are more likely to click, resulting in organic search results appearing further
down the SERP.
5.68 In a competitive market, a search engine’s incentive to increase ad load isconstrained by the fact that this reduces quality of the search engine to users.
As a result, users may respond to increased ad load or reduced relevance byreducing their propensity to click on or interact with ads over the long term, aphenomenon known as ‘ad blindness’. Based on this, we would expect users
to respond to increased ad load by switching to rival search engines where
quality is perceived to be higher.
5.69 Overall, it appears likely that Google’s market power on the user side results
in an incentive for it to promote more ad clicks than it would in a morecompetitive market. Although it is still constrained to some extent by the needto maintain the quality of its search product, at the margin it has less risk ofusers switching away because it faces weaker competitive alternatives.
Increased ad clicks are likely to lead to higher costs to advertisers because it
will tend to reduce the proportion of clicks going to organic search, which
advertisers receive for free, rather than paid advertising. Therefore,businesses that rely on accessing consumers through general search willneed to pay increased advertising costs in order to maintain the same volume
of overall traffic.
5.70 In addition to ad load, the presentation of advertising can influence thepropensity for users to engage with it, for example by affecting the clickthrough rate. For example, if the distinction between ad links and organic links
is not clear, consumers may be more likely to click on the ads rather thanorganic content.

359 Google currently allows a maximum of eight text advertisements to appear on every SERP, four at the top of

the page and four on the bottom of the page. These limits and the way search advertisements are presented
have changed over time

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•

Price/quality trade-off

5.71 Google and other search engines can also control the balance between priceand quality or relevance of search adverts shown to users by choosing how
much weight to place on quality metrics in determining the winning bid. Putting
a higher weight on quality metrics compared to price is likely to improve thequality of the platform for users, because the search adverts will be more
relevant and salient. A lower weight on quality metrics is likely to result inhigher prices and generate more revenue in the short term as advertiserscompete more directly on price in search auctions (though potentially at theexpense of losing users in the long run).
5.72 In a more competitive market, platforms will have an increased incentive to put
more weight on quality relative to price. This is because users would switch
away to another platform if the relevance and quality of the ads were low, so
the platform would lose revenue even if it were able to charge a higher pricefor each advert.
5.73 However, Google’s market power is such that Google is less constrained bythis user-side competition. It therefore has a greater incentive to reduce theimportance of the quality or relevance score in determining the winning bid,thus increasing its revenue.
•

Auction mechanisms and bid prices

5.74 Finally, Google and other platforms control several other auction parameterswhich can affect prices, which are explained in more detail in Appendix Q. The
auction mechanism provides an efficient way for Google to take advantage ofits market power without having to set prices directly. In addition, it has levers
within the auction which can further influence prices paid. These include
setting the minimum reserve price at which individual auction impressions canbe sold; and setting bid prices on bidders’ behalf through automated bidding
tools.
5.75 In auctions where only one bid exceeds the reserve price, the reserve price,which is set by Google, directly determines the price paid by the winning
advertiser. This is the case in 60% of Google’s auctions, representing 20% of
its revenues.
5.76 With automated bidding, advertisers provide the search engine with aperformance goal and then allow the search engine to use algorithms todynamically set cost-per-click (CPC) bids to meet the advertiser’s statedperformance goals. In 2019, [40-50] % of Google’s UK search advertising
revenue came from advertisers using automated bidding, while the remainder
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set maximum CPC bid limits. While automated bidding can be used to benefit
advertisers, due to its opaque and complex nature it could also be
implemented by the search engine in a way that results in equilibrium auction
outcomes that are worse for advertisers collectively, ie where prices arehigher.
5.77 Although any use of these levers to increase prices would not necessarily betransparent to advertisers, their impact would be felt in a lower returns on
investment for advertisers, who, in so far as they were able to track thisaccurately, could then decide to switch to another search platform. Google’s
market power in digital advertising increases its ability to use these levers toincrease price, because it is less constrained by the threat of advertisers
switching away.
Evidence of exploitation of market power
5.78 In the following section we set out evidence of the impact of Google’s market
power in search advertising. We have assessed: the changes over time in
Google’s monetisation of its search content; comparisons with Bing; evidence
from advertisers and other third parties; and evidence of the use of defaults to
influence advertisers’ behaviour.
5.79 To assess the extent to which Google has exploited market power, we would
ideally want to compare Google’s behaviour today against a situation in which
Google faced strong competition from other search engines. However, it is notpossible to do this as this ‘competitive counterfactual’ is unobservable. Instead
we have assessed changes over time in Google’s monetisation of its searchcontent and compared prices between Google with Bing for overlapping
search queries. These are not perfect proxies for the competitive
counterfactual, but they are illustrative of the extent to which Google has beenable to exercise market power.
5.80 Our analysis of changes in Google’s monetisation over time illustrates how
Google can use the levers described above to generate additional revenues.
Increases in monetisation over time would be consistent with increasing
market power, although changes in monetisation may also be driven by otherfactors, such as changes in advertiser demand. While our analysis comparing
Google’s prices to Bing’s is not equivalent to comparing Google’s prices
against prices in a competitive counterfactual, we would expect Google’s
prices to be higher to the extent that it has market power.

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•

Trends in search advertising revenues over time

5.81 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. This growth has
been significantly faster than the growth in the number of searches. Revenue
per search has increased from £[0.02–0.03] in 2011 to £[0.04-0.05] in 2019 inreal terms.
5.82 The total number of searches on which Google shows adverts has remained
broadly constant over the past ten years, and Bing shows adverts on a higher
proportion of searches, as discussed below. However, the total number ofadvertising impressions 360 has increased significantly, particularly since 2016,reaching [400-500] billion impressions in 2019 when specialised product listingads (PLAs) are included. We note that Google submitted data which showsthat, when broken down between text ads and PLAs, the increase since 2017has been primarily driven by an increase in PLA ads.
5.83 Google predominately uses a cost per click pricing structure to sell its
inventory. This means that only impressions that result in a click generate
revenue for Google. Figure 5.4 shows that the total number of ad clicks in2019 (including both text ads and PLAs) was around 300% higher than its
level in 2010.
Figure 5.4 Total UK Ad clicks on Google Search

Source: CMA analysis of Google data.

360 An impression is where a search ad is displayed in the SERP, regardless of whether it is clicked on.

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5.84 This increase in ad clicks has coincided with several key changes to Google’s
presentation of ads and an increase in the maximum number of ads eligible toappear above the organic search results:•

In 2016, Google removed right-hand side ads and increased from three tofour the number of ads eligible to appear above the organic search
results.

•

Later in 2016, Google introduced ‘Expanded Text Ads’, which allows
advertisers to enhance their creative with a third headline and a second
description.

•

In 2019, Google altered visual elements of ads for mobile and in 2020 for
desktop.

5.85 Internal documents discussing these changes illustrate that Google has beenable to generate higher click-through rates and revenue per impression,
through increasing ad load.
5.86 Google’s average prices (measured in cost per click) have not changed
significantly over the past ten years, but have increased somewhat over time,by [20-30]% from [] in 2012 to [] in 2019.
•

Comparison of prices and ad load between Google and Bing

5.87 We have looked at evidence from Google and Bing on average prices, or costper-click, from January 2017 to December 2019, split between prices charged
for searches on desktop and prices charged for searches on mobile devices.
This is shown in Figures 5.5 and 5.6 below. Average desktop prices are higher
than mobile, because consumers are more likely to purchase higher value
items or are more likely to complete purchases when using desktops.

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Figure 5.5: Monthly average cost per click for mobile search advertising from July 2017 to
December 2019

Source: CMA analysis of parties’ data.

Figure 5.6: Monthly average cost per click for desktop search advertising from July 2017 to
December 2019

Source: CMA analysis of parties’ data.

5.88 We note that Google has achieved somewhat higher prices on average than
Bing over the period. However, this comparison does not account fordifferences in the distribution of queries across Google and Bing. To accountfor this, we have collected data on all the search queries submitted to Google
and Bing in the UK in a single week in 2020 (several billion queries in total)
234

and compared the prices for ‘overlapping’ queries, that is search events forqueries observed by both Google and Bing. 361 This analysis is set out in moredetail in Appendix C.
5.89 Figure 5.7 shows the average cost per click of top ads for overlapping queries,
weighted by volume. As set out in Appendix C, we note that prices unweighted
by volume are higher than when weighted by volume. This indicates that ads
on less common queries tend to be more expensive than ads on morecommon queries.
Figure 5.7: Average cost-per-click for top ad cost per click on Google and Bing

Source: CMA analysis of parties’ data.

5.90 Figure 5.7 shows that, for the same search queries across our one-weekdataset, Google has higher prices than Bing on average. Google’s prices areon average [30-40]% higher on desktop and [30-40]% higher on mobile for the
sample of queries that we analysed. This is consistent with Google exploiting
market power in its search auctions. It is also consistent with Google
benefiting from data or scale advantages arising from its market power on theuser side.
5.91 We have also compared the price-bid ratio across Google and Bing. The
price-bid ratio measures the difference between the winning bid and the pricepaid. 362 To the extent that advertiser bids reflect willingness to pay, the pricebid ratio provides a measure of the ability of the search engine to extract
advertiser surplus. A higher price-bid ratio implies lower advertiser surplus.

361 Owned-and-operated only.

362 Google and Bing both use adjusted second-price auctions, where the winning bidder pays the quality-adjusted

second-price bid.

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This is because the price the advertiser has paid is closer to their bid. If the bid
captures the true valuation by the advertiser, this means that less surplus went
to the advertiser. The price-bid ratio should also help to control for any
difference in the value of a click to an advertiser on Google as opposed toBing.
5.92 Figure 5.8 shows the difference in price-bid ratio between Google and Bing for
top ads. It shows Google has a higher price-bid ratio for like-for-like queries on
average, by [10-20]% on desktop and [20-30]% on mobile for the sample ofqueries that we analysed.
Figure 5.8: Average price-bid ratio for top ad for Google and Bing on a like-for-like basis

Source: CMA analysis of parties’ data.

5.93 Google’s higher average price-bid ratio suggests that Google is able to extract
more advertiser surplus than Bing. This could be caused by Google exercisingmarket power. It could also be a result of greater bid density, arising from thepropensity for some advertisers to single-home on Google.
5.94 Our comparison between Google and Bing also shows that, compared to Bing,
Google has a lower ad load both in terms of the number of search events
which show an ad and the number of ads shown on each of these events.
These comparisons do not include other specialised search adverts, such as
Google Shopping ads, which contribute to Google’s overall ad load. Thissuggests that there is currently little competition between Google and Bing to
attract users via setting lower ad loads. 363 We still consider that Google’s

363 We note that when comparing Google and Bing we are not observing the competitive counterfactual. Bing’s

higher ad load may reflect that it has little incentive to attract customers through setting lower ad load, given the236

ability to increase its ad load over time, including specialised search ads, is anindicator of its market power.
•

Views of advertisers and other third parties

5.95 We have heard a range of concerns from Google’s customers about practices
that are consistent with the exploitation of Google’s market power. Several
advertisers, including both specialised search providers and other advertisers,
submitted to us that recent changes to Google’s policies on ad load and thepresentation of search advertising had the effect of increasing the propensity
for users to click on ads rather than organic links.
5.96 Specialised search providers told us about other specific changes to Google’s
policies that had allowed Google to exploit market power over its customers toa greater extent. For example:•

Google has recently changed its ‘Exact Match’ keyword matchingalgorithm, no longer allowing advertisers to specify that the keyword
should exactly match with the search term but also allowing for ‘close
variants’. Advertisers told us that this limited their ability to determine
which auctions to bid into and their ability to optimise bidding acrossmultiple keywords. This could lead to advertisers participating in auctions
for search terms that are less relevant to them and where their bids might
have a reduced quality weighting, resulting in increased prices.

•

Several specialised search providers expressed the concern that Google
had reduced the transparency of reporting of outcomes in its searchadvertising auctions. These concerns related in particular to Google
deciding to no longer provide information to advertisers on the average
position in which their ads were shown in search auctions. This made it
more difficult for advertisers to implement bidding strategies focusing onlower ad positions.

•

Several specialised search providers expressed the concern that changes
to the autocomplete function in the Chrome ‘Omnibox’ had the effect ofdiverting user traffic to Google’s search engine results instead of directly
to the advertiser’s website.

large scale and quality differential between Google and Bing discussed in Chapter 3. In practice it appears that
Bing’s ability to attract customers may be more closely associated with its defaults on desktop devices rather
than its perceived quality.

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5.97 Overall, we found that specialised search providers paid around 25% of their
total revenues to Google for search advertising, indicating the significant
impact that Google’s advertising prices have on specialised search providers’costs. 364•

Use of defaults to change advertiser behaviour

5.98 We have also reviewed Google’s advertiser interface, Google Ads, to assess
whether it is exploiting behavioural biases to nudge advertisers into behaviour
which might allow it to earn higher revenues. This analysis is set out in moredetail in Appendix N.
5.99 One example is that the option to allow advertisers to set maximum CPC isnot selected by default. Instead, the default is for advertisers to allow Google
to set their bids through one of its automated bidding strategies. Advertisersthat do not set maximum CPC run the risk that they buy advertising where thecost is higher than the amount they would be prepared to pay. For 2019, [4050]% of Google’s UK search advertising revenue came from advertisers using
automated bidding, while the remainder set maximum CPC bid limits. 365
5.100 Some advertisers contacted as part of our qualitative research said that theadvertising interface defaults did not match the objectives or needs of theadvertisers, thereby producing less relevant results and wasting theadvertiser’s money. The default options were also seen as more expensive
than non-defaults, with some advertisers viewing this as a deliberate strategy
by Google to get them to spend more.
•

Google’s views

5.101 Google submitted 366 that the provisional finding in our interim report in thismarket study that concentration in search advertising may lead to higher
prices for users across the economy is not consistent with the evidence. It
provided evidence that the price of digital advertising has fallen by more than
40% since 2010. 367 It argued that it is inherently difficult to compare Google’s
prices with those of third parties on a like-for-like basis and that a full
profitability analysis would have to disentangle those revenues that arise frommarket power from those which arise from genuine value-adds andcompetition on the merits. Finally, Google argued that any transmission
mechanism between alleged concentration in search and the price of final

364 See Appendix P for further detail of the impacts of Google’s market power on specialised search providers.
365 Google response to our request for information.

366 Google’s response to our consultation on the Interim Report, paragraph 19.
367 See ‘The Declining Price of Advertising: Policy Implications’.

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products is likely to be complex given the two-sided nature of the market, thefact that advertisers pay for search ads on a per-click basis and the existenceof an auction among advertisers.
5.102 In relation to these submissions, we note that the evidence of falling digitaladvertising prices since 2010 relates to the United States and is not limited toGoogle’s search advertising. As such, it has little bearing on Google’s market
power. Our analysis of Google’s actual UK prices shows that they haveincreased somewhat since 2010. Our analysis also shows that Google’s prices
are higher than Bing’s on both mobile and desktop, even when controlling foroverlapping search queries. We have set out the transmission mechanism forhow competition may affect the incentives for a search engine to use the‘levers’ at its disposal to generate additional revenues at the expense of higher
advertising costs.
5.103 Google also submitted that it is not plausible for it to use market power toincrease the number of search ads shown on its search engine results page(ie the ad load). Google notes that it already applies an eight-ad limit for text
search ads on its SERP, 368 but it is quite rare that it ever shows eight text ads.
In fact, most search queries return no ads at all. Google told us this is because
it only shows ads when they meet its strict relevance criteria and quality
thresholds. In addition, Google argued that if it ‘crowded out’ organic search
results with less-relevant ads, it would degrade the quality of its searchservice, harm user experience and trust, and damage the ad ecosystem as awhole. Similarly, Google submitted that it does not have an incentive to adjust
the way it weights relevance, the Ad Rank Threshold, or how it matches
keywords to search queries in order to generate more revenues, because
these changes would compromise the quality of Google’s SERPs and not be
in its long term commercial interest.
5.104 In our view these arguments are inconsistent with the evidence we havereviewed, both from Google and third parties. In a more competitive market
consumers would have greater ability to switch to alternative search engines
based on quality, resulting in a constraint on Google from increasing ad load.
This same logic applies to the various other levers Google has at its disposal
to increase revenues. With regard to prices, our analysis shows that Google
charges significantly higher prices than Bing for overlapping search queries.

368 Search Engine Results Pages.

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Exclusionary behaviour
5.105 One of the most significant sources of consumer harm is likely to comethrough the impact of Google’s market power and the high barriers to entry
and expansion in search advertising on dynamic competition and the extent ofinnovation. In addition to exploiting its market power directly in relation to
search advertising, Google may also have the ability and incentive to behave
in a way that raises barriers to entry further or leverages its market power in
related markets.
5.106 In Chapter 3 we highlighted complaints in relation to specialised search. In thissection we describe some of the concerns that have been expressed inrelation to wider parts of the digital advertising market: self-preferencing
through SA360 and leveraging into open display advertising.
Self-preferencing through SA360
5.107 Microsoft explained that Google Search benefits from greater interoperability
between SA360 (a Google-owned tool used by many advertisers for automatic
optimisation of their expenditure across keywords and platforms) and Google
Search, compared to that between SA360 and Bing. Microsoft has stated that
this benefits Google in two ways:(a) Data on bids from Google Search is fed back to SA360 and combinedwith conversion data in real time, while bidding data from Bing comesback only periodically. This can make it appear to advertisers that Google
Search is performing better on SA360 because conversion information for
Google appears before Bing and automatic budget allocation rules willcorrespondingly allocate it more budget.
(b) New functionalities of Google Ads are introduced on SA360 quickly while
Bing has often had to wait significant periods of time for innovations in thefunctionality of its search engine to be adopted by SA360.
5.108 Microsoft submitted that it generally implements advertising features that arealso implemented by Google and tries to do so in a manner that is consistent
with Google. Because of this, the engineering necessary to support Bing
features in addition to Google features is not significant in Microsoft’s opinion.
In its responses to our request for information, Microsoft identified 33 relevant
Bing features, 24 of which have never been adopted by SA360. The
remainder took varying times to be adopted, ranging from a few months to afew years.

2405.109 In response to these concerns, Google has submitted 369 that (a)misunderstands how SA360’s automated bid strategies work. SA360’s
automated bid strategies do not use ‘data on bids’ 370 from integrated searchengines but rely on conversion data that SA360 processes itself agnostically
across engines. In relation to (b), Google submitted that, among other factors
such as resource availability and engine requirements, it objectively assesses
advertiser demand across all search engines and integrates the features forwhich there is most demand: this is a consistent and reasonable approach thatis not intended to give any supported search engine a material competitive
advantage over others.
5.110 We have not reached conclusions on the merits of these specific concerns
during the market study. However, we consider that Google could have theability and incentive to engage in this type of practice and that this could
reduce the competition faced by Google’s search engine.
5.111 Google’s ability and incentive to engage in these practices stems from themarket power of its search engine and SA360’s substantial share of demandon Google’s overall search advertising ([30-40]% 371 based on 2018 data). It
appears that the lack of adoption by SA360 of valuable Bing features could
have the effect of diverting some of this demand from Bing to Google. It also
appears that Google’s search engine would benefit directly from SA360
reducing interoperability with Bing at little cost to Google. Google additionallywould benefit from protecting the market power of its search engine in the longterm. It does not appear likely that a lack of interoperability with Bing would
materially reduce advertiser demand for purchasing search advertising via
SA360.
5.112 Even if Google’s behaviour is justified by the need to prioritise the integrationof innovations according to the scale of advertiser demand, in our view thiswould still contribute to the scale advantages Google benefits from in search.
This is likely to lead to higher barriers to entry in search and result in a loss ofinnovation, both from reduced ability of third parties to enter the market andhave innovations adopted by intermediaries and from the resulting reduction incompetitive pressure on Google itself. This provides a rationale for acting tokeep the behaviour under review through a code of conduct as described in
Chapter 6, even if it is justified by relative scale of advertiser demand.

369 Google Response to third-party concerns, 19 May 2020.

370 Meaning data about the performance of each bid within each auction.

371 This figure is calculated using multiple databases which are not wholly consistent. It is therefore an

approximation.

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Leveraging into open display
5.113 Google may also be able to leverage its market power in search into the open
display market. Smaller advertisers often choose to single-home to minimisetransaction costs. Advertisers that wish to single-home have a strong incentive
to use Google Ads as they can use it to access Google search advertising andYouTube inventory as well as the open display market. This is discussed in
more detail in the section below on open display.

Competition in display advertising
5.114 This section sets out our findings on competition in display advertising. We
consider competition between suppliers of display advertising, including both
owned-and-operated platforms and publishers who sell via the open display
market. Issues specific to the open display advertising sector are covered in
the following section. This section covers:•

our understanding of the competitive process, including how advertising issold, how advertisers choose between suppliers of display advertising andhow suppliers compete;•

evidence on market outcomes in display advertising;•competitive constraints on Facebook;•barriers to entry and expansion;•

how Facebook is able to exploit its market power; and•how Facebook leverages its market power in display advertising into otheradvertising-related markets.

Competitive process
How display advertising is sold
5.115 The display advertising sector can be segmented into two channels: ownedand-operated platforms and the open display market. Owned-and-operated
platforms typically provide social media, which they use to attract consumer
attention and create advertising inventory, which in turn they sell to advertisers
using proprietary interfaces. They gather data on these consumers to enable
advertisers to target specific audiences.
5.116 In the open display market, many publishers (for example, suppliers of news
media and app providers) also attract consumer attention through providing242

content. However, they sell advertising inventory in an open market using acomplex chain of intermediaries, who often run real-time auctions and typicallysupply the data used for audience targeting. The open display market isdescribed in more detail later in the chapter.
5.117 In both these channels advertising is either sold using real-time auctions toallocate inventory, or through direct deals with a price agreed directly between
the advertiser and publisher. Direct deals can either be hosted using the same
programmatic advertising technology used to run auctions or alternatively canbe organised separately. Stakeholders have told us that the vast majority ofdisplay advertising inventory is now sold using programmatic technology.
5.118 Compared with search advertising, there is significantly greater differentiationin the types of display inventory that can be bought by advertisers. In
particular, display advertising can be further segmented by:•ad format – for example, whether advertising content is in video or nonvideo format; and•type of platform or publisher on which the ad is shown – for example,‘social’ display, where the ad is shown on a social media platform, issometimes treated as a separate segment.

5.119 We consider below the extent to which conditions of competition vary acrossthese different segments.
Demand for display advertising and substitutability of different formats
5.120 Our evidence on advertiser demand for display advertising is set out inAppendix N. In summary, we have found that advertiser choice in display
advertising is primarily driven by the objective of targeting increased brandawareness for specific audiences. KPIs for display advertising tend to befocused on the reach achieved with a specific audience group. This meansthat the use of data to identify target audiences is key for display advertising.
However, there is also some evidence that advertisers are increasingly using
display advertising for in-market conversions as well as for more generalbrand awareness.
5.121 Media agencies and advertisers have told us that advertisers are generally
agnostic in their choice across different platforms that sell display advertisingand between using owned-and-operated platforms and the open display
market. Rather, decisions are made primarily based on effectiveness of
meeting KPIs against cost. However, we have found that some smaller243

advertisers that do not use media agencies may prefer to rely solely on
Google’s or Facebook’s ad buying platforms.
5.122 We have also gathered evidence on the extent to which advertisers view
different display ad formats as substitutes. The most important distinction is
between video and non-video formats.
5.123 Facebook argued that there is no strong evidence of segmentation between
video and non-video advertising. It submitted that video and non-video
advertising are substitutable from an economic and functional characteristic
perspective. It also pointed to evidence showing that advertisers on Facebook
choose to target high-level objectives and sub-objectives using both video andnon-video advertising. 372
5.124 Media agencies told us that the decision to use video or non-video withindisplay advertising was typically made early on in the planning process andmay be driven by the decision of how best to convey the advertiser’s
message. Some advertisers stated that choice of format for display will affect
the KPIs of the campaign, which would limit the substitutability between video
and non-video advertising. However, one advertiser told us that both video
and non-video display advertising can be used for both performance andbrand advertising, indicating some limited degree of substitutability dependingon the campaign KPIs.
5.125 On the other hand, we noted that the decision on whether to run a video or
non-video display advert is made very late on in Facebook’s self-service
interface, during the final ‘Ad’ stage which deals with the final ad visualisationand configuration. 373 This may indicate that the interface treats video and nonvideo adverts similarly, as all choices related to campaign objectives, budget
and targeting amongst others are made before the decision on whether avideo or non-video advert will be run.
5.126 Overall, the evidence of substitutability between video and non-video
advertising is mixed. We have therefore considered the position of the main
platforms in each of these segments as part of our competitive assessment.

372 Facebook argues that from an economic perspective, advertisers do not face barriers to switching spend

across these two ad formats and, from a functional characteristic perspective, they can use the same marketing
objectives and tools to target the same audience with both video and non-video advertising. Facebook carried out
some analysis that it argues supports this statement.
373 For further discussion on this, see Appendix N.

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How suppliers of display advertising compete for advertisers
5.127 Compared to search advertising, in which advertising is shown when relevant
to a specific search query, user data plays a much more significant role indisplay as it provides the ability for advertisers to target audiences that might
be interested in the content of the ads. Consequently, access to valuable user
data that enables more granular audience targeting is a key dimension ofcompetition.
5.128 In addition, suppliers can compete directly for advertisers through the qualityof the advertising interface and associated technology.
5.129 Suppliers of display advertising also have flexibility in the extent to which theymonetise consumer attention through the creation of advertising inventory.
They have direct control over the quantity of advertising shown or ad load.
Suppliers of display advertising face a trade-off in deciding how muchinventory to create. A higher ad load may mean greater immediate financial
reward. However, this can come at the expense of the consumer experience
to some extent. Unlike search advertising, which is shown in response to
specific consumer queries, display advertising is typically unwanted byconsumers. This suggests there may be a greater imperative for publishers ofdisplay advertising to limit the quantity of advertising shown so as not to harmthe consumer experience.
Market structure and outcomes in display advertising
5.130 In addition to the market outcomes on the consumer side in social media
described in Chapter 3, we have looked at evidence on various market
outcomes in display advertising. This evidence and the supporting data are set
out in more detail in Appendix C.
5.131 The fragmented nature of the open display market and the fact that advertising
is sold via intermediaries makes the estimation of overall expenditure sharesin display advertising difficulties, shown in Figure 5.9, suggest that Facebook(including Instagram) is by far the largest supplier, with a share of [50-60]% ofonline display advertising expenditure. Facebook has considerably greater
scale than the second largest supplier, YouTube, which has [5-10]% ofadvertising expenditure. 374 In our view this evidence suggests that Facebook
has market power; we consider below the extent to which Facebook faces

374 Facebook submitted that, on the basis of industry estimates of total UK advertising expenditure and including

all advertising channels (digital and non-digital), its market shares in 2018 were between [5-10]% and [10-20]%.
Considering just digital advertising spending (ie search and display advertising combined), its market shareswere between [10-20]% and [20-30]% of UK digital advertising.

245

competitive constraints and potential competitors are subject to barriers toentry and expansion.
Figure 5.9: Shares of expenditure in UK display advertising (2019)

Source: CMA analysis based on parties’ data.
Note: Segments shown in the chart are illustrative, based on mid-points of the stated ranges rather than actual revenue figures.
The ‘other platforms’ segment includes: Amazon, LinkedIn, Pinterest, Snapchat, TikTok and Twitter, each of which have sharesin the range [0-5]%.

5.132 Given that, as noted above, some advertisers may have limited ability to
substitute between video and non-video formats, it is informative to look atshares of expenditure separately for these two segments. As shown in Figures
5.10 and 5.11 below, Facebook (including Instagram) has a [50-60]% share of
online video display advertising and a [40-50]% share of online non-video
display advertising. YouTube is the second largest supplier in video display
advertising, with a [15-20]% share of expenditure. We estimate that the open
display market accounts for around [15-20]% of video and [40-45]% of nonvideo display advertising. Our analysis also shows that there has been a small
shift over the last three years towards video advertising, which is taking an
increasing share of overall expenditure.

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Figure 5.10: Shares of expenditure in UK video display advertising (2019)

Source: CMA analysis based on parties’ data.
Note: Segments shown in the chart are illustrative, based on mid-points of the stated ranges rather than actual revenue figures.
The ‘other platforms’ segment includes: Amazon, LinkedIn, Pinterest, Snapchat, TikTok and Twitter, each of which have sharesin the range [0-5]%.

Figure 5.11: Shares of expenditure in UK non-video display advertising (2019)

Source: CMA analysis based on parties’ data.
Note: Segments shown in the chart are illustrative, based on mid-points of the stated ranges rather than actual revenue figures.
The ‘other platforms’ segment includes: Amazon, LinkedIn, Pinterest, Snapchat, TikTok and Twitter, each of which have sharesin the range [0-5]%.

5.133 We consider other market outcomes, including revenues and prices, in thesection on exploitation of market power in display advertising below.
Competitive constraints on Facebook
5.134 In this section we assess whether Facebook has market power resulting fromits high share of display advertising revenues. We consider the competitive247

constraints that it faces from other sellers of display advertising, and fromwider advertising including search. 375
User side constraints
5.135 Facebook submitted that it competes with other social media platforms andany other platform or content provider seeking to ‘capture the finite supply ofusers’ time’. 376 The greater the time users spend on a platform, the more
attractive it is for advertisers, who will spend their budget where their target
customers are spending their time. Therefore, Facebook argues that it faces asignificant constraint from the user side such that, if ads were excessive or not
relevant, users would switch their time and attention to other platforms.
5.136 Although we recognise that Facebook is to some extent constrained by user
responses, as set out in Chapter 3, Facebook has significant market power insocial media. None of the platforms currently active in the UK’s social media
sector addresses a similarly broad set of user needs and therefore users areunlikely to be able to replace Facebook’s services entirely with anotherplatform if its services were degraded or not improved as expected. Moreover,barriers in social media primarily arising from network effects mean that thethreat of entry and expansion is a limited constraint on Facebook’s behaviour.
As discussed further below, we note that Facebook monetises user attention
to a much greater degree than its rivals.
Competition between display advertising platforms
5.137 Most advertisers told us that they used a range of platforms to buy display
advertising and that different platforms had different relative advantages inachieving advertising KPIs. The platforms most commonly mentioned andranked highest were Facebook, Google DV360 (Google’s demand-side
platform for purchasing advertising in open display) and Twitter. Several
advertisers mentioned YouTube and the Video-on-Demand offerings of ITV,
Channel 4 and Sky, and a few mentioned Amazon, Snapchat, Pinterest andother demand side platforms for purchasing advertising in open display.
5.138 Advertisers and media agencies were consistent in what they saw as therelative advantages and disadvantages of different platforms. Facebook and
Google (DV360 and YouTube) were consistently identified as benefiting from375 Facebook submitted that advertisers switch their spend between channels to maximise their ROI and continue

to do so until the ROI of the marginal unit of advertising is equal across channels. Facebook also stated that
there are businesses and services (eg DSPs, Trading Desks) that help advertisers reallocate spend acrossvarious online and offline advertising channels. We note that there are differences between small and large
advertisers’ behaviours as set out in Appendix N.
376 Facebook’s s.174 response dated 13 September 2019.

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greater reach and ability to target specific audiences, allowing advertisers togenerate greater return on investment from using these platforms. Advertisers
also highlighted various disadvantages of these platforms resulting from a lackof transparency: in the case of Facebook relating to viewability, measurementof advertising outcomes and brand safety, and in the case of Google relating
to transparency over its auctions and concerns about fraud and brand safety.
5.139 Advertisers submitted that some rival platforms had idiosyncratic relativeadvantages. Twitter was highlighted by several advertisers as being especiallyeffective for direct customer engagement and reactive advertising. Snapchat
was highlighted for the flexibility of its creative assets and Amazon for its firstparty data and for its proximity to the point of sale.
5.140 Rivals similarly saw Google and Facebook as the strongest competitors in
display advertising. All of the display advertising rivals we contacted identified
Facebook as a competitor and most of these platforms specified that
Facebook was one of their top two competitors. These businesses also
identified Google as a major competitor, some referring to its ownership ofYouTube, and some also referring to its search advertising or its total scale
across digital advertising as a whole.
5.141 Although all the platforms identified Facebook and Google as their closest
competitors, this does not imply that they impose a significant competitive
constraint on Google and Facebook. For example, LinkedIn noted thatcompetition was asymmetric, whereas Facebook and Google compete with
LinkedIn for most of its advertising revenue, LinkedIn only competes for asmall subset of Facebook’s and Google’s advertising revenue. Google andFacebook also identified each other as key competitors for advertising spend,
but also a wider set of competitors including social media channels (likeSnapchat and Twitter), TV channels, Video on Demand and Amazon.
5.142 Facebook suggested that one of its strengths was in making the advertisingexperience as easy as possible for advertisers to use, so that advertisers ofany size can use it. We found that the vast majority of advertisers on
Facebook are small, although the largest advertisers make up a large share of
Facebook’s total revenue.
5.143 Facebook’s internal documents refer to a range of rivals. All the rivals aredifferentiated from Facebook, but they all compete for consumer attention,
advertising, or both. The competitors which are monitored most frequently are
Google, YouTube, Pinterest, Twitter and Snapchat. Other rivals Facebook
monitors include Amazon, traditional TV and smaller platforms, which aremonitored less frequently.

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5.144 YouTube is active primarily in video advertising and, as we have shown
above, Facebook has a significance presence in this ad format. They may
therefore be closest competitors in video advertising.
5.145 Overall, the views of advertisers, media agencies and suppliers support theview that Facebook has market power in display advertising. However, theyalso suggest that Google (including YouTube) is likely to be Facebook’s
closest competitor. Both Google and Facebook benefit from greater scale andaccess to user data than their rivals. Both platforms face a degree ofcompetition from a range of sources. While Google’s and Facebook’s internal
documents suggest that they are likely to be each other’s closest competitors,
a number of other competitors are also mentioned.
Competitive constraint from other forms of advertising
5.146 Facebook submitted that in addition to the display advertising platforms
discussed above, it competes with providers of search advertising andtraditional (online and offline) advertising media to attract advertising
spending.
•

Competitive constraint from search advertising

5.147 As set out above and in more detail in Appendix N, all media agencies andmost advertisers told us that search and display advertising are notsubstitutable, mainly because they perform different roles within the customer
purchase journey. Search is primarily intent-based advertising designed toconvert into sales consumers who have already shown interest in buying the
product, whereas display is suitable for raising brand awareness and reaching
new audiences. Most advertisers set budgets for search and display
advertising independently and do not allocate them interchangeably. Thesefindings were also reflected in our qualitative survey of smaller advertisers.
5.148 However, an analysis of campaign objective types 377 chosen on Facebook
shows that the majority of impressions and revenue come from action-based
objectives that advertisers use to target specific user actions such as clicks orpurchases (more detail in Appendix C). Facebook also argues that there has
been significant convergence in the characteristics of search and display

377 Campaign objective types include Awareness, Consideration and Conversion and relate to the KPIs theadvertiser is targeting.

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advertising and that search can, equally to display advertising, be used toraise brand awareness. 378
5.149 We note evidence that display advertising, particularly on Facebook, isincreasingly being used for targeting in-market conversions. This may imply adegree of competition between Google and Facebook for those advertisers
wishing to target in-market conversions. However, despite this similarity,
important differences between search and display still exist in that searchadvertising is targeted in response to intent while display is targeted to specificaudiences. In addition, search advertising is unlikely to be a viable alternative
for those advertisers targeting brand awareness. Facebook drew our attention
to some studies showing that search advertising can build brand awareness,but we consider that this limited evidence does not indicate that thiscompetitive constraint is significant at present for most advertisers, given theevidence we received directly from advertisers as set out in Appendix N.
•

Competitive constraint from traditional advertising media

5.150 Some platforms have argued that advertisers can choose between any
advertising media for their campaigns. Facebook pointed to evidence on
increasing shares of advertising expenditure on the internet (to the detrimentof TV and newspaper advertising) and to some academic studies as evidenceof substitutability between these channels.
5.151 Facebook also argued that traditional advertising media, such as TV and cable
companies, are becoming increasingly capable of targeting specific audiences
effectively and, as a result, Facebook increasingly competes with offline
channels for advertising revenue, and this competition is likely to intensify
further in the future. Although this may be the case, we have found that thisconstraint is very limited at present.
5.152 Overall, the evidence we have assessed suggests that there is a long-term
shift from traditional media to display advertising driven by growing use of
online channels by consumers, rather than a substitution effect in response tochanges in competitive dynamics. In addition, as described above, competitive
constraints are likely to be asymmetric, such that traditional advertising may
be constrained by display advertising, without the reverse being the case.

378 Facebook argues that a distinction between different intermediate objectives in display and search advertising

is artificial and that these overlap between search and display advertising. For example, display advertising cantarget consumers that have already shown an interest in buying the product.

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Barriers to entry and expansion
5.153 As discussed in Chapter 3, there have been several recent examples of entry
by display advertising platforms. However, with the possible exception of
Instagram (following its acquisition by Facebook), we note that these platforms
are yet to reach a very significant scale in the supply of display advertising.
This raises the question of whether these platforms face barriers to expanding
to a scale sufficient to impose a material competitive constraint on Facebook.
Suppliers have identified several barriers that need to be overcome for aprovider to be able to compete effectively in display advertising.
User side barriers
5.154 The need for suppliers of display advertising first to grow their user base inorder to gain access to consumer attention and data means that the mostimportant barriers to entry are faced on the consumer side of the market.
Several suppliers of display advertising told us that the way to enter display
advertising was to first offer a compelling platform which captures consumer
attention. Therefore, generating an innovative or engaging product or service
for consumers is the first barrier that needs to be overcome. To maintain theattention of consumers, platforms then need to offer improvements to theirconsumer product position or to offer personalised relevant content. As
described in Chapter 3, the consumer services relevant for supporting digitaladvertising, such as social media, are typically characterised by strong
network effects. These network effects result in very high barriers to entry that
also restrict competition in display advertising.
5.155 Current rivals to Facebook are likely to be limited in their ability to monetisethrough digital advertising, as this may hamper their ability to compete
effectively on the consumer side. This dynamic is supported by Facebook’s
earlier experience of competing with Myspace. 379 As noted in Chapter 3,
Facebook has submitted that its early success in competing with Myspace
was due to Myspace’s focus on maximising advertising revenue, to thedetriment of the consumer experience. By contrast, Facebook has now
reached a much larger scale of users and consequently benefited to a greater
extent from consumer-side network effects.

379 Launched in 2004, Myspace was overtaken in 2008 by Facebook.com. Myspace then quickly lost its userbase, with numbers falling to 73 million users by January 2011 and then to 63 million users in February 2011.

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Advertiser behaviour
5.156 Transaction costs faced by advertisers in using multiple display advertising
platforms appear likely to benefit Facebook and create a barrier to entry forsmaller rivals. As set out above and in Appendix N, the vast majority ofFacebook’s advertisers are small and typically use the platform’s self-service
interface, rather than media agencies, to buy advertising inventory. Throughthe Facebook interface advertisers can access both Facebook and Instagram
inventories, including the smaller Facebook Advertising Network. As
discussed in Chapter 3, Facebook, including Instagram, has a very extensive
reach on the user side and therefore allows advertisers to access a large poolof users who spend lots of time of these platforms.
5.157 We spoke to a range of advertisers during the qualitative research, many ofwhich are smaller advertisers. Some of the reasons mentioned for using
Facebook as the main or only platform were related to its reach on the userside and lack of knowledge of effective alternatives. Some advertisers
mentioned that learning to access and use another interface was also a barrier
to multi-homing.
5.158 We have also heard from larger advertisers, who are more sophisticated intheir digital advertising spending, who did not suggest there was a difficulty inmulti-homing across multiple display advertising platforms. We have foundthat large advertisers are more likely to use media agencies and can moreeasily switch spending across platforms. However, in many cases advertisers
told us that other display platforms were used as complements to Facebook,for example to target particular demographics (eg Snapchat was seen as agood way of reaching younger consumers).
Economies of scale
5.159 There are several inputs required to support a display advertising platform. In
particular, investments need to be made in technology, such as developing a
website/app and back-end functionality to support the platform and technicalequipment (eg servers); facilities, such as offices; and equipment andmarketing, such as launch and brand awareness campaigns. The investments
and fixed costs required to develop and maintain these inputs are likely to giverise to economies of scale. Economies of scale create a cost advantage forlarger rivals over smaller potential entrants, giving rise to barriers to entry.
5.160 Facebook submitted that no minimum scale is required for entrants tocompete effectively. Facebook submitted that its income statements indicatethat while it experienced some economies of scale in its early years, its costs
have grown at a faster rate than its user base over the last decade (from2532009-2018). This suggests that, in aggregate, any economies of scale which
Facebook has benefited from appear to have been largely exhausted in its
early years of development.
5.161 In our view, this evidence does not suggest that no minimum scale is required.
The economies of scale experienced by a display advertising platform aredetermined by the interaction of both the advertiser and consumer sides of its
platform. While user growth on Facebook has slowed, its advertising revenues
per user have continued to grow as it has further monetised its platform tobenefit from historic investments on the consumer side. Facebook submits
that it did generate economies of scale in its earlier stages, which is most
relevant for assessing the prospects of a potential entrant. Further, otherplatforms told us that significant scale is needed for an entrant to be viable in
the long term.
Data advantages
5.162 The academic literature and the evidence we have collected through thismarket study show that consumer data has a significant value to advertisers inthat it allows them to better target audiences. Access to higher quality or moregranular data allows for more precise targeting of more specific audiences.
Granular data is particularly valuable when combined with high reach among
different audience types using the platform, as this allows for relatively large
numbers of very specific audiences to be targeted. These factors can allow
platforms with better data to sell their advertising inventory at higher prices.
This creates a substantial competitive advantage for Google and Facebook,both of which have access to much richer and higher quality datasets andbenefit from much greater scale and reach than their rivals.
5.163 Facebook submitted that platforms do not require access to large volumes ofdata to enter and expand, with any data needed being readily obtainable fromconsumers themselves (when they choose to engage with an online platform)or from a host of other third-party data aggregation providers.
5.164 This view, however, was in contrast with that of many advertisers and media
agencies. Several told us that Google and Facebook offer more granularpersonalised targeting compared to other platforms. Google offers in-depth
targeting options, driven by its unique and vast sources of data. Facebook has
the advantage of offering the ability to target specific audiences based on
demographic characteristics, interests and location. Some advertisers also
singled out Facebook’s remarketing capability. Facebook’s scale allows it toreach a large proportion of advertisers’ known customers, using theadvertiser’s first-party data.

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5.165 The use of data or better targeting of relevant audiences is of direct benefit toadvertisers. However, the inability for smaller platforms and publishers toaccess equivalent user data to Google and Facebook may raise barriers toentry, as it reduces the ability for these rivals to compete on a level playing
field and realise the full value of their advertising inventory.
5.166 Suppliers of display advertising told us that consumer data was a key input
required to target audiences. The more data and the higher the quality of thedata a platform holds, the better equipped it is to provide advertisers withexactly what they want. The majority of these platforms offer free analytics
tools and metrics to advertisers to create and tailor content and to analyse
campaign effectiveness of ads.
5.167 Some rival platforms suggested that accessing consumer data was not an
insurmountable barrier to entry. Some submitted that monitoring consumers
on their platform provides enough data to compete effectively, where sufficient
activity can be tracked across different consumers. Generating scale on the
consumer side of the platform is particularly important because effective
analysis of this data is heavily dependent on gaining enough scale in usergenerated content. However, many publishers we spoke to highlighted theimportance of user data for targeting and attribution and the advantage of thelarge platforms with extensive first-party user data. These issues are set out
further in the section on open display advertising.
5.168 Overall, the evidence suggests that Facebook’s superior access to first- andthird-party data gives it a significant competitive advantage in targeting
advertisers. This allows it to earn higher revenues from advertising thansmaller platforms, as shown in the following section.
Exploitation of market power in display advertising
5.169 This section assesses the impact that Facebook’s market power has on
outcomes in digital advertising. We first discuss Facebook’s ability andincentive to exercise its market power to increase the revenue it receives fromadvertisers. We then set out our evidence of the impact of Facebook’s market
power in practice, which allows it to earn higher revenues from advertisers.
Facebook’s ability and incentive to exercise market power
5.170 Facebook has several levers through which it can affect market outcomessuch as the quantity of advertising and advertising prices. These fall into threebroad categories:•

levers over the quantity and presentation of ads shown;255•levers over the quality/price trade-off; and•levers over auction mechanisms and bid prices.

5.171 Facebook’s incentives over how it flexes these levers are affected by its
market power both on the user side of the platform (ie in social media) and on
the digital advertising side.
Quantity of ads shown and ad presentation
5.172 In relation to quantity of ads shown, Facebook can directly set the ad load bydetermining the ad gap – the ratio of advertising to organic content users see
when interacting with the platform, for example on the Facebook News Feed.
5.173 Facebook and other platforms face countervailing incentives when setting adload. In a competitive market, platforms have an incentive to raise ad load inorder to earn revenue on the advertising side, but also have the opposite
incentive to reduce ad load in order to attract and retain customers on the userside.
5.174 Market power can affect these incentives in two ways. First, Facebook’s
market power on the user side strengthens its incentive to increase ad load.
This is because users are less likely to switch away, given the absence ofalternative platforms providing a comparable service to Facebook and thepresence of strong network effects, even if the increased number of ads
worsens the quality of the platform from users’ perspective. Second,
Facebook’s market power on the advertising side could create the opposite
incentive to limit ad load in order to limit quantity and increase price toadvertisers.
5.175 In addition, the presentation of advertising can influence the propensity forusers to engage with it, for example by affecting the click-through-rate. Higher
click-through-rates will improve the performance of the advertising and its
value to advertisers, increasing advertising prices.
Price/quality trade-off
5.176 Facebook and other display platforms can also control the balance between
price on the advertising side and quality or relevance of adverts shown tousers by choosing how much weight to place on quality metrics in determining
the winning ad. Putting a higher weight on quality and relevance metrics
compared to price is likely to improve the quality of the platform for users,
while a lower weight is likely to result in higher prices and generate more256

revenue in the short term as advertisers compete more directly on price inauctions.
5.177 For example, Facebook selects the winner by ranking ads according to what it
calls ‘Total Value’, which is derived through a combination of three main
components: (i) the advertiser bid: which reflects the value the advertiser iswilling to pay to achieve their desired outcome; (ii) the estimated action rate:
an estimate of whether a particular person engages with or converts from aparticular ad; and (iii) the relevance and quality component: a measure of thequality of an ad, determined from many sources including feedback frompeople viewing or hiding an ad and assessment of low quality attributes in thead.
5.178 If they face greater competition to attract users, platforms will have an
incentive to put relatively more weight on quality rather than price. This isbecause users would switch away to another platform if the relevance andquality of the ads were low, so the platform would lose revenue even if it wereable to charge a higher price for each advert. In turn, the value of advertising
to advertisers would also decrease.
5.179 However, Facebook’s market power entails that it is less constrained bycompetition on the user and advertiser sides. It thus faces a greater incentive
to reduce the importance of the quality or relevance score in determining thewinning bid, thus increasing its revenue.
Auction mechanisms and bid prices
5.180 Finally, Facebook and other platforms may exploit market power throughadvertising auctions. Where a display advertising platform has market power,
the lack of substitutable alternatives will mean that advertiser bids in its
auctions are higher, resulting in higher prices.
5.181 In addition, Facebook and other platforms control several auction parameterswhich can affect prices. These include setting bid prices on bidders’ behalf
through automated bidding tools such as pacing.
5.182 Facebook’s market power in digital advertising increases its incentive to use
these levers to increase price, because it is less constrained by the threat ofadvertisers switching away if they achieve a lower than expected return on
investment. This might particularly be the case for smaller and potentially lesssophisticated advertisers; we note that the vast majority of Facebook’s UKbased advertisers who targeted exclusively UK-based users in 2019 ([over 1
million] in total) spent less than £5,000 a year.

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Evidence of Facebook’s exploitation of market power
5.183 In the following section we set out evidence of the impact of Facebook’s
market power in display advertising. We have assessed: the changes overtime in Facebook’s monetisation of its display platforms and how thiscompares with other platforms; evidence from advertisers and other third
parties; and evidence of the use of defaults to change advertisers’ behaviour.
Trends in Facebook’s advertising revenues
5.184 Facebook’s revenue is significantly higher than that of other social media
platforms and has steadily increased in the past nine years. Over this time
Facebook’s UK revenues have increased from [around £100 million] in 2011 to[more than £2 billion] in 2019.
5.185 This increase in revenue can be partly explained by an increased number ofusers. However, Facebook’s annual revenue per user has also increased verystrongly from [£0-5] in an early growth stage in 2011 to £[50-60] in 2019, asshown in Figure 5.12. It is now more than ten times higher than thosecompetitors for which we have been able to obtain robust UK data. 380 The
revenue per user for Instagram (owned by Facebook) is lower than that ofFacebook but has also risen rapidly since the introduction of ads in the UK in2014 and was around £[20-30] per user in 2019.
Figure 5.12: Average annual revenue per user for selected platforms (2011-2019)

Source: CMA analysis based on parties’ data.

380 Note that we have not presented revenue per user hour for LinkedIn and Twitter in Figure 5.12 as theirrevenues were attributed to the UK on the basis of (believed) advertiser location, while user numbers arerecorded on the basis of user location.

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Note: Users have been accounted by monthly average users (MAU).

5.186 Even taking account of the increasing time spent by users on its platform,
Facebook has been able to almost double the rate at which it monetizes user
attention over the past three years. Similarly, Instagram’s average revenue perhour of consumer time spent on the platform has increased more than
threefold over five years, in the period since Instagram introduced ads in the
UK in 2014.
5.187 In our view, Facebook’s substantially greater revenue per user and per timespent compared to rival platforms is consistent with Facebook exploiting its
market power.
Ad load and presentation of ads
5.188 One driver of the revenue figures we observe is the number of ads served tousers. The number of impressions served per hour on Facebook has
increased from [40-50] in 2016 to [50-60] in 2019. This increase in ad load
partly explains why Facebook’s revenue per hour is greater than otherplatforms and has increased in the past four years.
5.189 In the past five years Facebook has also introduced new types of ads such as
the slideshow video ad format, click to Messenger ads in Newsfeed andFacebook Marketplace, and ads in Stories. In addition, Facebook can change
different features of the presentation of its ads such as height, dimensions of
buttons and text and image aspect ratio.
5.190 Documents discussing research assessing the impacts of these changes
show that even small changes in presentation may have a significant impact
on ad performance and revenue. For example, one document shows thatremoving the ‘Suggested Post’ label from ads in Feed on mobile increase
click-through-rates for mobile feed ads by [] and revenue for mobile feed
ads by []. Another document shows that increasing image aspect ratio from
1.91:1 to 1:1 on the Facebook Feed leads to a [] increase in user’s’ clickthrough-rates for event-based ads and [] increase in Facebook’s eventbased ad revenue.
Evidence on advertising prices
5.191 One of the main ways that Facebook’s market power could manifest itself on
the advertising side is through higher prices to advertisers. In display
advertising, advertisers can target a range of objectives, from raising brandawareness to increasing user consideration and triggering user conversions.
Prices can therefore be measured in different ways depending on the259

objectives targeted – cost per impression (CPM), cost per click (CPC) or cost
per action (CPA).
5.192 As shown in Figure 5.13 below, platforms’ average prices on a CPM basis
vary significantly. Comparisons of CPM across platforms need to beinterpreted with caution as they do not necessarily compare like with like.
Differences in prices may be driven by various factors, including differences inadvertising format, user base or advertising customers.
5.193 Facebook’s average CPM has increased over the last four years at asignificantly greater rate than its rivals. It is higher than that of most otherplatforms over the same period, with the exception of Twitter which has similar
prices to Facebook. On the other hand, Instagram’s average CPM has only
risen slightly over the period and is broadly in line with the average of otherplatforms.
Figure 5.13: Average monthly CPM for selected platforms, 2016-2019

Source: CMA analysis based on parties’ data.
Note: Three-month moving average shown in the chart for confidentiality reasons.

5.194 Facebook submitted that CPM is not an appropriate measure of price to use in
our assessment as it does not accurately reflect return on investment (ROI),
which is the objective that advertisers ultimately care about. It said that abetter proxy for measuring ROI is CPA, which measures the cost of achieving
a given action, eg a sale, or CPC. Facebook submitted that, on a CPA basis,its prices have remained broadly flat over the past four years. It told us that
Facebook’s increasing CPM reflects improvements in Facebook’s ability togenerate clicks and conversions, which mean that its advertising has become
more valuable on a per-impression basis.

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5.195 We agree that, where advertisers are seeking to generate specific user
actions, CPA or CPC will be a more relevant measure of price from theadvertiser perspective. We also note that Facebook is increasingly being usedby advertisers for conversion targeting. However, Facebook appears to be an
outlier in this respect; advertisers told us that they generally use display
advertising for more general brand awareness. Where advertisers havebroader objectives, CPM continues to be a more appropriate measure of price.
Overall, we consider there is merit in considering each of the different pricing
measures in combination, and that CPM remains informative, as well as being
the basis on which most display advertising is sold.
5.196 We have carried out our own assessment of trends in Facebook’s CPA overthe past four years and have found that there has been no clear trend overtime. For example, the price per action of ‘offsite conversions’ has decreased
over the past four years, whereas the CPA for ‘offsite clicks’ has increased.
We have not been able to compare Facebook’s CPA prices with those of otherplatforms on a like-for-like basis because, as explained in Chapter 3, social
media platforms are differentiated, so users’ actions differ between platforms.
5.197 We have also analysed trends in CPC, as described in Appendix C.
Facebook’s average CPC has increased over the past four years, while the
CPC of Instagram has been falling. We have not been able to gather evidence
from other platforms on a comparable basis, so we cannot conclude onwhether Facebook’s prices measured in CPC are higher or lower than its
competitors.
5.198 Overall therefore, the evidence on prices is somewhat mixed. Facebook isable to charge significantly higher prices on a CPM basis than most rival
platforms, but we interpret this comparison with some caution as it may notcompare like with like. More significantly, we note that Facebook’s prices haverisen to a considerably greater extent than other platforms on a CPM basis.
This may reflect the benefits of its superior ability to target users and achieve
conversions, or its ability to exercise market power on the advertising side, orsome combination of the two.
Views of advertisers and other third parties
5.199 Advertisers we spoke to during the market study broadly confirmed the trends
in prices and monetisation outlined above. The qualitative research carried out
by Jigsaw found that some advertisers believe that their ROI (return on
investment) on Facebook has been falling over time and that to achieve thesame results they need to increase their spending on Facebook compared tothe previous year. This suggests that, at least for some advertisers, prices
have increased without corresponding increases in ROI.
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Use of defaults to change advertiser behaviour
5.200 We have also reviewed Facebook’s advertiser interface, Facebook Ads, toassess whether it is exploiting behavioural biases to nudge advertisers into
choices which might allow it to earn higher revenues. This analysis is set out
in Appendix N.
5.201 We have found that there are ways in which Facebook can influence
advertisers’ choices when setting up and running campaigns on Facebook
Ads, for example through default settings. For example, we note that [90100]% of UK advertisers on Facebook keep the default auto-bidding feature,
which does not allow advertisers to specify a maximum bid. 381 In principle, thismay allow Facebook to influence advertiser choices in a way that results ingreater revenue for Facebook at the expense of higher costs foradvertisers. 382 Moreover, small advertisers who spend relatively little on
platforms are likely to be less sophisticated in their bidding strategies andmore inclined to stick to default and pre-settings. We note that the vast
majority of advertisers on Facebook are small advertisers, although theyaccount for a minority of Facebook’s revenue.

Competition in open display
5.202 This section sets out our analysis of competition in open display advertising,where publishers sell inventory via ad tech intermediaries. The section covers
the following:•

We first briefly describe the roles of the different intermediaries in the adtech stack and summarise how publishers’ inventory is sold.

•We then set out our findings on competition in different parts of theintermediation chain. We show that Google has a high market share in the
key stages of the intermediation chain, and in most cases faces limitedcompetitive constraints. We also present evidence on the level of fees
paid by advertisers and publishers.

•

Third, we assess the concerns that integration between advertiser andpublisher-facing intermediaries can lead to conflicts of interest. We
describe the conditions under which conflicts of interest are more likely tobe problematic.

381 CMA calculations based on Facebook data.

382 It is possible that advertisers who do not specify a cost control may in certain circumstances pay foradvertising where the cost is higher than the amount they are prepared to pay and may in fact lead to negative
ROI.

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•

Finally, we set out the issues relating to Google’s position in open display.
We show how Google has been able to build a position in advertisingintermediation through acquisition and by leveraging from its owned-andoperated digital advertising business. We also consider whether theprovision of advertiser and publisher-facing services can lead to conflictsof interest and allow Google to reinforce its market power within the adtech stack.

5.203 Issues relating to lack of transparency in the ad tech stack are consideredfurther in the later section on cross-cutting issues. The evidence and analysis
supporting the findings in this section of the chapter are set out in more detailin Appendix M.
How digital advertising intermediation works
5.204 From the perspective of advertisers, open display forms part of the display
market described in the previous section – it provides an alternative channel
for buying display advertising inventory alongside the ‘owned-and-operated’
platforms. In contrast to the walled gardens of Google, Facebook and otherplatforms, in the open display market a wide variety of publishers, such as
newspapers and other content providers, compete against each other in realtime to sell inventory to advertisers. To achieve the complicated task of
selecting an ad to be served to an individual in real time and establishing theprice to be paid for doing so, advertisers and publishers rely on a range ofintermediaries.
5.205 The intermediation ecosystem has evolved into a complex chain of specialised
providers fulfilling the functions described above. 383 On the demand side, themain participants in the ecosystem include:•

Advertiser ad servers – used by advertisers and media agencies to store
the ads, deliver them to publishers, keep track of this activity and assess
the impact of their campaigns by tracking conversions.

•

Demand Side Platforms (DSPs) – provide a platform that allows
advertisers and media agencies to buy advertising inventory from many

383 This section deals with intermediation in display advertising. The European Commission, in the context of its

Google Search (AdSense) case, has defined a market for online search advertising intermediation, whereintermediaries provide search adverts to publishers whose websites have a search function embedded. The
European Commission found Google to have a dominant position in that market and to have abused it byimposing a number of restrictive clauses in contracts with third-party websites which prevented Google's rivals
from placing their search adverts on these websites (see the Press release). We do not analyse the market for
online search advertising intermediation in this report.

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sources. DSPs bid on impressions based on the buyer’s objectives andon data about the final user.
5.206 On the supply side, several intermediaries perform activities included in the‘publisher sales’ function:•

Supply Side Platforms (SSPs) – provide the technology to automate thesale of digital inventory. They allow real-time auctions by connecting tomultiple DSPs, collecting bids from them and performing the function of
exchanges. 384 They can also facilitate more direct deals between
publishers and advertisers.

•

Header bidding solutions – allow publishers to send ad requests to, andreceive bids from, multiple SSPs simultaneously, making SSPs compete
against each other for each impression.

•

Publisher ad servers – manage publishers’ inventory and are responsible
for the decision logic underlying the final choice of which ad to serve,
based on the bids received from different SSPs (possibly through header
bidding solutions) and the direct deals agreed between the publisher andadvertisers.

5.207 The advertising ecosystem also includes further participants involved in theprovision and management of data and in advertising analytics:•

Data suppliers – provide data that can be used to augment the user data
already possessed by advertisers and publishers and enhance the abilityof targeting advertising to specific types of audiences.

•

Data Management Platforms (DMPs) – allow other participants along thevalue chain (advertisers, DSPs, SSPs and publishers) to manage andanalyse their data, integrate it with third-party data, and use it to create
audiences that can be used for targeting purposes.

•

Measurement and verification providers – their specialist services areused by advertisers to measure the performance and impact ofadvertising campaigns.

5.208 A simplified version of the supply chain is provided in Figure 5.14.

384 Advertising exchanges used to be separate from SSPs. The two functions, however, have largely been

merged into the same operators.

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Figure 5.14: Simplified scheme of the intermediation value chain

Source: CMA.

5.209 Table 5.1 maps the various functions listed above to the intermediaries that
perform them in the current open display ecosystem. 385
Table 5.1: Intermediation functions and providers
FunctionTargeting function
Advertiser advisory function
Publisher sales function
Verification, attribution and evaluation
Delivery

Providers
DMPs, DSPs
Media agencies, DSPs
Publisher ad server, SSPs
Measurement and verification providers, advertiser ad server
Advertiser ad server, publisher ad server

Source: CMA.

5.210 In broad terms, the process of selling inventory works in the following way.
When a user opens a webpage (or uses an app), the publisher’s ad server
sends a bid request to SSPs for the advertising space available on the web
page. In turn, the SSPs send bid requests to multiple DSPs. DSPs evaluate
the advertising opportunity based on the objectives of the campaigns of theiradvertisers and send bids to the SSPs. SSPs then rank the bids received
based on price and on priority levels that may have been set by the publisher
and send their winning bids to the publisher. Finally, the publisher ad servercompares bids received from SSPs, together with any pre-existing direct deals
between the publisher and specific advertisers, and decides which ad to serveon the webpage.
5.211 While this general process applies to all programmatic transactions, there aremany variants which differ in the ways in which SSPs are contacted andsubmit their bids and in the type (if any) of pre-existing agreements between
the publisher and advertisers. One important development was the emergencefrom around 2015 of header bidding solutions, allowing the publisher tocompare bids from multiple SSPs simultaneously. The evolution of the open
display ecosystem is described in more detail in Appendix M.

385 These intermediaries may also perform additional ancillary functions not included in the list.

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Market structure and outcomes in open display
5.212 There is no single market for advertising intermediation, but rather a series ofvertically related markets providing different complementary functions. The
following paragraphs provide an overview of competition among providers ofadvertiser ad servers, DSPs, SSPs, header bidding solutions and publisher ad
servers, including our estimates of market shares and the fees charged.
5.213 We have found that the industry has been consolidating in recent years, with
supply increasingly concentrated in a small number of large providers at eachlevel of the value chain. Google has the strongest position at each part ofchain, particularly in publisher ad serving (where it accounts for [more than90]% 386 of display ads served in the UK). There appears to be relatively
stronger competition at the DSP and SSP level, but Google has significant
shares in these markets as well ([50-60]% of the value of ads purchased
through DSPs, and [50-60]% of the value of ads sold across SSPs and ad
networks). 387 Finally, there has been an increasing trend towards vertical
integration, with providers fulfilling more than one function; Google is the mostobvious example, but several other providers are also vertically integrated
across different parts of the chain.
5.214 Our evidence on aggregate fees suggests that on average publishers receive
around 65% of initial advertising revenue that is paid by advertisers (ie theoverall ‘ad tech take’ is around 35%). In practice, this is likely to be anunderestimate and publishers’ share may be lower than this. 388
Competition at different stages of the ad tech stack
Advertiser Ad Servers
5.215 The market for advertiser ad serving is very concentrated. The main provider
is Google, through its Campaign Manager service; we estimate that thisaccounts for [80-90]% of the ads served in the UK. Other competitors include
Adform, Flashtalking, Innovid and Sizmek (acquired by Amazon in May 2019).

386 We exclude ads served by ad networks and consider only those providers that have been mentioned to us as

possible alternatives to Google Ad Manager.
387 We include Google AdX, Google Ad Sense and Google AdMob in our definition of SSPs and Google DV360
and Google Ads in out definition of DSPs. Share estimates at SSP and DSP levels have been computed basedon data from the intermediaries we received information from. As our coverage is not complete, Google shares
may be over-estimated.
388 Our analysis of ad tech fees is described in Appendix R.

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Table 5.2: Estimated shares of supply for advertiser ad servers (2019)
Advertiser ad server
GoogleFlashtalking
Sizmek (Amazon)
AdfromInnovid

Market share (as % of the total impressions served)[80-90][10-20][0-10][0-10][0-10]

Source: CMA analysis of advertiser ad servers’ data.

5.216 Advertisers typically use a single ‘primary’ ad server. However, a ‘secondary’ad server is sometimes used to execute specific creative management
functions. According to some stakeholders, switching costs can be significant,especially for advertisers with complex ad serving and reporting needs. There
are, however, recent cases of large UK advertisers switching provider in amatter of weeks.
5.217 One of the main functions of advertising ad servers is analysing theperformance of campaigns and the role that specific channels play inconversions. This is currently done through the use of identifiers (eg cookies)
and requires sharing data with other intermediaries in the ad stack. It has beenargued by one provider that data protection regulations may incentivise
advertisers to remain within Google’s ad stack, as sharing data between
multiple intermediaries becomes more difficult. Google’s decision to end
support for third-party cookies in Chrome within two years might have a major
impact on third-party ad serving, if Google can utilise its logged-in user baseas an alternative to cookies, not available to competitors.
DSPs
5.218 There are many DSPs operating in the UK. Some of the largest include
Google’s DV360 and Google Ads, The Trade Desk, Xandr DSP, Amazon DSP
and Criteo. As indicated in the Table 5.3, Google operates the two DSPs withthe largest share of supply, in terms of value of ads purchased, with a
combined share of [50-60]%. DV360’s share has been increasing between
January 2018 and December 2019.

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Table 5.3: Estimated shares of supply of DSPs (2019)
DSP
Google DV360
Google Ads
The Trade Desk
Xandr
CriteoAmazon DSP
Others (Quantcast, Verizon Media, Adobe,
DataXu, Adform)

Market share not including Google
Ads (as % of value of ads purchased)[40-50]N/A[10-20][0-10][0-10][0-10][10-20]Market share including Google Ads(as % of value of ads purchased)[30-40][10-20][0-10][0-10][0-10][0-10][0-10]

Source: CMA analysis of DSPs’ data.

5.219 Although larger advertisers and media agencies often use multiple DSPs
across advertising campaigns, typically a single DSP is used for a given
campaign, as this allows the advertiser to manage frequency caps389 over theentire campaign and facilitates audience management and reporting. Some of
the large advertisers we engaged with during this study told us that they useda single main DSP across all their campaigns – typically Google’s DV360. The
main reasons given for single-homing on Google were: access to inventory,
and in particular unique access to YouTube inventory; the possibility of crosschannel optimisation across search, display and YouTube advertising; andholistic data integration with Google Analytics and the ability to de-duplicate
data from across the Google stack, allowing a more accurate picture ofeffectiveness.
5.220 Smaller advertisers, on the other hand, especially those which mainly
advertise on Google Search, are likely to single-home on Google Ads fordisplay advertising, as Google Ads includes both Search and Display Networkby default when an advertiser sets up a campaign on Google Ads.
SSPs
5.221 SSPs can be broadly divided into three groups: generalist SSPs, such as
Google AdX (part of Google Ad Manager), Index Exchange, OpenX,
PubMatic, Rubicon Project and Xandr SSP; specialist providers, such as
TripleLift, Sharethrough and Teads, which specialise in particular ad formats
such as native display or video; and ‘content discovery platforms’, such as
Taboola and Outbrain, which are given exclusivity over some space on the
publisher’s webpage to recommend sponsored content, articles and videos.
5.222 We have computed two estimates of shares of supply: one including all
publisher-facing intermediaries (SSPs and ad network) and one for ‘pure’
SSPs only. In both cases, Google is the largest provider in terms of value of389 ‘Frequency’ refers to the number of times a user is shown an ad over a period of time. As there aredecreasing benefits for advertisers in repeatedly exposing a user to same message, frequency caps are typically
imposed.

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ads sold in the UK, with a share of approximately [50-60]% for publisher-facing
intermediaries and [50-60]% for SSPs alone. The analysis in Appendix C
shows that the proportion of ads sourced from AdX has been increasing year
on year between 2017 and 2019.
Table 5.4: Estimated shares of supply of across all publisher-facing intermediaries (2019)
SSP/Ad network
Google AdX
Google AdMob
FAN
Google AdSense
Xandr
Teads
TaboolaOthers (Rubicon Project, Index Exchange, Outbrain, OpenX,
Pubmatic, Triplelift, Smart, Freewheel, Verizon Media)

Market share (as % of the total value of ads sold)[20-30][10-20][10-20][0-10][0-10][0-10][0-10][10-20]Source: CMA analysis of SSPs’ and ad networks’ data.

Table 5.5: Estimated shares of supply of across all SSPs (2019)
SSP
Google AdX
Xandr
Rubicon
Others (Index Exchange, OpenX, Pubmatic, FreeWheel,
Smart, Verizon Media)

Market share (as % of the total value of ads sold)[50-60][10-20][0-10][10-20]Source: CMA analysis of SSPs’ data.

5.223 Since the introduction of header bidding, which, as we saw above, allows
publishers to simultaneously send ad requests to multiple SSPs, all major
SSPs have access to much the same inventory and compete head-to-head foreach single impression. Header bidding has arguably lowered barriers to entry
for new SSPs, and has also led to increasing commoditisation of the SSP
function, making price and service the key differentiators (rather than accessto unique inventory) and putting downward pressure on SSPs’ margins.
Header bidding solutions
5.224 Header bidding solutions can be divided into open-source and proprietary.
Several providers offer header bidding services built on Prebid’s open source
technology. The main providers of proprietary header bidding services are
Google, Amazon and Index Exchange; the most widely adopted solution is
Google’s Open Bidding, which was introduced by Google as an alternative toother header bidding solutions and is integrated with its publisher ad server.
5.225 One of the main advantages of Google’s Open Bidding is the close integration
with the rest of Google’s ad stack. The ease of integration of SSPs throughOpen Bidding results in publishers often wanting to test smaller SSPs via
Open Bidding before dedicating the resource to integrate them through aPrebid solution. If an SSP using Open Bidding wins the final auction for the ad269

impression, Google charges it 5% of its bid, which increases to 10% for app
and video inventory.
5.226 Some stakeholders submitted that header bidding solutions may increasinglyoffer ad server-like functionalities, competing against the ad server as theprimary publisher technology solution.
Publisher ad servers
5.227 The market for publisher ad serving is very concentrated, with Google Ad
Manager accounting for [more than 90]% 390 of the display ads served in the
UK. Other providers include Freewheel and Smart, but their presence as
publisher ad servers in the UK market is marginal, as shown in Table 5.6.
Table 5.6: Estimated shares of supply for publisher ad servers (2019)
Publisher ad server
Google Ad Manager
Freewheel
Verizon Media
Smart

Market share (as % of the total impressions served)[90-100][0-10][0-10][0-10]

Source: CMA analysis of publisher ad servers’ data.

5.228 The number of alternative providers has decreased recently with OpenX,
Open Ad Stream, and Verizon Media deciding to stop providing a publisher ad
server product.
5.229 Publishers typically single-home on one ad server, although it is possible tohave a secondary ad server in addition to the main one. This appears to be
the solution adopted by some publishers whose primary ad server is not
Google Ad Manager in order to have access to Google’s demand.
5.230 Publishers generally told us that switching ad server is a complex and lengthy
process which takes several months to complete and involves significant risksof revenue loss. In addition to the direct costs of switching, there areoperational risks and the possibility of demand losses resulting from thetransition.
Vertical integration
5.231 Several operators in the advertising intermediation ecosystem provide morethan one service along the value chain. One industry participant told us thatvertical integration has become the preferred method for rapid growth in thedigital advertising industry. The largest companies are either acquiring smaller

390 We exclude ads served by ad networks and consider only those providers that have been mentioned to us as

possible alternatives to Google Ad Manager.

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companies along the supply chain or building extensions of their own platformstack into new parts of the supply chain. Recent examples include
FreeWheel’s expansion from ad serving into SSP through the acquisition of
StickyAds in 2016; Adobe’s expansion into the DSP market through theacquisition of TubeMogul in 2017; and Amazon’s launch of a header bidding
solution in 2018.
5.232 The case of Google is noteworthy because not only does it operate along theentire value chain, but it also has the largest shares of supply amongproviders at each level of the chain.
Figure 5.15: Google’s roles in advertising intermediation

Publisher

Google share[90-100%]

Google share[50-60%]Google share[50-60%]Google share[80-90%]Publisher
Ad Server

SSP

DSP

Advertiser
Ad Server

Sell side

Advertiser
Buy sideLargepublishers

Largeadvertisers

Smallpublishers
Mobile App
publishers

Smalladvertisers

Source: CMA.
Note: We include Google AdX, Google Ad Sense and Google AdMob in our definition of SSPs and Google DV360 and Google
Ads in our definition of DSPs. Share estimates at SSP and DSP levels have been computed based on data from theintermediaries we received information from.

5.233 Google’s presence across the ad tech stack was initially driven by a series ofacquisitions, as set out in Box 5.1. Google’s suite of products has developed
significantly over time; it is notable that Google integrated several existingproducts rather than developing its position organically.

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Box 5.1: Google’s acquisitions in ad tech
Google’s most significant acquisitions in ad tech include:•

DoubleClick (April 2007) – Publisher ad server and ad exchange; formed thebasis of Google’s ad server and AdX (now Google Ad Manager).

•

AdMob (November 2009) – Technology for serving ads on apps; formed thebasis of Google’s AdMob product.

•

Invite Media (June 2010) – Media buying optimization technology for the
display advertising market; evolved into Google’s main DSP product, Google
DV360.

•

AdMeld (June 2011) – Supply Side Platform; integrated into Google AdX.

•

Adometry (May 2014) – Analytics and attribution provider; integrated into
Google Analytics to provide improved attribution services.

Google has also made more recent acquisitions in the ad tech space, including
mDialog, Directr, Toro and Famebit.

5.234 Vertical integration can give rise to technical efficiencies. For example, vertical
integration between advertiser ad server and DSP can result in a morestreamlined workflow and more seamless data sharing. Integration between
DSPs and SSPs can improve the matching of data on users between theadvertiser and publisher side, reducing the reliance on imperfect cookiematching. 391 And integration of publisher ad servers with an SSP can improvereporting capabilities and reduce publishers’ operational overheads. However,integration can also raise concerns about conflicts of interest and leveraging ofmarket power, as discussed below in the context of Google’s position in ad
tech intermediation.
Ad tech fees
5.235 One of the concerns frequently raised by publishers and advertisers relates tothe proportion of advertising revenues in open display which go to theproviders of intermediation services. These concerns were highlighted byvarious public bodies who called on us to undertake this study. We have

391 As cookie IDs are specific to each provider, if the DSP and SSP are operated by different providers a processof cookie matching is required in order for the DSP to identify the relevant consumer information to associate to agiven impression. This process is prone to failure and can result in approximately 30% failed matching.

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gathered data on ad tech fees from several sources, described in more detailin Appendix R.
5.236 We have received data about fees and charges from most of the majorintermediaries that operate in the UK. These intermediaries reported to us
aggregated data for 2019 on all fees they charged for the provision ofintermediation services, as well as the amount of open display advertisingexpenditure that passed through them. We used this data to estimate theaverage take rate by intermediaries at various levels of the open display
advertising supply chain as a percentage of the initial expenditure byadvertisers. The results of this analysis are presented in Figure 5.16 below.
5.237 Based on this evidence, we estimate that on average publishers receive
around 65% of initial advertising revenue that is paid by advertisers (ie theoverall ‘ad tech take’ is around 35%). However, in practice publishers’ share
may be lower than this on average because:•

There may be additional charges by categories of intermediaries otherthan those covered by our analysis. Most notably, our analysis does notcover fees charged by trading desks392 or third-party providers of data or
advertising verification services. 393•

Where ads are sold through Google’s Open Bidding, there will be an
additional charge imposed by Google, typically 5% of the SSP’s bid.

•

There may be hidden fees such as post auction bid shading, notaccounted for in our analysis.

•

Our estimates do not take into account any revenue lost to publishers
through digital ad fraud. However, a number of advertisers and agencies
told us that the scale of ad fraud was less than 2% of impressions.

392 Although we do not specifically isolate trading desk costs, our estimate for DSP charges will capture someelement of trading desk charges as many of these offer these kinds of ‘managed services’.
393 In some cases, third-party data and ad verification services are purchased and though DSPs. Where this is
the case, then the charges for these services will be included in the DSP element of our analysis.

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Figure 5.16: CMA analysis of take rates across the open display supply chain

Source: CMA analysis of intermediary data.

5.238 Comparisons between our estimates of the take rate for the open display
supply and the estimates from previous studies should be made with caution
as those studies employ different methodologies and use very different
samples. However, the results of our analysis are broadly consistent withthose produced by other studies:•

The recent ISBA/PWC study finds that publishers receive on average amuch lower percentage of advertising expenditure (51% compared to65%). However the study was unable to attribute around 15% of
advertising expenditure, as in many cases the winning bid recorded by the
DSP did not match the gross revenue recorded by the SSP. The
difference between our estimates is almost entirely explained by this socalled ‘unknown delta’. 394•

The Plum study commissioned by the Department of Media, Culture andSport, published in January 2019, 395 found that publishers receive asimilar amount of revenue on average (62% compared to 65%).

•

A study commissioned by the US Association of National Advertisers(ANA) and published in 2017 396 found that, on average, buy-side charges
equated to 28% of overall advertising expenditure. Our estimate is thatbuy-side fees are equivalent to 23% of overall advertising expenditure.
One possible explanation for the difference in the estimates is that the

394 As we explain in Appendix R, some of the categories that are suggested by the ISBA/PWC study as making

up the ‘unknown delta’ may also not be reported in the fees/charges data provided to us.

395 Plum, Online advertising in the UK, January 2019.

396 ANA, Programmatic: Seeing Through the Financial Fog, May 2017.

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ANA estimate includes an element equivalent to 9% of advertising spend
for data fees, some of which will be charged by third-party data providers.
Our analysis does not cover fees charged by third-party providers unlessthey are charged via a DSP.
5.239 Given Google’s position in the ad tech stack, we carried out further analysis of
its fees and how these compare with those of other intermediaries. At anaggregate level, we found that the fees charged by Google for its
intermediation services, both on the buy- and on the sell-side, are similar to
those of its competitors. This is the case also for Google Ads, which does not
charge an explicit fee to advertisers5.240 We also heard concerns from some publishers that Google (and other ad techintermediaries) might be able to charge hidden fees, for example by taking an
additional margin at points in the transaction chain.
5.241 To test this, we analysed a data set containing event-level information for all
Google Ad Manager open auctions related to web traffic in the UK (based onuser location) in the period from 8 to 14 March 2020. 397 The data coveredaround [] billion bids across [] billion auctions of individual ad
impressions. For each winning bid, the data set included the amount paid by
the advertiser into the DSP (only for Google DSPs) and the amount paid out tothe publisher from Google Ad Manager. This allowed us to observe the end-toend payments from advertiser to publisher where Google intermediaries wereused – including any possible ‘hidden’ fees which would not be visible to either
the advertiser or the publisher.
5.242 Our analysis found that, in transactions where both Google Ads and Ad
Manager (AdX) are used, Google’s overall take rate is approximately 30% of
advertisers’ spend. 398 This is broadly in line with (or slightly lower than) ouraggregate market-wide fee estimate outlined above. We also calculated themargin between the winning bid and the second highest bid in AdX for Google
and non-Google DSPs, to test whether Google was systematically able to win
with a lower margin over the second highest bid (which might have indicatedthat they were able to use their data advantage to extract additional hiddenfees). We found that Google’s average winning margin was similar to that of
non-Google DSPs. Overall, this evidence does not indicate that Google is397 See Appendix R for more detail of this analysis.

398 Take rate is an issue we have engaged extensively on during the market study. Shortly before publication ofthis report Google published some analysis of their Google Ads take rates, similar to some of the analysis that wehave undertaken in Appendix R. See: Google Ad Manager How our display buying platforms share revenue withpublishers.

275currently extracting significant hidden fees. As noted below, however, it retains
the ability and incentive to do so.
5.243 Overall, we note that intermediaries are performing valuable functions,
including targeting advertising and evaluating bids from multiple demandsources in real time. However, the fact that intermediaries are able to takemore than a third of the total amount paid by advertisers raises legitimate
concerns about whether the intermediation chain is operating efficiently. While
it is difficult to estimate what overall fee levels would be in a more competitivemarket, 399 we anticipate that stronger competition would drive greater
innovation and put downward pressure on fees.
5.244 We also note that many of the concerns about ad tech fees relate to the lackof transparency in the ad tech stack which makes it very difficult foradvertisers and publishers to audit and verify the fees they are being charged;
we consider the issues raised by lack of transparency later in this chapter.
Vertical integration and conflicts of interest
5.245 As described above, providers have increasingly been integrating different
services within the advertising intermediation chain. While this integration
might create some efficiency benefits, there are also concerns that integration
could lead to the potential for conflicts of interest, particularly where anintermediary is operating on behalf of both advertisers and publishers. Some
commentators have suggested that advertising intermediation should betreated similarly to financial markets, with stronger regulation to prevent
intermediaries operating on both sides of the market. 400 In response to theseconcerns, we have considered the conditions under which integration mightraise conflict of interest concerns.
How conflicts of interest can arise
5.246 Ad tech intermediaries typically act as agents for either an advertiser or apublisher, making decisions and taking actions on its behalf. In this context,
conflicts of interest describe situations where the intermediary can potentiallygain by taking actions that adversely affect the advertiser or publisher on
whose behalf it is acting. Conflicts of interests can emerge when a single
provider operates at multiple levels of the intermediation chain on both the buy

399 Arete Research has noted that the ad tech take is ‘orders of magnitude more than sub-1% total trading costs
in more transparent financial markets’. However, ad tech trades are much higher volume and lower value thantypically financial trades, and on a ‘per trade’ basis, ad tech fees appear to be lower than financial trading
execution costs. See Appendix R for further discussion.
400 See Arete Research’s response to our consultation on the Interim Report.

276

and the sell side, and where the advertiser and publishers on whose
behaviour they act are unable fully to scrutinise their behaviour. 401
5.247 Ad tech intermediary functions involve complex activities, where theadvertisers and publishers have limited ability to fully evaluate the quality ofthe service they receive and where the providers have significant informational
advantages. Conflicts of interest, therefore, cannot be fully avoided. However,
the extent to which such conflicts may harm customers will depend on:•

the degree of information asymmetry between intermediary andcustomers;•

customers’ sophistication, the ease with which customers can compare
different providers, and switching costs;•

the extent to which the intermediary is subject to strong competition, inparticular from non-conflicted competitors; and•any efficiencies that compensate for conflicts of interest.

Forms of vertical integration that are more likely to lead to conflicts of interest
5.248 These general considerations allow us to assess what forms of vertical
integration are more likely to give rise to harm to publishers or advertisers as aresult of conflicts of interest.
5.249 In the current ad tech ecosystem there are multiple types of intermediaries
involved in the publisher sales function – SSPs, header bidding solutions, andpublisher ad servers. They differ in terms of the activities they perform and,crucially, on the degree of competition they are subject to. Intermediaries who
have a ‘final say’ over how a publisher’s inventory is allocated tend to be
subject to more limited competitive constraints. In the current ecosystem, thisis the role of the publisher ad server, which is responsible for the decision
logic underlying the final choice of which ad to serve.
5.250 Once adopted by a publisher, a publisher ad server vertically integrated with a
DSP may be able to favour its own source of demand in a way that potentiallyharms the publisher without significant risks, as:•

DSPs that are discriminated against cannot reach the publisher except
through the ad server; and401 Conflicts of interest can also emerge when a provider of verification, attribution and evaluation services also

operate in an advertiser advisory function, or is itself a publisher. These cases are discussed in Appendix M.

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•

publishers have limited visibility over how the ad server operates, while
the integration of the ad server with the publisher’s own systems results insignificant switching costs.

5.251 As a result, the integration within a single provider of a DSP and of a publisher
ad server is likely to be particularly problematic. Such a provider could favour
its own advertiser advisory services with limited risk of publishers switching toalternative providers and limited countermeasures available to competingintermediaries. These concerns are more serious if the integrated provider has
significant market power in the provision of at least one of the functions it
integrates, as this would increase publishers’ cost of switching provider.
5.252 The integration of only an SSP and a DSP (without a publisher ad server)
appears less problematic in principle, as competition between SSPs
significantly reduces their incentive to discriminate against competing DSPs.
Following the widespread adoption of header bidding, many publishers multihome with several SSPs which compete against each other for each single
impression. Multiple SSPs therefore have access to the same inventory, giving
DSPs alternative routes to reach the same publisher.
5.253 The ad tech ecosystem is not static: it has reached its current structure
through sequential changes and innovations, and is likely to continue tochange. 402 In particular, recent proposals envisage a future structure whereauctions will be run on the user’s browser (in particular, Google is consideringremoving third-party cookies from Chrome, as discussed further in the section
on data below). In a scenario where browsers have a ‘final say’ over inventory
allocation, the integration by the same provider of a browser and a DSP could
be very problematic, as neither publishers nor competing DSPs would haveany control over the browser chosen by the user, with the result that they will
be unable to react if the provider favours its own DSP.
5.254 In relation to the possibility of vertically integrated DSPs favouring their own
sources of supply to the detriment of advertisers, the incentive to do so is
likely to be weaker where DSP customers are more sophisticated, since they
will be aware of the potential for conflicts of interest, have tools to compare theperformance of different DSPs and could switch between DSPs in the event ofconcerns. The assessment, however, would be different if a verticallyintegrated DSP serves many small customers, which tend to be lesssophisticated, or has particular advantages in terms of data or exclusive
access to inventory that make the services of competing DSPs not goodalternatives. In this case, the market power deriving from these advantages

402 For a description of the past evolution of the ad tech ecosystem, see Appendix M.

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could shield a DSP favouring its own supply sources from countermeasuresby its customers.
Implications for our assessment
5.255 Based on the analysis above, we do not believe that there is a case forintervention in all cases of vertical integration between advertiser andpublisher-facing functions. Intervention is unlikely to be necessary where theintermediaries do not have market power. However, where an intermediary
has market power in one part of the intermediation chain, conflicts of interest
can lead to an incentive to self-preference between the advertiser andpublisher-side functions. We consider the implications for Google’s position in
the open display market in the following section – in particular, in relation to
Google’s ability and incentive to leverage its market power within theadvertising intermediation chain.
5.256 Finally, the perception of self-preferencing within vertically integrated
intermediaries can create inefficiencies even if no actual self-preferencing
takes place. For this reason, it is important to provide sufficient transparency
to allow market participants to monitor the behaviour of intermediaries. We
discuss transparency issues in the ad tech stack in a later section.
Issues arising from Google’s position in open display
5.257 As set out above, Google has a very strong position in open display. Thissection considers the concerns that this might raise.
5.258 The first set of concerns relates to the way Google has leveraged its strong
position in search advertising and its wider ecosystem into the open display
market. Google has been able to use its market power in search to build its
position as a DSP, including through leveraging its wider data and large baseof advertisers, and through tying some of its owned-and-operated inventory(notably YouTube) to its DSP services. It has also built a position on the
publisher side, initially through the acquisition of DoubleClick and otherintermediary businesses.
5.259 The second set of concerns relates to Google’s conflicts of interest within thead tech stack and its ability and incentive to exploit its position on both sides of
the intermediation chain to self-preference its own activities, thereby
reinforcing its market power.
5.260 After setting out these two sets of concerns, we consider what impact
Google’s market power in ad tech might have and whether it could lead toworse outcomes for advertisers or publishers.
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Leveraging market power from the wider ecosystem
5.261 This section describes how Google has been able to leverage its strong
position in search advertising and its wider ecosystem into the open display
market.
5.262 As set above, Google’s presence across the ad tech stack was initially driven
by a series of acquisitions of publisher-facing services including DoubleClick,
which formed the basis for Google’s publisher ad server, now part of Google
Ad Manager. In addition to these acquisitions, Google has been able toleverage its position from its wider ecosystem into open display in several
ways: through leveraging its owned-and-operated inventory and advertiser
base; and by using data from its wider ecosystem to provide targeting andattribution services in open display.
Leveraging Google’s owned-and-operated inventory
5.263 We concluded earlier in this chapter that Google has substantial market power
in search advertising. It also has a strong position in in display advertising,particularly in the video segment, through its YouTube platform. YouTube
accounts for around [5-10]% of total display advertising revenues and is thesecond largest supplier in the video segment with a [10-20]% share of
expenditure.
5.264 Google can leverage the importance of YouTube for advertisers to increase its
market power in the DSP market by allowing advertisers to buy YouTube
inventory programmatically only through DV360. This restriction affects
advertisers’ choices of DSP for non-Google inventory as well because, as
discussed above, a single DSP is typically used for a given campaign. As aresult, advertisers who want to include YouTube inventory in their campaigns
have a strong incentive to use DV360 for the entire campaign. As we haveseen above, access to YouTube is one of the main reasons why advertiserschoose DV360; several DSPs submitted that exclusive access to YouTube
provides a very significant advantage to DV360 and creates a barrier to thegrowth of competitors.
5.265 Google submitted that restricting third-party access to YouTube inventory is
the best way to maintain the privacy of user information and to ensure that theads appearing on YouTube are of a consistently high quality. On user privacy,
we recognise that third-party DSPs with access to YouTube inventory could
build profiles based on users’ viewing history, as currently happens for all
publishers that rely on intermediaries to sell their own inventory. However,Privacy Enhancing Technologies (PETs) have been proposed by Google itself

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to allow targeted advertising without user profiling; 403 similar solutions could
be adopted for YouTube as well. As for Google’s claim that widespread thirdparty ad serving could make it harder for Google to scan for ‘bad’ ads, wehave received detailed submissions from other stakeholders, discussed inAppendix M, suggesting that Google would have the tools to address theissue, as is typically done by publishers.
5.266 Finally, Google told us that YouTube integration with third-party DSPs would
be complex and expensive. YouTube auction dynamics are complicated: they
do not only consider advertiser bid, but also optimise for campaign goals andconsider user experience factors such as types of ads recently viewed andlikelihood to watch a video to the end. It would be challenging to integrate realtime bidding in this context. No existing Google buying channels allow for realtime bidding. The costs of a third-party DSP integration are likely to be
substantial and require significant engineering resources.
Leveraging Google’s advertiser base
5.267 Google can also leverage its search advertiser customer base through Google
Ads to strengthen its position in the DSP market. Google Ads is the main route
through which advertisers, especially smaller ones, buy Google’s search
inventory. Advertisers using Google Ads for their search campaigns can easily
extend the scope of their campaigns to display advertising. Indeed, Google
Ads includes both Search and Display Network by default when an advertiser
sets up a campaign on Google Ads, as explained in Appendix N. Moreover,
Google Ads makes it extremely easy for small advertisers to build a display
ad, offering a free tool for creating it and even providing pre-made images thatcan be added to text ads. By providing a one-stop shop solution for those
advertisers who genuinely want to make use of both search and display
advertising, and by nudging other small advertisers into using display ads
through default settings, Google has managed to leverage part of its searchadvertiser base to increase its importance as a source of demand in open
display.
Leveraging Google’s data advantages
5.268 As discussed above and more fully in Appendix F, Google has exclusive
access to a large amount of user data that can be used for targeted
advertising and for measuring advertising outcomes, collected through its
consumer-facing services. Data collected on its search platform is particularly
valuable for targeting purposes in open display as it reveals users’ purchasing

403 See Appendix G for a detailed discussion of tracking technologies and PETs.

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intent. Moreover, the availability of log-in data allows Google to identify all thecomputers and mobile devices associated with a user, associating all the data
about the user to a single user ID. The use of Google’s proprietary data andaudiences was mentioned by advertisers and media agencies as one of themain strengths of DV360.
5.269 Google submitted that it is not the only platform with access to user data; forexample, Facebook and Amazon have extensive user data that can be used
for targeting purposes. However, we note that Facebook has a relatively small
presence in open display through the Facebook Audience Network (FAN),
which is typically offered to advertisers in addition to Facebook’s owned-andoperated properties and not on a standalone basis. Conversely, Google’s
DV360 is the largest DSP and offers access to a very wide range of third-party
inventory. Amazon’s presence in open display is also much smaller than
Google’s. Amazon’s DSP is likely to be an attractive solution for advertisers in
the retail sector, but less so for those operating in other industries. On theother hand, Google’s data is likely to be valuable to advertisers operating in awide range of industries.
5.270 Overall, stakeholders’ submissions suggest that the competitive advantagethat Google’s DSPs obtain from access to unique data is currently lesssignificant that that resulting from exclusive access to YouTube inventory. Thisis because non-Google DSPs have alternative sources of data at theirdisposal: they can learn about users from their browsing activity, placing thirdparty cookies on publishers’ websites, and can buy data from third-party data
brokers. However, as a result of data protection regulation and increasing
restrictions on the use of third-party cookies, we have concerns that Google’s
data advantage may become more significant in the future.
Google’s ability and incentive to leverage market power within open display
5.271 The section assesses concerns that Google has the ability and incentive to
exploit its position on both sides of the intermediation to self-preference its
own activities, thereby reinforcing its market power. This relates both toconcerns about conflicts of interest and to Google’s incentives to engage in
exclusionary conduct.
5.272 As we have seen above, Google is the largest provider at each stage of the adtech stack. It satisfies all the conditions we have discussed above for conflictsof interests to be problematic:•

Google is overwhelmingly the largest provider in publisher ad serving,while at the same time operating the largest DSPs.

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•

DV360, one of Google’s DSPs, has an advantage over competitors
because of its exclusive access to YouTube inventory and, possibly,
because of its access to data from Google’s user-facing services.

•

Google Ads serves a large number of small advertisers, either attracted
by the possibility of buying both search and display inventory from thesame platform or nudged into buying display advertising through Google
Ads’ default settings; these advertisers would find it costly or difficult toswitch to different providers.

•

In a future scenario where auctions are run by browsers, Google would bein the position of integrating the most commonly used browser (Chrome)with the largest DSPs.

5.273 In the following paragraphs we discuss how these conflicts of interest may
manifest themselves in practice, and how Google may leverage its market
power across the ad tech stack through various forms of self-preferencing
behaviour, both harming its customers (especially publishers) and making it
difficult for alternative providers to compete on the merits.
Leveraging market power from DSPs to the publisher ad server
5.274 Several stakeholders expressed the concern that Google has made it difficult
to access its advertiser demand (especially from Google Ads) throughalternative publisher ad servers, thereby increasing its market power in adserving and making it difficult for other providers to compete on the merits.
This concern relates to a possible manifestation of the conflicts of interest
Google is subject to by operating on both the buy- and the sell-side: Google
reduces its DSPs’ ability to compete for the inventory of publishers using nonGoogle ad servers, in a way that potentially penalises its own advertiser
customers but creates an incentive for the adoption of Google’s publisher ad
server. The concern can be divided into two parts:•

Google allegedly engages in self-preferencing behaviours between its
DSPs and its SSP (AdX), therefore extending its market power from the
DSP market to the SSP market; and•Google then allegedly makes it difficult to access AdX from non-Google
publisher ad servers, therefore increasing its market power at the adserver level.

5.275 On the first point, the evidence, discussed in Appendix M, suggests theexistence of a degree of self-preferencing between Google’s DSPs and SSP,
although it is difficult to establish how significant its impact is. Nevertheless, it283

is clearly the case that a lot of the demand from Google’s DSPs, andparticularly from Google Ads, is channelled through AdX. Data for the period
September 2018 to August 2019 show that the aggregate value of theimpressions won by Google Ads through AdX was [several] times that ofimpressions won through third-party SSPs. For this reason, and given theimportance of Google Ads and DV360 as a source of demand, publishers
place a high premium on being able to access AdX demand. Restrictions on
publishers’ ability to access AdX through non-Google ad servers would
therefore have a substantial impact on their choice of provider.
5.276 On the second point, although AdX can receive requests from, and submit
bids to, other ad servers, its demand cannot be easily placed in real-timecompetition with that from other SSPs. Unless an SSP is vertically integrated
with the publisher ad server, the only way for it to compete with other SSPs
with real-time bids is through a header bidding solution (or, if a publisher uses
Google Ad Manager, through Google’s Open Bidding). AdX, however, does
not participate in header bidding. As a result, if the publisher uses a nonGoogle ad server, AdX would not participate in a real-time auction with other
SSPs, but would compete with an ‘expected’ price, which determines the orderin which SSPs are sent an ad request. This system is inefficient for the
publisher. 404 While other publisher ad servers may provide a technical solution
to integrate AdX demand, this is not as efficient as header bidding andpresents several limitations, as discussed in Appendix M.
5.277 Google told us that its decision not to participate in header bidding had nothing
to do with seeking to force publishers to use Ad Manager. Instead, AdX does
not participate in header bidding for reasons that include latency, lack oftransparency, user trust and privacy concerns. We address each of thesereasons in Appendix M, showing that none of them appears convincing:•

Although it is true that header bidding, especially user-side header
bidding, adds latency to a webpage, the participation of an additional SSP
would not materially increase latency.

•

Lack of transparency in header bidding should be a concern for the
publishers, not for Google. If, despite transparency limitations, publishers
still think that header bidding allows them to better monetise theirinventory, there is no reason why AdX should not participate.

•

None of the DSPs or media agencies responding to our request for
information was particularly concerned by the risk of disclosure of their bid

404 For a discussion of the ‘waterfall’ system in which SSPs are contacted sequentially, see Appendix M.

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data in header bidding, indicating that buyers do not see header bidding
as raising particular privacy concerns.
5.278 Google has argued that its proprietary version of header bidding, Open
Bidding, minimises the issues listed above. Although this may well be thecase, this is not a reason for AdX not to participate in other forms of header
bidding if publishers still want to use them.
5.279 The effect of channelling most of Google’s demand through AdX and linking
AdX to Google’s publisher ad server is to increase the barriers publishers facein switching from Google to a different ad server, reducing competition in adserving. The main concern some publishers expressed around switching to a
non-Google ad server was not related to the costs and risks discussed above,
but to the risk of not being able to access demand from AdX in an efficientmanner.
Self-preferencing between Google’s publisher ad server and its demandsources5.280 Several publishers and intermediaries have expressed concerns that Google
may be able to use its position as the largest publisher ad server to favour its
own demand from AdX and its DSPs. In this further manifestation of its
conflicts of interest, Google would be potentially penalising its own publisher
customers while incentivising the use of its own buy-side intermediaryservices.
5.281 In the following paragraphs, we first describe the advantage that AdX
historically had over other SSPs (the so called ‘last look’), before analysing
whether current practices and recent changes to how Google’s ad server
works may still favour AdX over its rivals. The issues we analyse relate to therules of Google’s Open Bidding, the recently introduced unified pricing rules,
and the sharing of auction data between Google’s different intermediation
services, with non-Google intermediaries and with publishers.
•

Last look5.282 Following the introduction of header bidding, AdX had a ‘last look’ advantage
over header bidders, ie bid requests received by AdX included as a price floor
the highest bid from the header bidding auction. This gave AdX an advantage285

as it could win the impression by submitting a bid only slightly higher than thehighest bid from header bidding. 405
5.283 In 2019, Google made several changes to the way its publisher ad server
works, introducing a unified first-price auction in which the highest bid fromheader bidding SSPs, the DSPs bidding into AdX, and the SSPs participatingin Open Bidding all take part. As part of this transition, Google took the policy
decision to remove AdX’s ability to observe the bids submitted by header
bidding SSPs before running its own auction. While the decision to remove
AdX’s ‘last look’ advantage should lead to a fairer competition between
different SSPs, some publishers told us that the bidding information theyreceive from Google Ad Manager does not allow them to effectively verify thatthe auction is conducted fairly. They are therefore required to trust that Google
operates the system in the way it has announced. 406•

Open Bidding

5.284 Open Bidding is Google’s proprietary version of header bidding. Google’s
documents show that a major reason for its introduction was to protect
Google’s revenues from the impact of header bidding, while providing aservice that publishers could benefit from. Open Bidding was designed in a
way to avoid creating an alternative route directly competing with AdX and to
disadvantage third-party SSPs:•

Open Bidders are charged a fee when they win an impression (5% or
10% of the value of the winning bid, depending on the type of inventory).
While this is a remuneration for a service that Google is providing, it
places Open Bidders at a disadvantage compared to AdX.

•

An SSP that also operates a DSP cannot submit through Open Bidding
bids originated from its own DSP, but can only submit them through AdX.
This restriction, which does not apply to AdX, may on the one hand
disadvantage third-party vertically integrated SSPs and, on the other
hand, avoid the risk that DSPs could bypass AdX by bidding directly into
Open Bidding.

•

Short timeouts might reduce SSPs’ ability to submit a bid and competewith AdX, further encouraging DSPs to rely on AdX. However, theevidence we have received on this issue is mixed.

405 ‘Last look’ was not intentionally designed to give AdX an advantage when competing against header bidding;it was simply the result of the header bidding auction taking place before the AdX auction was able to run.
406 See Damien Geradin and Dimitrios Katsifis (2020) ‘Trust me, I’m fair’: analysing Google’s latest practices in ad
tech from the perspective of EU competition law, European Competition Journal, 16:1, 11-54.

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•

Unified pricing

5.285 In conjunction with the transition to a unified first-price auction, Google
introduced changes to the way publishers are allowed to set floor prices.
Specifically, publishers using Google Ad Manager are no longer allowed to set
different floor prices for different buyers (eg SSPs or DSPs). The new rules tosetting floor prices are referred to as Unified Pricing. While is not strictly
speaking a case of self-preferencing behaviour, as the new rules force
publishers to treat all SSPs and DSPs in the same way, Google’s documents
show that one of the main motivations for this change was to increase AdX
competitiveness and Google demand’s win rate. This is because, before therecent changes, several publishers were setting higher floor prices for Google
than for other sources of demand.
5.286 We have identified various reasons why it might be optimal for a publisher toset different floor prices for different sources of demand, and in particular fordifferent DSPs. This strategy, for example, could be adopted by publishers (i)to limit bid shading 407 by DSPs that are known to have a larger mass ofadvertiser demand or to have an advantage in terms of user data; (ii) to
reward relationships with longstanding partners; or (iii) to disadvantage lowerquality demand partners. Therefore, while we have seen limited evidence that
this change has harmed publishers in the short term, it seems clear that
restricting their ability to set differential floor prices is not in their interest.
•

Preferential use of data

5.287 A recent change introduced by Google Ad Manager is the ‘minimum bid to win’
– a new piece of information sent to AdX and to Open Bidders after an auction
is completed. These bidders receive information on the minimum bid thatwould have allowed them to win an auction (typically, if a bidder has lost theauction, the ‘minimum bid to win’ would be the winning bid; if a bidder has won
the auction, the ‘minimum bid to win’ would be the second highest bid).
Although this information cannot be used to bid on the same auction, as it isprovided ex post, it is useful for training bidding algorithms for future auctions.
Some stakeholders have argued that, since SSPs bidding through non-Google
header bidding solutions do not receive this information, this provides an
incentive for SSPs to use Open Bidding instead, and therefore be subject to
the Open Bidding charge.

407 Bid shading is the practice of submitting a bid lower than the bidder’s willingness to pay. Bid shading

characterises optimal bidding strategies in first-price auctions.

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5.288 Our analysis suggests that Google’s decision to provide ‘minimum bid to win’
information was based on a genuine intention of making the auction more
efficient and did not reflect an exclusionary intent. Nevertheless, it has
resulted in an advantage to AdX, which is the only SSP currently able to makefull use of this information, compared to third-party SSPs and header bidding
solutions, although we received contrasting views on the significance of thisadvantage.
5.289 Finally, some stakeholders told us that, due to Google’s double role as
publisher ad server and SSP, Google’s SSP AdX could benefit from privileged
access to bidding data. Based on the information we received in the course of
the study, it appears that it would be technically possible for Google to use
bidding data collected as publisher ad server to inform its bidding strategies,
and that Google has an incentive to do so (at least in the short term). Google
told us that it has adopted a policy not to take advantage of this possibility, atleast since the move to a unified auction. Nevertheless, it would be possible
for Google to reverse such a policy decision in the future. Moreover, thecurrent lack of transparency over auction mechanisms makes it difficult toverify that Google is abiding to its own rules. Again, other market participants
are required to accept these assurances on trust.
•

Restrictions to auction data shared with publishers

5.290 Some publishers submitted to us that Google’s recent changes to the bidding
data they receive from Google Ad Manager limit their ability to compare theperformance of non-Google SSPs versus AdX. As a result, SSPs will find it
increasingly difficult to demonstrate how they add value for publishers, while
publishers will have less incentive to sustain the costs of integrating nonGoogle SSPs through header bidding.
5.291 We analyse this concern in detail in Appendix M. The changes were made to
avoid the disclosure of buyer data in connection with non-winning bids if thatdata can be tied back to individual users. They were motivated [], and by
privacy considerations. The documents we have reviewed suggest that thechanges introduced by Google were not motivated by a desire to penalised
third-party SSPs but were the result of the necessity to balance the needs ofpublishers with the interests of advertisers. Google’s engineers believed thatthese [].
5.292 Although publishers have still access to a lot of auction data, their inability tomatch bidding data with the outcomes of individual auctions may limit theirunderstanding of the demand landscape. Moreover, alternative methods tocompare SSP performance, such ad A/B testing, may not provide an288alternative to the insights that can be obtained from the full bid landscapedata.
•

Conclusions on self-preferencing between Google’s publisher ad server
and its demand sources

5.293 The transition to a unified auction in Ad Manager has levelled the playing field
between AdX and non-Google SSPs, by making all of them compete in thesame auction. Nevertheless, some current practices may still result in anadvantage for AdX and Google’s DSPs. In some cases, such as the ‘minimum
bid to win’ data, the advantage appears to be a by-product of efficiencyenhancing innovations. In other cases, however, changes were introducedwith the explicit purpose of benefitting Google.
5.294 Moreover, the lack of transparency and auditability of auction mechanisms
makes it difficult for publishers and advertisers to verify that Google is abiding
by its own rules.
Effects of Google’s market power
5.295 In response to the concerns set out in our interim report, Google has argued
that its presence in open display is beneficial to advertisers and publishers
and that there is no evidence that it is exploiting its market power. It noted that
open display represents a relatively small source of revenue for Google. 408 It
also argued that its returns from intermediation are low compared with otherparts of its advertising business, and there is no evidence that it is able toextract higher fees than its competitors.
5.296 A recent paper written by Google’s advisers argues that it has a strong
incentive to provide efficient and competitive services to publishers in open
display because its core search services rely on the quality and diversity of
online content across the web. It argues that any incentive to extract higher
fees from publishers by exploiting its market power in intermediation would beoffset by the detrimental impact this could have on the profitability of its searchbusiness. 409
5.297 As noted above, our analysis of Google’s ad tech fees suggests that they arebroadly in line with those of other DSPs and SSPs. We have not foundevidence that Google is systematically charging higher prices or is currently
extracting significant hidden fees. However, we agree with publishers and408 In the UK in 2018, Google made net revenues of £[100-500] million from its advertising intermediation

services in open display.
409 Bitton and Lewis (2020), Clearing up misconceptions about Google’s ad tech business.

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advertisers that lack of transparency over fees makes it very hard to audit andverify outcomes; we consider this below in our discussion of transparency
issues in digital advertising.
5.298 In some parts of the ad tech stack, namely in advertiser and publisher adserving, there is anecdotal evidence that Google has adopted an aggressive
pricing strategy, charging significantly less than its direct competitors andleading to an overall reduction in fees in those markets. This is indeed one of
the reasons why Google managed to achieve very high shares of supply in adserving. At least in the short term, therefore, Google’s pricing strategy may
have benefited publishers and advertisers, although it has led to a significant
reduction in the number of competitors, especially in publisher ad serving.
5.299 However, Google’s position and behaviour in open display is still a source ofconcern for three reasons. First, Google could decide to increase fee levels in
future once its strong position is consolidated. As discussed above, Google
has now achieved a leading role in publisher and advertiser ad serving in the
UK and is the largest competitor at both SSP and DSP level, and has theability and incentive to use this market power.
5.300 Second, the reduction in competition in parts of the ad tech stack could also
have dynamic effects, with a reduction in pressure to innovate and create new
products which could ultimately harm advertisers and publishers. In the longterm, this effect is likely to be among the most significant impacts of Google’s
current behaviour.
5.301 Third, there is also the possibility that part of Google’s reason for establishinga strong position in open display is to protect its position in other markets. For
example, entry into open display could be a way to protect Google’s searchadvertising business from potential competition if Google envisages a trend
towards greater convergence of search and display advertising. In this case,gaining a powerful position in the open display ecosystem could pre-empt the
emergence of a competitor in that space that could become a threat toGoogle’s market power in search advertising. While advertisers and media
agencies currently consider search and display advertising as largely
complementary, Google has observed that advances in ad technology (suchas remarketing) have made various ad formats more substitutable.

Cross-cutting issues: data, transparency and publisher
relationships with the platforms
5.302 This section draws together and expands on some of the key cross-cutting
issues described above, and which have featured prominently in some of thebroader policy debate. It covers:290•the data advantages of the large platforms and the impact of dataprotection regulation;•

concerns around a lack of transparency in relation to the operation of
auctions, fees and advertising verification and attribution; and•publishers’ wider relationship with the large platforms and potential
exploitation of bargaining power.

5.303 The way in which data protection regulation is interpreted is likely to have an
increasingly important impact on the structure and functioning of the digitaladvertising market over the next few years, while transparency issues andconcerns around the ability of newspapers and other publishers to bargain
effectively with large platforms were at the heart of the calls for us toundertake this market study.
Data advantages of the large platforms and impact of data regulation
5.304 One of the key themes in our analysis of search and display advertisingmarkets is the role of data for targeting and attribution, and the competitive
advantages that this gives to large platforms with extensive first-party sourcesof user data.
5.305 The use of data for targeting and attribution can create efficiency benefits andadditional value for advertisers. However, it can also act as a barrier tocompetition if potential competitors do not have access to equivalent sourcesof data. Further, many people have concerns that the flows of data required
for targeting involve an unacceptable degree of intrusion and disregard forpeople’s rights to privacy.
5.306 This section highlights the sources of the large platforms’ data advantages
which can create barriers to entry in digital advertising. It then discusses theinteractions between the platforms’ data advantages and privacy regulation.
Sources of large platforms’ data advantages
5.307 In the discussion of barriers to entry in search advertising, we noted that
Google’s extensive first-party data is likely to give it substantial advantage
over smaller rivals, creating a barrier to entry for potential rivals. Advertisers
on Google can target search advertising to particular audiences (and haveconfidence in the composition of those audiences), allowing improved
performance for their advertising. Similarly, in relation to display advertising,
the evidence suggests that Google’s superior access to first- and third-party
data gives it a significant competitive advantage over smaller platforms and291

publishers. Data collected on its search platform is particularly valuable fortargeting purposes in open display as it reveals users’ purchasing intent.
5.308 Facebook also has access to valuable first-party data from users’ interactions
on its social media platform. It can infer users’ likely demographic attributes,
preferences and behaviours from their interactions on its leading social media
platform, but also from their friends’ and families’ interactions as well. This
enables Facebook to collect a greater quantity and variety of high-quality datathat is useful for advertising to obtain insight on their audiences and to target
advertising.
5.309 In addition, Appendix G sets out our assessment of the large platforms’
advantages in user tracking. Currently, tracking is undertaken for many
activities which enhance the efficiency of digital advertising, such as targeting,attribution and evaluation. Large incumbent platforms, such as Google andFacebook, have greater opportunities to track and collect data on users thanother advertisers, publishers and ad tech providers as a result of the reach of
their first-party platforms, and their extensive third-party data sources.
5.310 By contrast, it is generally difficult and costly for advertisers to assemble
information on consumers from their own first-party data and other third-party
data providers. Google and Facebook have extensive reach, and Google inparticular has very valuable data (purchasing intent data from its searchservice) on consumers that can be used to target advertising. Google andFacebook do not provide access to this data on open data exchanges, so the
only way for advertisers to get (indirect) access to it and use it for targeting is
to use Google and Facebook’s ad management tools.
5.311 As a result, third-party publishers are incentivised to use Google’s, and to alesser extent Facebook’s, advertising services. Many publishers of websites
and apps also include code (tags, pixels or SDKs) that allow Google andFacebook to track the behaviour of their users to target ads and measure adeffectiveness. In doing so, third-party publishers enable Google and Facebook
to obtain even more data about consumer behaviour, including on non-Google
and non-Facebook properties, which further reinforces their ability to targetand deliver high performing ads.
5.312 Finally, both Google and Facebook do not allow advertisers and independent
third-party providers of measurement and attribution services to collect userlevel data from ads shown on their owned and operated inventory (ie in thewalled garden). This hurts independent attribution providers and gives anadvantage to Google and Facebook’s own ad tech and analytics services (seethe section below on ‘Transparency in relation to verification and attribution’).

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Interpretation of data protection regulation by large platforms
5.313 In this market study we have heard concerns that large platforms use dataprotection regulations such as GDPR as an excuse to restrict access tovaluable data for third parties, while retaining it for use within theirecosystems, thereby consolidating their data advantage and entrenching theirmarket power.
5.314 The Furman Review (2019) made public that it had received concerns that
GDPR was ‘enabling large digital companies to impose unduly strict
compliance duties on smaller firms, serving to reinforce their own dominancein the process’. 410 Similar concerns have been raised with us in the context of
this study.
5.315 As discussed in Chapter 2, platforms have a vital gatekeeper function in thedigital economy, mediating relationships between consumers and businesses
in a wide variety of markets. We have found that, by virtue of this position andtheir market power, large platforms such as Google and Facebook
increasingly appear to be acting in a quasi-regulatory capacity in relation todata protection considerations, setting the rules around data sharing not justwithin their own ecosystems, but for other market participants.
5.316 Our concern is that such platforms have an incentive to interpret dataprotection 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.
Concerns we have heard
5.317 Professor Damian Geradin submitted that that GDPR ‘effectively strengthened
the position of the platforms on digital advertising markets to the detriment ofother intermediaries, but also advertisers and publishers’ 411 while the NewsMedia Association submitted that publishers have struggled to resist attempts‘by global tech companies to force unfair terms on them through the newconsents regime’. 412
5.318 The Daily Mail Group told us that ‘while the GDPR inter alia aimed at placingsome limits on the way digital platforms collect and process personal data,
these platforms turned this regulation to their advantage’ and that GDPR has

410 Furman Review (2019), Unlocking digital competition, paragraph 4.42, page 124.

411 Prof. Geradin’s response to our consultation on the Statement of Scope, page 12.

412 News Media Association’s response to our consultation on the Statement of Scope, page 5.

293given Google the ‘freedom to do what they want with data collected throughpublishers, while threatening not to serve ads to any publishers which do notsatisfactorily obtain consumers’ consent on their behalf’. 413
5.319 We have been told of multiple examples where the large platforms havestated, using privacy regulation as a basis, that they are not able to share or
allow access to data. We have explored a number of these concerns above
and in Appendix O, including recent concerns that Google has removed timestamp data from bid requests, which may harm publishers’ ability to compete
effectively in the open display market, and Google’s decision to prevent the
DoubleClick user IDs being accessed by ad buyers, which may impede
advertisers’ ability to make use of independent attribution modelling and crossplatform measurement of reach and frequency.
5.320 Whilst platforms may be reasonable in acting cautiously in setting rules forsharing data with third parties, the GDPR also imposes a test for sharing data
within their own ecosystems. The evidence suggests that within these ‘walled
gardens’ the platforms appear to take a more permissive view of dataprotection regulation, and choose to combine and share data between
functions expansively. The browser company Brave submitted to us that ‘Data
protection law is inimical to internal data free-for-alls in vertically integrated
platforms. Google and Facebook’s data advantage arises from a lack ofenforcement of data protection law by data protection authorities.’ 414
Chrome announcement on third-party cookies
5.321 Google announced in January 2020 that it intended to phase out support for
third-party cookies in Chrome within two years. This is an important market
development that is a further example of platforms’ increasing role in deciding
on the appropriate application of data protection regulation for other market
participants.
5.322 The phasing out of support for third-party cookies in Chrome, which has abrowser market share of approximately 50% in the UK in October 2019, may
have significant implications on the availability of data and the targeting abilityof its competitors. In Google’s proposals, the demise of third-party cookies will
be subject to the development of privacy-preserving and open-standard
mechanisms to address the needs of users, publishers, and advertisers, called‘Privacy Sandbox’.

413 DMG Media response to our consultation on the Statement of Scope, pages 4 and 12.
414 Brave’s response to our consultation on the Interim Report.

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5.323 As explained in Appendices F and G, third-party cookies are the current
principal means of achieving common identification of users on websites, andare therefore a fundamental building block of the open display advertisingused by publishers, making possible the flow of data about users through thedigital advertising ecosystem needed to target advertising and measure
conversions.
5.324 However, targeting using first-party data and authenticated user data does not
require cross-site tracking and is unaffected by the demise of third-party
cookies. Therefore, large incumbent platforms with leading consumer-facing
services like Google and Facebook are significantly less dependent on thirdparty cookies for delivery of high-performing targeted ads and continued
advertising revenues than, for instance, small publishers with free-to-read
content that does not require log-in.
5.325 For instance, Google would still be able to use the insights it obtains fromusers’ activities on Google Search and YouTube to select personalised ads on
Google’s properties. 415 In contrast, publishers, advertisers and intermediaries
that are currently reliant on third-party data obtained via data management
platforms and data brokers are likely to have less granular data with which totarget personalised advertising. Therefore, to the extent that targeted
advertising on open display inventory is less feasible or effective without thirdparty cookies, advertisers may substitute spending away from open display
advertising and towards advertising on platforms’ owned-and-operated
inventory.
5.326 This potentially presents a fundamental challenge to the non-verticallyintegrated advertising business model used by newspapers and other online
publishers. We have reviewed evidence that suggests that prohibiting
publishers from serving personalised advertising in the open display market
while allowing platforms to continue to offer personalised advertising would
have a very significant impact on publishers’ revenue. For example, a recent
study indicated that UK publishers earned around 70% less revenue overall
when they were unable to sell inventory using personalised advertising but
competed against others who could. 416

play activities will also be affected by the deprecation of third-party cookies. Google stated that, once third-party
cookies are no longer supported, it will generally not be able to associate ad requests from third-party sites with
Google Account-level data for individual users. We note that it may be possible for websites and ad techproviders (including Google) to re-establish cross-site tracking without third-party cookies (see Appendix G for
details).
416 This analysis is described in more detail in Appendix F.

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5.327 We note that, if successfully implemented, Google’s main Privacy Sandbox
proposals (described more fully in Appendix G) may still permit some thirdparty personalised advertising (interest-based advertising and remarketing),
albeit at a greater level of coarseness of targeting and measurement.
However, those proposals will also turn Chrome (or Chromium browsers) into
the key bottleneck for ad tech. It is likely, therefore, that Google’s position at
the centre of the ad tech ecosystem will remain. Market participants may beconcerned that, under these proposals, Chrome would have the ability to use
its position to favour Google’s own ad tech intermediation services and raisebarriers to entry.
5.328 In respect of this and other changes Google has proposed, the ICO(Information Commissioner’s Office) has stated that, from a privacy
perspective, ‘We are encouraged by this, and will continue to look at thechanges Google has proposed’. 417 As the ICO observes, however, the detailof the proposals, and how they are implemented, will be important. Measures
which enhance an aspect of consumer privacy in the near term, may havedynamic effects which risk a negative impact on consumer welfare, forexample a concentration of personal data amongst fewer providers, so
impacting consumer choices and control in the longer term.
Conclusion on platforms’ interpretation of data protection regulation
5.329 We have not taken a formal view, for the purposes of this market study, on thecorrect interpretation of data protection regulation in the various cases thathave been drawn to our attention by market participants. However, ourconcern is that Google and Facebook have a clear incentive to apply a stricter
interpretation of the requirements of data protection regulation when it comesto sharing data with third parties than for the use and sharing of data within
their own ecosystems. Further, if vertically-integrated platforms are successful
in interpreting data protection regulation in this way, this may create an
artificial incentive in the long run towards greater vertical integration, as a wayof circumventing regulatory constraints.
5.330 We think there is a case for close cooperation between the CMA and ICO toconsider the appropriate approach to such concerns in the future and set out,
in Chapters 7 and 9, how we propose to work with the ICO following thecompletion of this study.

417 https://ico.org.uk/about-the-ico/news-and-events/news-and-blogs/2020/01/blog-adtech-the-reform-of-real-time-

bidding-has-started/296

Transparency issues
5.331 A second group of cross-cutting issues relates to lack of transparency in thedigital advertising market. In this section we highlight three areas where wehave found that lack of transparency could affect negatively affect market
outcomes:•transparency of ad tech fees;•transparency over auction rules and algorithms; and•transparency in relation to ad verification (for viewability and brand safety)
and attribution.

Transparency issues in the ad tech stack
5.332 Many advertisers and publishers commented on the lack of transparency inthe digital advertising sector. This is partly a function of the technicalcharacteristics of programmatic advertising where advertising is displayed inreal time to a given consumer, making it difficult to verify exactly when an
advert has been seen and by whom. This lack of transparency is particularly
evident in the open display market, where publishers and advertisers rely onintermediaries to manage the process of real-time bidding and ad serving but
cannot observe directly what the intermediaries are doing or, in some cases,
how much they are being charged at different points in the supply chain.
5.333 Lack of transparency and asymmetric information can lead to inefficient
outcomes – for example, advertisers may be reluctant to purchase advertising
if they are unsure whether it will ultimately be viewed by a consumer. In somecases, we would expect market participants to have a shared interest in trying
to overcome the problem, for example by investing in technology to improve
ad verification. However, in other cases the interests of different market
participants are not well aligned and where a lack of transparency might be
exploited by platforms with market power. Our main concerns relate to thetransparency of fees paid to different intermediaries and the opportunity forintermediaries to exploit such lack of transparency.
Transparency of fees along the supply chain
5.334 Market participants typically do not have visibility of the fees charged along theintermediation chain. This makes it very difficult to properly audit advertisingsales. It could also limit firms’ ability to make optimal choices on how to buy orto sell inventory, reducing competition among intermediaries.

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5.335 Publishers have little visibility of fees charged by intermediaries, except for thecommissions contractually agreed with SSPs. It may be difficult for publishers
even to know which advertisers are bidding for their inventory, as many SSPs
do not provide auction-level data. This is likely to have implications forcompetition between intermediaries. One source of competitive pressure forintermediaries such as DSPs is the possibility of publishers signing direct
deals with advertisers. This is, however, a resource intensive activity.
Publishers would be in a better position to engage with advertisers if theyknew which advertisers were interested in their inventory and if they had areasonable understanding of how much these advertisers were charged byintermediaries.
5.336 Some advertisers and agencies have expressed a concern about not being
able to observe the fees that SSPs charge to publishers. Given that publishers
decide which ad should be served based on net bids, visibility of these fees
could make it easier for buyers to select the cheapest path to secure specificinventory and for DSPs to decide where to bid. Lack of transparency may
therefore result in reduced competition between SSPs in attracting buyers.
Opportunities to exploit lack of transparency
5.337 In the context of an intermediation process involving sequential auctions, lackof transparency may also give rise to rent-seeking behaviour, such as thepossibility for an intermediary (SSP or DSP) to buy impressions at one priceand sell them at a higher one without its customers being aware of themagnitude of the difference.
5.338 Some evidence of this being an issue in the current intermediation ecosystem
is provided by a study on programmatic supply chain transparency carried out
by PwC on behalf of ISBA. 418 As seen above, the study was unable toattribute 15% of advertisers’ spend (corresponding to approximately 30% of
the difference between advertisers’ spend and publishers’ revenues formatched the impressions). While this could in part be due to limitations in the
study’s methodology and data, the result suggests the possibility that ‘hidden
fees’ might account for a significant fraction of the cost of intermediation. 419
5.339 In this regard, several stakeholders have expressed the concern that some
SSPs, after running an auction among DSPs, may charge the winning DSP
the amount of its bid but submit a lower bid into the publisher ad server,
keeping the difference for themselves. While some SSPs have publicly

418 ISBA’s Programmatic Supply Chain Transparency Study, published in May 2020.

419 We note, however, that the study was not intended to be representative of the entire open display market in

the UK.

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announced that they are no longer adopting these practices, stakeholders
believe that other SSPs may still do so and submitted that this undisclosed‘buy-side fee’ can amount to 10-15% of a DSP’s bid.
5.340 We have been told that the prevalence of buy-side hidden fees is likely tohave reduced since the advent of header bidding, as buy-side fees hurt theability of an SSP to compete in the first-price auction taking place in the
publisher ad server. This reduction, however, might not have affected
advertising on mobile apps to the same degree, as header bidding is more
rarely used, and it is more difficult for publishers to switch between SSPs.
Greater transparency could increase competitive pressure on SSPs andsubstantially reduce rent-seeking opportunities if publishers andadvertisers/media agencies had sufficient information to easily audit
transactions along the entire intermediation chain.
Transparency over auction rules and algorithms
5.341 A key feature of digital platforms is the use of decision rules and algorithms tocurate content and make allocation decisions in real time. For example,•

When a consumer enters a search query into Google, an algorithm
decides what organic search results to show. At the same time, a realtime auction determines whether to show search ads alongside theorganic search, and if so, which ads and how many.

•

Similarly, when a consumer opens their Facebook news feed, analgorithm determines what content to show and in which order, based on
the user’s past activity and preferences. Facebook also runs an auction todecide which adverts to show, and an algorithm also decides thefrequency with which ads will be shown in the news feed.

5.342 The precise decision rules underpinning these mechanisms are nottransparent. In most cases there are good reasons for this lack oftransparency. For example, if the decision logic behind Google’s searchalgorithm was commonly known then it would encourage content providers to‘game’ the algorithm in an attempt to improve their position in the search
results page. In some cases, the decision rules may not be clear even to theplatform, since they are based on learning algorithms rather thanpredetermined rules.
5.343 However, the lack of transparency around Google and Facebook’s auction
processes makes it very difficult for market participants to observe whether theauction rules are being exploited. For example, both Google and Facebook
run adjusted second price auctions to allocate their advertising inventory,299

where bids are adjusted to reflect a quality or relevance score. Althoughbidders may be given some indication of their quality score, the precise
approach to making the quality adjustment is not transparent. Ultimately thismeans that the auction outcome is not verifiable by any party other than theplatform running the auction. 420
5.344 Several advertisers have raised concerns about the transparency of Google’s
search advertising auctions. As discussed in Appendix P, some advertisers
have also expressed the concern that prices to advertise on their own brandnames have risen substantially but that there is no transparency as to why thisis the case. Others have suggested that Google may have incentives topenalise rivals that it competes with elsewhere, for example in specialised
search, or publishers that it competes with in the sale of display advertising.
Similar concerns could apply to Facebook’s auctions, which operate in asimilar way. As discussed above, concerns about auction transparency havebeen expressed also in relation to open display, where publishers told us they
do not receive the data they would need to verify that auctions on Google’s adserver are run fairly.
Transparency in relation to verification and attribution
5.345 To make informed choices that can drive competition, advertisers need to beable to assess and evaluate the quality of the product they are purchasing.
Two important elements of this process are:•verification: checking the viewability of the advert and the context in which
it was displayed, including identifying potential ad fraud; and•attribution: tracking what actions the consumer took after being exposedto the advert.

5.346 Access to the underlying data in a form that facilitates verification andattribution is likely to be key to the assessment of the quality of advertising.
Verification
5.347 Some advertisers raised concerns about restrictions on third-party verificationof advertising on inventory owned-and-operated by Google and Facebook.
Although both Google and Facebook work with a number of approved thirdparty verification providers, they restrict access to the detailed data in respect

420 In a standard second price auction, if all the bid prices are known then the winning price can be validated

externally – the winner (the highest bidder) will pay the price of the second highest bid. However, in Google andFacebook’s auctions, the winning price depends on the quality-adjusted second highest bid, but the quality
adjustment process is only known to the platform running the auction.

300

of verification for their owned-and-operated advertising inventory. In contrast,
other display advertising platforms reported that they allow advertisers to use
tracking tags for third-party verification of impressions served on theiradvertising inventory.
5.348 Several advertisers highlighted incidents in relation to the verification of
viewability and brand safety in digital advertising. For instance, there havebeen issues with the misreporting of viewability on the Facebook platform andwith brand safety on YouTube. These are set out in more detail in Appendix O.
We are also aware of concerns about the level of ad fraud in relation to digitaladvertising, with a number of large scale, systematic frauds being discovered
and widely reported. 421 There is a perception among advertisers that ad fraud
is more of a risk in relation to the open display market because of volume ofinventory and, in particular, a long tail of smaller publisher sites.
5.349 Both Facebook and Google told us that the way in which they compile data forthe purposes of verification – for instance, on the viewability of impressions on
their inventory – meets industry standards and is subject to external audit.
Google also argued that it had reviewed the way in which it worked with third
parties ahead of the implementation of GDPR. As a result, it had restricted thenumber of third-party measurement providers that it was able to support on
Google Search and YouTube and had stopped accepting other third-party
tracking pixels post GDPR.
5.350 However, we remain of the view that the large platforms could do more to
improve transparency for advertisers and intermediaries. By not allowing fullindependent verification of their own inventory, third party verification
providers are forced to rely on data collated by Google and Facebook.
Assessing the quality of digital advertising is complex and imposing additional
restrictions on access to data adds to the 'friction' in evaluating market
outcomes.
5.351 We recognise that there could be potential privacy concerns in providing
access to certain user-level data for the verification of viewability and brandsafety purposes. However, it is not clear to us that the data involved inverification necessarily needs to involve personal data. For instance, we
understand that the data collected for the verification of viewability only
involves whether the ad was served, whether the ad appeared on the screen,
how much of the ad appeared on the screen, for how long the ad appeared on
the screen, whether the ad played (if it was a video), for how long it played (If

421 In 2017, Adform reported that it had uncovered the ‘Hyphbot’ bot network which was estimated to be one of

the largest bot networks discovered. Source: Wall Street Journal ‘Fake-ad operation used to steal from publishers
is uncovered’.

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it was a video) and whether the sound was on (if it was a video). Similarly,
data for brand safety verification does not need to involve personal data.
Attribution
5.352 Attribution is the process by which advertisers track consumers' exposure to
their advertising across different websites and devices and link that exposure
to specific actions taken by the consumer – for example, clicking through tothe advertiser’s website and purchasing a product. This requires complex
analysis combining different sources of user data. For example, consumers
often use several different devices, each with its own user ID, and the process
of attribution is further complicated by cookie churn, that is cookies being
deleted at periodic intervals.
5.353 'Walled garden' platforms can track users across different devices andsessions, enabling them to attribute consumers' actions more accurately than
third parties. For instance, Google can track users across its user-facing
services and has access to mobile data from Android which also gives it someability to track the actions of consumers offline (eg to identify store visits).
Facebook‘s single-user login feature gives it the ability to associate all
exposures and conversions across devices and sessions with a specific user.
Facebook also receives data from consumers activities across a wide range ofother websites and apps when those services are using Facebook BusinessTools.
5.354 Some actions of the large platforms have made third party attribution moredifficult. For example, in 2018 Google made the decision to prevent
DoubleClick user IDs being accessed by ad buyers. While Google made thischange in response to privacy concerns, as discussed in the previous section,
advertisers told us that the result was to make it more difficult to compare ad
performance between ads purchased through the Google ad tech stack andads purchased through other intermediaries. Stakeholders have also indicatedthat this change has made independent attribution (ie attribution using tools
other than Google products such as Google Ads Data Hub or Google
Analytics360) much more difficult.
5.355 Recently, both Facebook and Google have offered so called data 'clean room'
services which enable advertisers to access more granular Facebook and
Google campaign datasets under controlled conditions. In these settings it ispossible for advertisers to combine their own first-party datasets with Google
or Facebook datasets to generate reports on campaign performance and tocarry out attribution analyses. However, at present the take-up of suchservices amongst advertisers and media agencies appears to be limited and302there are concerns that it is not possible to carry out analysis at the user level,
and that advertisers cannot carry out cross-platform analysis.
5.356 Overall, we are concerned that platforms with substantial market power havean incentive to increase the reliance on their own measurement systems andto make it more difficult for third parties to implement their own independent
means of assessing quality (eg by removing or preventing access to theunderlying user data necessary to carry out independent attribution analysis).
This may give them the opportunity to raise the effective price of advertising.
Without the ability to carry out independent attribution there is also the risk thatadvertisers overpay for advertising purchased from Google and Facebook andmis-allocate their advertising expenditure relative to other sources of supply.
The relationship between large digital platforms and publishers
5.357 The final set of cross-cutting issues we have considered relates to the wider
relationship between platforms and publishers, including newspapers andother content providers. These issues have been a key focus of several selectcommittee reports and the Cairncross Review into the sustainability ofjournalism. 422 The analysis of open display above highlighted issues faced bypublishers when they sell digital advertising via intermediaries in competition
with walled gardens. In this section we examine the other relationships
publishers have with Google and Facebook. These issues are covered in
more detail in Appendix S.
5.358 Publishers of online content rely on Google and Facebook to host content or
for referrals of traffic to their online properties, which they can then monetiseby displaying advertising to these visitors. However, online publishers face an
imbalance of bargaining power with Google and Facebook, which
disadvantages their businesses in a number of ways.
Nature of publisher-platform relationships
5.359 Publishers typically identified Google and Facebook as being by far the mostimportant digital platforms for their businesses. Apple, in its role as a supplierof a large mobile operating system and its Apple News service, was alsomentioned as being important by a number of publishers, but its importancewas generally rated as being significantly below that of Google and Facebook.
5.360 Publishers interact with the user-facing services of Google in several ways,
including:422 ‘The Cairncross Review: A sustainable Future for Journalism’, February 2019.

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•

Through Google Search – both via organic search and paid searchadvertising, as described above.

•

Through the Google News website and app – which provides anadditional channel for consumers to search news-specific content.

•

Posting content on YouTube – both as a channel to reach consumers, andin some cases to earn additional advertising revenue. Publishers typicallyreceive around 55% of any consequent advertising revenue. In somecases, publishers can arrange for their directly sold advertising to appear
alongside their content. In addition, content publishers have the option toearn revenue from subscriptions. 423•

Through Accelerated Mobile Pages (AMP) – AMP is an open-source
publishing format for mobile devices that enables the fast loading ofcontent in browsers. In order to enable fast page loading, AMP employs
an optimised and restricted version of the code used to build web pages,
and web pages are cached within the AMP ecosystem. 424 As pages arecached, usually by Google, consumers remain within the Google
ecosystem whilst browsing an AMP page. 425

5.361 Similarly, publishers can interact with Facebook’s user-facing services inseveral ways:•

Posting content on their own Facebook pages – with the aim ofgenerating awareness of their content and brand and of referring traffic
back to their websites and apps.

•

Using the Facebook News Feed – to post content in Facebook’s NewsFeed, a number of publishers put their web pages into Facebook’s Instant
Articles (IA) format. Similar to AMP, IA is a publication format that has
been designed to allow mobile pages to load faster, 426 but in the case of
IA it is only in use on the Facebook mobile app.

•Several publishers also post content on Facebook’s video hosting service
Facebook Watch.

423 See Google.com ‘How to earn money on YouTube’.

424 This means that pages are effectively pre-loaded to the AMP system to enable faster upload to the consumer

device. See how ‘AMP pages are cached’.
425 There are currently two operators of AMP caches – Google and Bing. Content publishers do not choose whichcache to use, as this is selected by the platforms themselves.
426 Facebook states that Instant Articles loads 4 times faster than standard mobile web articles.

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The balance of bargaining power between online publishers and Google andFacebook
5.362 Publishers have told us that they view Google and Facebook as ‘must have’partners. This is primarily due to a substantial proportion of the traffic referredto their websites coming from Google and Facebook properties and a degreeof reliance on prominence on Google and Facebook properties for content
discovery and brand awareness.
5.363 We have analysed website traffic data from a number of large publishers (TheIndependent, The Sun, The Times, The Daily Mail, The Telegraph, Reach
PLC websites, Sky websites, and Vice websites). This data shows that in 2018and 2019 these publishers relied on Google and Facebook properties for
between 36% and 38% of total traffic to their websites on average, as shownin Table 5.7 below.
Table 5.7: Sources of website traffic for online publishers 427
Year
2019
2018

Google25%
26%

All traffic
Facebook
13%
10%

Direct43%
44%

Google26%
29%

Desktop/Laptop
Facebook
Direct
4%
55%
4%
52%

Google25%
25%

MobileFacebook
17%
14%

Direct38%
40%

Source: CMA analysis of publisher data (The Independent, The Sun, The Times, The Daily Mail, The Telegraph, Reach PLC
websites, Sky websites, and Vice websites).

5.364 As a consequence of this reliance on Google and Facebook for traffic,
publishers told us that they suffer from an imbalance of bargaining power
when dealing with these platforms. This was an issue that was also raised aspart of the Cairncross Review, which concluded that ‘Google and Facebook
also increasingly control the distribution of publishers’ content online’ and thatas a consequence ‘these platforms can impose terms on publishers without
needing to consult or negotiate with them’. 428
5.365 We gathered evidence on a range of concerns from publishers, which are set
out in more detail in Appendix S. The most significant of these are:•Unexpected and unexplained changes to search algorithms – We
have seen evidence that even minor changes to Google and Facebook’s
algorithms can have substantial impacts on publishers’ website traffic.
This can make planning and financial decision-making more complicatedand can lead to significant, potentially wasteful, expenditure onunderstanding how the algorithms work.

427 Table 5.7 only shows traffic from Google. Facebook and direct visits. Other visits come from what are termed‘other third-party referrals’, for example referrals from Snapchat or Instagram.
428 See page 57, The Cairncross Review: A sustainable Future for Journalism, February 2019.

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•

De facto requirement to use the AMP and IA formats – Somepublishers feel compelled to use the AMP publication format because only
AMP pages appear in Google’s News Carousel. When a consumer views
material in the AMP format, Google can collect data on the consumer’sbrowsing activity. Google emphasised that the AMP format is an opensource technology, rather than being part of the Google ecosystem, andthat data on consumer activity is available to the platform providing thecontent as well as to Google. However, other mobile-friendly formats do
not involve the same data sharing. Similar concerns were also raised
about the Facebook IA format.

•

Giving up valuable data without reciprocation – Google and Facebook
are able to collect and use individual data from consumers who interact
with content on the publisher’s website through tags and pixels. However,this is generally not the case for publishers when their content is hosted
on Google or Facebook’s platform.

5.366 We consider that the last two examples indicate that Google and Facebook
are able to use their bargaining power to extract terms in relation to content
and data sharing which have the effect of reinforcing their market power.
Although publishers are entering into a commercial relationship with theplatforms and benefit from the user traffic that is generated through sharing
their content on Google and Facebook’s platform, we nevertheless agree withthe publishers that they have very little choice but to accept the terms offeredby these platforms, given their market power.
5.367 Similarly, we agree that platforms’ changes to their algorithms, even if
motivated purely by the desire to improve user experience, can havesignificant unintended consequences for publishers, and this uncertainty canhave a detrimental impact on publishers overall.
5.368 In Chapter 6 we discuss how harm to publishers could have wider implications
on the sustainability, quality, and accuracy of journalism, with an indirect
impact on the effective functioning of our democracy. In Chapter 7 and 8, weconsider potential interventions which might help prevent platforms from being
able unfairly to exploit their bargaining position with respect to publishers.

Summary of findings
5.369 Digital advertising is driven primarily by competition for consumers’ attention
and data. Advertisers are attracted to online platforms and publishers thatreach a large volume of consumers and can target advertising at individuals
for whom their advertising is particularly salient. Where platforms have market
power on the consumer side, this enables them to increase the rate at which306they monetise consumer attention by increasing the volume of advertising orby increasing advertising prices, leading to worse outcomes for consumers.
5.370 Advertisers use different forms of advertising for different, often
complementary purposes. Search and display advertising serve distinct
purposes, with only limited substitutability between them. There is also
segmentation within display advertising between video and non-video
advertising. Platforms that control a significant share of a particular type ofadvertising inventory are able to exercise a degree of market power over
advertisers.
5.371 Google has significant market power in search advertising. It has had very
high and stable shares of supply in search advertising in the UK of [over 90%]
for at least the last ten years. It faces limited competitive constraints either
from Bing and other general search providers, or from specialised search,display and other forms of advertising. Potential competitors face significant
barriers to entry and expansion.
5.372 As a result of this market power, Google has been able to increase its searchrevenues significantly over time by increasing the number of adverts it showsin response to commercial searches. Our analysis suggests that it is also able
to charge significantly higher prices than Bing, its main competitor, on a likefor-like basis. The overall impact has been to increase costs for advertisers.
Google also has the ability and incentive to leverage its market power fromsearch advertising into other markets, including open display and specialised
search. In the long run, we believe there could be a substantial impact on
incentives to invest and innovate.
5.373 Facebook has significant market power in display advertising. Facebook(including Instagram) is by far the largest supplier of display advertising,accounting for more than half of display advertising expenditure. It is viewed
as a ‘must have’ by many advertisers because of its reach and extensive dataon users and faces limited competitive constraints from other display
advertising platforms, or from search and other forms of advertising. Display
advertising is subject to significant barriers to entry that limit the actual or
potential competitive constraint faced by Facebook. In addition, Facebook has
been able to exploit its market power to earn significantly higher revenues peruser than its competitors, increasing from an average of £[0-5] per user in2011 to £[50-60] in 2019. Again, we believe there is likely to be a substantial
long run impact on consumers and advertisers from a loss of innovation.
5.374 Other online publishers wishing to monetise their content can sell inventory
through the open display advertising market. This market relies on a complex
chain of intermediation to auction advertising in real time and provide data for307

audience-targeting. The intermediation ecosystem has been consolidating andintegrating in recent years. While vertical integration can generate technicalefficiencies to the benefit of both advertisers and publishers, it can also giverise to conflicts of interest and allow companies with market power at one
stage of the value chain to leverage it in other parts of the industry, potentiallyforeclosing competing providers.
5.375 Google holds a strong position at each stage of the intermediation chain,
particularly as a publisher ad server where it has a share of supply in excessof 90%. In acting simultaneously on behalf of publishers and advertisers,
Google faces strong conflicts of interest. It has been able to leverage its
position from its wider ecosystem into open display including through limiting
competitors’ access to YouTube inventory. It has also taken advantage of its
position on both sides of the intermediation chain to self-preference its own
activities, by making it difficult to access its advertiser demand throughalternative publisher ad servers; and by adopting several practices that havethe effect of leveraging its position as the largest publisher ad server to favour
demand from its own SSP and DSPs.
5.376 We did not find evidence that Google is charging higher prices than its
competitors in the intermediation chain, or that it was extracting significant‘hidden’ fees. However, intermediaries capture at least 35% of the value ofadvertisers’ purchases across the open display market as a whole. Stronger
competition would be expected to lead to greater pressure on fees andcontinued incentives to innovate and provide service that benefit bothpublishers and advertisers.
5.377 Across all the digital advertising markets we investigated, we found common
issues in relation to data and lack of transparency. Google, Facebook andother large platforms have significant data advantages which allow them totarget and measure the impacts of advertising. There is a risk that these dataadvantages may be exacerbated by the platforms’ application of dataprotection rules; Google and Facebook have an incentive to apply a stricter
interpretation of the requirements of data protection regulation when it comesto sharing data with third parties than for the use and sharing of data within
their own ecosystems. We also found that lack of transparency – particularly in
relation to ad tech fees, auction rules, and data required for verification andattribution – was leading to worse outcomes for advertisers and publishers.

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6.

Harm to consumers from weak competition

Introduction
6.1

We set out in Chapters 3 to 5 the issues we have identified in relation toonline platforms funded by digital advertising. We have significant concernsthat Google and Facebook are not facing sufficient competition in consumerfacing services or in digital advertising markets.

6.2

Consumers face harm as a result of this limited competition, either directly or
indirectly – both now and over the longer term. This chapter explains the ways
in which this harm can manifest itself and summarises the evidence we havegathered on the scale of the harm. It illustrates the potential benefits available
to consumers from greater competition in these sectors, providing the basis
for our proposals for regulatory reform in Chapters 7 and 8.

6.3

As we explained in Chapter 2, insufficient competition to Google andFacebook can result in harm to consumers through a variety of routes. This
includes any direct effects on consumers resulting from their use of theplatforms themselves, such as receiving a poor-quality service, seeing too
many adverts, or having to give up too much of their own personal data. In
addition, harm to consumers can come indirectly as a result of othercompanies such as advertisers and newspapers being made worse off by theplatforms’ market power. For example, through the prices that are charged forelectronics, flights and hotels, and insurance, all of which make substantial
use of digital advertising, or through a reduction in the quality of journalism.
These potential mechanisms for consumer harm are illustrated by Figure 6.1.

Figure 6.1: Harm to consumers from a lack of competition

Source: CMA simplified assessment of consumer harm

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6.4

Ultimately, whether the detriment is experienced through direct interaction
with platforms or indirectly through other companies, there are five broad
adverse outcomes for consumers and for society generally:•

reduced innovation and quality;•

higher prices paid for goods and services;•poor returns for consumers;•

erosion of privacy and data protection; and•broader social harms.

Reduced innovation and quality
Innovation
6.5

We have concluded through our analysis in Chapters 3 and 5 of this reportthat Google and Facebook have market power in their consumer-facing
markets, as well as in associated markets for search and display advertising.
Their market power stems from various barriers to entry in each market, whichhave a significant impact on the ability of existing rivals or potential new
entrants to challenge their position.

6.6

It is clear from our assessment of the barriers to entry in these markets, themarket dynamics over the last decade, and the extent of the protective‘ecosystems’ that each platform has built around its core service, that thelikelihood of a new entrant successfully displacing Google or Facebook in theforeseeable future is low.

6.7

We are concerned that the existence of such entrenched barriers to entry andexpansion have dulled competitive pressures both in the core markets within
which Google and Facebook operate and in adjacent markets in which they
have been able to extend their market power, and that this in turn will inhibit
innovation and the development of new, valuable services for consumers.

6.8

Although it is difficult to quantify this impact, we think it is likely to be among
the largest sources of consumer harm among the concerns we haveidentified. It is the threat of being overtaken by rivals that provides the spur tocompanies to innovate and produce new products that consumers want. If
platforms are insulated from this threat – or indeed if they can stop new
alternative platforms from growing – consumers will suffer from reduced
innovation and choice in the future.

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6.9

Google and Facebook themselves were able to emerge, with limited
resources, on the back of a good idea, producing new and innovative services
that, as discussed in Chapter 2, are highly valued by consumers. We areconcerned that, without reform, existing market dynamics will mean that thenext great innovation cannot emerge to revolutionise our lives in the way that
Google and Facebook have done in the past.

6.10

In addition to the reinforcing features of these markets which tend towards
concentration, there are grounds for concern that market entry and disruptive
innovation may also be stifled by the actions of the incumbents themselves.
We have heard a range of concerns that both companies have engaged inbehaviour that could constrain digital competition and innovation in online
services. These come from many sectors that offer valuable products andservices to consumers. We highlight some examples of such behaviour in Box
6.1.

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Box 6.1: Types of behaviour that could limit competition and innovation
We have set out in Chapter 3 a number of concerns raised with us by othercompanies regarding the conduct of Google and Facebook, as well as a summaryof the responses we have received from Google and Facebook.
We have heard concerns that Google and Facebook have taken steps that that
restrict the ability for other products and services to interoperate freely with theirown:
Facebook has in recent years degraded the access that other platforms andservices have to its application programming interfaces (APIs). 429 This has
the effect of constraining the extent of interoperability between Facebook andother platforms, effectively shutting down the potential for competition.
Sonos has raised a concern about contractual terms that restrict theconcurrent use of Google Assistant and Amazon’s Alexa on Sonos smart
speakers.

•

We have also heard concerns that Google and Facebook have leveraged theirmarket power in their core markets to develop a strong position in adjacent markets:•

In the case of Google, this has included specialised search providers such as
online travel agents. These concerns focused on three broad areas: thepotential for Google to self-preference its own services such as Google
Flights; the potential for Google to exploit the data it collects from its wider
ecosystem to gain a competitive advantage; and the ability of Google todemote rival specialised search engines further down in its organic search
results.

•

We have heard concerns that Facebook is able to collect data from its
business customers when providing developer tools and advertising services
that it can then exploit by gaining an advantage when entering thosemarkets. The specific examples that have been raised with us relate to [].

Where they occur, these kinds of behaviour may serve to limit the competition thateach company faces in their core markets, as well as in adjacent markets theychoose to enter.
Quality
6.11

In competitive markets, incumbent firms face strong incentives to satisfy theircustomers with a good deal, or face losing their custom, and the associatedrevenue, to an existing rival or potential new entrant.

429 See Chapter 3 and Appendix J for a full explanation of the role of APIs and the degradation of access by

Facebook.

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6.12

One way in which firms seek to achieve this is by offering a product or service
that is of higher quality or better value, or by providing something new ordifferent that consumers cannot yet get elsewhere. A firm will feel compelled
to operate in this way if it either faces genuine competition from existing rivals
in the market, or if there is a credible threat that a new company could enter
the market and displace it. In either scenario, the firm will risk losing
customers, and therefore revenue, unless it offers the better quality, better
value or more innovative products or services.

6.13

We have concluded through this market study that both Google and Facebook
face limited competition in their respective core markets and in digitaladvertising markets, and that substantial barriers to entry mean they do not
face a credible threat of being displaced by a new entrant in the foreseeable
future. We can therefore conclude that these companies have insufficientincentives to maximise the quality of their service in the best interests ofconsumers. We have seen some signs through the work of our market study
that these effects are already emerging.

6.14

On Facebook, the average number of impressions served per hour has
increased from [40-50] in 2016 to [50-60] in 2019. On Instagram, there were[60-70] impressions per hour in 2019, a more than 200% increase from 2016.
This means that users of Facebook and Instagram are now seeing more ads
than they were before. This increase in consumer attention devoted to ads
can be expected to result in a reduction in the quality of the service for theuser.

Price paid for goods and services
6.15

Google’s and Facebook’s market power in digital advertising markets can leadto higher costs of digital advertising, which is then passed through into higher
costs of goods and services that use digital advertising. Although both
Google’s and Facebook’s core services can be accessed by consumers at no
direct cost, consumers therefore nevertheless suffer financially from theexercise of market power.

6.16

Our analysis in Chapter 5 showed that Google and Facebook have market
power in search and display advertising respectively. Although it is difficult tocompare Google and Facebook’s revenues and prices with their competitors
on a like-for-like basis, our analysis indicates that their market power has asignificant impact on outcomes.

6.17

For example, in the UK, Google’s revenue per search has roughly doubled
since 2011, and our comparison of Google and Bing’s search prices suggeststhat Google’s prices are [30-40]% higher on desktop and on mobile when313

comparing like-for-like search terms. Facebook’s average revenue per user
has increased from under £5 in 2011 to more than £50 in 2019, and ourcomparison with other social media platforms suggests that it is now morethan ten times higher than those competitors for which we have been able toobtain robust UK data.
6.18

Some of these additional revenues may reflect the fact that Google andFacebook can use their data advantages to be better at targeting adverts
towards the consumers for whom they will be relevant, and then monitoring
consumers’ subsequent actions. While these data advantages add to thebarriers to entry and expansion faced by potential competitors, they can also
make their advertising more valuable to advertisers.

6.19

However, we have also shown that the weak competition in both search anddisplay advertising allows the large platforms to exploit their market power by
earning higher prices in the advertising market than would be expected in amore competitive market. Where an advertising platform has market power,
the lack of substitutable alternatives will mean that advertiser bids in its
auctions are higher, resulting in higher prices. In addition, the platforms may
be able to use levers including the use of reserve prices or mechanisms suchas automated bidding to extract more rent from advertisers. Or, in search, it
can be achieved by charging firms to advertise through paid search rather
than relying only on organic search traffic.

6.20

Higher advertising prices matter because they represent increased costs tothe firms producing goods and services which are purchased by consumers.
We would expect these costs to be passed through to consumers in terms ofhigher prices for goods and services, even if the downstream market is highly
competitive. This is particularly likely in the markets which make heavy use ofadvertising, since the majority of the firms in those markets tend to incur suchcosts. As a result, consumers will face higher prices for items such as books,
games, smartphones and televisions, and for services such as flights, hotels,
and home insurance.

6.21

The impact of price increases will be significant, as they apply across large
volumes of expenditure: we estimate that in 2019, total expenditure on digitaladvertising was around £14 billion, or around £500 per household. 430 Total
search advertising revenues were around £7.3 billion and total display
advertising revenues were around £5.5 billion.

430 According to ONS data for Families and Households in the UK, there are around 28 million households.

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6.22

Google and Facebook’s advertising customers represent a very large anddiverse set of firms encompassing virtually every sector of the economy, as
illustrated in Figures 6.2 and 6.3. Important areas of expenditure include: theretail sector (for both companies); travel, finance, and local search andclassifieds (for Google); and media and entertainment, and consumer goods(for Facebook).

6.23

Facebook has [over one million] UK advertisers using its services, of which
the vast majority by number are SMEs or microbusinesses. At the other endof the scale, some of Google’s largest advertiser customers are large firms intheir own right, used by millions of consumers – for example, vast sums are
spent each year on search advertising by online retailers, technology firms,
travel firms, and financial providers.

Figure 6.2: Number of UK-served advertisers using Google Ads and total spend in 2019, split
by industry 431

Source: CMA analysis based on Google data.

431 See Appendix N for further discussion of the Google dataset and its limitations, and the limitations of thisanalysis. We note that the data provided on industries may not be an accurate representation of the actual
industries in which the advertisers operate, and these are not provided by the advertiser directly.

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Figure 6.3: Number of UK-based advertisers using Facebook to reach exclusively UK-based
consumers and total spend, split by industry 432

Source: CMA analysis of Facebook data.

Poor returns to consumers
6.24

Although typically the platforms’ core services are offered ostensibly ‘free ofcharge’, in practice consumers are receiving the service in exchange for theirattention and their data, which can then be monetised through digitaladvertising, notably personalised advertising. Lack of competition has a direct
impact on the extent to which consumers have adequate control over how
their data is used and, if they do decide to share it are adequately rewarded
for the use of their attention and data.

6.25

The evidence we have gathered during this market study confirms that data
creates additional value for advertisers. We have also shown that the data
gathered by Google and Facebook from users and from third party sources isvery extensive and gives them a significant competitive advantage over othercompetitors. However, as shown in Chapter 4, platforms have strong
incentives to maximise the amount of consumer data they collect by limiting
consumer engagement and control over that aspect of the service.

6.26

In a more competitive market, we would expect that it would be clear to
consumers what data is collected about them and how it is used and,crucially, the consumer would have more control. We would then expect

432 See Appendix N for further discussion of the Facebook dataset and its limitations. We note that the advertiser

sectors provided by Facebook were based on its internal sector classification which may not be fully accurate.

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platforms to compete with one another to persuade consumers of the benefitsof sharing their data or adopt different business models for more privacyconscious consumers. Platforms may reward consumers for their data
through their products and services, perhaps serving fewer ads or offering
rewards or additional services.
6.27

It is difficult to specify all the different forms in which consumers might derive
greater value in a more competitive market. However, one broad indication of
the value that could currently be shared to a greater extent with consumers
across the economy (whether directly, through greater rewards andincentives, or indirectly, through the prices of goods or services being
advertised) is the excess profits being earned by Google and Facebook as aresult of their market power. If they were to face greater competition, we can
expect that these substantial profits would be eroded, and consumers would
be better off as a result.

6.28

As discussed in Appendix D, our profitability analysis has shown that both
Google and Facebook are consistently earning profits well above what isrequired to reward investors with a fair return. We have demonstrated this bycomparing our estimates for their return on capital employed (ROCE) – theiractual profitability – with their weighted average cost of capital (WACC). The
analysis using our most cautious set of assumptions suggests that, in the UK,
Google earned £1.7 billion more profit in 2018 than the benchmark level ofprofits. For Facebook, the comparable figure for 2018 was £650 million.

6.29

Our analysis therefore suggests that between them, Google and Facebook
were able to earn more than £2 billion of profits in 2018 over and above what
was required to sufficiently reward investors with a fair return. These profits
would be expected to decrease if the platforms faced greater competition. 433
This would be achieved through a combination of greater consumer benefits,
as discussed in this section, and a reduction in advertising costs, resulting in
reduced prices for a very wide range of everyday products and services.

6.30

This analysis is only intended to be a broad indication of the scale of static
detriment, and does not include the potentially greater dynamic gains frominnovation discussed above.

433 We would not necessarily expect the market leader in online platform markets to consistently have a ROCE

equal to its WACC, even if faced with more competition or more credible threat of entry. However, we also notethat this analysis was based on our most cautious set of assumptions, and in practice the value may be anunderestimate.

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Privacy and data collection
6.31

The collection and use of personal data by Google and Facebook forpersonalised advertising, in many cases with no or limited controls available
to consumers, is another indication that these platforms do not face a strong
enough competitive constraint. We would expect that platforms, notably social
networks, that faced a competitive constraint would not be able to rely on‘take-it-or-leave-it’ terms that mean consumers have to share their data to use
the service, and have no real option to leave the service because their family
and friends use it.

6.32

Moreover, in a more competitive market, we would expect platforms toinnovate and develop new ways to deliver advertising that meets the targetingneeds of advertisers using less consumer data, thus protecting consumers’
privacy to a greater extent.

Broader social harms
6.33

In addition to the implications for consumers discussed above regarding thequality they receive and the prices they pay, a lack of effective competition to
Google and Facebook also has some very serious ramifications for society
more broadly.

6.34

This includes a range of effects, most notably on:

6.35

•

the sustainability of high-quality journalism; and•consumer empowerment and tackling online harms.

The causes and impacts of the harms in these public policy areas are often
interrelated, and are more closely connected to the competitive dynamics ofonline markets than they have traditionally been in offline settings.

Sustainability of high-quality journalism
6.36

As discussed in Chapter 5, many online publishers are reliant on Google andFacebook for traffic to their sites and their content. This is because asignificant number of consumers that visit their websites click through from aplatform owned by Google or Facebook. Because of this reliance, many
publishers told us that they suffer from an imbalance of bargaining power
when dealing with these platforms. This was an issue that was also raised aspart of the Cairncross Review, which concluded that ‘Google and Facebook
also increasingly control the distribution of publishers’ content online’ and that318

as a consequence ‘these platforms can impose terms on publishers without
needing to consult or negotiate with them’.
6.37

Publishers, including national and regional newspapers, have expressed anumber of specific concerns to us about how this imbalance of bargaining
power can manifest itself. One concern we have heard is that Google andFacebook are effectively able to ‘free-ride’ on publishers’ content to draw inconsumers and catch their attention, then monetising by serving those
consumers adverts. This has the effect of reducing the incentive of publishers
to invest in producing quality content in the future.

6.38

We have also seen that that these companies have a role in curating content
on their platforms – effectively selecting what content consumers see, and inwhich order. The amount of traffic, and ultimately revenue, that each publisher
receives is therefore heavily influenced by judgements made by the platforms.
As such, a seemingly small and potentially well-intentioned change to analgorithm made by Google or Facebook can have very significant
consequences for the ongoing viability of a particular publisher.

6.39

Content providers such as online newspapers are also reliant on digitaladvertising as an essential source of revenue. If such providers receive alower share of advertising revenues than they should, this is likely to reduce
their incentives and ability to invest in news and other online content, to thedetriment of those who use and value it and to broader society. Issues suchas a lack of transparency in the ad tech supply chain exacerbate issues withrevenue shares received by publishers, and raise concerns about the longterm sustainability of high-quality and plural news content.

6.40

This is particularly relevant because, as discussed in Chapter 5, we estimatethat intermediaries receive at least 35% of the value of advertising bought
through the open display channel. We expect that greater competition andtransparency would put downward pressure on these fees and encourage
greater dynamic competition and innovation in ad tech services.

6.41

Similarly, changes to the digital advertising sector, such as the phasing out of
third-party cookies in the Safari and (potentially) Chrome browsers, 434 may
limit the monetisation options available to publishers and consequently theirability to invest in online content. These impacts could be very significant. For
example, the planned changes to Chrome by Google will mean that

434 Google announced its intention to end support for third-party cookies in Chrome by 2022. It is developing

privacy-preserving alternatives to that can restore some of the functionality provided by third-party cookies inadtech, collectively called ‘Privacy Sandbox’, which (if successful) will be available as part of Chromium.
Chromium is an open-source browser project, created by Google, that underpins Google’s browser Chrome.
Several other browsers rely on Chromium, including Microsoft Edge.

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publishers are no longer able to use third-party cookies to offer personalised
advertising to Chrome users. Using data from a Google experiment, we haveestimated that UK publishers earned around 70% less revenue overall when
they were unable to use third party cookies to sell personalised advertising
but competed against others who could. Google is developing privacypreserving alternatives to the third-party cookie, collectively referred to as‘Privacy Sandbox’, which may restore some of the ability for market
participants to target personalised advertising and measure theireffectiveness, but it is uncertain whether these alternatives will be effective
and be adopted by websites, the web standards community, and other market
participants.
6.42

Greater competition to Google and Facebook can as a result be expected to
improve the quality and accuracy of journalism, and see a decline in theprevalence of so called ‘fake news’.

6.43

Together, adverse effects on the sustainability of quality journalism in the UK
can have detrimental effects on the functioning of our democracy and theaccountability of those in positions of power, at both a regional and national
level. As others including Ofcom have noted, the health and plurality of themedia industry is important for the contribution it makes towards a wellfunctioning democratic society. It does this by helping to encourage more
informed citizens who can access and consume a wide range of viewpoints
across TV, radio, online and print media from a variety of media
organisations, and by preventing too much influence over the political process
being exercised by any one media owner.

Consumer empowerment and tackling online harms
6.44

As the government’s Online Harms White Paper notes, all users, children andadults, should be empowered to understand and manage risks so that they
can stay safe online. 435 Empowering consumers to make effective choices is
an important way of ensuring that users can protect themselves from a wide
variety of harmful and illegal content.

6.45

Many of the concerns we have identified in this market study risk undermining
consumer engagement and empowerment in online markets and in relation tolarge online platforms in particular. For example, consumers can feel locked into large platforms due to network effects and the use of defaults, their choices

435 Online Harms White Paper

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and decisions are steered and nudged through the use of choice architecture,and in some cases, they have no effective choice at all.
6.46

A broader concern, therefore, is that this combination of factors can lead to asense of passivity within consumers in their relations with online platforms,
and a sense that they have to ‘take it or leave it’, undermining the very agency
empowerment that is so important in the fight against online harms.

Conclusions on harm to consumers
6.47

We have identified a range of forms that consumer harm could take from theconcerns we have identified in this market study, including reduced innovationand quality, higher prices of goods and services across the economy andbroader social harms.

6.48

Our analysis of the revenues and prices Google and Facebook are able toearn from digital advertising, as well as their profitability suggests that
consumers could see substantial financial gain from a more competitivemarket.

6.49

However, more importantly, we expect that a more dynamic and competitivemarket, with a more credible threat of new entrants displacing the powerfulincumbents, will increase the chance of transformative disruptive innovation
coming forward – the kind of innovation that led to platforms such as Google
and Facebook in the first place.

6.50

Consumers would directly benefit from more competition, which they will
experience through more choice, better quality, innovative products andservices and real control over how their data is used.

6.51

We would also expect to see a range of other beneficial outcomes for society
from more vibrant competition. In particular, we expect that improving thebargaining power of online news publishers will improve the health andsustainability of journalism in the UK, both nationally and regionally, and inturn contribute positively to the effectiveness and integrity of our democracy.

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7.

The case for a pro-competition regulatory regime•

The evidence set out in this market study shows there is an urgent need todevelop a new pro-competition regulatory regime for online platforms. The
CMA’s existing powers are not sufficient to protect competition given the fastmoving, complex nature of the markets we have reviewed, and the wideranging, self-reinforcing problems we have identified within them.

•

We are calling on government to create a new pro-competition regulatory
regime with strong ex ante rules which can be enforced rapidly and updated
as required. This is consistent with the type of regime envisaged by the
Furman Review, the recommendations of which were accepted by thegovernment in March 2020.

•

A binding code of conduct with strong powers to sanction non-compliancewould be an essential part of this regime, helping to address many of theconcerns we have identified in search, social media and digital advertising.

•o

The code would govern the behaviour of online platforms with strategic
market status. This would include both Google and Facebook.

o

The code would be structured around the high-level objectives of: ‘fair
trading’; ‘open choices’; and ‘trust and transparency’.

o

A Digital Markets Unit (DMU) would be empowered to enforce the code,
penalising firms for non-compliance where appropriate and developing
the code over time, ensuring concerns can be dealt with swiftly.

The DMU should also have powers to introduce ‘pro-competitive
interventions’ to tackle sources of market power and increase competition,
including powers to provide access to data, to support consumer choice andto order the structural or functional separation of platforms where necessary.

Introduction
7.1

In this chapter we present our recommendations to the government for thecreation of a new regulatory regime to address the concerns identified in theprevious chapters. These recommendations have been informed by theevidence we have gathered and the analysis we have conducted, as well as
extensive engagement with stakeholders throughout the study, and inparticular the responses to the consultation on our interim report.

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7.2

Our proposals build on those set out in the Furman Review 436 for a strong ex
ante regulatory regime to govern the behaviour of online platforms. Since ourinterim report, the government has announced that it has accepted 437 all six ofthe strategic recommendations of the Furman Review, the first of which wasto ‘establish and resource a pro-competition digital markets unit, tasked withsecuring competition, innovation, and beneficial outcomes for consumers andbusinesses’. The Furman Review stated that the Digital Markets Unit (DMU)
would:•

establish a digital platform code of conduct, based on a set of core
principles, that would apply to conduct by digital platforms that have been
designated as having a strategic market status (SMS); and•be empowered to deploy a powerful set of data-related tools to create newopportunities for competition, including data mobility, open standards anddata openness.

7.3

This market study informs the legislation required to implement this regulatory
regime by taking the discussion beyond high-level principles. It does this in
two ways. In this chapter, we set out our views on the case for, and design of,
the new regulatory regime, how the new tools within it would need to work inpractice, and the interrelationship between them. In the next chapter, weapply this new regime to search, social media and digital advertising markets,by considering in detail which specific interventions are required to address
the concerns we have identified this study, and how those interventions
should be designed.

7.4

Our analysis has also informed our views set out in Chapter 10 on the further
work the CMA will undertake in these markets in the near term, notably
through the Digital Markets Taskforce, as well as the direct action the CMA
may need to take in the future by using its existing powers.

7.5

The rest of this chapter provides:•

an overview of our approach to interventions in this area, based on thedevelopment of a robust pro-competitive regulatory regime;•

our views on the case for and design of the code of conduct to govern the
behaviour of ad-funded platforms with strategic market status; and436 Furman Review (2019), Unlocking digital competition.

437 Budget 2020: Delivering on our Promises to the British People, page 56.

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•

our views on the case for pro-competitive interventions in these markets,
which are designed to promote effective competition and innovation.

Overview: development of a pro-competitive regulatory regime
7.6

On the basis of the evidence we have gathered in this study, we believe that
there is a compelling case for the development of an ex ante regulatory
regime to regulate the activities of online platforms funded by digitaladvertising. 438 We recommend that the government introduces legislation toestablish such a regime, and in this chapter we set out our views of how it
should be designed to maximise benefits to consumers and innovation.

7.7This would be a ‘pro-competitive’ regulatory regime that would drive benefits
for consumers. Its objectives would be: to promote competition by overcoming
barriers to entry and expansion and thus tackling sources of market power;
and to protect competition and consumers where online platforms havemarket power from the gatekeeper positions that they hold, by governing their
behaviour to ensure they do not engage in exploitative or exclusionary
practices, or practices likely to reduce trust and transparency.

7.8

At present, the digital advertising sector is subject to general laws including
competition law, consumer law, and data protection law. The current laws andenforcement regimes are not tailored to these fast-moving digital markets.
They do not deal adequately with the number and complexity of the issues
arising within them. In view of the importance of the concerns we haveidentified for competition and consumers, we need to create a new regulatory
regime with strong and clear ex ante rules which can be enforced rapidly by a
dedicated regulatory body before significant harm to competition andconsumers has occurred, and updated and refined as required. This will foster
innovation and choice so that these markets continue to deliver benefits forsociety in the future.

7.9

Alongside addressing the specific concerns that we have identified in digitaladvertising markets and the consumer-facing services that are financed
through digital advertising, we have aimed to inform the broader global debate
about the need to regulate the behaviour of large online platforms. In thiscontext, our study supports the high-level positions set out in the Furman
Review and the Stigler Center Review 439 last year, both of which called for ex

438 The Digital Markets Taskforce will consider the same for platforms not primarily funded by digital advertising.
439 Stigler Center (2019), Committee for the Study of Digital Platforms: Report by the Market Structure andAntitrust Subcommittee.

324

ante rules to address the competition concerns arising from the increasingly
important role that large online platforms play in the economy.
7.10

In this report, we have aimed to inform the government’s response to the
Furman Review and its thinking on how to unlock competition in online
platform markets’. Although our study covers only a subset of online
platforms, these include some of the largest global platforms, and this focus
has allowed us to explore concerns and potential interventions in more depth.
In the Budget earlier this year, the UK government accepted the six strategic
recommendations of the Furman Review and announced that a DigitalMarkets Taskforce would be established within the CMA to advise on thepractical implementation of the Furman recommendations, including the codeand other powers for the DMU. 440 Part of the Taskforce’s work will be tocomplement the work of this market study by analysing a wider range ofdigital platform markets than those we have considered in the context of themarket study.

7.11

We welcome this decision by the government as a positive step towards
developing a robust pro-competition regime for platforms. Alongside thepublication of this report, the CMA is now launching a call for inputs for theTaskforce, which will take forward the next stage of our advice to government
on a new regulatory regime for online platforms. Its conclusions will be
published at the end of this year.

7.12

Internationally, we have also engaged extensively with competition authorities
in several countries, many of whom are considering similar challenges tothose we have identified in this study. These have included authorities in the
United States, 441 Australia, 442 Germany, 443 Japan, 444 the Netherlands, 445
France 446 and Spain. 447 Chapter 10 describes this engagement in more detail,and sets out our plans for future collaboration with competition authorities
abroad.

440 The Digital Markets Taskforce Terms of Reference.

441 The FTC established a digital platform taskforce earlier this year, the DOJ is reviewing the practices ofmarket-leading online platforms and a collection of US State Attorney Generals have initiated investigations into
each of Google and Facebook.
442 The ACCC has recently completed a market study into digital platforms, including effects on digitaladvertising.
443 The Bundeskartellamt is currently undertaking a sector inquiry into market conditions in online advertising.
444 The Secretariat of the Headquarters for Digital Market Competition has recently been established in Japan.
445 The Netherlands Authority for Consumers and Markets is currently undertaking work in relation to online
choice architectures for consumers.
446 The Autorité de la concurrence published an Opinion in 2018 on data processing in the online advertising
sector. The Autorité is also currently considering a complaint in this market.
447 The Comisión Nacional de los Mercados y la Competencia is currently undertaking a market study into online
advertising.

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7.13

Given the fact that many of the issues we are considering are international innature, we believe that it is highly desirable – particularly for any significant
interventions that would have a major impact on a platform’s business model– that there is a broad consensus on the case for intervention. We hope that
this market study will help contribute to such a consensus.

Elements of the regulatory regime
7.14

The regulatory regime that we are recommending comprises two broad
categories of intervention:•

the enforceable code of conduct, which is designed to govern the
behaviour of platforms that have market power over an important online
gateway; and•the power to impose a range of pro-competitive interventions, which
are designed to tackle the sources of market power and promotecompetition and innovation.

7.15

These two categories of intervention have distinct functions. The first categoryof intervention comprises rules to govern the behaviour of platforms that enjoy
a position of market power. It would take the form of an enforceable code of
conduct for platforms with strategic market status (SMS), as envisaged by the
Furman Review. The objective of the code is to address the harmful effects
that can arise from the exercise and extension of market power, rather thantackling the underlying causes.

7.16

The second category – which we refer to as pro-competitive interventions –would, by contrast, aim to address the sources of market power and othermarket failures that we have identified, by tackling issues on both the demandand supply side of the markets we have reviewed. These include a number oftypes of intervention suggested by the Furman Review – in particular, datarelated remedies including the provision of third-party access to data andmeasures to increase interoperability – as well as remedies not directly
considered by the Review, including consumer control and separation
measures. Many of these would be very significant interventions, the costs
and benefits of which would need to be considered very carefully.

7.17

A key benefit of behavioural interventions (the first category) as enshrined in
the code is that they allow for considerable flexibility in tackling problems as
they arise, which is an important consideration in the rapidly-changing
markets that we have reviewed. In contrast, the benefit of pro-competitive
interventions (the second category) is that they provide for the possibility ofsolving problems at source, reducing the need for ongoing and costly326regulatory controls and potentially in the long run leading to platforms nolonger meeting the criteria for SMS designation. However, these interventions
could change the nature of competition in fundamental ways, and close
attention would need to be paid to the potential costs and unintended
consequences of such measures.
7.18

In principle, pro-competitive interventions could be implemented alongside thecode, or considered only once the code has been up and running for a periodof time. In the next chapter, we provide views on the potential interaction
between the code and pro-competitive interventions in tackling the concerns
we have identified, including whether they should be applied in combination orsequentially.

Institutions and legal powers
7.19

All of the interventions that we consider in this chapter would need some formof dedicated regulatory body to implement them. This is consistent with thefindings of the Furman Review, which called for a Digital Markets Unit (DMU)
to be created in the UK, and the Stigler Center Review, which called for thecreation of a Digital Authority in the US.

7.20

Our study has focussed on the case for, and design of, potential new
regulatory functions - we have not considered which institutions might be bestplaced to discharge those functions. Given that the government has now
accepted the Furman recommendations, we use the term ‘DMU’ to refer to thebody empowered to implement the regulatory functions we are considering.
We use the term DMU very broadly, however, noting that this could be a newor an existing institution, or even that some regulatory functions could be
assigned across several bodies. Again, this approach is consistent with that of
the Furman Review.

7.21

Any regulator would need to have legal powers to enforce both the provisionsof the code and pro-competitive interventions by ordering or blocking conduct
and issuing financial penalties for non-compliance. Any such powers would
need to be assigned through primary legislation and in this market study weare looking to inform the scope and direction of such legislation. We note that
the CMA already has powers in principle to impose some of the interventions
discussed in this chapter, in the context of a market investigation; in Chapter 9
we explain the reasoning behind our decision not launch a market
investigation at the conclusion of this study, and in Chapter 10 we set out ourplans for further work in this area in the near term.

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Code of conduct for online platforms with strategic market status
7.22

As noted above, the Furman Review proposed that the behaviour of online
platforms with market power over a strategically important online gateway
should be governed by a pro-competitive code of conduct. The code would
set out principles or rules to govern the behaviour of platforms with strategic
market status (SMS), 448 requiring them to act in a way that ensures that
consumers and businesses dealing with them are fairly treated and vigorouscompetition can take place.

7.23

We recommend that an enforceable code of conduct (the code) be
established to govern the behaviour of SMS platforms funded by digitaladvertising. 449 Once it is in place, the code has the potential to address
many of the concerns that we have identified in both consumer-facing anddigital advertising markets in a more rapid and effective way than through theuse of our existing tools.

7.24

In this section we:

7.25

•

set out the case for the use of the code as a complement to existing
enforcement powers in addressing the concerns we have identified;•

propose criteria for identifying the platforms that the code should
apply to and apply these to the markets we have reviewed;•

set out our proposals for the content and structure of the code, andexplain how the principles within it would address the concerns we haveidentified in the study to date; and•set out our proposals for the powers that should be available and theprocedures that should be followed to enforce the code.

A more detailed discussion of these issues is set out in Appendix U.

The case for the code
7.26

There is a gap in the current regulatory landscape. The enforceable code is anecessary tool to fill that gap and help to address a range of the concerns wehave identified, both in the consumer-facing and digital advertising markets, tothe benefit of competition and consumers.

448 We discuss the notion of SMS and its potential application to platforms funded by digital advertising later on inthis chapter.

449 The CMA in its Digital Markets Taskforce will consider in the coming months whether other platforms should

also be governed by a code.

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7.27

7.28

The code, if implemented in the way we have proposed in this chapter, would
have a number of advantages over existing ex post enforcement powers,
including:•greater clarity for platforms and other market participants through tailoredrules;•

the ability to address concerns before substantial harm occurs, andmore rapidly;•

the ability to cover a much wider range of concerns than those which
can be addressed under existing competition law;•

the greater focus on remedies and remedy design;•

the ability to improve trust and transparency in markets covered by thecode; and•the potential to develop regulatory expertise and understanding overtime.

We describe these benefits and the potential costs of imposing the code
below, before summarising parties’ views and presenting our overall
conclusions on the case for the code.

Ex ante clarity
7.29

The code, and associated guidance from the DMU as to its application inpractice, would be tailored specifically to these complex and unique markets.
It would provide increased certainty – for platforms and the parties they
engage with – over what represents acceptable behaviour of the SMS
platform when interacting with customers, competitors and suppliers. This is
likely to be particularly helpful in fast-moving digital markets, where there isless of a corpus of relevant past cases from which to draw precedents.

7.30

This clarity over acceptable behaviour should influence platforms’ decisionmaking upfront, helping to avoid the emergence of concerns altogether. It will
also provide greater certainty for business users over the operating
environment on which they depend, enabling them to be more confident inmaking decisions around investment and scale-up. This clarity will no doubt
also be welcome for the platforms themselves.

Timing and speed of action
7.31

The markets we have reviewed can be fast-moving and dynamic, and harm tocompetition and consumers can occur before a competition authority canintervene. Competition law, consumer law and data protection law is329

principally used to correct or stop conduct after that conduct has occurred,
often with a penal element. The current enforcement models typically require
lengthy investigations and/or litigation before the illegality of the conduct isfinally determined. The code would enable behaviour to be challenged andchanged much more rapidly than is possible through existing laws and before
it has harmed competition.
7.32

We envisage, as discussed below, that formal investigations into possible
breaches of the code by SMS firms should be completed within a limited but
achievable timescale, and that the DMU would have the power to require the
SMS platform to change its conduct. 450 While the investigation is ongoing, therelevant conduct could be required to be suspended so as to avoid
competitive harm occurring.

7.33

In contrast, for example, cases under the competition law prohibitions typicallytake over a year, and sometimes several years, to reach a decision. They
take place after the conduct has occurred, and often after it has harmed
competition in the relevant market, with the use of interim measures being
quite rare and applicable only in certain circumstances. Of those cases thathave been brought by the European Commission against Google in recent
years, Android took more than five years, Shopping took more than sevenyears and AdSense took nine years, not including their appeal processes. The
CMA’s most complex competition enforcement cases also tend to takeseveral years to reach a final decision. Such timescales create a material risk
that, even if a platform is ultimately found to have acted anti-competitively, theharm to competition and consumers will have become irreversible before sucha conclusion is reached.

7.34

Although the formal route of investigation will be a central part of the DMU’s
toolkit, it would not be practical or desirable to apply it to every breach of thecode. We expect that the DMU will frequently be able to achieve even more
timely cooperation from platforms under the shadow of an investigation andpossible code orders and financial penalties. This would be consistent withthe expectation set out by the Furman Review that fast resolutions could often
be achieved through a participative approach, within weeks, to ensure
behaviour can be changed before the dependent firm has gone out ofbusiness.

450 As noted below, we propose that the DMU should have the power to impose fines – for example, forintentional or negligent breaches of the code, or failure to comply with DMU orders. To allow for appropriate
rights of defence, we envisage that timescales for considering the imposition of fines would be longer.

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Coverage of concerns
7.35

Competition law applies to specific categories of conduct and it applies
broadly to all sectors of the economy. The code would allow action in respectof concerns which might not fit within existing competition law tests but would
still have an adverse effect in these markets. This is likely to be particularly
important in markets such as the open display digital advertising market, forexample, where we have found that concerns can take the form of a range ofpractices that in combination may lead to material harm. 451

7.36

Platforms are also often rule-makers and arbiters over the interactions
between businesses and consumers, or other businesses. In many cases theplatform may make a decision that is in their own interests or that they deem
to be appropriate for their users, but the outcome of this decision may be
unfair or socially undesirable and require intervention by the DMU.

Focus on remedies and remedy design
7.37

An advantage of the code over enforcement under the competition law
prohibitions is that its main focus would be on changing behaviour – where
this in the interests of consumers – rather than penalising illegal conduct. The
consideration of potential remedies and discussion of these with parties would
be a key part of the investigation process throughout and the DMU would
have much greater influence over the design of remedies through its ordermaking powers than is the case in antirust cases.

7.38

There are important constraints on the ability of competition authorities toachieve pro-competitive outcomes from enforcement cases under thecompetition law prohibitions. Cases are often scoped to deal with one discrete
aspect of a business’s conduct, meaning that any remedy would not deal withaspects that would improve the functioning of the market more broadly. To
bring the infringement to an end, it will often be sufficient to cease the conduct
proved to be illegal. The majority of European Commission remedies are of
the nature of an order to ‘cease and desist’ from the unlawful conduct and theundertaking enjoys discretion as to how to modify its conduct. 452 The same istrue in the UK – although the CMA has the power to give directions toundertakings, these can only be for the purpose of bringing the infringement
to an end. 453 In either regime, the competition authority lacks the ability to

451 See Chapter 5 and Appendix M for further discussion of this.

452 ‘Most prohibition decisions include a so-called “cease and desist order”’, para. 25, Chpt 25, Antitrust Manual ofProcedures Internal DG Competition working documents on procedures for the application of Articles 101 and
102 TFEU March 2012 (‘ManProc’), ISBN 978-92-79-23360-9, the text is made available on the internet:. See
also para. 7, Chpt. 19. ManProc ‘The most common “behavioural remedy” is a “cease and desist order”.’
453 Sections 32 and 33, Competition Act 1998; see also CMA 8, paragraphs 13.7-13.8.

331

revise the remedy over time, which is particularly important in this sector
which can be fast-moving.
7.39

In contrast, the powers for the DMU would include the ability to consult on thechanges the platforms would need to implement to comply with orders under
the code. The DMU would also be able to test the likely effectiveness of futurechanges, and to monitor actual effectiveness, which could lead to a review
and changes where appropriate. This will be important in the complex digital
sector.

Trust and transparency
7.40

The code would also be a valuable tool in improving transparency and hence
trust in the market. For example, under our proposals, the DMU would begiven powers to audit and scrutinise the workings of opaque algorithms and toinvestigate concerns around conflicts of interest or discriminatory treatment ofsome customers. This would potentially address much of the opacity and lackof trust which has developed in the markets we have reviewed.

Expertise
7.41

The markets we have reviewed are highly complicated, both from a technicalperspective and (in the open display market) in terms of market structure. It
would therefore be beneficial to have a dedicated DMU to enforce the code,
as this body will be able to develop its expertise over time, helping to improvethe efficiency and timeliness of decision making.

Potential costs
7.42

We recognise that introducing the code would also create costs, particularly
for those platforms subject to the code, which would need to comply with
reporting requirements and with investigations (and may be required tocontribute to the operational costs of the DMU as is the case in many
regulated industries). The code might also require SMS platforms to
implement new measures to be able to demonstrate compliance, or new
systems to be able to demonstrate that customers are being treated equally.
There is also a risk that changes brought about through the code may
introduce inefficiencies into platforms’ (and others’) operations. We note thatthe DMU, when ordering a change of behaviour under the code, would needto assure itself that there were sufficient benefits to outweigh any such costs
on a case-by-case basis, having regard to the evidence.

7.43

Perhaps the biggest potential cost of an enforceable code is that it might
inhibit innovation by unduly constraining the behaviour of SMS platforms. We
332

have carefully considered this risk in our proposed design of the code, and inparticular in our consideration, later in this chapter, of which powers to change
behaviour should be available under the code and which should be reservedfor pro-competitive interventions. These, as discussed below, would be
subject to a longer timetable and include greater requirements for
consultation.
7.44

Overall, based on the analysis we have carried out in this market study, we
consider that there is a large number of potentially problematic practices in
consumer-facing and digital advertising markets that could be investigatedunder the code, with likely improvements to competition, innovation and trust.
Taking into account the range of these concerns, and our proposed design ofthe code, we believe that the overall impact on innovation from theintroduction of the code will be overwhelmingly positive.

Parties’ views on the case for the code
7.45

The vast majority of parties that responded to our interim report supported thedevelopment of a code and agreed that there was a very strong case for its
establishment. All of the publishers who responded to our consultation andmany advertisers supported the introduction of a principles-based code of
conduct as a means of limiting platforms’ ability to exploit their market power.
It was generally believed that the interim report struck the appropriate balancein the scope, structure and enforcement of the proposed code.

7.46

Several parties including broadcasters and telecoms companies highlighted
that it was vital for any interventions in this sector to be flexible and able toadapt to a fast-moving market and suggested that a code would likely deliver
against these aims. A number of market participants we have spoken to, suchas several specialised search providers, while not responding formally to theconsultation, have expressed support for the concept of a code, suggestingthat it should help curtail platforms’ self-preferencing and leveraging
behaviour.

7.47

Google was, in general, not opposed to a code and stated that the principles
underpinning the code would be essential to a healthy digital economy.
However, Google thought it should apply to all digital platforms.

7.48

The strongest criticism for the concept of a code came from Facebook which,although supportive of our proposals to deliver increased choice andtransparency, thought the proposed approach would result in regulation that is‘ineffective and not fit-for-purpose’.

333

7.49

A small number of respondents were concerned that a code on its own would
not address the competition concerns in full. For example, News UK
submitted that while proposals for regulatory reform would go some way toaddressing the concerns that have been identified in the interim report, it
noted one of the potential limitations of the code is that it may not restrict all of
Google and Facebook’s incentives to exploit the market position that they
have built up to their own advantage.

Recent international developments
7.50

Over the past year there has been increasing consensus among a number ofcountries on the need for ex ante tools that allow earlier intervention in digitalmarkets. For example:•

In Australia, the government established a special unit within the ACCC toproactively enforce, monitor and investigate competition and consumer
protection in digital platform markets, 454 and asked the ACCC to create amandatory code of conduct to govern the commercial relationshipbetween digital platforms and media companies. 455•

In Germany, there is draft legislation proposing that the national
competition authority, the Bundeskartellamt, have the ability to designate
platforms as dominant where they have ‘paramount significance forcompetition across markets’ and that the Bundeskartellamt have powers
to prohibit platforms engaging in a range of conduct. 456•

In Japan, the government established a ‘Headquarters for Digital Market
Competition’ in September 2019 with an aim to facilitate discussions on
the transparency of the dealings with digital platform businesses and theprotection of privacy. 457 In June 2020 it released an interim report
proposing that ex ante regulation be applied to digital platforms.

•

The competition authorities of Belgium, the Netherlands, and Luxembourg
issued a joint memorandum proposing a tool allowing competition
authorities to impose remedies on dominant companies to prevent
competition problems, rather than relying on ex post enforcement. 458

454 The Australian Government media release announcing its response to the ACCC report.
455 Australia announces mandatory media code between platforms and media companies.
456 Proposed German legislation

457 Media release announcing the Japanese Headquarters for Digital Competition

458 Joint memorandum from the Belgian, Netherlands and Luxembourg competition authorities.

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•

7.51

The European Commission is considering ‘how best to address more
systemic issues related to platforms and data, including by ex ante
regulation if appropriate, to ensure that markets stay open and fair’. 459

The proposals we have made for a code in this study can therefore be seen
as part of a growing international consensus on the need to reformcompetition tools to address the issues raised by the role of online platforms
in today’s digital markets.

Conclusion on the case for a code of conduct
7.52

On the basis of the evidence we have gathered and the analysis we havecarried out in this market study, we believe that the code would address manyof the concerns that we have identified in both consumer-facing and digitaladvertising markets in a more timely and effective way than through the use of
our existing tools. This view was supported by the significant majority of
respondents to our consultation and several respected authorities abroad
appear to be drawing similar conclusions in relation to the need to bolster
enforcement powers with ex ante behavioural controls.

7.53

In our view, a code operating along the lines we have set out in this chapter
would not preclude competition enforcement in appropriate circumstances.
Such enforcement would still be appropriate in cases of egregious or repeatedanti-competitive behaviour, and in cases not explicitly covered by the code,serving as a deterrent against such behaviour in the future.

Which platforms and markets would the code apply to?
7.54

The government has asked the Digital Markets Taskforce to recommend thecriteria by which a platform would be designated as having SMS, taking
account of the characteristics of a broader range of online platforms thanthose we have considered in this study. For the purposes of this market study,
we have considered which platforms that are funded by digital advertisingshould be considered to have SMS. This assessment is based on the analysis
carried out and the evidence gathered in the study and the high-level
principles set out in the Furman Review.

7.55

Our view is that the code should apply to the small number of platforms
whose conduct raises the most significant competition concerns. This isconsistent with the Furman Review, which proposed the SMS concept todefine the category of firms to which the code of conduct would apply. 460 SMS

459 A European strategy for data

460 Furman Review (2019), Unlocking digital competition.

335

is not explicitly defined in the report, but is described as a position of enduringmarket power or control over a strategic gateway market with theconsequence that the platform enjoys a powerful negotiating position resulting
in a position of business dependency. 461
7.56

We believe that the Furman criteria provide a useful basis for assessing
whether a digital platform should be considered to have SMS and hence be
subject to the code of conduct. We would envisage the SMS designation
criteria to include firms that have obtained gatekeeper positions and haveenduring market power over the users of their products.

7.57

Evidence likely to be relevant in making this assessment for platforms fundedby digital advertising include: measures of shares of supply in the consumerfacing market; the extent of reach across consumers; share of digitaladvertising revenues; control over the rules or standards which apply in themarket, and the ability to obtain and control unique data that is applicableoutside the market.

7.58

The Digital Taskforce will be advising government on the specific criteria for
deciding whether a digital platform has SMS, so we have not sought todetermine these criteria in this market study. However, based on the evidence
that we have gathered, we consider it to be highly likely that both Google andFacebook would meet any criteria for SMS that are consistent with the
Furman Review’s explanation of the concept. 462

7.59

Through our analysis in Chapter 3 and Chapter 5, we have established that
Google has enduring market power in search and search advertising and inopen display, and that Facebook has enduring market power in social media
and display advertising. We have also demonstrated that the platforms eachplay an important role as a gateway for large numbers of businesses toaccess users on the other side of the platform.

7.60

Evidence to support our assessment that Google has SMS includes that it has
had around 90% or more of the search market for over 10 years, as well as
having a share of over 90% in the key publisher ad server market. It has areach of over 90% of UK internet users and many businesses depend on
Google for accessing these consumers. Publishers are particularly reliant on
appearing within Google’s search results and are vulnerable to changes to its
algorithm which can have a material impact on user traffic. Google alsofrequently hosts publishers’ content within its ecosystem. Similarly,

461 Ibid.

462 In reaching a formal determination in relation to Google and Facebook we expect that DMU or government

would not need to conduct material further analysis to gather evidence but could rely on the findings in this study.

336

specialised search providers are heavily reliant on user traffic from Google’s
search engine. Google has entered into various specialised search markets,
including flights, hotels and local searches, and is in a position to leverage
market power from general search into these markets, harming rivals’ ability
to attract users.
7.61

Google has also developed strong market positions in a number of markets
which it operates alongside the search business. Google has developed
unrivalled access to data through its operation of the largest browser(Chrome) and the Android mobile operating system. Through its display
advertising businesses, including the largest publisher ad server (Google Ad
Manager) and the largest advertiser-facing demand side platforms (DV360
and Google Ads), Google is a vital trading partner for advertisers wanting tosecure conversions. This access to data and presence along the ad techsupply chain can limit the availability of genuine alternative choices for
publishers and advertisers.

7.62

Evidence to support our assessment that Facebook has SMS includes that
Facebook (including Instagram and WhatsApp) has a reach of over 85% of
UK internet users, 463 around 75% of the time spent on social media for anumber of years, 464 and a share of over 50% of all UK display advertising
revenues. This significant online presence means that Facebook plays animportant role in driving consumer traffic to content providers, including
publishers, in particular through its Newsfeed.

7.63

Facebook also has extensive access to data and is the only medium throughwhich advertisers can run certain valuable campaigns. It is a valuable portal
through which advertisers can access a large number of users, with [over one
million] UK advertisers using the platform in 2019. In addition, it can leverage
this position to request data from advertisers or businesses interoperating with
Facebook which is then used to create rival products in adjacent markets.
Facebook also plays an important role for developers who are reliant on its
platform to grow their userbase. Alterations made to its platform could requiredevelopers to make technical or even business model changes to their apps.
Facebook may also leverage its position by creating products that compete
directly with those of developers.

7.64

We note that other platforms may be considered to have SMS when
considering their role in other markets outside the scope of this study, and this463 See Figure C.2 of Appendix C. Comscore MMX MP, Total Digital Audience, Desktop aged 6+, Mobile aged

13+, February 2020, UK.
464 See Figure C.17 of Appendix C. Comscore MMX MP, Total Digital Audience, Desktop aged 6+, Mobile aged
13+, July 2015 – February 2020, UK.

337

will be considered by the Digital Markets Taskforce, which will also advise thegovernment on the appropriate designation test. The regime would need tobuild in a mechanism such that SMS designations can be reviewed, andcandidates for new SMS designations can be assessed, within a reasonable
timescale. Again, these issues will be considered by the Taskforce.
Scope of designation
7.65

7.66

We recommend that SMS should apply to the corporate group as a whole (ieincluding all businesses with the same ultimate owner). 465 This is to: ensurethat the DMU would have the ability to address concerns in markets that are
adjacent to those where the firm has market power; ensure the DMU would
have the ability to require all the information it needs from the corporategroup; ensure that parent companies procure their subsidiaries’ compliancewith the code; and prevent the possibility of corporate reorganisations
frustrating the operation of the code. However, the main substantive
provisions of the code should apply to:•‘Core markets’ (ie those markets in which the firm has market power, andon the basis of which the SMS designation is made); and•‘Adjacent markets’, into which that market power can be leveraged, (egthrough the use of data and/or consumer attention).

The substantive provisions of the code would not apply in those markets inwhich there is no plausible leveraging of market power, ie which are notplausibly ‘adjacent’. The assessment of whether a particular market should beconsidered adjacent would fall to the DMU.

Structure and content of the code
7.67

We propose that the code for Google and Facebook should take the form of
high-level principles rather than detailed and prescriptive rules. Given thecomplex and rapidly changing nature of the markets within scope and theissues we have identified, there is a risk that overly prescriptive rules would
soon become redundant or fail to anticipate important new developments.

7.68

Responses to our consultation broadly supported this approach but someparties considered it would be necessary to have greater specificity over thecoverage of the code, and how it would be applied in practice. Reflecting on

465 As with many of the proposals in this chapter, they would apply to the platforms funded by digital advertisingthat we have investigated, ie Google and Facebook. The Digital Markets Taskforce will be assessing in the
coming months whether the proposals should apply equally to other platforms.

338

these responses, and drawing on further discussions with stakeholders since
our interim report, we have refined our proposals for the structure and content
of the code, which are set out below.
Structure of the code
7.69

The code should comprise:•

A statement of scope, setting out the core markets within which theplatform is found to have SMS and the key relationships covered by the
code.

•

Three high-level objectives (fair trading, open choices, trust andtransparency, as described below). These are likely to be relevant acrossboth SMS platforms.

•

Principles within each objective, providing greater specificity as to the
behaviour allowed or prevented by the code. Some of these may differ
between SMS platforms.

•

Guidance, setting out in more detail the potential application of the code
to the specific SMS platform. The guidance would provide much moredetail on practical application of the principles to the markets within which
the SMS platform would operate. While not formally part of the code, an
initial draft of the guidance would be published alongside the code, and it
would be updated by the DMU as the market evolves.

•

Enforcement powers enabling the DMU to force SMS firms to comply
with the code, including the ability to order conduct and issue financial
penalties for non-compliance with DMU orders and, where appropriate, for
non-compliance with the code.

7.70

We recommend that legislation should make provision for the code’s
objectives, with the DMU empowered to prescribe the principles in the codeand that consultation on the contents of the code should generally occur
concurrently with the process of designating an SMS platform. The regime
would need to build in a mechanism such that SMS designations can bereviewed, and candidates for new SMS designations can be assessed, withina reasonable timescale. The Taskforce will develop further advice in theseareas.

7.71

In the following sections we provide more detail on the coverage of the code,
the proposed objectives and principles, and how these would apply to thespecific concerns we have identified in this study. This draws on Appendix U,
which provides a more detailed discussion of these issues, and which could339

form the basis for the guidance which would be applied to the markets in thescope of this report.
Relationships covered
7.72

7.73

In the markets that we have reviewed in this market study, the code would be
used to address concerns relating to a range of different relationships
between SMS platforms, consumers and business users, including:•advertisers’ and publishers’ relationships with platforms in relation tobuying and selling digital advertising;•publishers’ and content providers’ relationships with platforms as agateway for hosting content and accessing consumers via the platform;•business users’ relationships with platforms where they are providing
services via platforms but which could also compete with the platforms’
own service offerings (for example, online travel agents); and•consumers’ direct interactions with platforms (eg using a search engine oraccessing a social media page).

Figure 7.1 illustrates the key relationships that we believe should be coveredby the code as it would apply to Google and Facebook, drawing on the areas
where concerns have been highlighted in respect of the markets in the scopeof this study.

340

Figure 7.1: Key relationships which should be governed by a code of conduct

Source: CMA assessment.

Principles
7.74

To address the range of concerns we have identified in our study, we proposethat the purpose of the code should be to protect consumers and businesses
from the ability of SMS firms to use the market power they have to: exploit
customers; exclude rivals; or reduce transparency, thereby undermining trust.
Accordingly, we have structured the key provisions of the code in the form of
three overarching objectives: ‘fair trading’; ‘open choices’; and ‘trust andtransparency’, which address each of these key concerns.

7.75

In the following sections, we explain the rationale for each of these objectives,present our views on the appropriate range of principles falling under each ofeach of these objectives, and briefly set out how they would relate to the341

concerns we have identified in the study. In setting out these concerns, bothhere and in Appendix U, we are not drawing any conclusions about theoutcome of any investigation of these practices under the code. In somecases, there may be efficiency arguments for the practices in question, forexample. Rather, our purpose is to demonstrate that:•

there is a wide range of concerns across the markets we have reviewed;•

the number and complexity of issues are such that ex post enforcement
alone is insufficient to resolve them; and•there is therefore a robust case in practice for the establishment of thecode.

Fair trading
7.76

The ‘fair trading’ objective would require the SMS platform to trade on fair andreasonable terms for services where they are an unavoidable trading partner
as a result of their gateway market position. In effect, the fair trading objective
is intended to address concerns around the potential for exploitative
behaviour on the part of the SMS platform.

7.77

We have identified the following principles that would apply under the fairtrading objective:

7.78

•

to trade on fair and reasonable contractual terms;•

not to unduly apply discriminatory terms, conditions or policies to certain
customers;•

not to put any unreasonable restrictions on how customers can use
platform services;•to act in customers’ best interests when making choices on their behalf;and•to require use of data from customers only in ways which are reasonably
linked to the provision of services to those customers.

Table 7.1 summarises some of the concerns that we have heard in the market
study that could be addressed under each of these principles. A more detailed
discussion of these, drawing on a broader range of examples, is available inAppendix U and in Chapter 8.

342

Table 7.1: Fair trading: concerns that could be addressed under the code
Fair trading principles

Example of practices that could be investigated under the
principle

To trade on fair and reasonable
contractual terms

Requiring access to publishers’ data, without sharing the samelevel of data with the publisher when platforms host content. Eg,
terms under which Google and Facebook host publishers’ content
and control data and digital advertising using AMP and IA formats.
(See Chapter 5 / Appendix S)
Concerns about a lack of clarity in the platform’s advertising
policies, resulting in ads or accounts being suspended for reasonsthat may be unclear or inconsistent (See Appendix Q).
Changes to Google’s keyword matching algorithm resulting inadvertisers participating in auctions for terms that are less relevantto them and where bids might have a reduced quality weighting,resulting in increased prices (See Chapter 5 / Appendix Q).
Concerns that automated bidding options in Google andFacebook could be used to increase platform revenues (See
Chapter 5 / Appendix Q).

Not to apply unduly discriminatory
terms, conditions or policies to certain
customers
Not to unreasonably restrict how
customers can use platform services
To act in customers’ best interests
when making choices on their behalf
To require use of data from customers
only in ways which are reasonably
linked to the provision of services tothose customers

Concerns that Facebook’s contractual provisions with businesses
over the use of commercially sensitive data allows Facebook to
use this data to develop their own rival service (See Chapter 3).

Source: CMA.

7.79

We have considered whether the DMU should be empowered under the
principle of fair trading directly to restrict SMS platforms from setting key
market outcomes at levels that are ‘excessive’. This could take the form of
directly seeking to control levels of ad load, for example, or even the prices
paid by advertisers.

7.80

Imposing such direct controls is a resource-intensive and challenging process,involving a fine balance between protecting consumers and maintaining
incentives to invest. These challenges are particularly great in the context ofthe markets we have reviewed, given the international nature of costs and theconsiderable heterogeneity in products and services offered. We havetherefore concluded that such controls should not be included within thescope of the code for Google and Facebook, which requires rapid resolutionof concerns. Rather, the code should be focussed on changing behaviour in a
way that will facilitate stronger competition and minimise the scope for
exploitation, thereby influencing outcomes.
Open choices

7.81

The ‘open choices’ objective would require the SMS platform to allow users tochoose freely between elements of the platform’s services and those offeredby competitors. This principle is intended to address the potential for
exclusionary behaviour on the part of the SMS platform.

7.82

There are likely to be two main domains in which this objective is important:contractual terms and commercial behaviour; and technical standards and343

interoperability. Regarding contractual terms, this objective would focus onconcerns relating to tying, bundling and self-preferencing behaviour. In
relation to technical standards, this objective would seek to ensure that the
SMS platform take reasonable steps to allow third parties to interoperate withthe platform’s services, and comply with common standards.
7.83

7.84

We have identified the following principles that would apply under the open
choices objective:•

not to impose undue restrictions on the ability of customers to use otherproviders that compete with the SMS platform or to compete with SMS
platform themselves;•

not to influence competitive processes or outcomes in a way that selfpreferences a platform’s own services, or services for which the platformderives a commercial benefit, over rival services;•not to bundle services in markets where the SMS platform has market
power with other services in a way which has an adverse effect on users;•

to take reasonable steps to ensure that core services interoperate withthird party technologies where not doing so would have an adverse effecton users; and•not to withhold, withdraw, or deprecate APIs or otherwise change them ina way which has an adverse effect on users.

Table 7.2 summarises some of the concerns that we have heard in the study
that could be investigated under each of these principles.

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Table 7.2: Open choices: concerns that could be addressed under the code
Open choices principles

Example of practices that could be investigatedunder the principle

Not to impose undue restrictions on ability ofcustomers to use other providers thatcompete with the SMS platform or to competewith SMS platform themselves

Restrictions in syndication agreements, such as requiring
approval to be preinstalled or set as the default on a web
browser, can limit the ability of downstream suppliers to
attract users (See Chapter 3 / Appendix Q).

Not to influence competitive processes oroutcomes in a way that unduly selfpreferences a platform’s own services overthose of rivals

Concerns that Google is able to use its control of the
publisher ad server market to determine auction processes
in a way which favours its digital advertising businesses (See
Chapter 5 / Appendix M).

Not to bundle services in markets where the
SMS platform has market power with otherservices in a way which has an adverse effecton users

De facto requirement to use the AMP and IA formats to gain
prominence in search / newsfeed, rather than alternative
mobile friendly formats (See Chapter 5 / Appendix S).

To take reasonable steps to ensure that coreservices interoperate with third party
technologies where not doing so would havean adverse effect on users

Frequent changes to Facebook’s APIs that require thirdparty developers to repeatedly redesign their applications(Appendix J).

Not to withhold, withdraw, or deprecate APIsor otherwise change them in a way which has
an adverse effect on users

Facebook’s decision to deprecate the Public Actions API
which harmed the quality of content viewable acrossplatforms and the ability for users on competitor platforms toreach a wider audience (See Chapter 3 / Appendix J ).

Source: CMA.

•

Trust and transparency

7.85

In the markets we have reviewed, many decisions are taken by algorithms
that are complicated and difficult for users to understand or scrutinise. As aresult, users may lack sufficient information to make informed choices,
undermining the effectiveness of competition. Users may also be influenced
by choice architecture and default settings into taking choices that may not bein their best interests. All of these factors can reduce trust in the market.

7.86

The ‘trust and transparency’ objective is designed to ensure that SMS
platforms provide sufficient information to users, including both consumers
and businesses which transact with the platform, so that they understand how
the platform operates and are able to make informed decisions. Choicearchitecture should be designed in such a way as to facilitate informed
decision making. Users should also have confidence that decisions are being
made fairly and according to publicly stated criteria.

7.87

We have identified the following principles that would apply under the highlevel principle of trust and transparency:•

to provide clear information to consumers about the services they receive
and the data the platform takes in return, in a format which canrealistically be read and understood;
345

7.88

•

to ensure that choices and defaults in how to use services provided by theplatform are presented in a way that facilitates informed customer choice;•to ensure advertising is presented in a way that is clearly distinguishable
from organic content;•

to explain the operation of search and ranking algorithms and advertisingauctions and to allow audit and scrutiny of their operation by the regulator;•

to give fair warning about changes to the operation of algorithms wherethese are likely to have a material effect on users, and to explain the basisof these changes;•

to comply with industry standards and provide access to relevant datarequired for third-party verification and measurement; and•to be transparent about fees charged.

Table 7.3 summarises some of the concerns that we have heard in the study
that could be investigated under each of these principles.

Table 7.3: Trust and transparency: concerns that could be addressed under the code
Trust and transparency
principles

Example of practices that could be investigated under
the principle

To provide clear information tocustomers about the services theyreceive and the data the platform takes,
in an easily understood format
To ensure that choices and defaults
provided by the platform are presented
in a way that facilitates informed
consumer choice over the use of theirpersonal data
To ensure advertising is presented in a
way that is clearly distinguishable fromorganic content
To explain the operation of algorithms
and advertising auctions and to allow
audit and scrutiny of their operation by
the regulator
To give fair warning about changes tothe operation of algorithms where these
are likely to have a material effect onusers, and to explain the basis ofchanges
To comply with industry standards andprovide access to relevant datarequired for third-party verification andmeasurement
To be transparent about fees charged

Concerns that platforms often require consumers to navigate acomplex route to find information about the use of their data
(Chapter 4 / Appendices K and Y).

Source: CMA.

7.89

Concerns that platforms apply choice architecture which can‘nudge’ consumers towards platforms’ preferred choices andrestrict their ability to make informed choices (Chapter 4 / Appendix
Y).
Recent changes to the way mobile ads and organic search
results are labelled make advertising less distinguishable fromorganic search results (Chapter 5 / Appendix Q).
A lack of transparency of algorithms used in advertisingauctions, including those used to weight bids by relevance andautomated bidding algorithms (Chapter 5 / Appendices Q and U).
Unexpected and unexplained changes to Google andFacebook’s algorithms which have material impact on flows of user
traffic visiting different websites and are highly importantcommercially to the many businesses that rely on this traffic(Chapter 5 / Appendix S).
Google and Facebook do not allow full access to the relevant
data to third party verification providers, harming the assessmentof quality (Chapter 5 / Appendix O).
The lack of transparency of fees along the intermediation chain
limits the ability of advertisers and publishers to make optimal
choices on how to buy or to sell inventory (Chapter 5 / Appendix R).

The requirement to design choice architecture in a way that facilitates
informed choice has applications to a number of areas, including the use ofowned and operated advertiser sales interfaces, but is of particular346

importance to our assessment of interventions to increase consumer control
over data. We therefore discuss the appropriate application of this principle insome detail in Chapter 8, when we discuss the Fairness by Design duty under
the code.
Relationship with codes proposed in the Cairncross Review
7.90

We note that the broad content of the enforceable code we are proposing inthis study covers a number of the areas of concern set out in Cairncross
Review into the sustainability of journalism. The Review set out a proposal for
new codes of conduct to rebalance the relationship between publishers andonline platforms. Specifically, it suggested that those online platforms uponwhich publishers increasingly depend for traffic should be required to set out
codes to govern their commercial arrangements with news publishers, withoversight from a regulator.

7.91

The Review suggests that such codes of conduct could address a number ofconcerns that have been raised by publishers, including transparency overfees and ranking algorithms, access to user data, restrictions on publishers’
ability to monetise their content and forewarning of significant changes toalgorithms. 466 Each of these concerns are areas that we believe should becovered in the enforceable code of conduct for Google and Facebook that weare proposing in this study.

7.92

We note that there are some differences between our proposals for a codeand the Cairncross Review proposals. Notably, the Review proposed that
relevant platforms should develop their own codes, but with guidance from theregulator on what should be included and that, if the regulator believes thecodes are not sufficient, or do not conform to its guidance, it should be
empowered to develop a statutory code. In contrast, and as discussed further
below, our view is that, to protect competition given the entrenched market
power of both Google and Facebook, the codes applying to them would needto have a statutory basis, with powers for the DMU to suspend, block andreverse decisions of SMS firms, and to order conduct in order to achievecompliance with the code. Further, the enforceable code that we areproposing would cover a much broader range of relationships and issues thatthose that were the focus of the Cairncross Review.

7.93

Overall, we think that the enforceable code set out in this chapter could be asuitable vehicle for taking forward the proposal for multiple codes under the

466 See Chapter 6 of the Cairncross Review for a full list of the concerns that could be addressed under thesecodes.

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Cairncross Review. Government may therefore wish to consider this option in
deciding how to take forward this element of the Review’s recommendations.
Powers and procedures
7.94

The design of the DMU’s processes will continue to be worked on by the
Digital Markets Taskforce. Drawing on the analysis of ad-funded platforms, wehave considered at a high level the powers and procedures that we envisage
would be needed to enforce the code.

7.95

It would be important for the code to be directly enforceable by the DMU sothat there is a strong deterrent to breaching the code and urgent issues canbe dealt with. The code would therefore give the DMU the power to suspend,
block and reverse decisions of SMS firms, and order conduct in order toachieve compliance with the code. These powers would follow aninvestigation into a breach of the code that balances reasonable rights ofdefence against the need for prompt decisions. In order for the DMU’s orders
to be effective, they would need to be backed up by the ability to impose
financial penalties for non-compliance.

7.96

To achieve the objective of prompt intervention in these fast-moving markets,
we envisage that where formal investigations under the code are necessary,
they would be completed within a limited timetable, perhaps six months fromthe date on which an investigation is launched by the DMU. The DMU may
often be able to achieve agreement and cooperation from the platform bysignalling a likely investigation and the direction it is expected to take.

7.97

As these types of investigations would seek only to bring an SMS firm into
compliance with the code, they would not be used to order major new
interventions of the type envisaged by the pro-competitive interventions in thesection below. If an investigation under the code raised an issue that may
require such an intervention, the DMU would need to use other its procompetitive intervention powers with a lengthier process to achieve them.

7.98

To achieve the objectives of the code, it is likely that the DMU would needappropriate powers including the ability to:•compel information from SMS firms and other market participants;•

carry out own-initiative investigations and investigations stemming fromcomplaints;•

put in place rapid interim measures pending the outcome of aninvestigation, for example to suspend or reverse the implementation of a348

potentially harmful decision by an SMS firm, backed up by financial
penalties for non-compliance;

7.99

•

publish reports on its work and the industry more generally, balancing theneed for transparency against industry players’ interests in protecting theirconfidential information;•

appoint a monitoring trustee to monitor and oversee compliance by an
SMS firm; and•co-ordinate and share information with UK regulators such as CMA, ICO
and Ofcom, and with overseas authorities with similar objectives provided
the DMU is satisfied that confidential information will be treatedappropriately.

We would expect that there would be a right of appeal on judicial review
grounds by the SMS firm or other materially affected person against decisionsof the DMU. This would enable a timely review of the DMU’s decisions in linewith other regulatory regimes.

7.100 In addition to the type of investigations outlined above, it is important for the
regime to deter conduct by SMS firms that would intentionally or negligently
inflict harm. It may be insufficient in those circumstances if there were no
ability to penalise the conduct and the outcome of the DMU’s investigation
were merely to reinstate the SMS firm’s compliance with the code. 467
Therefore, the DMU would need the power to impose substantial financial
penalties in these circumstances. We would expect the process for this typeof investigation to be lengthier than the standard investigation under the code.
7.101 Given the international nature of the relevant markets and the importance ofclarity in the DMU’s jurisdiction to carry out its duties, the DMU would needexpress jurisdiction to investigate the supply of services to UK consumers,
and to investigate those who supply them – including the power to require theproduction of information from, and to impose orders on, firms not physicallypresent in the jurisdiction.

Pro-competitive interventions
7.102 The code discussed above has the objective of addressing the ability ofplatforms to exploit market power in core markets and to leverage that market

467 See, for example, the deficiencies in the CMA’s current powers in enforcing compliance with its remedies

following a market investigation under Part 4 Enterprise Act 2002, as outlined in the CMA Chairman’s reform
proposals, page 15:349

power into adjacent markets. It would give the DMU the power to write
guidance on acceptable behaviour in trading with users and competing inadjacent markets, and to change platforms’ behaviour if necessary to requirecompliance with the code. We have confidence that it would provide greatercertainty and promote competition and innovation for firms which trade withlarge platforms.
7.103 We therefore think that the code will provide a highly valuable tool to address,
on a timely basis, many of the concerns we have identified in this study, by
influencing the behaviour of Google and Facebook in relation to users andother market participants. However, the code is not intended to give the DMU
the power to design and implement measures directly targeted at the sourcesof market power, such as access remedies or separation. Therefore, given theentrenched market positions of Google in search, search advertising, andopen display advertising, and of Facebook in social media and display
advertising, there are aspects of competition in these markets that will not be
substantially improved by the code. Further, there are other market-wide
problems that we have identified that do not relate solely to the market poweror behaviour of Google or Facebook and the code will not therefore be theright instrument to address them.
7.104 Therefore, we consider there is likely to be a need for additional interventions– which we call pro-competitive interventions – to improve outcomes for
consumers in the consumer-facing and digital advertising markets. This isconsistent with the conclusions of the Furman Review, which, alongside thecode, called for the DMU to be given a range of powers to introduce datarelated remedies, including interoperability and data access interventions. We
agree that data-related interventions could play a central role in improving
competition in these markets but, as discussed below, we also consider that
there is a need for other forms of intervention, including interventions toincrease consumer choice and control and separation remedies.
7.105 We intend that the code and pro-competitive interventions would playcomplementary roles, largely because they target different objectives anddiffer in their scope. The key differences between the code and the procompetitive interventions are:•

The key objective of the code is to mitigate the effects of market power bygoverning the behaviour of platforms with SMS, helping to guard against
exploitative or exclusionary behaviour. It can therefore be thought of as
aiming to ‘protect’ competition and consumers. Specifically, it would be atool for dealing with the many concerns raised by stakeholders that arise
from Google and Facebook’s gatekeeper role and market power, which350

leads to a position of dependency for users and customers of the platform
and consequently an imbalanced bargaining position.
•

In contrast, the key objective of pro-competitive interventions is toincrease competition by tackling the sources of market power directly, byovercoming barriers to entry and expansion and by addressing systemic
market failures, such as information asymmetries or coordination failures.
They are more transformational in nature and can thought of as aiming
proactively to ‘promote’ greater competition between the platform andexisting or potential rivals, including by creating new forms of competition.

•

Code powers would be applied to SMS platforms, while the orders arisingfrom pro-competitive interventions could in principle be applied to abroader range of market participants.

•

Changes to behaviour under the code could be introduced rapidly andwould deliver immediate protection for dependent customers of platforms.
Conversely, the pro-competitive interventions would require greater
opportunities for consultation with affected parties and longer timescales
for analysis and decision-making, reflecting their transformational natureand their potential application to a wide range of parties. The benefits for
consumers of the pro-competitive interventions may also take longer tomaterialise, as the market power of the SMS platforms will most likely beeroded gradually over time.

7.106 While distinct, the code and pro-competitive interventions would have highly
complementary functions. Although the pro-competitive interventions aredesigned to tackle the causes of market power at source, potentially solving
many of the concerns and problematic behaviour we have identified, theirimpact is uncertain, given the range of self-reinforcing barriers to entry andexpansion we have identified – the code is therefore essential to deal with thenegative effects of the market power held by platforms with SMS. When procompetitive interventions are introduced, the code could be a usefulmechanism to manage their ongoing monitoring and enforcement. Finally, if
the pro-competitive interventions are sufficiently successful in reducing themarket power of the platforms, they may no longer be designated with SMS,
and the code would cease to apply.
7.107 In this report, we have identified pro-competitive interventions that the DMU
should assess, but the DMU would also have a more general power to put inplace other pro-competitive interventions that are not mentioned in this report,
and to revoke interventions that are no longer necessary, thus enabling theregime to evolve over time.

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7.108 In the rest of this section, we set out our views on: the different types of procompetitive intervention that should be available to the DMU; the appropriate
scope of such interventions; and the powers and procedures that should apply
to the implementation of pro-competitive interventions.
Types of intervention
7.109 The Furman Review recommended that the DMU should have powers to
implement a range of data-related remedies including data mobility, systems
with open standards and open data. We agree that data-related remedies are
key in digital platform markets, but, based on our analysis of market failures in
the consumer-facing and digital advertising markets, we consider that powers
to introduce consumer choice and separation interventions are also required.
We summarise these three different categories of pro-competitive
interventions in turn below.
Data-related remedies
7.110 Many of the interventions that we have assessed in this study are data-related
interventions. This reflects the fundamental role that data plays in thebusiness models of online platforms, particularly those funded by digitaladvertising. It also reflects the fact that differential access to data is at theheart of several of the barriers to entry and expansion that we have identified,
and that data is an important route by which market power in one market canbe leveraged into adjacent markets.
7.111 The main data-related interventions that we have assessed in this study, andwhich we consider should be part of the DMU’s toolkit, are the following:•

Increasing consumer control over data, which includes providing a
choice over the use of data (for example, the proposal to requireconsumers be given a choice over whether to receive personalised
advertising) and facilitating consumer-led data mobility;•

Mandating interoperability (for example, the options we consider toincrease Facebook’s interoperability with other social media platforms andinterventions in digital advertising such as digital IDs and transaction IDs);•

Mandating third party access to data (for example, the intervention
considered below to require Google to share click and query data withother search engines); and•Mandating data separation / data silos (for example, the intervention
we discuss to limit integrated platforms’ use of data in digital advertising).

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7.112 As discussed in more detail when we assess the potential remedies below,
the choice of which data-related remedy to employ needs to be made on acase by case basis and this assessment will be informed by the particularcharacteristics of the data and market. For example, the case for consumer
control remedies is generally stronger where: consumers internalise relevantcosts and benefits (ie there are no significant ‘externalities’); privacy views /concerns vary substantially within population (so a one size fits all rule would
not be appropriate); and where putting the responsibility on the consumer
does not involve excessive transactions costs or unreasonable expectations.
7.113 Conversely, the case for third party access / mandated interoperability
interventions is greater where: data is valuable in overcoming barriers to entry
and expansion; there are positive externalities in the use of the data; the datais held by a platform without significant ongoing costs or investment, or is due
to first mover advantages; and privacy concerns can be effectively managed(eg either the data is not personal or can be anonymised). 468
Consumer choice and default remedies
7.114 We have been struck in the work we have done in this study by the power ofdefaults and choice architecture in influencing consumer decision making.
These apply not just to the question of consumer control over data, but toother areas including the user’s choice of search engine, which is highly
influenced by the default set by the browser or device.
7.115 We discuss in Chapter 8 potential interventions to restrict the ability ofplatforms to purchase search default positions and to introduce choicescreens and we believe both are important powers for the DMU to have.
Although there is a link here to our proposed ‘Trust and Transparency’ code
power to influence choice architecture, where the power extends tointroducing requirements for choice screens, and obligations on parties otherthan SMS platforms, in our view this would go beyond the scope of the code
and would need to be implemented as a pro-competitive intervention.
Separation remedies
7.116 There are several forms of separation remedy, from operational separation,
which seeks to ensure that units within a business are operated
independently, to ownership separation, which can require divestiture ofassets.

468 In Appendix T we describe our approach to assessing data-related interventions in more detail.

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7.117 Separation remedies can be an alternative to interventions under the code, toaddress concerns about the ability of integrated firms such as Google andFacebook to exploit market power through operating businesses acrossrelated markets in their common interest. Separation remedies interfere to agreater extent in a company’s property rights, but often have the potential tohave a broader range of benefits than some other remedies.
7.118 For example, following structural separation, independently-owned firms
would not have the incentive to trade in a way that favours their own
businesses, and will have independent incentives to innovate in new products
or new technologies. These incentives are often more limited in integrated
firms, which may not choose to invest in products that might disrupt theirpower in other markets.
7.119 There are two contexts in which we think the use of separation powers insome form may be necessary in the markets we have reviewed – to address
Google’s vertical integration and conflicts of interest in open display and toaddress the competition effects of the joint ownership of Facebook andInstagram, the two largest social media platforms by revenue. While we
recognise that these would be highly intrusive interventions, they might also
have the potential to change the nature of competition substantially. We
therefore think that both operational and ownership separation powers, should
available to the DMU. The DMU will be well placed to ensure thatinterventions such as these are effective in combination with the code and anyother interventions. 469
7.120 We will be providing further advice on the extent of the powers that should beavailable to the DMU in the context of the Digital Markets Taskforce work.
Scope of pro-competitive interventions
7.121 Many of our proposed interventions relate to SMS platforms, but not all ofthem. For example, some of the potential data-related remedies we consider
in digital advertising, such as a transaction ID, would apply to a broad rangeof market participants, and several of the interventions to improve consumer
control over data could apply to a broader range of market participants in the
future.

469 In Chapter 8 we describe in some detail how the DMU might apply these powers to address concerns relating

to Google’s conflicts of interest in the open display market, while in Chapter 9 we set out why, notwithstanding
the importance of separation powers, we have decided not to launch a market investigation at this stage,
preferring to focus in the near term on the development of the regulatory regime for online platforms through theDigital Markets Taskforce.

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Powers and procedures
7.122 The design of the DMU’s processes will continue to be worked on by the
Digital Markets Taskforce. Drawing on the analysis of ad-funded platforms, wehave considered at a high level the powers and procedures that would beneeded to implement the pro-competitive interventions.
7.123 The DMU would need powers to assess and, if appropriate implement, thepro-competitive interventions. These powers would be separate from the
DMU’s powers to enforce compliance with the code.
7.124 A clear way to achieve this is through legislation by which the DMU assesses
whether a pro-competitive intervention is required to address the adverse
effects of an SMS platform’s market power on competition or consumers in
the UK or internationally. The statutory question the DMU would need toanswer would therefore be relatively narrowly scoped in each case to ensurethat the outcomes are deliverable within a reasonable timescale.
7.125 The DMU would need to assess what use of its powers would be effective andproportionate responses to comprehensively address that effect. The DMU
would then have wide powers to implement (and enforce) the appropriate
interventions itself. The interventions could ultimately be incorporated into thecode of conduct if appropriate, or they could be implemented separately.
7.126 In addition to assessing and implementing the pro-competitive interventions
raised in this study at the outset of the new regime, these powers would benecessary in ensuring the DMU could continue to promote competition in the
SMS firms’ markets in the medium and long term. These markets can be fastmoving, so we would expect new interventions to be required in the future.
The DMU’s ongoing presence in the sector would help it to monitor, amend
and revoke the interventions over time in an efficient way.
7.127 The process by which these interventions would be assessed and, if
appropriate, implemented by the DMU should reflect good practice in terms oftransparency and consultation rights. It would be subject to appeal on judicial
review grounds.
7.128 Both firms and consumers would suffer from a period of uncertainty while theDMU investigates these issues. As the DMU would have pre-existingknowledge of these markets and the scope of its enquiry would be predetermined to some extent, we would expect that it would be possible for the
DMU to operate within a statutory deadline of 12 months in most cases.

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Conclusion and recommendations
7.129 The evidence we have assessed in this study strongly supports the case forthe development of a pro-competition regulatory regime for online platforms.
This is consistent with the type of regime envisaged by the Furman Review,the recommendations of which were recently accepted by government.
7.130 We have concluded that a code of conduct is necessary to protect competition
and fair outcomes, where platforms in a gateway position have enduringmarket power, and would be assigned a strategic market status. We haveidentified three core principles around which the code should be formed: fairtrading, which would require the SMS platform to trade on fair and reasonable
terms for services where they are an unavoidable trading partner as a resultof their market position; open choices, which would be intended to require the
SMS platform to allow users to choose freely between elements of theplatform’s services and those offered by competitors; and trust andtransparency, designed to ensure that SMS platforms provide sufficient
information to users, including both consumers and businesses which transact
with the platform.
7.131 The DMU would also need powers to introduce ‘pro-competitive interventions’to tackle sources of market power and increase competition. These should
include data-related interventions, which would give the DMU powers toincrease consumer control over data and facilitate consumer-led data mobility,
increase interoperability, provide third parties access to data and restrict theuse and integration of data sets where necessary. The DMU should also havepowers to increase consumer choice through the introduction of choicescreens, and powers to restrict the ability of platforms to control default
settings where these restrict choice and inhibit entry to from rivals. Finally, theDMU should have the power to separate platforms where integration creates
conflicts of interest or undermines competition to the detriment of consumers.
Separation could take a variety of forms, from management separation to fullownership separation.
7.132 To achieve this substantial package of reform, the necessary next step is forthe government to pass legislation. We have set out our recommendations to
the government in Box 7.1 below for what this legislation should include.

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Box 7.1: Our recommendations to the government
The government should legislate to introduce a new regulatory regime forplatforms comprising both the code and the pro-competitive interventions, drawing
on the work of this study into online platforms funded by digital advertising, andthat of the Digital Markets Taskforce, which will also be considering online
platforms funded by transactions.
More specifically, we make the following high-level recommendations togovernment for what this legislation should include:
Recommendation 1: Establish an enforceable code of conduct to govern the
behaviour of platforms funded by digital advertising that are designated as having
strategic market status (SMS). The purpose of the code would be to meet threehigh-level objectives of fair trading, open choices and trust and transparency.
Recommendation 2: Establish the requirement for a DMU to undertake SMS
designation, introduce and maintain the code based on objectives set out in thelegislation, and produce detailed supporting guidance.
Recommendation 3: Give the DMU the necessary powers to enforce theprinciples of the code on a timely basis, and amend its principles in line withevolving market conditions.
Recommendation 4: Give the DMU the necessary powers to introduce a rangeof pro-competitive interventions, which should include:a. Data-related interventions (including consumer control over data,interoperability, data access and data separation powers)
b. Consumer choice and default interventions
c. Separation interventions

7.133 In the next chapter, we set out in some detail how such a regime should beapplied to address the concerns we have identified in search, social media,
and digital advertising markets.

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8.

Interventions in search, social media, and digitaladvertising•

The pro-competition regulatory regime for online platforms that we arerecommending is required to address the wide-ranging problems we haveidentified in this study. We have developed detailed proposals for how the
DMU should apply the enforceable code and pro-competitive interventions
within this regime to search, social media and digital advertising.

•

There is a strong case for interventions to tackle the source of Google’s
market power in search. The DMU should have powers to introduce searchchoice screens and restrict Google’s ability to secure default positions on
devices and browsers where these are key entry points to the market, and torequire that Google provide rival search engines with access to its click-andquery data, to help them overcome its scale advantages in data.

•

In social media, interventions to tackle the source of Facebook’s market
power should focus on increasing its interoperability with rival platforms inorder to overcome the network effects that currently act as a significant
barrier to entry and expansion. We think there is a strong case for mandating
greater interoperability in relation to finding contacts and cross posting
functionalities, while the code would help to ensure that future decisions by
Facebook to shut off or deprecate APIs do not have harmful effects oncompetition and consumers.

•

The DMU should have powers to give consumers greater control over thedata they provide to platforms, including by requiring platforms to give
consumers a choice over whether to receive personalised advertising. A‘Fairness by Design’ duty under the code would ensure that Google andFacebook design choice architecture in a way that encourages free andinformed decision making by consumers, with a requirement to trial and test
alternative approaches.

•

The code would be an effective tool to address a wide range of the concerns
we have identified in digital advertising, including restrictions on publishers’
ability to monetise content, self-preferencing behaviour in the open display
market and low transparency over fees and ad verification. To tackle conflictsof interest in the open display market, some form of separation of Google’s
intermediation activities, notably its publisher ad server function, may benecessary. The DMU should also have the power to introduce data-related
interventions to increase transparency and address competition concerns,
including data separation, data access and data mobility remedies.
The CMA is undertaking to work with the ICO after the completion of thisstudy on a range of issues relating to the interaction between data protection,
consumer control and competition. This will aim to encourage a modern viewof data protection regulation, which empowers consumers and avoids
favouring large integrated platforms over smaller publishers.

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Introduction
8.1

In the previous chapter, we set out the case for a new pro-competition
regulatory regime for online platforms. At the heart of this regime is a DMU
with powers to enforce a code of conduct to govern the behaviour of platforms
with SMS and to introduce pro-competitive interventions to tackle sources ofmarket power and promote competition.

8.2

In this chapter, we present detailed proposals for the application of such aregime to platforms funded by digital advertising, setting out how both thecode and pro-competitive interventions should be used to address the issues
identified in Chapters 3 to 5 of the report, covering search, social media,
consumer control over data and digital advertising.

8.3

We have had three key objectives in undertaking these detailed assessments.

8.4

First, we have aimed to convince the government of the urgent case forsignificant new legislation, by demonstrating that there is a range of practicalinterventions that could be introduced under a new regulatory regime which
would significantly improve outcomes for consumers, and which could bedesigned in such a way as to minimise any potential adverse consequences.
In essence, our detailed assessments therefore serve to provide ‘proof ofconcept’ of the new regulatory approach that we are advocating.

8.5

Second, we have aimed to draw on the analysis and evidence that we havecarried out in this study to inform the future work of the DMU. In particular, wehave set out how specific concerns could be considered under the code andprovided a detailed assessment of how a range of pro-competitive
interventions should be designed by the DMU to maximise benefits for
consumers.

8.6

Third, recognising that the challenges raised by the role of Google andFacebook in digital markets are global in nature, we have aimed to inform theglobal debate on how to regulate online platforms funded by digitaladvertising. Consistent with this aim, much of our work after publication will befocused on engaging with international competition authorities and regulators
to highlight our key findings and insights. This is discussed further in Chapter
10.

8.7

The rest of this chapter provides:•

our assessment of how the code and pro-competitive interventions could
address the competition concerns in search and social media that we
identified in Chapter 3;

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8.8

•

our assessment of how the code and pro-competitive interventions could
give consumers greater control over, and protection in relation to, the useof their data, addressing the issues identified in Chapter 4; and•our assessment of how the code and pro-competitive interventions could
promote competition and improve transparency in digital advertisingmarkets, addressing the issues identified in Chapter 5.

To support this chapter we have produced a series of appendices in which we
assess the interventions in more detail, and consider a range of issues
including: whether the intervention in question would be effective in
addressing the concerns identified in this report; whether the costs of theintervention would likely outweigh the benefits; and how the intervention
should be designed to maximise the net benefits to consumers and society
more broadly. 470

Interventions in search
8.9

As explained in Chapter 3, we have found that the ability of general searchengines to compete with Google is constrained by the need to overcome anumber of barriers to entry and expansion, on both the supply and thedemand side of the market.

8.10

On the supply side, to produce independent search results, rival (or new
entrant) search engines must overcome: economies of scale in crawling andindexing; and scale advantages with respect to the number of search queries
and the information gained from consumers’ interaction with search. Google
and Microsoft are the only two providers that undertake English-language
web-crawling and indexing at a scale that can support a competitive searchengine in the UK, and the greater scale of English-language queries seen by
Google is likely to support its ability to deliver more relevant search resultscompared to its competitors, especially in relation to uncommon and fresh
queries.

8.11

On the demand side, Google is the default search engine for most search
entry points in the UK. These default arrangements harm competing searchengines’ ability to access consumers and are consistently described by theseparties as the most significant barrier to growing their userbase, monetising
their operations and improving the quality of their search results.

470 See Appendices T, U, V, W, X, Y, Z, and ZA.

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8.12

Other search engines including Yahoo Search, DuckDuckGo and Ecosia
access organic search results and adverts through negotiated agreementswith Bing (in most cases) or Google. Both Google and Bing place restrictions
on these search engines, such as how they can present search results to
consumers. This makes it harder for these competitors to differentiatethemselves and innovate, for example in developing their own algorithms or inapproaches to presenting search results to consumers.

8.13

Finally, we heard a number of concerns from a range of parties regarding
Google’s behaviour in search. These included concerns from specialised
search providers that Google was leveraging its market power in generalsearch to undermine competition in specialised search through selfpreferencing behaviour, and concerns from newspapers that they were
exposed to sudden, dramatic changes in traffic from search due to changes in
the algorithm for which there was no forewarning or explanation.

8.14

We have considered how these concerns could be addressed through thecode and how pro-competitive interventions could address the barriers toentry and expansion set out above. A detailed discussion of these issues, theremedy design considerations and stakeholders’ views is set out in Appendix
V and we have provided a summary of our assessment below.

Code
8.15

As explained in more detail in Appendix U, the code could be an effective tool
in investigating and addressing some of the concerns we have identified insearch. For example, the code could be used to investigate concerns aroundunfair contract restrictions in syndication agreements (fair trading). Further, it
could be a valuable tool in developing interventions to address concerns
regarding self-preferencing (under the open choices objective) in areas suchas specialised search (an area that has been the subject of lengthy
enforcement cases, but outstanding concerns about the effectiveness ofremedies) and voice search.

8.16

Under the objective of trust and transparency, the code could also be used toinvestigate concerns around sudden algorithmic changes that have a material
effect on traffic to newspapers and other content providers, and seek toensure that adequate forewarning of material changes is given in advance.

8.17

More broadly, the code could be used to investigate concerns around therelationship between search and web browsers and ensure that Google is not
redirecting customers to its other services in a misleading manner. It could
also be used to ensure that Google is not unnecessarily designing its software
in a manner that inhibits interoperability and web compatibility.
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8.18

Overall, although the code would be a helpful tool in addressing concerns
about several aspects of the exercise of market power by Google in generalsearch, including the leveraging of that market power to adjacent markets, it isunlikely to have a significant effect in tackling the root causes of Google’s
market power in search. We consider that pro-competitive interventions arelikely to be required to overcome barriers to entry and expansion on the
demand and supply side of search, as discussed below.

Mechanisms for determining default search engines on devices and browsers
8.19

We have been struck by the very substantial payments that are made to be
the default search engine on browsers and devices and the significant impact
being the default search engine has on consumer take up. Several
stakeholders, including rival search engines, have told us that Google’scontrol over Android defaults and its ability to pay more than its rivals to be
the default on browsers such as Safari is the most significant barrier to entry
and expansion in general search.

8.20

To address these barriers to entry and expansion, we have considered three
key questions: (i) whether to limit Google’s ability to acquire defaults and, if
so, the scope of such restrictions, (ii) whether to mandate the use of choicescreens and, if so, how they should be designed, and (iii) whether to restrict
the monetisation of defaults and choice screens.

Restrictions on Google’s ability to acquire default positions
8.21

Many respondents to the interim report, including rival search engines andparties such as newspapers, called for a restriction on Google’s ability to enter
into arrangements to be the default search engine on devices and browsers.
Apple was strongly opposed to such restrictions being applied to Apple
products, while Google suggested that a prohibition on Google securing
default positions would harm the welfare of inert consumers if they end up
with a ‘worse’ search engine as a default.

8.22

Given the importance of defaults in search, such a restriction would be amajor change in the sector. The evidence we have seen suggests thisintervention may radically improve other search engines’ ability to gaincustomers and in turn improve their algorithms, but this would need to beweighed against any potential consumer harm arising from such restrictions.
Given the impact of preinstallations and defaults on mobile devices andApple’s significant market share, it is our view that Apple’s existingarrangements with Google create a significant barrier to entry and expansion
for rivals affecting competition between search engines on mobiles. We
therefore currently see a stronger case for imposing default remedies on large362mobile device manufacturers (eg Apple and large Android OEMs) in the UK
than for imposing remedies on smaller browsers.
Choice screens
8.23

The second intervention we have considered is a requirement to offer choicescreens to consumers on devices and browsers, and rules regarding theirdesign. Several search engines submitted that specific devices and browsers
should be mandated to present users with a choice of search engines. This
remedy would guarantee users have the opportunity to make an active choice
regarding their search engine from a selection of viable alternatives at a key
point in time, such as during the device or browser set up. Certain web
browsers already choose to make a choice screen available to users, andthere are several examples of competition authorities successfully introducing
choice screens to remedy competition problems in the web browser andsearch engine market. 471

8.24

Google has recently introduced choice screens on all new Android phones
and tablets in Europe, following the European Commission’s Android case.
While the introduction of a choice screen was welcomed by several market
participants, we have heard concerns regarding Google’s design andimplementation of this choice screen, in particular the number of choices
made available, the use of descriptive text and their timing and frequency.

8.25

The evidence we have seen suggests to us that such design considerations
can have a material impact on the effect of choice screens. We therefore
consider that there is an important role for the DMU to play in scrutinising thedesign choices associated with any choice screens implemented by platforms
owners, OEMs and web browsers, particularly given Google’s entrenched
position in this market. Such involvement will likely require the trialling ofdifferent versions to ensure the choices are sufficiently visible andcomprehensible to users.

Monetisation
8.26

One of the most controversial aspects of the design of default interventions iswhether restrictions should be imposed on the ability to monetise default

471 A choice screen was introduced in Russia on Android-operated mobile devices in August 2017 following asettlement agreement between Google and Federal Antimonopoly Service of Russia. Yandex told us that this
remedy, together with the FAS decision to prohibit Google from entering into exclusive default agreements, waseffective at providing users with greater choice and improving competition between general search engines. In
2009, Microsoft entered into commitments with the European Commission and made a choice screen available
on Windows devices between 2010-2014 which gave users the opportunity to choose from a variety of web
browsers, leading to a significant uptake in the downloading of non-Microsoft browsers.

363

positions. In 2019, Google paid around £1.2 billion for default positions in the
UK alone, and such fees can support device manufacturers’ business models.
Apple submitted that an intervention that restricted its ability to monetise
default positions would be very costly. Samsung made similar submissions,noting that an intervention on the related point of setting defaults could limit its
ability to maximise financial benefits.
8.27

If device manufacturers or providers of browsers are less able to monetise
defaults, a potential concern is that they may raise their prices, harming
consumers. However, monetising consumer inertia through default payments
restricts rival search engines’ ability to compete and entrenches searchmonopolies: indeed, the current system of default payments gives Google andApple an incentive to increase market power in search and share the rents
between them. Reducing rent in digital advertising by restricting monetisation
should also lead to lower costs of goods and services across economy.
Overall, our assessment is that default payments are likely to have a negative
impact on welfare overall and that restricting them will therefore increase
welfare. 472

8.28

Market participants were highly critical of Google’s decision to run an auction
to determine which search engines would be made available on its choicescreen on Android devices. Microsoft described the presence of an auction as
inappropriate as it enables Google to use its market power in Android to takesearch revenues from competitors. The decision to limit the amount of options
to four is alleged to have pushed up the price to participate and was describedas having enhanced Google’s ability to extract rent and exclude less profitablesearch engines, in addition to limiting the amount of potential competition to
Google. This indicates that the design of the choice screen can influence thelevel of monetisation.

8.29

Several parties have suggested that the identity of the alternative searchengines made available through the choice screen should instead be
determined by non-monetary criteria, such as market share for each particulardevice or browser, rather than through an auction, 473 and called, moregenerally, for greater involvement from a regulator in the design of choicescreens.

472 There is a trade off in the allocation of rents between the costs of devices that currently receive default

payments and the costs of goods and services across the economy that use digital advertising. However, we
expect that Google would only agree to make substantial default payments where the benefit to it from doing so(in terms of protecting its profits in search) exceeds the level of the payment. This, combined with the dynamic
costs of restricting competition in search, suggests that benefits from search default payments are outweighed by
the costs that they impose.
473 This would be consistent with how Microsoft made its browser choice screen available after it entered into
commitments with the European Commission in 2009.

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Conclusion on default search engines
8.30

Overall, we consider that default payments are a very significant current
barrier to entry and expansion in search, and that addressing concerns inrelation to them is likely to have one of the biggest positive impacts oncompetition in search. Given the substantial benefits and costs involved insome of the interventions, including the restriction of monetisation, they would
need to be carefully assessed and designed before implementation.

8.31

At this stage, we are confident that there is a variety of incremental reforms
that would produce better outcomes than the status quo without entailingmajor costs (eg a requirement for choice screens on mobile devices with adesign driven by the DMU). While more far-reaching reforms – such as fullprohibitions on Google’s ability to purchase defaults and major restrictions onmonetisation – are likely to involve greater costs, they are also likely to have amore transformational effect on competition in search. The DMU would havediscretion to design interventions in such a way as to maximise the net
benefits for consumers. We therefore recommend that the DMU shouldhave the power to restrict defaults and monetisation and introduce
choice screens.

Third-party access to click and query data
8.32

In the interim report, we consulted on an intervention that would 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. Our initial view was that this intervention had thepotential to overcome the data advantages that Google has on account of
having a much larger userbase. In particular, we thought that it should allow
rival search engines to provide more relevant searches to fresh and tailqueries and could in principle lead to a situation in which several searchengines are able to compete on relevance even for unusual queries.

8.33

Given that we have found search data, in particular uncommon search
queries, to be a valuable input into the provision of high-quality search results,
and that competitors to Google currently face clear barriers to accessing thisdata, we believe there are significant static efficiency benefits associated withthis intervention. This is reinforced by the fact that it should be possible todesign the remedy in a low-cost manner, given that APIs already exist to
provide search results and a bespoke API could be developed with provides
large-scale access to relevant search data.

8.34

Most rival search engines expressed strong support for a remedy thatprovided access to Google’s user click and query data and considered that it365

would not be costly to implement. Google raised two concerns in relation tothis remedy, regarding privacy implications and the impact on incentives toinnovate.
Privacy
8.35

Google and other stakeholders, including Privacy International, expressed
concern at the potential privacy implications of such an intervention. Google
suggested that, since it cannot guarantee the security requirements of third
parties that might receive the data, its users would be vulnerable to thedisclosure of sensitive and private information, which would undermine users’
trust in Google.

8.36

We agree that concerns from a privacy perspective arise if the disclosure ofsearch data could lead to the identification of users. This risk arises if thedisclosed data includes personal identifiers or enables the reverseidentification of users. We understand that this risk is heightened when
information is disclosed as ‘sessions’, which provide a record of a consumer’s
searches linked together over time or by device through a single identifier.

8.37

However, with the exception of changes made to reflect users’ location,
search results are generally not personalised. We do not therefore believe
there would be material competition benefits associated with the provision ofaccess to user identifiers that are associated with the search data, including
search history data. With regards to location data, it should be possible toprovide this information on a sufficient generalised basis, such as regions orneighbourhoods, to avoid the potential disclosure of personal data.

8.38

We have discussed these issues with the ICO (Information Commissioner’s
Office) and other relevant parties, and these discussions indicated to us thatthe challenges should not be insurmountable. Overall, our conclusion is thatan intervention could be designed which provided access to users’ query,click, click back data and generalised location data, without requiring thedisclosure of personal data. We note this is consistent with the views of theprivacy search engine DuckDuckGo, which submitted that APIs already exist
to provide search results and that since the data is presented in a non-user
identifiable manner, privacy and consumer protections, including compliancewith GDPR, are preserved.

Incentives to innovate
8.39

Google also expressed strong concerns that such an intervention could
dampen incentives to innovate, as it could mean that any benefits from366

improving its search results would be shared with its rivals, harming all
parties’ incentives to invest in indexing technologies and ranking algorithms.
8.40

We agree that the impact of this intervention on dynamic incentives needs tobe given careful consideration and that there is a risk, if such a remedy
included a requirement to disclose the outputs of proprietary searchalgorithms, which are the result of investments in search and associatedinfrastructure, that this could dampen incentives for Google to innovate andimprove its algorithm by enabling free riding.

8.41

The overall effect on innovation is likely to be dependent on a number offactors, and in particular the specific type of data to be shared (query dataalone, click and query data, click and query data and search results, or evenall of these plus value-added services such as quick answers). In general,these options involve progressively greater risks to innovation. At this stage,
our view is that directly sharing search results or value added service is likely
to run excessive risks to innovation, while sharing query data alone may beinsufficiently informative to overcome Google scale advantages in data.

8.42

We think that a regime that required Google to share click and query data withaccredited third-party search engines is likely to be the most appropriate formof this intervention, since it involves sharing observed and inputted data rather
than the results of Google’s analysis. Google submitted that sharing clicks
and queries – even without search results – could allow rivals to reverse
engineer aspects of Google’s search results since rivals could deduce thelikely rank from the volumes of clicks that a link received. We consider that the
DMU should undertake further work to consider how this intervention could bedesigned in a manner that enhances incentives to innovate.

Conclusion on third party access to click and query data
8.43

We consider that this intervention can be designed in a way that does notcreate privacy concerns. It would have a positive impact on competition
through helping to overcome barriers to entry and expansion, which should
provide a spur to greater innovation, although, depending on the design, there
is also a risk of it leading to free riding, reducing incentives to innovate. In
seeking to strike the right balance between overcoming barriers to entry andexpansion and creating a risk of free riding, the DMU would need to pay
careful attention to design, including precisely which data should be within
scope and, potentially, whether third parties should be required to pay foraccess to the data. We recommend that the DMU be given the powers to
introduce such an intervention.

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Mandated syndication
8.44

Some parties submitted to us that Google and Bing should be subject toobligations to supply syndicated search results on fair, reasonable and nondiscriminatory terms when syndicating to smaller search engines. In theinterim report, we sought views on the effect this would be expected to haveon competition, and on how terms should be set, including whether prices
could be set at a level that is low enough to provide an incentive to enter themarket but high enough to reward providers of search results and maintainthe incentive for third parties to develop their own web index.

8.45

Parties’ views on this intervention were mixed. Several search engines thatcurrently rely on syndication agreements expressed strong support for thisintervention, while other search engines expressed concerns that such anintervention would constrain the ability or willingness of competing search
providers to explore new business models, or that it would dampen incentives
for search engines to develop their own indices and algorithms. Google
characterised this intervention as an extreme form of regulatory intervention
which effectively amounts to a requirement to license its intellectual property
rights or proprietary technology on FRAND terms, which should only beapplied in ‘exceptional circumstances’ such as standard setting.

8.46

Overall, we think syndication search engines play an important role inpromoting diversity and choice in search, offering many value-added services
and appealing to a diverse range of consumer segments. As noted above, we
think the code could be a valuable tool in assessing concerns that the terms
or restrictions imposed on syndication partners are unfair. However, imposing
an obligation on Google and Bing to enter into syndication agreements withthird parties on specified terms is arguably, in our view, a more intrusive
remedy than the click and query intervention discussed above, with lower
prospects of delivering transformational change to the search market. It
would, however, be open to the DMU to reconsider this intervention in the
future, particularly if circumstances change.

Sequencing
8.47

Given the impact of defaults on user behaviour and Google’s approach toacquiring default positions across such a significant portion of the market, weconsider that a DMU should prioritise an intervention in this area. This mightin the first instance be focussed on the broader application of choice screens,with the possibility of an iterative approach to testing and trialling, before moreinterventionist measures were considered, including direct restrictions on
default positions and monetisation.

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8.48

Click and query interventions could, if considered necessary, work in
combination with default interventions, helping to improve quality and accessto consumers simultaneously. If these interventions were successful at
reducing the reliance of smaller search engines on syndication from Google
and Bing, there would likely be no need to impose syndication obligations.
The latter could be considered in the event that the other interventions do nothave a transformative effect on competition in search, such that the main
locus of competition becomes the development of value-added services on
top of syndicated search results.

Interventions in social media
8.49

As discussed in Chapter 3, we have found that Facebook is subject to limited
direct competition from close substitutes in the social media sector.
Successful entry in this sector over the last ten years has tended to be
characterised by the development of more specialised consumer services thatare clearly differentiated from Facebook. Facebook faces limited competitive
threat due to the strong network effects that it enjoys and which act as abarrier to expansion for its rivals and limited interoperability with other social
media platforms.

8.50

We have considered various interventions aimed at addressing these barriers
to expansion, focusing on measures to address the strong network effects ofsocial media platforms by increasing the capability of users to interact with
consumers active on a different platform. We have summarised how the codeand mandating increased interoperability would address these concerns
below. A more detailed assessment of the role of interoperability and data
mobility as a solution to these concerns, along with stakeholders’ views on
this subject, is set out in Appendix W.

Code
8.51

The code would provide a valuable means of addressing a range of concerns
we have heard, primarily relating to data and APIs. For example, under thefair trading objective, the DMU could investigate concerns expressed by third
parties that they are required to provide data to Facebook when interoperatingwith its social media platform, which, the companies suspect, is then used by
Facebook to create rival products in adjacent markets.

8.52

We consider that there would also be an important role for the DMU, under
the open choices objective, to oversee the changes that Facebook makes to
its platform policies and functionalities, particularly with regards to deprecating
APIs and functionalities. We note that Facebook may wish to restrict
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competitors’ ability to develop services that compete directly with Facebook 474
and the DMU will wish to ensure that policies such as non-replication
principles, and associated behaviours, are not re-introduced. This could takethe form of requiring prior notice of API changes, giving market participants anopportunity to raise any competition concerns with the DMU before
implementation.
8.53

Finally, under the objective of trust and transparency, the code could also be
used to investigate concerns around sudden changes to the Newsfeed
algorithm where these have a material effect on traffic to newspapers andother content providers. The code would also incorporate the Fairness by
Design duty to ensure choice architecture facilitates informed choices.

Mandating increased interoperability
8.54

An important means of achieving greater competition between social media
platforms is through increased interoperability with Facebook’s large networkof users. Interoperability requirements enable the positive network effects
stemming from large userbases to extend to other platforms. 475

8.55

Since interoperability involves some form of standardisation, there is apotential cost to mandating interoperability (reduced innovation and variety inrespect of the functionality that is standardised) as well as a benefit. Our viewis that the case for interoperability is greater in respect of functionality which
is: directly helpful in overcoming identified network effects; not highly
innovative (or not recently innovative); and in respect of which privacy
concerns can effectively be managed.

8.56

In the interim report, we sought views on whether Facebook should be
required to interoperate specific features of its current network with existing
competitors, and if so which features or functions should be madeinteroperable against the above criteria, including:•the ability to identify and make contact with friends or other potential
contacts from other social platforms;•

the ability to post content across several platforms simultaneously;•

the ability to view posts from friends on other social platforms, or
consolidate and view updates across social platforms, allowing

474 Facebook previously included a clause in its Developer Policy which stated: ‘Add something unique to thecommunity. Don’t replicate core functionality that Facebook already provides’. This clause was removed in 2018.
475 See Appendix W for a more detailed consideration of potential interoperability interventions.

370consumers to search for content across their aggregated services in realtime; and•the ability to engage with content by commenting or ‘liking’ it.

Accessing connections
8.57

Several social media platforms and other respondents submitted thatstandardising contact data in a way that enabled users to contact their
existing contacts from one platform and ‘invite’ them to join a new platform
would bring benefits, by encouraging more downloads of rival platforms,
overcoming network effects and increasing multi-homing and competition.

8.58

It is clear that measures which facilitate attracting and growing users’
networks are likely to improve competition between social media platforms
and it is positive that such measures already exist through Facebook.
However, we found differences in the amount of access that Facebook
provides to different social media platforms in terms of the ‘finding friends’
functionality and the ability of third-party developers to enable their users to
invite their Facebook friends to use an app has varied over time.

8.59

Tools that make it easier for consumers to access their existing networks
across multiple platforms could make new or smaller platforms more attractive
to consumers and could reduce the extent to which same-side network effects
act as a barrier to expansion in the social media sector. Therefore,
interventions that extend the availability of these tools, or that limit the abilityof incumbents to degrade or withdraw access to them, would help promotecompetition and benefit consumers in the social media sector.

Cross-posting
8.60

Facebook recognised that cross-posting functionality, which enables users topost content across different platforms simultaneously, creates value for its
users as it enables users to share content from other apps to Facebook which
improved their ability to build social experiences with friends, as well as
generating reactions to that content. However, Facebook degraded thisfunctionality, the ‘Publish actions’ API, in August 2018 and explained that thiswas due to concerns about safety and data privacy. With limited exceptions,
including Instagram posts for which the cross-posting functionality remains
unchanged, users now have to make use of the ‘Share Dialogue’ functionality
which presents the post as a link, rather than viewing fully functional content
on Facebook.

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8.61

Market participants have submitted to us that this change has harmed thequality of content viewable across platforms and the ability for users oncompetitor platforms to reach a wider audience and promote their own
products. Several market participants told us that, if delivered as fully
functional content, without distortion or stripping of attribution of the original
source, cross posting functionality would deliver benefits for consumers andcompetition.

8.62

We believe there is a clear benefit to competition from increasing the extent ofcross-posting functionality between Facebook and other platforms, as thiswould enable users that wish to share content with a wide audience to spend
more time on (and share more content from) a platform that best suits themoverall, rather than a platform that has the largest number of users. It would
also extend a functionality that exists between Facebook products to third
parties.

8.63

Any intervention such as this which allows user data to be shared acrossplatforms would need to be carefully designed, having regard to dataprotection legislation, and the obligations on platforms in respect toinformation which includes personal data. However, following discussion with
ICO, our view is that, as long as the decision to post content across platforms
is user-initiated, freely given and informed, it should be feasible to design theintervention in a way which addresses the concerns highlighted by Facebook
with regards to privacy.

Viewing and engaging with content
8.64

A broader form of interoperability could allow consumers to post, view andengage with content across platforms without having to switch service. For
instance, a consumer could post messages that could be viewed by theircontacts on different social media platforms, and view messages that theircontacts originated on different social media platforms. We use the term
‘content interoperability’ to refer to this combination of functionalities. We havesought to illustrate content interoperability by designing a fabricated social
media platform, Huddlr, which contains fictitious usernames and posts, as
shown in Figure 8.1.

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Figure 8.1: Content interoperability

Source: CMA.

8.65

Social media platforms that responded to the interim report in this market
study generally opposed the idea of mandating content interoperability, withseveral expressing concerns that such an intervention would dampen
incentives to invest and innovate, lead to excessive standardisation and risk
foreclosing the market to innovative newcomers. Other participants raised
privacy concerns about individuals’ content being viewable across platforms
without their consent.

8.66

While we consider that content interoperability has the potential to be themost effective form of interoperability intervention for overcoming network
effects, we recognise the risks associated with this intervention, the need formore extensive regulatory design and the lack of support from existing market
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participants. We do not therefore currently recommend its implementation,although it would be open to the DMU to reconsider this in the future, if
circumstances change.
Conclusion on interoperability between social media platforms
8.67

We recommend that the DMU be given powers to mandate
interoperability. Interventions to require greater interoperability will involvebalancing 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. We think that the case forinteroperability is greater in respect of functionality which is: directly helpful inovercoming identified network effects; not highly innovative; and in respect ofwhich privacy concerns can effectively be managed

8.68

At this stage, our assessment against these criteria is that there is a strong
case for mandating greater interoperability in relation to finding contacts andcross posting functionalities, but that the evidence does not currently favour
more ambitious forms of interoperability such as content interoperability.
Given the market position of Facebook and the extent to which it benefits fromnetwork effects, we think that such interventions should apply asymmetricallyto Facebook in the first instance (eg Facebook should offer a defined findfriends service to users of a third-party platform, but rival platforms should not
be required reciprocate). The balance of considerations is likely to changeover time: the fast-evolving nature of social platforms means that the DMU will
be well-placed to judge the right forms of interoperability to deliver consumer
benefits on an ongoing basis.

Sequencing
8.69

We think that the focus of interventions in social media should be on the useof interoperability to overcome network effects. The code and pro-competitive
interventions would have strongly complementary functions in relation tointeroperability: the code would aim to maintain the ability to interoperate with
Facebook where this is in the interests of competition and consumers, byassessing the effect of proposed API deprecations, while the pro-competitive
interventions could be used to increase interoperability over certain
functionalities where this is in consumers’ interests.

8.70

At this stage, we think these measures, alongside other actions under thecode, should be sufficient to expose Facebook to greater competitive
pressures in the social media market. Should these measures prove
unsuccessful, it may be necessary for the DMU to consider other forms ofintervention using its powers.
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8.71

This could include, for example, a consideration of whether some form of
separation of Facebook.com and Instagram may be required. Such anintervention could, in principle, lead Instagram to compete more closely with
Facebook for users, and lead to greater choice for advertisers in social display
advertising. The high degree of interoperability that currently exists between
Facebook and Instagram could also be retained to the benefit of users. While
we recognise that a forced separation would bring significant costs andcomplexity, this should be a tool available to the DMU to use if necessary.

Interventions to give consumers greater control over their data
8.72

As discussed in Chapter 4, we think the balance of control over consumers’
data is too far in favour of the platforms. Consumers value privacy and wantcontrol over their data, but many social media platforms do not give
consumers the choice to turn off personalised advertising. Those platforms
that do provide a choice use defaults and choice architecture that make it
difficult for consumers to exercise this choice. This results in consumers
sharing more data than they might otherwise have decided to do and having
their data used for personalised advertising in a way that they may not be
happy with.

8.73

To address these concerns, we recommend that the DMU have powers to
introduce two interventions that would require platforms to give consumers
more choice and control over the use of their data:•

The choice requirement remedy: requiring platforms to give consumers
the choice not to share their data for personalised advertising, but instead
to receive adverts that are not personalised.

•‘Fairness by Design’ duty: placing a duty on platforms to take steps toensure that they are promoting consumers’ awareness and their ability tomake informed choices about the use of their personal data.

8.74

The choice requirement would be implemented by the DMU as a procompetitive intervention. The second intervention would be a duty under thecode, and hence would apply to Facebook and Google in the first instance.

8.75

These remedies are intended to address the harms we have identified. In
combination, they should establish a virtuous cycle (Figure 8.2), where
platforms give consumers a fair and more informed choice, and competition
benefits consumers through quality improvements and innovations, which inturn respect their control of their data.

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Figure 8.2: Virtuous cycle through privacy-enhancing competition

CHOICE
Platforms allow consumers to choose whether toshare their data to receive personalised advertisingand may provide incentives to encourage them to doso.

COMPETITION AND INNOVATIONA FAIR DESIGN

Platforms compete on the basis of enabling
effective consumer engagement, including
developing new, innovative products andservices

Platforms present choices about the use of datafor personalised advertising succinctly, clearly,
fairly and in a timely way so that consumers caneasily make informed choices.

ENABLING ENGAGMENT
Platforms enable easy ongoing enagement for
consumers and are clear on what their settings mean
- for example that the ads they receive may not be
relevant. Platforms respect consumers' choices andenable them to change their minds.
Source: CMA.

Scope of the interventions
8.76

In the interim report of this market study, we proposed possible interventions
that would require all platforms to: give consumers the option to use their coreservices without requiring in return the use of their data for personalised
advertising (the ‘choice requirement’ remedy); and comply with an
overarching Fairness by Design duty in the design of their data collection
practices, to complement the GDPR ‘data protection by design’ duty (the‘Fairness by Design duty’).

8.77

We also proposed some additional potential elements to these core remedies,some of which would apply to all platforms and some of which would apply
only to platforms with strategic market status (SMS). 476 For the choice
requirement, we proposed that: platforms with SMS could be required to set
the default as ‘opted out’ of personalised advertising; and that all platforms
would have to offer users who chose to opt out of personalised advertising thesame core services as those who chose to opt in, but they could offer

476 We discuss the concept of strategic market status (SMS) in Chapter 7.

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incentives to consumers to opt into the use of their data for personalised
advertising. For the Fairness by Design duty, we proposed that platforms with
SMS would be required to trial and test their choice architecture.
Focusing the remedies initially on platforms with SMS
8.78

We received a range of responses on which platforms should be required to
implement the remedies – notably whether the remedies should be applied toplatforms with SMS or to all platforms. Some respondents considered that it
would be appropriate to apply them widely given the widespread practices we
identified, but others suggested that it would be burdensome andunnecessary to apply them to smaller firms. Publishers, in particular, wereconcerned that it would be disproportionate and could be detrimental to online
news publishers that are funded by advertising to apply the Fairness by
Design duty to them.

8.79

In this market study, we have identified concerns in the practices of a range ofmarket participants regarding how effectively consumers can control the useof their data for personalised advertising. However, having carefully
considered responses and the evidence we have seen, as well as the mosteffective way to implement the remedies, we conclude that in the first
instance, the DMU should apply all the remedies only to platforms with SMS.

8.80

In introducing remedies it is important to consider their proportionality andpotential impact on platforms. In relation to the Fairness by Design duty, theinitial development and application of changes to platforms’ choicearchitecture will involve some costs. Imposing such developmental costs on
new platforms could hinder the entry or expansion of much smaller platforms
which may act as a competitive constraint on platforms with SMS. We
consider the impact of the duty will be manageable for larger and wellestablished platforms which already carry out some testing and trialling.
Smaller platforms would continue to be subject to the existing regulatory
framework, but we do not think it appropriate at this stage to make themsubject to the DMU’s ex ante regime.

8.81

Furthermore, we consider it reasonable to prioritise the application of both the
choice requirement and Fairness by Design duty according to the extent towhich firms hold and use data on consumers, and the extent of their market
power. Google and Facebook are used by very large numbers of consumers
and use very substantial volumes of their data. In addition, as noted above,
where platforms have SMS, consumers often have little meaningful choice of
whether to use the platform, resulting in an imbalance of power between
controller and consumers which these interventions are intended to address.

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8.82

We therefore consider it reasonable to focus both the choice requirement
remedy and the Fairness by Design duty on platforms with SMS in the first
instance so that the DMU can review and refine their implementation andassess the impacts before considering wider application. While otherplatforms would not initially be subject to the remedies, they and the SMS
platforms would still need to comply with the requirements of the GDPR and
DPA, including the fairness and transparency provisions and the requirements
for data protection by design.

The choice requirement intervention
8.83

In Chapter 4, we set out the factors which undermine consumers' choice andcontrol over the use of their data and the harms caused to consumers as aresult. We noted that several social media platforms, including Facebook, do
not give consumers control over the use of their data by allowing them to turnoff personalised advertising. Rather, accepting personalised advertising is acondition of using the platform.

8.84

This lack of choice and control harms consumers. Although some consumers
may be relaxed about their data being collected and shared for personalised
advertising, others express concern. As set out in Chapter 4, the evidence wehave reviewed suggests that, as consumers learn more about personalised
advertising, they typically become more uncomfortable with it. Consumers
also express concerns about their lack of knowledge and understanding aboutdata processing and the fact that the processing of their data takes place
without their control.

8.85

In addition to causing direct harm to consumers, lack of choice and control
over users’ data can also exacerbate the competition issues that we set out in
Chapters 3 and 5. We found that data acts as a barrier to entry on both theuser side and the advertising side of the platforms. Consumers’ lack of controlof the use of their data means that the large platforms are able to entrench
their competitive advantages over potential entrants, leading to harm tocompetition over time.

8.86

In response to the interim report, Facebook argued that consumers can in fact
exercise choice by choosing not to use a platform if they do not want toreceive personalised advertising. However, we have shown in Chapter 3 that
Facebook has significant market power as a social network. It is a ‘must have’platform for many consumers. These consumers do not have a realistic optionof switching to an alternative provider that does not use personalised
advertising if they want to stay in touch with their friends and family, so the
only way in which consumers of platforms with SMS would be able to exercise

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genuine choice would be for them to be given the option of using the platform
without personalised advertising.
8.87

In view of this, we recommend that the government introduces legislation
to give the DMU the power to require platforms to provide consumers
with the choice not to share their data for the purposes of personalised
advertising (‘the choice requirement’). 477 This would include powers to
influence the presentation of the choice including defaults. This would be
a pro-competitive intervention and hence subject to DMU assessment andconsultation before application, as described above.

Definition of personalised advertising in the choice requirement
8.88

The platforms we have addressed in this market study collect and use
consumer data for a variety of reasons. Our proposed choice requirement
would focus specifically on enabling effective consumer control of thecollection and use of personal data as defined in the GDPR478 for the purposeof serving personalised adverts to individual consumers.

8.89

By personalised advertising we mean the practice of targeting advertising to a
consumer, based on his or her characteristics and previous browsing activity,
ie data collected on the consumer’s behaviour over time is used to determine
the advert they see. The choice requirement would not apply to the use ofcontextual information for serving adverts to consumers (including where that
contextual information reflects personalised content which has been based on
the consumer’s personal data). It would also not prevent platforms fromcollecting and processing personal data for other purposes, which could
include improving their services and measuring the effectiveness ofadvertising.

8.90

Where consumers choose not to share their data for personalised advertising,platforms would still be able to serve consumers with non-personalised (egcontextual) advertising as a pre-condition of the consumer’s use of the site
and to collect data for the purposes of measurement and attribution. The
platforms would be able to collect user data even if a consumer opts out ofreceiving personalised ads, for example to evaluate campaigns or to offer the
consumer a personalised service. The difference will be that consumers will

477 The choice requirement extends to the use of data for the purposes of personalised advertising, but relevant

data may be collected for other purposes. Switching off personalised advertising may not therefore result in a
reduction in the amount of personal data collected, due to the need for platforms to collect data from consumers
for operational purposes.
478 Personal data only includes information relating to natural persons who: can be identified or who are
identifiable, directly from the information in question; or who can be indirectly identified from that information in
combination with other information. Pseudonymised data can help reduce privacy risks by making it more difficult
to identify individuals, but it is still personal data. See: ICO, What is Personal Data?

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be able to exercise a specific choice about whether their data is used for
personalised advertising.
8.91

As we note above, GDPR, the Data Protection Act 2018, and the Privacy andElectronic Communications Regulations 2003, which together provide theframework for the lawful, fair and transparent processing of personal data, willcontinue to apply to all platforms.

Presentation of the choice and conditionality
8.92

There are a number of important design choices that the DMU would need toconsider in implementing this intervention. Key amongst these are how the
choice is presented and which conditions may be attached by the platform tothe choice over personalised advertising.

8.93

There are several ways in which the choice might be presented to consumers.
For example, platforms could present consumers with a choice screen withwhich consumers would have to engage before they could continue to use theplatform. A further possibility would be for platforms to impose a default
choice and require consumers to access their settings to change the default.

8.94

Whether a default is used, and if so whether the default is to receive
personalised advertising or not, is likely to have an important bearing on theoverall impact of the remedy. For example, we note that Facebook introducedan ‘Off-Facebook Activity’ to its users in 2019, with users required to opt out
on their settings page if they wanted to exercise this option. As we report in
Chapter 4, we found that a negligible percentage of users who were given thisoption at the end of 2019 exercised it. 479This is another clear example of thepower of defaults in influencing decision making. We note also that recent
qualitative research by Which? found that consumers had a clear preference
to opt-in, rather than opt-out, to data collection for targeted advertising. 480

8.95

Setting the default to ‘opted out’ of personalised advertising would maximise
consumer protection, particularly for those that cannot or do not wish toengage. But, perhaps more importantly, setting a default opt out (ieconsumers would not have their data used for personalised advertising unlessthey actively agreed to it) would reset the balance between platforms andconsumers, putting the onus on the platform to do more to engage with

479 The feature was only rolled out to a sample of users towards the end of 2019.

480 Which?, Are you following me? - Consumer attitudes towards data collection methods for targeted advertising,June 2020.

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consumers to explain the benefits that could arise from personalised
advertising, and to encourage consumers to make an active choice.
8.96

Regarding conditionality, in order to ensure that consumers are provided witha meaningful choice over whether to share their data for personalised
advertising, those who decide not to share their data should still be able toaccess at least the basic, or ‘core’, service provided by a platform. 481 The
consumer is likely to continue to see ads, but these will not be personalised tothem. However, we think that it is important that platforms should be able tooffer incentives to encourage consumers to agree to accept personalised
advertising, since this would provide a means by which consumers canbenefit more from the value of their data, drive greater consumer engagement
and promote competition. Such incentives could take various forms, forexample, a reduction in the number of adverts shown or special offers. 482 We
propose that the DMU work with the ICO to consider what incentives
platforms could legitimately offer to users in return for using their personal
data for the purposes of personalised advertising. 483

8.97

Discretion over how and when to use the choice requirement powers and how
to design the requirement will lie with the DMU. Our expectation is that any
decision will need to be informed by further analysis by the DMU concerning
the impact of different design choices on consumer protection and thefinancial implications for platforms.

Benefits of the choice requirement
8.98

The choice requirement would directly address the lack of choice and control
outlined above. Consumers would be able to choose whether or not to receive
personalised advertising. Consumers who were relaxed about the collection
and use of their data and who preferred to receive personalised advertisingwould continue to be able to do so. Conversely, consumer with a preference
not to have their data used for personalised advertising would be able toexercise that control. Giving consumers the opportunity to make this choiceon an individual basis recognises that consumers may hold differing views
about sharing their data for personalised advertising and enables them to giveeffect to their personal preferences.

481 What is meant by ‘core service’ will vary by platform but we envisage that it will encompass the basic

service(s) provided. For example, on a social media platform we expect that the consumer would be able toengage with friends, family and groups and see the usual layout of updates and the only aspect that wouldchange if they turned off personalised advertising would be that they would see non-personalised advertising.
482 However, as described above, there should be no detriment for consumers who have opted out of having theirdata used for personalised advertising.
483 We acknowledge that there may be tensions between offering incentives and GDPR, in particular where thelegal basis relied upon is freely given consent.

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8.99

We have noted that one reason given by consumers for not engaging withprivacy controls and settings was a feeling of powerlessness on the part of theconsumers: that firms would find a way of collecting their data anyway. Giving
consumers an explicit choice could help to reduce the perception of there
being a power imbalance between the consumer and the platforms.

8.100 Importantly, depending on the way in which the choice is presented and thedefaults used, the choice requirement could shift the bargaining relationshipbetween consumers and platforms substantially, putting the burden on
platforms to engage and persuade consumers rather than encouraging inertia.
In turn, this could lead to a strengthening of competition more generally andmay lead to platforms offering consumers a greater share in the value of theirdata to encourage them to accept personalised advertising.
Potential costs and unintended consequences
8.101 Facebook has submitted to us several arguments against imposing a choice
requirement to allow users to turn off personalised advertising. Broadly
speaking, we consider that the key arguments can be grouped into a numberof themes:•

Most consumers prefer relevant personalised advertising over untargeted
advertising, so a requirement to offer an option of no personalised
advertising could lead to the majority of consumers being substantiallyworse off.

•

The alternative to personalised advertising is contextual advertising andthis is no less data intrusive and could be more offensive or annoying for
consumers so that the consumer experience would be worse.

•

Advertisers – and in particular SMEs – benefit from personalised
advertising because they can target consumers for whom their advertising
is more likely to be relevant, reducing wastage and increasing the overallvalue of advertising.

•

Personalised advertising is a core part of some platforms’ consumer
offering, with targeted adverts being integrated with personalised organic
contact (eg in Facebook’s News Feed).

•

Personalised advertising allows the platforms to fund valuable services
which benefit users; any remedies that threatened to reduce theserevenues might lead to a reduction in innovation and benefits for users.

•

The choice requirement to allow consumers to turn off personalised
advertising would have a disproportionate impact on social media382

platforms and other display advertisers which use personalised targeting
relative to, for example, search engines for whom similar value can be
captured through the search query (ie in a contextual rather thanpersonalised manner).
8.102 We have considered carefully whether these arguments suggest that the
choice requirement could lead to unintended consequences, and if so whether
these might outweigh the benefits of intervention.
Consumers’ preferences for personalised advertising
8.103 Research suggests that a majority of consumers prefer ‘relevant adverts’, andwe recognise that some consumers will be relaxed about receiving
personalised advertising. As a result, consumers might lose out if they nolonger received personalised advertising following the introduction of a choice
requirement. However, in practice we think that this risk of harm to consumers
is likely to be small, for two reasons.
8.104 First, the choice requirement would not ban personalised advertising basedon consumers’ personal data, but simply require platforms to give consumers
a choice about whether to agree to it. If consumers do value personalised
advertising, they are likely to choose it when given a free choice.
8.105 Second, non-personalised advertising is not necessarily ‘irrelevant’
advertising. Where consumers choose to opt out of sharing their data for
personalised advertising, this would still allow platforms to provide contextual
advertising.
Contextual advertising is data intrusive and annoying
8.106 Although contextual advertising may involve the collecting, parsing andinterpreting of more data about the content a user is browsing than was
historically the case, it is not based on personal data collected from a wide
range of sources: previous browsing history, location, age, gender, previous
purchase history etc. As contextual advertising is based on the content a user
is looking at, it is still likely to reflect their interests and so can still be relevantto the consumer.
Advertiser benefits from personalised advertising
8.107 Advertisers may benefit from being able to serve personalised advertising toconsumers as a result of less ‘wastage’ since an advert would only be shownto consumers who are likely to be interested in the product or service andtherefore could be more likely to purchase.
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8.108 However, we are not suggesting that platforms should be prohibited fromoffering personalised advertising to their consumers. Many customers arelikely to continue to receive personalised advertising, either because they
actively prefer it or because of an incentive Facebook has given them. Where
consumers do not opt out of sharing their data, that provides a signal toplatforms and advertisers that they are happy to receive personalised
advertising and may be less likely to engage in ad avoidance strategies.
These consumers could therefore in principle be more valuable to advertisers.
8.109 In addition, we envisage that contextual advertising will become moresophisticated over time, which would again reduce the potential reduction ofadvertising revenues. Overall, we accept that there may be some reduction invalue of advertising – if significant numbers of users were to opt out of
personalised advertising, notwithstanding any incentives offered by Facebook.
However, as we set out below, this would depend on the eventual choicemodel adopted, and would be subject in any case to trialling to assess theimpacts.
Personalised advertising as a core part of the platforms’ offering
8.110 Facebook submitted that personalised advertising is a core part of the user
experience. For example, where curated content is provided through theNews Feed, having irrelevant adverts might damage the product and the user
experience.
8.111 We recognise that, to the extent that consumers prefer to receive ‘relevant’personalised adverts, the platforms would want to provide them. However, thechoice requirement would not prevent this; it would simply offer consumers
the choice. We have seen no evidence that consumers perceive or value thesocial media offer as a combined one of 'personalised content plus
personalised advertising’ and note that social media platforms do not describe
their services in this way.
8.112 Some respondents also suggested that personalised advertising is an
integrated and well-understood part of the social media platforms’ contract
with users to provide personalised content plus personalised adverts, whichcannot be disaggregated. They suggested therefore that there is no need forconsent to share data for personalised advertising specifically since it iscovered under the terms which consumers are asked to accept when they
sign up. 484 However, our choice requirement remedy will complement existing

484 As we note in Chapter 4, the ICO, and EDPB (European Data Protection Board), have expressed doubt that
contract or legitimate interests are likely to provide appropriate legal bases for the processing of personal data for384

data protection and PECR requirements, but is agnostic as to the legal basis
for consumers’ personal data to be processed to serve personalised
advertising. We recommend that a choice should be given to consumers, andthat will also apply to platforms which currently base the processing of
personal data to serve personalised advertising on contractual agreementswith consumers.
Personalised advertising funds the services from which consumers benefit
8.113 We recognise that users benefit from many of the services provided by theplatforms for no direct monetary cost and that platforms rely on digitaladvertising to fund these services. Therefore, there is a concern that
introducing a choice requirement would lead to a reduction in revenues forplatforms, and hence a worsening of service to consumers.
8.114 We have reviewed evidence that personalised targeting increases the value ofadvertising inventory. For instance, our analysis of a randomised control trial(RCT) carried out by Google indicates that publishers currently derive higher
advertising revenues from being able to serve personalised advertising
compared to advertising that has cookie IDs disabled. As set out in Appendix
F, our analysis of Google’s RCT data suggests that the short-run effect ofblocking third-party cookies on publisher revenues could be to decrease
short-term publisher revenues by 70% of the average revenue per query inthe control group, which approximates business as usual during the study
period. However, for the reasons given in the appendix, we think this is anoverestimate of the long run effect of restricting personalised advertising, as
the RCT analysis focuses on the very short-term impact of publishers not
being able to offer personalised advertising while competing against others
who can, and without being able to adjust their strategy.
8.115 As discussed above, the choice requirement would not remove personalised
advertising; it would simply make it optional. We would expect many
consumers to choose to continue to receive personalised advertising. We
have also explained how contextual advertising and other approaches would
allow platforms to continue to earn revenues from those that have opted out of
personalised advertising. We accept that there may be some reduction inrevenues from advertising, but SMS platforms would be able to manage therisk to their revenues through offering greater encouragements to users to opt
into personalised advertising.

personalised advertising as currently practised. For a contractual basis, clauses about advertising are likely to beancillary to the main purpose of the contract and therefore would not be necessary for the performance of thecontract.

385

8.116 Further, our recommendation would involve imposing a choice requirement
only on firms with SMS. Specifically in relation to Facebook, our analysis in
Chapters 2, 3 and 5 has shown that it has significant market power in social
media and in display advertising and that it has been able to earn profits
which are significantly in excess of its cost of capital. As a result, we believethat Facebook’s services would continue to be highly profitable even if there
was a reduction in revenue as a result of some consumers choosing not toreceive personalised advertising. Both Facebook (in its offer of incentives tousers) and the DMU (in amending the design of the intervention) would be
able to adjust their approach in the event that revenue losses were higher
than expected.
Choice requirement would have a disproportionate impact on Facebook
8.117 Facebook has noted that a choice requirement would have a disproportionate
impact on social media platforms, and Facebook in particular, when compared
to Google, which already offers consumers the option of turning off
personalised advertising. Facebook argues that this is because the value of
personalised advertising is significantly less to Google, as the primary sourceof value in search advertising is the contextual search query, rather than data
about characteristics of the individual making the search.
8.118 We accept that the value of personalised advertising does vary between
search and display advertising, as discussed in Appendix F. As a result, thechoice requirement would indeed have a more significant impact on platforms
using display advertising. However, as set out in Chapter 5, we think that
there is limited competition between search and display advertising inpractice. Therefore, we would not expect this to have a significant negative
impact on competition, and hence consumer outcomes.
Conclusion on the case for introducing a choice requirement
8.119 For the reasons set out above, we think there is a strong argument for
introducing a choice requirement on platforms with SMS, requiring them tooffer consumers the choice to opt out of personalised advertising. This would
address one of our key concerns about lack of consumer choice and control,
and also help address some of the competition barriers we have identified.
8.120 As we note in Chapter 4, if there were more choice for consumers, then there
could be scope for more competition between platforms as platforms would
need to compete more actively to persuade consumers of the benefits ofpersonalised advertising. There would also be scope for other platforms tocompete for consumers on the basis of alternative business models offering
different options in respect of the privacy choices and the services that they386

offer. At present, consumers do not experience the full benefits of competitionin terms of more quality, choice and innovation. We therefore consider thatthe intervention will give rise to important consumer welfare benefits.
8.121 This intervention would have an impact on platforms’ business models andwould require careful design. The DMU would have discretion over the
implementation of the requirement, which could result in a range of options for
consumers including, for example, platforms offering an option for consumers
who opt out of personalised advertising to receive their full service but withmore non-personalised ads; or to receive a core service only; or to receive thefull service but not receive the incentives provided to consumers who opt in.
8.122 We accept that there are some potential costs of such an intervention to
consumers, advertisers and the platforms themselves. However, for thereasons set out above, we consider that the costs and risks could be
effectively managed by the DMU in the design and implementation of theintervention and periodic assessment of its impacts. In particular, the DMU
would have discretion over how and when to use the choice requirement
powers and how to design the requirement. We expect that its decisions
would be informed by further analysis, including testing to understand theimpact of different design choices on consumer protection and the financial
implications for platforms.
The Fairness by Design duty
8.123 For consumers to have genuine control over their data, they must not only
have a choice in principle as to whether to provide or withhold access to it –they must also find it easy to exercise that choice freely in practice.
8.124 Chapter 4 explained natural consumer biases and how platforms’ choicearchitecture may exacerbate these, with the effect of discouraging consumer
engagement so that users are more likely to share their data. These include
default settings and presentation of information and options that nudge
consumers into sharing data. Consumer engagement with privacy controls iscorrespondingly low.
8.125 Having considered responses and examined the evidence in more detail in
Chapter 4 and Appendix Y, we consider that there is a strong basis for taking
the action we proposed in the interim report of this market study. It is
unreasonable to expect consumers to have to hunt for information, interpretcomplex material and engage with complicated settings. The burden should
be on platforms to present information fairly and make the process as
straightforward as possible so that there are no barriers to consumers
engaging effectively.
387

8.126 We therefore recommend that the government empower the DMU torequire platforms to meet a ‘Fairness by Design’ duty. We recommendthat the duty be applied initially only to platforms with SMS, and that this duty
would form part of the Trust and Transparency Principle in the code, taking
the form of a high-level principles-based requirement to ensure that
consumers can make informed choices: ‘To ensure that choices and defaults
provided by the platform are presented in a way that facilitates informed
consumer choice over the use of their personal data’.
8.127 SMS platforms would be required to demonstrate compliance with the duty to
the DMU – ie that they were actively monitoring user knowledge and levels of
engagement; and taking appropriate steps to improve these metrics throughtrialling and testing alternative approaches and improving their choicearchitecture. Measures which improve consumer engagement, knowledge
and understanding will mean that consumers are better placed to express
their privacy preferences on a case by case basis. We think this will have apositive impact on consumers and will also have pro-competitive effects byenabling consumers to make more informed choices and encouraging moreinnovation in terms of effective choice architecture.
Complementarity with Data Protection by Design
8.128 The GDPR has a ‘data protection by design and default’ duty that requires
firms to process data in accordance with a set of principles which include
fairness and transparency (Article 5). Data protection by design requires data
controllers to put in place appropriate measures to implement the dataprotection principles and to integrate safeguards to meet the GDPR’s
requirements and protect individual rights. The GDPR is not prescriptive about
how this can be achieved, and the ICO guidance suggests approaches that
may be appropriate depending on the circumstances. 485
8.129 We consider that the Fairness by Design duty will complement the GDPR
duty. First, it will initially be applied only to firms with SMS, although in thelong run it could have wider application. Second, Fairness by Design would
also be used to inform other elements of platform design beyond the use of
personal data, such as sales interfaces. Third, it will also include an ongoing
requirement for trialling and testing, with the DMU setting out what steps areneeded to test and trial choice architecture and iterating to improve it.

485 These include offering transparency tools, strong privacy defaults, user-friendly options and controls andrespecting user preferences. We note, for instance, in Chapter 4 that the ICO has produced the Age Appropriate
Design Code which includes requirements for transparency, for default settings to be set to high privacy bydefault and for not using nudge techniques to lead or encourage children to provide unnecessary personal dataor weaken their privacy protections. See: ICO, Age Appropriate Design: A ode of practice for online services388

8.130 The ICO in its response to the interim report agreed that the interventions put
forward in the market study that have the objective of giving consumers
greater control of their data would complement the GDPR.
Applying the Fairness by Design duty
8.131 We recommend that the DMU adopt high-level principles rather than defining
detailed requirements to ensure that the duty can flex to new market andtechnological developments. It would be for the DMU to set the high-levelbasis of compliance with this principle. We address above how we propose
the DMU enforce the code and penalise non-compliance.
8.132 The proposed Fairness by Design duty addresses the evidence presented in
Chapter 4 and Appendix Y, which shows examples of platforms’ choicearchitecture which are likely to hinder users from engaging with exercising
control. Three broad behavioural themes emerged from this evidence: (1) theneed for information and options to be accessible, (2) the need for informationand options to be presented in a fair, balanced way; and (3) the need to users
to be able form preferences and act upon them in a consistent way. To
address these three themes, we conducted behavioural analysis to identify
relevant psychological mechanisms that would drive consumer behaviour. 486
8.133 Broadly, we propose that, to comply with the duty, platforms should, inpresenting information and options about personalised advertising, treat users
fairly by being Accessible, Balanced, Consistent and Enabling (ABC) – see
Figure 8.3.

389

Figure 8.3: Fairness by Design – High Level Responsibilities

Accessible
Platforms ensure
information andoptions are clear andeasy to find andprocesses aresmoothConsistent andenabling

Onlineplatforms
shouldbe…

Platforms enable
users to make thechoices they want tomake now andrespect their choices
including theirability to change
their decision

Balanced
Platforms ensure
information andoptions arepresented in a fairway, enabling users
to form their own
opinions

Source: CMA.

8.134 To address the harms we identified in Chapter 4 and provide further clarity toplatforms about the expectations on them under the Fairness by Design duty,
the DMU could set examples of what these expectations mean in practice inthe form of guidance. For instance: 487•

Accessible – Ensure information and choices are clear and easy toaccess so that consumers can easily review and adjust settings.

•

Balanced – Present all information and options in a fair and balanced
way, using the same colours, fonts, language and other design features
across all options.

•

Consistent and enabling – Periodically remind users of their current
choice settings and available controls.

8.135 We recognise that there could potentially be a negative impact on individual
platforms that had ‘unfair’ privacy practices or made it difficult for users to findprivacy controls / settings. Better informed and more engaged consumers will

487 We provide some further potential examples in Appendix Y.

390

be able to better express their privacy preferences and so choose to avoid
such practices and may switch to alternative platforms where available. As aresult, such platforms would be likely to suffer from a reduction in the ability tooffer personalised advertising to all their customers, which could lead to a lossof revenue. This would, however, provide an incentive to improve choicearchitecture.
8.136 Overall, we consider that the merits of the Fairness by Design duty in terms
competition and consumer protection benefits outweigh any potential negative
impacts.
Trialling, testing and monitoring
8.137 The principles which underpin the Fairness by Design duty are aimed at
protecting consumers and promoting greater user engagement with privacy
policies and settings. In this context greater user engagement includes:(a) Better access to information about the context of the privacy choicespresented to them;(b) Better user comprehension and understanding of the consequences ofthe privacy choices available to them; and,(c) The ability to make active choices in respect of their privacy preferencesin any given situation.
8.138 As we note in Chapter 4, overall, we expected to see evidence of a more
extensive and rigorous evidence base of user research in relation to privacy
and data sharing issues. Therefore, to ensure that Fairness by Design ishaving the desired impact on outcomes for users, we recommend that the
Duty be supplemented with a trialling and testing and monitoring regime.
8.139 It will be for the DMU to decide how best to implement the duty. We suggestthat it would work with platforms to develop and implement a framework forsuch a regime. This would involve taking advantage of the analyticalcapabilities and huge reserves of data available to the largest platforms todevelop the best approaches to empower and protect consumers.
8.140 Trialling and testing by platforms will enable the platforms and the DMU tounderstand the impact of the duty and changes proposed by the platforms.
Trialling and testing could also be extended to adopt an inclusive approach tosampling – for instance, including users with vulnerabilities.

391

Types of testing / trialling
8.141 The actual trialling and testing would be carried out by the platforms
themselves but would be subject to monitoring by the DMU. 488 Platforms
would be expected to put in place systematic, hypothesis driven trialling andtesting programmes – in line with good practice – to evaluate changes in
consumers' knowledge, understanding and engagement with the privacy
choices available to them over time.
8.142 Key metrics would cover the extent of informed choice. Greater engagement
would mean consumers understand the choices available to them; and areable to make a choice that matches their preferences. In terms of measuring
user engagement, it is important to emphasise that we would not necessarily
expect to see large numbers of consumers opting out of receiving
personalised advertising, changing their privacy settings or requesting accessto the data that is held by platforms.
8.143 In addition, we envisage that platforms would collate specific behavioural data
including consumers' choices and the changes in their choices over time aspart of testing and trialling, as well as providing data to the DMU to enable
monitoring. It will be particularly important to collect this data in respect to theuse of default settings – for instance, if consumers opt in / out when they initialsign-up, how they change their choices over time and how they respond toprompts.
8.144 We suggest the DMU explores with platforms, appropriate forms of trialling
and testing that are robust and practical to implement at scale. We would
expect platforms to use a range of different types of testing according to theissue under consideration. We consider this further in Appendix Y.
8.145 We note that platforms already use in certain contexts A/B testing (ierandomised control trials of alternative design patterns in the live platform)and qualitative (eg user research on proposed alternative designs). There arealso a range of alternative research and experimental approaches tounderstand engagement that are not currently utilised by platforms.
8.146 Over time, the DMU could identify and promote examples of good practice interms of promoting user engagement and identify measures which do notwork in practice so that lessons can be learnt.

488 We noted in Chapter 4 that platforms also need to comply with relevant equality legislation. The DMU may

wish to engage with the Equalities and Human Rights Commission where the accessibility and equity issues
overlap with choice architecture design of platforms.

392

Implementation and monitoring
8.147 We would expect that the process of establishing a trialling and testing regime
will be an iterative approach. That is, the trialling and testing regime should
build on work already carried out by platforms but that there should be scope
for the regime to adapt and change over time.
8.148 We also anticipate that the DMU would monitor the impact on consumer
engagement over time to establish the effectiveness of the measures it takes.
We consider some potential options for this in Appendix Y.
Possible wider application of the remedies
8.149 The choice requirement and the Fairness by Design duty focus specifically on
consumer users of the platforms and how their data is used for personalised
advertising. Given the scale and importance of personalised advertising andheavy use of consumer data in its delivery, these remedies could have asignificant impact in addressing the harms we have identified.
8.150 We envisage that the Fairness by Design approach will have a wider
application than that we have set out in this section:•

In particular, we note in Chapter 5 how self-service interfaces foradvertisers exhibit similar choice architecture techniques, such as
unbalanced text and default options that seek to maximise spend. We
therefore propose below that a Fairness by Design Duty could also be
applied to advertiser users of the platforms.

•

Furthermore, we think that the DMU could be given general powers that,to complement data protection law, enable it to consider wider applicationof similar remedies to other sectors that make use of consumer data for
personalised advertising – such as online retailers, service providers(airlines, dating sites, secondary ticketing, etc), gambling and gamingsites. It could also address tools such as Consent Management Platforms(CMPs).

•

Finally, whilst we have focused on the use of data for personalised
advertising, this is part of a much wider commercial use of such data – forinstance to inform product development; comparisons and quotes; andlogistics. How firms use consumers’ data more generally raises similarand enduring issues around consumer privacy concerns and effective
consumer control. 489 Our findings and recommendations in terms of

489 See: CMA (2015), ‘Commercial use of consumer data’ (2015).

393

choice and fairness by design, therefore, potentially have wider relevancewhich the DMU may want to take forward with the ICO and otherregulators.
8.151 We therefore also think that, when legislating, the government should
consider whether to give the DMU the flexibility to widen the application of theremedies we identify in this study to other sectors and uses of personal data –tailoring the approach as needed.

Interventions in digital advertising markets
8.152 As set out in Chapter 5, our view is that Google’s and Facebook’s market
power in the sale of their own advertising inventory could lead to worse
outcomes for advertisers in search and display advertising respectively,
ultimately leading to worse outcomes for consumers. The main sources of thismarket power come from barriers to entry and expansion on the consumer
side in search and social media. We have set out above the possible waysthat these barriers might be addressed. However, Chapter 5 also identified
specific features of digital advertising markets which exacerbate the concerns
about outcomes for advertisers and publishers.
8.153 Google and Facebook have both the ability and incentive to exploit theirmarket power in search and display advertising respectively to increase
revenues. For example, the evidence we have reviewed suggests that Google
has charged higher prices than Bing and that Facebook has been able toincrease revenue in recent years through higher ad loads.
8.154 In the open display market, we noted Google’s strong position stemming fromits access to advertising inventory and user data, combined with its very highshare of supply in publisher ad serving and other parts of the ad tech chain.
This leads to potential concerns about: conflicts of interest between Google’srole on the buy and sell sides of the open display market; and the potential for
Google to leverage its market power from its owned and operated advertisinginventory into the open display market and to foreclose potential competitors
in advertising intermediation.
8.155 We also identified a series of broader issues relating to lack of transparency
and the data advantages of the large platforms which could limit competitionin digital advertising:•

The large platforms’ processes for auctioning inventory are nottransparent and there is limited ability independently to verify theeffectiveness of advertising because of lack of access to data.

394

•

There is a lack of transparency over fees in the open display market,
which may limit the extent of competition between intermediaries and leadto publishers earning lower revenues from selling advertising inventory.

•

The data advantages of the large platforms in targeting advertising means
they can monetise their content much more effectively than otherplatforms/publishers, increasing their market power.

•

We identified a range of concerns that data protection regulation isinterpreted and implemented by the large platforms in a way that
entrenches their own competitive advantage.

8.156 In this section we discuss a range of interventions to address these concerns:•

the use of the code to manage the potential for exploitative andexclusionary behaviour by Google and Facebook, and increase trust andtransparency in digital advertising;•separation and access interventions to address concerns around
Google’s conflicts of interest in open display; and•data-related interventions, to address concerns about transparency andunequal access to data between SMS platforms and other market
participants.

Code8.157 On the basis of the analysis carried out in this study, we think that the code of
conduct would be an effective tool to address a wide range of the concerns
we have identified in digital advertising. These concerns are often varied,detailed and technical in nature, requiring rapid case by case assessment toresolve and, in many cases, follow up action and regular monitoring. Such
concerns are therefore more suited to ongoing control through the code.
Below we summarise which of the concerns could be considered under eachof the three main code objectives, drawing on Appendix U.
Fair trading
8.158 Under the fair trading objective, the code could be used to address concerns
around the potential for auction manipulation, particularly where platforms
exercise considerable discretion on bidders’ behalf, such as throughautomated bidding, or where they restrict how customers can use platform
services, such as through changes to matching functions.

395

8.159 The code could also be used to address concerns over the terms which theplatforms apply which limit the ability of publishers to monetise content whenhosted within the platforms’ ecosystems. The DMU could write guidance on
the application of the code which could specify reasonable behaviour by
platforms when hosting publisher content and the associated digitaladvertising in format such as AMP or IA.
8.160 The code would also be an appropriate mechanism to address complaints
about policies applied by the large platforms which mean that adverts, or
accounts can be arbitrarily suspended for reasons that are unclear orinconsistent.
Open choices
8.161 The code of conduct could also be used to address self-preferencing
concerns within search advertising and ad tech intermediation. For instance, it
may ensure that new functionalities of rivals are introduced on SA360 quickly
or facilitate the integration of AdX with rival publisher ad servers.
8.162 In the open display market, the code of conduct could require platforms not toprefer their own customers over third parties who use other intermediaries.
The code could also resolve disputes about how Google runs its ad techauctions, for example requiring Google’s auctions to give equal treatment toGoogle and third-party exchanges.
Trust and transparency
8.163 Many of the concerns we have identified in digital advertising arise from, or
are facilitated by, a lack of transparency and information asymmetries, leadingin turn to a lack of trust. The trust and transparency principles under the code
would allow the DMU to address many of these concerns.
8.164 For example, the Fairness by Design duty, discussed above in relation to theuse of consumer data, could also be applied to the choice architecture ofplatforms’ sales interfaces, to ensure that they facilitate fully informed choiceby advertisers. We consider that the code of conduct would allow the DMU toprovide clear guiding principles on how Google and Facebook present anddistinguish between organic content, digital advertising, and their own
services, such as specialised search.
8.165 The code would also allow the DMU to address some of the opacity within
digital advertising through allowing it to scrutinise the working of algorithms
and auctions.

396

8.166 Finally, the code might be applied in some cases to require transparency by
SMS firms over fees or other data or compliance with industry standards on
the provision of information to advertisers or independent firms on their behalf,such as for verification. For ease of exposition we discuss code and non-code
interventions in relation to fee transparency and verification within the datarelated interventions section below.
Limits of the code in digital advertising
8.167 A potential limitation of the code is that it may not restrict all of Google andFacebook’s incentives to exploit the market position that they have built up to
their own advantage. The code can set rules that restrict certain behaviours,
but in a fast moving and very complex market such as digital advertising it
may be difficult for the DMU to monitor every change that is made by SMS
platforms. This is particularly likely to be the case when the platforms haveestablished a strong market position in several parts of the value chain, such
as Google’s position in publisher ad serving.
8.168 We therefore discuss below two forms of pro-competitive intervention over
and above the code of conduct, designed to tackle directly the sources ofmarket power we have identified: separation interventions and data-related
interventions.
Separation in open display
8.169 A significant remedy available to competition authorities and regulators is torequire vertically-integrated firms to separate their businesses to addresscompetition problems that arise from operating in multiple markets.
Separation has the potential to deliver significant benefits in markets where
one large player is able to affect the proper working of competition across anumber of markets. In such circumstances, separation can be most effective
where it can be used to re-establish a more effective competitive process,which can bring new products to consumers and lower prices to businesses.
8.170 In this section we consider options for separation of Google’s activities inopen display advertising. 490 In Chapter 5 we outlined that Google had theability and incentive to prefer its own businesses in ad tech intermediation.
Our assessment is that Google’s strong positions in publisher ad serving, SSP
and DSP, as well as its unique access to Google’s ad inventory, means thateach of these businesses potentially faces a conflict of interest. Each of the
publisher-facing and advertiser-facing businesses may have the incentive to

490 These interventions are discussed in more detail in Appendix ZA.

397

favour Google’s own businesses elsewhere in the value chain in a way thatreinforces its market power across the ad tech chain as a whole. This isdiscussed in full in Chapter 5.
8.171 In summary, we found:•

Google has a position of market power in advertiser-facing services(DSPs), which is strengthened by its unique access to its own inventory,
and is able to use this position in DSPs to favour its own publisher-sideservices.

•

Google has made it difficult to access its advertiser demand throughalternative publisher ad servers, thereby increasing its market power in adserving and making it difficult for other providers to compete on the merits.

•

Google may be adopting several practices that have the effect ofleveraging its position as the largest publisher ad server to favour demand
from its own SSP and DSPs.

8.172 These concerns arise from Google’s common ownership of firms at different
levels of the value chain in digital advertising intermediation. This common
ownership is what provides Google’s ad server, for example, with the ability
and incentive to design its ad serving processes in a way which favours
Google’s SSP and DSPs, and leads to conflicts of interest between its
advertiser-facing and publisher-facing functions.
8.173 As described in Chapter 5 and Appendix M, the advertising intermediation
chain is evolving rapidly. For example, the emergence of Header Bidding andrecent introduction of Unified Pricing by Google has had a significant impact
on market dynamics. Looking ahead, potential changes including Google’s
decision on whether to phase out the use of cookies on Chrome could
materially change the way ad tech works. One possibility is that ads may beserved in the future directly from a browser or mobile phone, taking over someof the function currently carried out by the publisher ad server.
Parties’ views on separation
8.174 In the interim report, we sought views on the case for separating aspects of
Google’s vertically integrated business in the intermediated open display
market. We also sought views on whether separation might also beappropriate where other firms operate in conflicting parts of the value chain,such as those operating both demand-side and supply-side platforms.
8.175 A number of respondents supported the case for separation of Google’s adtech businesses. While there was no single preferred approach to separation398

identified, a number of respondents identified the ad serving functions within
Google Ad Manager as a priority for any separation. Both DMG Media and[] indicated that there would be benefits of the separation of Google’sbusinesses. Both these responses also highlighted the international
dimension of any structural interventions, and that UK authorities would need
to work with international agencies to make any separation effective.
8.176 Other respondents, including Google, submitted that separation interventions
were unnecessary. Google submitted that if any of our concerns remained
after further investigation they could be addressed through less intrusivemeans, such as initiatives to improve transparency and a principle within acode of conduct that it should not ‘unduly discriminate between its otherbusinesses and third parties’. 491 Google submitted that this would be ‘lesslikely to have negative, unpredictable consequences for our partners and theecosystem as a whole’. Reach plc also submitted that it would be better tofocus on other interventions, as it considered that separation was unlikely tobe successfully implemented, and it would be better to focus on implementing
an effective code of conduct.
Options for separation
8.177 In this section we consider the options relating to separation to address theconflicts of interest that arise from common ownership within the different
functions associated with ad tech.
8.178 Given the rapidly-changing nature of the digital advertising market highlighted
above, we believe it is important that any interventions deal not only withcurrent concerns, but are also future-proofed to address concerns that mightarise in the future. For this reason, our proposed interventions relate to theunderlying functions involved in digital advertising, set out in Chapter 5, rather
than being based solely on the current organisation of the market.
8.179 Figure 8.4 illustrates the businesses within ad tech intermediation which
operate these different functions, and our assessment of where there is acase for separation.

491 Google's response to the Interim Report399

Figure 8.4: Separation and access options in open display

Source: CMA.

8.180 Based on the analysis in Chapter 5, we consider that the followinginterventions could be expected to improve the working of competition in open
display advertising, and therefore to deliver benefits to consumers. We
summarise our findings and recommendations below:(a) Separation of the function of publisher ad serving from the advertising
advisory function (DSP), where the ad server has market power;(b) Separation of advertising advisory functions (DSP) from publisher sales
functions (ad server / SSP), where the DSP has market power; and(c) A restriction on a DSP restricting access to its own inventory, where thatinventory is sufficiently important to generate market power for the DSP.
In the case of Google, this would be particularly relevant to YouTube
inventory, which is only offered through DV360, giving that service aparticularly strong market position in video advertising.
Separation of ad serving from the advertiser advisory function (DSP)
8.181 As discussed in Chapter 5, we found that there is a strong incentive on an
owner of ad serving activities to prefer its own advertiser advisory services(DSPs). This is because DSPs, even if discriminated against, have no way ofreaching the publisher other than through the ad server; at the same time,
publishers have limited visibility over how the ad server operates, and the400integration of the ad server with the publisher’s own systems results insignificant switching costs.
8.182 Currently, the majority of publishers use Google Ad Manager’s ad server,which has a market share of over 90%. This creates conflicts with Google’s
DSP businesses, and we consider that some form of separation could
address these conflicts.
8.183 We found that there may be potential changes in the market in future which
could reduce or change the role of the publisher ad server, including thepossibility that the ad serving function might move onto the browser. In thiscase, choice would be determined by the user and not the publisher, again
leading to potential conflicts of interest with the browser owner also operating
as a DSP (ie carrying out the advertiser advisory function). However, we notethat Google also has a very strong position in browsers through Chrome.
8.184 In the current ad tech ecosystem, separating Google’s ad serving function
from its DSP businesses could be achieved by either separating the publisher
ad server from the rest of Google Ad Manager and Google’s DSPs, orseparating the whole of Google Ad Manager (including both ad server and
SSP) from the DSP. Both options would address the underlying conflicts ofinterest between the publisher ad server and the advertiser advisory function(DSP).
8.185 Google told us that stand-alone ad servers were no longer meaningfulbusinesses and that to the best of its knowledge that there were no fullfeatured ad servers that were not integrated with an SSP. Similar views wereexpressed by other intermediaries and by several publishers, who told us they
benefit from using the integrated services of Google's publisher ad server and
SSP. 492
8.186 We consider both options to be equally effective in eliminating the incentive
for a publisher ad server to favour its own sources of demand. Our current
view is that a vertically integrated provider that was required to separate adserver and DSP could be given the opportunity of choosing between the two
options, based on its assessment of their impacts on efficiencies
8.187 We think the case for a separation intervention is strongest in relation to any
firm which has market power in serving ads directly to publishers and also
owns an advertiser advisory function (DSP), where the DMU considers thatthe firm has the ability and incentive to favour that DSP as a result of market

492 Stakeholders have also argued that the integration of SSP and DSP generates technical efficiencies. We note,however, that non-integrated DSPs do exist (eg The Trade Desk), and our analysis indicates that they are able tocompete effectively with vertically integrated providers.

401power on the publisher side. Given current market conditions as described in
Chapter 5, this would suggest a case for separation of Google’s ad server
from its advertiser advisory function (DSP). In order to future-proof any
remedy and ensure it could not be easily circumvented – for example if adserving increasingly moved to the browser in future – any future interventions
should be implemented in terms of functions, rather than business units.
8.188 We note that in the future other firms could develop market power, eg ifbrowsers, which are chosen by the user, control how adverts are served.
Equally, if the market for publisher ad serving changes, and switching
becomes more feasible, then the case for separation of Google’s ad server
would be reduced.
Separation of the advertiser advisory function (DSP) from the publisher sales
function (SSP)
8.189 As discussed in Chapter 5, given the current structure of the ad tech chain,competition between SSPs significantly reduces the incentive of an SSP thatis vertically integrated with a DSP to discriminate against competing DSPs.
This is because DSPs can use alternative SSPs to reach the same inventory
and can switch if discriminated against. Moreover, given that large,
sophisticated advertisers have tools to compare the performance of different
DSPs, the incentive of vertically integrated DSPs to favour their own sourcesof supply is strong only if the DSP serves many small advertisers or has
market power deriving from exclusive access to data or inventory.
8.190 Providers have pointed to the technical efficiencies generated by the
integration of DSP and SSP, which can benefit advertisers and publishers. As
these efficiencies could be lost as a result of separation, several stakeholders
told us that it was not currently necessary or desirable to consider a general
requirement on all intermediaries to separate their buy-side and sell-sidebusinesses. Providers of ad intermediation services have also pointed at thetechnical efficiencies generated by the integration of DSP and SSP, which canbenefit advertisers and publishers.
8.191 For these reasons, we consider that a general requirement to separate theadvertiser advisory function from the publisher sales function would be
disproportionate. On the other hand, we believe that, when a DSP has market
power, the benefits from independence could outweigh the efficiency losses
caused by separation. Given current market conditions, this would suggest acase for separation of Google’s DSPs (DV360 and Google Ads) from Google
Ad Manager. This separation would also address the concerns outlined in theprevious section in relation to conflicts between the publisher ad server andadvertiser advisory functions.
402

Access to inventory
8.192 Finally, we found that there is a strong incentive on the owner of advertiserfacing activities to restrict access to their own advertising inventory, where it issufficiently important that it contributes to the generation of market power inthe DSP. In the Interim Report, we identified Google’s exclusive access toYouTube inventory as an example where the benefits of requiring access tothird party DSPs could bring significant competitive benefits.
8.193 A number of third parties supported the opening of YouTube inventory. For
example, Oracle told us that such an intervention would offer a straightforward
solution to improve competition between DSPs and should not raise privacy
concerns. Similarly, Beeswax, a DSP provider, told us that this was the mostpromising remedy proposal to level the playing field with Google.
8.194 Google submitted that restricting third-party access to YouTube inventory is
the best way to maintain the privacy of user information and to ensure that theads appearing on YouTube are of a consistently high quality. Google has also
submitted that YouTube integration with third-party DSPs would be complex
and expensive, given the complex auction dynamics for YouTube’s TrueView
inventory. 493 Google added that a requirement to offer integration of TrueView
inventory with all third-party DSPs may make it infeasible to offer YouTube
inventory through any DSP. For the reasons discussed in Chapter 5 andAppendix M, we consider that these do not constitute insurmountable barriers
to providing third-party access
8.195 We consider that there is a strong case that opening access to YouTube
inventory would have significant benefits. However, these would need to be
set against the costs identified by Google. In deciding whether to require
Google to offer access, the DMU would need to consider the trade-offs, andimplement a remedy in a way which is both effective and proportionate.
8.196 We therefore recommend that the DMU should have powers to oblige DSPs
with market power which operate in the open display market to supply theirown inventory on reasonable terms to third-party DSPs. These powers would
be applied where the benefits of opening access to the inventory are
sufficiently large to outweigh any costs.

493 TrueView allows users to skip an ad after five seconds, and the advertiser behind a TrueView ad is only

charged if the user watches the full ad or 30 seconds, whichever is shorter.

403

Forms of separation
8.197 There are various forms of separation, each of which could apply to theseparation remedies described above. These can be categorised as:(a) Full ownership separation (divestiture);(b) Operational separation, which would include management separation and‘firewalls’ between different businesses under common ownership; or(c) Restrictions directly targeted at conflicts of interest, where intermediaryfirms are not allowed to act on both sides of a single transaction.
8.198 In the context of the options for separation in open display advertising as
illustrated in Figure 8.4 above, an ownership separation requirement would
prohibit a single firm from having control through ownership of businesses
which operate the distinct functions subject to separation. This remedy issometimes used in merger control and normally has the advantage of being
clear-cut, although it can be complex to implement in practice where it
requires a common owner to divest at least one of the businesses. Where
separation is expected to result in a significant increase in dynamic
competition and innovation, ownership separation is most likely to achievethese benefits. However, we are conscious that a remedy of this type would
be likely to have significant impacts on other markets outside the UK and mayneed to be coordinated with other authorities internationally.
8.199 Operational separation, sometimes called ring-fencing, requires firms to put inplace measures which ensure that different businesses operate
independently. This could include internal measures such as separate
management responsibility, separate incentives, requirements to trade atarm’s length, or physical separation of different activities. Under operational
separation, there would be no obligation to divest either of the separatebusinesses, and operational separation therefore relies on a common ownerhaving limited ability to control the behaviour of the separated businesses thatit owns. The DMU may still face challenges in designing an effective approachto implementing some aspects of operational separation for the UK part of aninternational business. Some aspects of operational separation, such as arm’s
length trading requirements, would be more straightforward to achieve in a
way which is targeted at the trading of inventory directed to UK customers.
8.200 Operational separation is sometimes used by utility regulators seeking toensure that incumbent businesses do not favour their own businesses404

operating in competitive markets. 494 The benefit of implementing operational
separation in markets such as digital advertising is that Google should be
incentivised to treat different parties in a way that does not unduly
discriminate between its customers. To be effective, the operational
separation would need to be accompanied by reporting to the DMU, andmonitoring that Google is complying with the requirements of separation.
8.201 A more limited form of ring-fencing is also used in markets such as financial
services, where there are legal requirements on buy-side and sell-side
operations to act independently in any particular transaction. This form of
separation could work well where there are strong conflicts of interest, butmore limited overall market power. For example, if the decision on serving ads
were moved to the browser, all owners of browsers could be subject to a
restriction on serving both sides of a single transaction to offset the risk of aconflict of interest arising. However, at present, we do not expect that this
remedy could be made effective in any way that is materially distinct fromrequiring ownership separation of the publisher ad server, as Google has a
90% market share in the publisher ad server.
8.202 As discussed in more detail in Appendix ZA, our finding is that operational
separation is likely to be feasible in respect of Google Ad Manager and
Google’s DSP businesses. We understand that both businesses already tradewith both Google’s own digital advertising businesses and third-party digitaladvertising intermediaries. We also understand that a form of operational
separation is already in place for Google’s internal purposes. A regulatory
requirement for operational or functional separation would include particularobligations on how Google should manage these businesses, including
treating internal and external digital advertising businesses consistently. 495
This form of separation would require ongoing monitoring and evaluation by
the DMU.
8.203 We recommend that the DMU should have powers to implement
ownership separation or operational separation. This should include
powers to monitor the effectiveness of any separation requirements,
and to vary the terms of separation where necessary to ensure their
ongoing effectiveness. In considering the use of its separation powers, theDMU should assess whether operational separation is sufficient, and if not

494 The ‘structural separation’ which Ofcom requires BT to apply to Openreach represents a strong form ofoperational separation including the separation of Openreach into a different legal entity.
495 In legal terms this could be a requirement to not unduly discriminate between Google’s own businesses andthird parties.

405

consider ownership separation, balancing the costs of intervention with thebenefits for consumers through innovation and more effective competition.
8.204 Overall, we have concluded that there could be significant benefits if there
were more formal separation between businesses with market power in ad
tech, both market power in publisher-facing functions and market power inadvertising-facing functions. Although these remedies are not limited to SMS
firms, at present Google is the only firm with market power, and it has a highmarket share both in advertising advisory services (DSP) and publisher adserving.
8.205 The CMA would also have these separation powers if we found sufficientevidence for intervention following a full market investigation. However, we
expect that the products and technology involved in digital advertising are
likely to continue change over time, and therefore the effectiveness of any‘one-off’ intervention to separate current activities is likely to be time-limited.
Any form of separation is likely to need ongoing monitoring and would evolve
over time. We therefore consider that a DMU with powers to monitor andreview the effectiveness of any separation interventions would be better
placed than the CMA to implement and monitor any separation interventionsin the open display markets.
Data-related interventions
8.206 Many of the concerns we identified in digital advertising markets in Chapter 5
relate to data. First, many of the basic functions of digital advertising, such as
pricing and ad verification, are characterised by a lack of transparency andinformation asymmetries, inhibiting effective demand-side engagement andleading to a lack of trust.
8.207 Second, we have found that differential access to data for targeting andattribution creates a substantial barrier to entry and expansion in digitaladvertising, with Google and Facebook enjoying a much wider variety ofsources of such data and restricting other parties’ access to it, sometimes on
the basis of data protection regulation.
8.208 In principle there is a strong case for increasing access to data to overcome
such problems. Data can typically be shared at low cost, increasing theeffectiveness of digital advertising and, where the data in question is a barrier
to entry and expansion, helping to strengthen competitive pressures on
incumbents. However, we also note that sharing personal data can also leadto concerns around privacy, and that sharing data that platforms haveinvested in or incurred costs to collect can affect incentives to innovate.

406

8.209 The assessment of data-related remedies therefore needs to be made on acase by case basis, taking into account the particular characteristics of thedata and market. This is the approach we have taken in the discussion below,
which considers data-related interventions in three areas: transparency infees and transaction data; transparency in verification data; and interventions
to address differential access to data for targeting and attribution. As noted in
the discussion, some of these interventions could be implemented through thecode, while others, that would have a more transformative effect on themarket, would need to be implemented as pro-competitive interventions.
Transparency over fees and transactions data
8.210 Advertisers and publishers typically do not have visibility over the fees
charged along the entire intermediation chain or visibility of other transactionlevel data such as bidding data. Many are concerned that this limits theirability to make optimal choices on how to buy or to sell inventory, reducing
competition among intermediaries and between buyers and sellers of
inventory.
8.211 We have identified three main options for improving transparency around feesand bidding data:•

Within-contract fee transparency – whereby data on fees, at least at an
aggregate level, are provided to contracted parties.

•

Publication of average take rate and other fees and charges – whereby
intermediaries publish their average fee or take rates.

•

Sharing of more data across the supply chain. This might be aggerated
data of might include impression-level transaction and bidding data withadvertisers and publishers (including the adoption of a common
transaction or impression ID).

Parties’ views on transparency over fees and transactions data
8.212 In the interim report, we discussed a number of potential interventions toimprove transparency over fees charged for intermediary services, including
publication of fee rates, the sharing of bid data with publishers and thecreation of a common transaction or impression ID. There was strong
support amongst advertisers and publishers for these transparencyinterventions. For example, the one publisher submitted that it ‘strongly
support[s] all of these [transparency] interventions’.

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8.213 However, whereas ad tech intermediaries generally supported moretransparency and pointed to improvements in levels of transparency acrossthe industry, some were wary of too much transparency Some intermediaries
considered that some transparency remedies, especially with regard to fee
data, could potentially increase costs for adtech intermediaries as well as
potentially distort competition by encouraging a race to the bottom. In
addition, there are some concerns that remedies that require the provision of
more information by adtech intermediaries about fees and bidding data could
breach client confidentiality and, if these remedies were to mandate acommon transaction or impression ID, facilitate the identification of individual
users.
Within-contract fee transparency
8.214 Within-contract fee transparency is already practised widely amongst
intermediaries. One exception seems to be Google Ads. 496 We would
consider it to be good practice that data on fees charged by ad techintermediaries, at least at an aggregate level, is provided to contracted
parties. 497 Such a provision should therefore, we conclude, be included
within the code applying to Google.
Publication of fee rates
8.215 A number of intermediaries already publish average fees or take rates. 498
One SSP told us that ‘technically and legally, there are no obstacles
preventing One SSP from providing such data [on average fee or take rates]
where the appropriate consent has been obtained’. However, as we note
above, not all intermediaries would support the publication of average fee ortake rates. Our view is that a move to more widespread publication of dataon average fee or take rates could help bring a degree of confidence tomarket participants and could provide them with a starting point forassessing the scale of ad tech fees. Facilitating the publication of this is, in
our view, an appropriate role for the DMU to take on.

496 This has sparked concern amongst, publishers in particular, that Google Ads is able to extract ‘hidden fees’ –see Appendix R for more discussion of this.

497 However, we note that this should include all charges and deductions by an intermediary, not just the headline

fees. This within contract reporting should also include, for-example, any buy-side fees or profits from arbitrage
accruing to an intermediary.
498 For example, Google does so in relation to its Ad Sense product and Xandr has in the past published its
average SSP fees408

Bid data and transaction ID
8.216 Advertisers and publishers felt perhaps the most useful move toward
improving transparency within the ad the ad tech supply chain would begreater provision of transaction level data and, importantly, that data should
be provided in a manner that allows them to relatively easily combine the data
to obtain an overall market view, through a transaction or impression ID. one
publisher submitted that, ‘platforms should be required to share nonaggregate impression-level and bidding data with publishers. … Importantly,
the different types of data should be shared in a format allowing publishers to
combine them. Access to that information would allow publishers to better
monitor whether the ad server conducts auctions fairly, as well as to optimize
their monetization strategy’.
8.217 We consider that transaction-level transparency would bring benefits bystrengthening market participants’ ability to exert competitive pressure onothers and improving trust in the market. We have also concluded that someform of common transaction or impression ID would be required If publishers
and other market participants are to benefit fully from provision of transactionlevel data. A key finding of a recent study on ad tech fees by ISBA/PwC wasthat such standardisation was urgently required to facilitate data sharing anddrive transparency. 499
8.218 However, the privacy implications of the introduction of common transaction
ID would need to be carefully considered. Google submitted, for example, that
‘Imposing consistent transaction IDs raises potential privacy concerns by
allowing advisers to join Google’s secure bid data with other information in a
way that would allow individual users to be identified’. 500 We conclude that the
DMU should have the power to introduce a transaction or impression ID
but that further work would need to be undertaken by the DMU to assess theextent of these privacy risks and, if material, how such a transaction ID could
be designed to avoid such potential privacy concerns.
Transparency for ad verification
8.219 For there to be effective competition between suppliers of advertisinginventory, advertisers need to be able to make informed choices about theinventory that they buy. Otherwise there is a risk that advertisers are
overpaying for advertising inventory or purchasing poor quality inventory

499 ISBA Programmatic Supply Chain Transparency Study (2019).
500 Google response to the interim report, paragraph 100.

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8.220 Although both Google and Facebook work with a number of ‘approved’ thirdparty verification providers, they restrict access to the underlying data on theadvertising inventory they own and operate. In contrast, other display
advertising platforms reported that they do allow advertisers to use third-party
service providers to carry out independent verification on their advertisinginventory.
8.221 Given a number of incidents of misreporting 501 and concerns about brandsafety issues on Facebook and Google respectively, it is not surprising thatadvertisers would like the ability to carry out their own, independent
assessments. Without access to the underlying raw data and the ability tohave full independent verification, advertisers and media agencies have theperception that Google and Facebook have the freedom, in effect, to ‘marktheir own homework’.
8.222 Both Facebook and Google have argued that the way in which they compile
data for the purposes of verification, eg on the viewability of impressions on
their inventory, meets industry standards and is subject to external audit.
Google also argued that its approach to ad verification is driven by its
obligations under the GDPR.
8.223 By restricting full independent verification of their own inventory, Facebook
and Google have engineered a degree of opacity into the buying and sellingof their own advertising inventory. Advertisers feel that they have no choice
but to rely on the information provided by Google and Facebook. This could
weaken competition or potentially result in advertisers over-paying for theadvertising inventory supplied by Google and Facebook relative to othersources of supply. The buying and selling of display advertising is a complex
process and introducing additional restrictions on access to data adds to thefriction in terms of evaluating market outcomes.
8.224 We understand that the data needed for verification for viewability involves
information such as: the website on which the ad was served; whether the ad
appeared on the screen; how much of the ad appeared on the screen; howlong the ad appeared on the screen; and, if it was a video advert, whether thead played, for how long it played, whether the sound was on etc. Similarly, forbrand safety, the key information involves establishing which website anadvert has been displayed on and what other content was on that website. As
a result, our view is that verification of viewability and brand safety does notnecessarily need to involve the use of personal data.

501 Source: Marketingland.com, 'FAQ: Everything Facebook has admitted about its measurement errors.'

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8.225 We recognise the arguments that Google has made in relation to potential
privacy concerns arising from providing access to data for verification
purposes. However, as set out above verification for viewability and brandsafety purposes doesn’t need access to Google’s targeting data.
8.226 Enabling third-party verification allows the performance of platforms to beproperly evaluated and compared and this should help stimulate competition.
In addition, as a matter of good business practice, it is important thatadvertisers should be able to verify that the inventory that they purchased has
been delivered as contracted for, in particular in respect of viewability andbrand safety.
8.227 As a result, we recommend that Google and Facebook should give
advertisers – or their agents – access to the tools or information necessary to
carry out their own, independent verification for viewability and brand safety
purposes of advertising purchased on the inventory owned and operated by
Google and Facebook and that all sides work to secure the necessarycontractual and consent arrangements to ensure that this is done in a waythat is consistent with the requirements of GDPR. Since the concerns wehave heard relate exclusively to Google and Facebook, we think that such arequirement should be implemented through the code.
Access to data for targeting and attribution
8.228 Throughout this report we have highlighted the importance of targeting andattribution in digital advertising and have shown how the ability to target
advertising and assess its effectiveness greatly increases its value foradvertisers and publishers. We have also noted that access to personal data
currently plays a central role in both these functions.
8.229 We have found that Google and Facebook have much greater access to suchdata through a variety of sources including extensive user-facing services,
analytics services and, in the case of Google, browsers and devices. Further,while both Google and Facebook use this data across their wide ecosystems,
they typically restrict third parties’ access to it, sometimes citing therequirements of data protection regulation as a reason for doing so. The
resulting differential access to data acts creates a substantial barrier to entry
and expansion in digital advertising. In addition, several parties havesubmitted to us that Google and Facebook’s sharing of data across theirecosystems raises privacy concerns and is not consistent with data protection
regulation.
8.230 We also noted that the digital advertising market is changing very rapidly, andthat Google’s recent announcement that it will be phasing out support for third411

party cookies on Chrome is likely to increase barriers to entry and expansion,
affecting publishers’ ability to target and attribute using personal data whileallowing Google and Facebook to continue to do so, with potentially significant
consequences for publishers’ revenues.
8.231 To address these concerns, we have identified three forms of intervention, allof which could improve competition in digital advertising markets by providing
more equal access to data for targeting and attribution for integrated platforms
on the one hand and non-integrated publishers and advertisers on the other.
However, they differ in terms of their potential implications for effective
targeting and attribution and data protection and privacy. The interventionsare:•data separation (or data silo) interventions;•user ID and data access interventions; and•data mobility interventions

8.232 In practice, these options are not mutually exclusive as the DMU may choose
to use different interventions in different circumstances.
Parties’ views on access to data for targeting and attribution
8.233 Google did not agree that any remedies requiring access to data wereappropriate. In a submission to us, Google explained that there were privacy
limitations on its ability to share data that it gathered from advertisers andpublishers through its analytics tools. Google also noted that in most cases it
was not in the legal position to share analytics data with either third parties orother Google services. Google said that sharing data gathered from Google
tags, including those associated with Google Analytics, raised serious privacy
concerns through the exposure of user data to all ad tech recipients of thedata.
8.234 Some publishers and intermediaries supported opening access to Google’s
data. Oracle, Verizon Media and Beeswax provided examples of data which
could be subject to access requirements and which would improve
competition for digital advertising based on data for targeting. Potential typesof data raised by these submissions included location data, where Google has
an unmatchable advantage due to its position in search and Android.
8.235 In respect of attribution, intermediaries and publishers also considered that anaccess remedy would be appropriate. Some stakeholders, including Oracle
and Guardian Media Group, considered that access to the underlying data toallow third party attribution and measurement would be most appropriate, to412

allow an independent assessment of Google’s reporting. Others, including
DMG media, supported access to Google’s own attribution services.
8.236 Other stakeholders considered that a more appropriate intervention toaddress Google’s data advantages would be to limit Google’s ability to sharedata between its different businesses. Brave, which is challenging Google’s
internal sharing of data, 502 supported a restriction on how Google is able touse its own data for personalised advertising. Other stakeholders including
Guardian Media Group, Arete Research and Which? raised concerns about
the sharing of data within Google and Facebook, and suggested approaches
to limiting the use and re-use of data gathered for other purposes.
Data separation
8.237 We think that the DMU should have the power to mandate data separation(or data silos) where it concludes that the adverse effects oncompetition outweigh any efficiency benefits. This would allow the DMU toprevent SMS firms from using data from services where they have market
power in other markets where it has an adverse effect on competition. The
DMU would need the power to monitor the remedy, including access toreporting from the SMS firms.
8.238 The DMU would only apply this intervention to cases where there are clear
net benefits. We think that this is most likely to be the case where the linkingof the data constitutes a significant barrier to entry and expansion, where
there are significant privacy concerns from the data being combined, and/or
where the data to be separated has been collected by the platforms throughthe leveraging of market power. More generally, the pro-competitive case forthe use of data separation interventions on vertically-integrated platforms may
be greater if publishers’ ability to target and attribute is severely affected by
the phasing out of third-party cookies on Chrome.
8.239 We note that Brave has advocated a ‘purpose limitation’ approach to data
separation, under which SMS firms would not be allowed to share data within
their ecosystem without specific granular user consent. This would have asimilar effect to the data silos intervention, but could apply to a much wider set
of markets – regardless of whether there were efficiency benefits of therelevant data being used in other markets. Further, by making consent thebasis of control, it risks increasing burdens on consumers, adding to consent
fatigue. Under current legislation, such a remedy would be implemented by

502 Described at https://brave.com/google-internal-data-free-for-all/413

the ICO, using its existing powers. We discuss our proposals for further workwith ICO at the end of this section.
Common user ID and data access8.240 We recommend the DMU be given powers to introduce common user ID
and data sharing interventions as they have the potential both to addresscompetition concerns and improve the efficiency of digital advertising.
However, both interventions also raise potentially significant privacy concerns
and would need to be developed with great care.
8.241 The user ID intervention would involve the DMU mandating the creation of asecure common digital ID that market participants could use to assign to theirown data for targeting and attribution purposes. This is a form ofinteroperability intervention, as it involves establishing and ensuring
adherence to a common standard.
8.242 Data access interventions would involve requiring a platform to share certain
categories of data, such as location data or data from tags and pixels, withthird parties, for the purposes of targeting and attribution, to enable them tocompete more effectively. To enable the meaningful interpretation of any data
shared, data sharing would require the development of a common user ID. As
noted above, such an intervention received strong support from a number ofmarket participants.
8.243 We think that the case for user ID and data access interventions to promotecompetition is strongest where the data is valuable in overcoming barriers toentry and expansion, and where the data is held by a platform without
significant ongoing costs or investment. The main problem raised by theseinterventions is that they would likely raise data protection issues since (unlike
the click and query data discussed above) data held by the platforms andused for targeting and attribution would likely be personal data, unless it were
aggregated or anonymised in some way. Any privacy concerns arising fromsuch an intervention would therefore need to be carefully managed.
•

Data mobility

8.244 Such concerns around privacy are one reason why the third category ofintervention – data mobility – is highly attractive in principle. Data mobility is auser-led form of data sharing that would allow consumers to share the datathat platforms hold on them with other platforms. This approach could help
increase competition by overcoming data-related barriers to entry andexpansion and ensure that consumers can benefit to a greater extent from the414

value of their data, while at the same time respecting users’ privacy rights, as
the data would only be shared at the user’s instigation. 503
8.245 The Furman Review recommended that the DMU should pursue personal
data mobility interventions where this will deliver greater competition andinnovation. It said that personal data mobility would ‘give consumers greater
control of their personal data so they can choose for it to be moved or shared
between the digital platform currently holding it and alternative new services.’
The Review noted that ‘Open Banking has shown the potential for data
mobility to provide new opportunities to compete and innovate in this way.’ 504
8.246 We have considered proposals put to us about products such as Personal
Information Management services (PIMs) and Personal Data Stores (PDS)
which may improve privacy protection and also enhance competition in theprovision of services which rely on data to be effective. These approaches
would enable the consumer to instruct a platform or an intermediary to sharethe information held on them with the publisher of a site they were visiting orwith an intermediary, for specified purposes and for a set period of time, andfor which the consumer would receive monetary or other incentives. Theintermediary would create a consent dashboard for the consumer enablingthem to vary or revoke their consents whenever they chose to do so. This
could therefore part of a long-term solution to the problem of consent fatigue.
8.247 We have engaged with a variety of PIM businesses, which in principle could
play a comparable function in digital advertising to the new banking
intermediaries using Open Banking, and mirror the ongoing development in
the utility sectors of services which negotiate good deals on customers’
behalf. However, as we discussed in our interim report, these services appear
to have a long way to go to be commercially viable. This is largely due to thefact that, unlike banking and other utility sectors, there is no current
consumer-facing digital advertising market (in which consumers sell their data
to advertisers for targeting and attribution), and PIMs have to persuade
sufficient numbers of advertisers and consumers of the viability of such amarket before generating revenues.
8.248 While there are many barriers to overcome in establishing such a market, inthe long run, we believe the DMU could play a useful role in promoting data
mobility in digital advertising. This could include, for example: setting
standards; providing safeguards which support confidence and data security

503 We note, in this respect, that GDPR is not only about data protection. Article 20 of the GDPR introduces aright of data portability, which allows for data subjects to receive the personal data that they have provided to adata controller, and to transmit this data to another data controller without hindrance.
504 Unlocking Digital Competition, Report of the Digital Competition Expert Panel, p9.

415

for approved intermediaries and exploring the case for strengthening the data
sharing provisions of GDPR, which do not currently cover inferred or derived
data.
Future work with the Information Commissioner’s Office (ICO)
8.249 The digital advertising market is likely to undergo substantial change over the
next couple of years, driven in party by evolving interpretations of therequirements of data protection regulation, not only by data protection
authorities, but increasingly by online platforms. These changes are likely tohave very significant effects on both competition in digital advertising andprivacy. Therefore, while the main focus of this chapter is on the rapid
establishment of a pro-competition regulatory regime overseen by the DMU,
we recognise that action is needed before this regime can be put in place.
8.250 The CMA is therefore undertaking to work with the ICO after the completion ofthis study on a range of topics relating to the interaction between dataprotection, consumer control and competition. This will build on theconstructive working relationship with the ICO that we have established in thecourse of the study. Our intention in undertaking this work is to ensure that
consumers rather than platforms are in control of their data, and to encouragea modern view of data protection regulation, which empowers consumers andavoids favouring large integrated platforms over smaller publishers.
8.251 The focus of this work will be on many of the issues we have identified in the
study, including how to respond to and engage with Google’s proposals forphasing out third party cookies on Chrome over the next 18 months and thedevelopment of various privacy-preserving alternative technologies on
Chromium. We will wish to consider, for example, how adequate Google’s
proposed alternatives for targeting and attribution are likely to be for market
participants and whether such browser-focussed approaches for targeting andattribution raise competition concerns and, if so, how these can be addressed.
Further, and in particular if the targeting and attribution proposals were toprove inadequate for market participants, we would wish to consider whether
there is a need to consider constraints on integrated platforms’ ability to sharedata for targeting and attribution across their ecosystems.
8.252 More broadly, as noted in Chapter 5, we have heard concerns that aspects ofthe design and interpretation of current data protection regulation risk creatingcompetition concerns by unduly favouring the business model of large,
vertically-integrated platforms over smaller, non-vertically-integrated
publishers and we will wish to discuss with ICO how to implement a principleof ‘competition neutrality’ in the design and application of data protection
regulation in digital advertising. We welcome the fact that the ICO is now the416data protection supervisory authority for Google in respect of the processingof UK users’ personal data and is likely to be for Facebook when the Brexit
transition period ends.
8.253 We will wish to discuss, for example: how secure sharing of consumer data
between firms can be enabled by prioritising support for the development ofcodes of conduct and certification regimes under the GDPR; the dataprotection and competition implications of different models of consumer
control over data, including privacy-enhancing technologies (PETs) and PIMS;
and different regulatory approaches to ensuring more equal access to data,
including data silos and data access interventions.
8.254 In the medium term we think it would also be helpful for ICO and other DPAs
to consider the extent to which mechanisms, at application, browser,
operating system or device level, can be supported to give effective control toconsumers, by balancing the need for specific, informed and granularconsent, against the risk of consent fatigue. We think this could in principle
both benefit consumers and ensure neutrality in respect of larger and smallerfirms seeking data. An example of this sort of approach is in theCommission’s original draft of the proposed ePrivacy Regulation, 505 and theaccompanying impact assessment, which observed that ‘end-users areoverloaded with requests to provide consent’, and intended to ‘empower endusers’ via ‘centralising consent’. The draft proposal called for a ‘Regulation[which] enhances end-user's control by clarifying that consent can be
expressed through ‘using the appropriate technical settings of a software
application enabling access to the internet.’’Sequencing
8.255 We have set out a number of powers that we think the DMU should be able todeploy to tackle the problems we have identified in digital advertising markets.
The code would be a highly valuable tool in addressing a wide range ofconcerns in digital advertising markets, arising from self-preferencing
behaviour, a lack of transparency, and the opaque operation of auctions andalgorithmic decision making. We have also identified a number of significant
pro-competitive interventions that, while they would take longer for the DMU
to assess and implement, have the potential to transform competition in digitaladvertising markets, including separation of Google’s position in open display
and data-related interventions such as mandated data access and data silos.

505 ePrivacy Explanatory Memorandum.

417

8.256 The DMU may in some cases consider it appropriate to consider deploying
the pro-competitive interventions once the code has been operational for aperiod, which would allow it to assess whether SMS platforms’ behaviour canbe effectively managed before considering the case for more radicaltransformations of the market. Based on the design and initial experience ofthe code, the DMU would then be able to properly balance the additionalcosts of a measure such as separation, for example, against the potentiallysubstantial benefits. In respect of other issues, the DMU may conclude thatradical interventions are required as a matter of urgency. This would be a
judgement for the DMU to take.
8.257 We have also identified some urgent issues relating to the relationshipbetween competition and data protection regulation that we propose toconsider with the ICO following the completion of this study and in advance ofthe establishment of the DMU.

Conclusion
8.258 Through this market study, we have identified a broad range of concerns
relating to the functioning of online platforms that are funded by digitaladvertising. These concerns have led us to the conclusion that competition inthese markets is not working as well as it should, and consumers are facing
detriment as a result. In order to address these concerns, we have identified asubstantial package of interventions for the government to initiate throughlegislation.
8.259 As set out in Chapter 7, the evidence we have assessed in this study strongly
supports the case for the development of a pro-competition regulatory regime
for online platforms. This is consistent with the type of regime envisaged by
the Furman Review, the recommendations of which were recently accepted
by government.
8.260 In this chapter, we have developed detailed proposals for the application ofsuch a regime to platforms funded by digital advertising, setting out the
specific interventions we believe will be most beneficial for the DMU to make,and how they might be designed to maximise benefits for consumers. Our
intention in setting out this level of detail is to convince the government of theurgent case for such significant new legislation, to inform the future work of
the DMU, as well as meeting our broader objective of informing the global
debate on how to regulate online platforms.
8.261 There is a strong case for interventions to tackle the source of Google’s
market power in search, including a requirement that Google provide rival
search engines with access to its click-and-query data, to help them418

overcome its scale advantages in data. The DMU should also have powers to
introduce search choice screens and restrict Google’s ability to secure default
positions on devices and browsers where these are key entry points to themarket.
8.262 In social media, interventions to tackle the source of Facebook’s market
power should focus on increasing its interoperability with rival platforms inorder to overcome the network effects that currently act as a significant barrier
to entry and expansion. We think there is a strong case for mandating greaterinteroperability in relation to finding contacts and cross posting functionalities,
while the code would help to ensure that future decisions by Facebook to shut
off or deprecate APIs do not have harmful effects on competition andconsumers.
8.263 The DMU should have powers to give consumers greater control over thedata they provide to platforms, including by requiring platforms to give
consumers a choice over whether to receive personalised advertising. A‘Fairness by Design’ duty under the code would ensure that Google andFacebook design choice architecture in a way that encourages free andinformed decision making by consumers, with a requirement to trial and test
alternative approaches.
8.264 The code would be an effective tool to address a wide range of the concerns
we have identified in digital advertising, including restrictions on publishers’
ability to monetise content, self-preferencing behaviour in the open display
market and low transparency over fees and ad verification. To tackle conflictsof interest in the open display market, some form of separation of Google’s
intermediation activities, notably its ad server function, may be necessary.
The DMU should also have the power to introduce data-related interventions
to increase transparency and address competition concerns, including data
separation, data access and data mobility remedies.
8.265 The CMA is undertaking to work with the ICO after the completion of thisstudy on a range of issues relating to the interaction between data protection,
consumer control and competition. This will aim to encourage a modern viewof data protection regulation, which empowers consumers and avoids
favouring large integrated platforms over smaller publishers.

419

9.

Decision on a market investigation reference

Introduction
9.1

9.2

9.3

The CMA may make a market investigation reference, under the statutory
test, when:•

the findings of a market study give rise to reasonable grounds for
suspecting that a feature or combination of features of a market or
markets in the UK prevents, restricts or distorts competition; 506 and•a market investigation reference appears to be an appropriate andproportionate response.

Such a decision is made at the discretion of the CMA’s Board, inconsideration of the organisation’s full range of priorities and objectives. To
provide some clarity about how these decisions are made, the CMA has
published the following four criteria, which we consider as part of any
decision: 507•

the scale of the suspected problem is such that a reference would be an
appropriate response (ie that the adverse effect on competition is likely to
be significant based on the size of the market, the proportion of themarket that is affected and the persistence of the market features);•there is a reasonable chance that appropriate remedies would beavailable;•

it would not be more appropriate to address the concerns throughundertakings in lieu of a reference; and•it would not be more appropriate to address the competition issues
through alternative powers available to the CMA or through the powers ofsectoral regulators.

As we set out in our interim report, we initially received five representations
from parties following the launch of this market study requesting that we makea market investigation reference. As a result, we had a statutory obligation to
consult by 2 January 2020 on a proposal on whether to make a market
investigation reference at the conclusion of the study.

506 Section 131, Enterprise Act 2002.

507 CMA, Guidance about the making of references under Part 4 of the Enterprise Act, OFT 511, paragraph 2.1.

420

9.4

On 18 December 2019, we consulted on our proposal not to make a market
investigation reference at this stage, while recognising that this was a finely
balanced judgement. Following careful consideration of the responses we
received, and also taking into account other significant developments during
this period, in particular the disruption caused by COVID-19, we remain of theview that a market investigation reference should not be made at this point in
time, and this is the CMA’s decision.

9.5

This chapter summarises the views we received, notes some other significant
developments since December that are relevant to our decision, and finallyexplains our reasoning for not making a reference at this stage.

The consultation
9.6

In our interim report, we stated that the statutory test for a market
investigation reference under section 131 of the Enterprise Act 2002 was met,
highlighting three potential candidates for the scope in general search, social
media, and open display advertising.

9.7

We proposed not to make a market investigation reference at this time, while
noting that it was a finely balanced judgement. We explained that there were
three main reasons for not making a reference:

9.8•

the government had committed to regulatory reform in this area, which weviewed as the best way to tackle the issues we have identified;•with regard to potential interventions, and in particular possible structural
remedies, we needed to be pragmatic about what changes could
efficiently be pursued unilaterally by the UK; and•we had considerable further work to do to understand the nature andextent of the issues in the market, and what the appropriate range ofremedies might be to address them.

We said we would revisit the conclusions of our interim report, in the light ofthe consultation responses that we received; our assessment of market
developments; and the UK government’s emerging position on regulatory
reform in this area.

421

Summary of responses
Overview
9.9

Of the 77 consultation responses we received, 31 explicitly referred to our
proposal not to make a market investigation reference at the conclusion of themarket study. The views expressed, which came from a broad cross-sectionof market participants within the digital advertising ecosystem including
platforms, national and regional news publishers, academics and thinktanks,and consumer bodies, are summarised in Table 9.1.

Table 9.1: Summary of views on our market investigation reference proposal

View
NumberSupported our proposal not to make a reference
8
Neutral2
In favour of a reference
21
Social media and display advertising
Search and search advertising
Open display advertising
Preferred scope not specified
Total responses to our MIR proposal
31

0
3
11
7

Source: CMA summary.

9.10

The responses, both in favour and against our proposal, were carefullyconsidered and well-explained, with many valid arguments made on bothsides. All but one of the 31 respondents indicated that they were in favour ofinterventions in these markets more broadly, most notably the proposed codeof conduct, and those in favour of a reference did not appear to view a market
investigation and broader regulatory reform as substitutes.

9.11

The following sections summarise at a high level the views we received insupport of each of the main options. 508

Support for our proposal not to make a market investigation reference
9.12

Eight responses to the consultation explicitly supported our proposal not tomake a market investigation reference. While seven of these parties (which
for example include BT, Barclays, and ISBA) appeared to agree with ourassessment that the statutory test for a reference had been met, they also
agreed with our reasoning that the likelihood of government intervention,

508 See Appendix B for a more detailed summary of these views, and our case page where the responses havebeen published.

422

coupled with the global nature of the issues identified, entailed that onbalance we should not make a reference at this point.
9.13

Just one response – from an industry body Developers Alliance – explicitly
rejected the conclusion that our findings could reasonably justify a market
investigation reference, suggesting that ‘at present, it seems that there is notenough evidence of systemic problems that would support any of the broader
regulatory measures proposed’.

9.14

Responses in support of our proposal not to make a reference said that there
were sound reasons to be cautious about referring these markets for aninvestigation, in particular, that a market investigation could potentially cut
across any broader regulatory reform, and that unilateral action by the UK
could be challenging.

Support for a market investigation reference in social media
9.15

We did not receive any calls for a market investigation focused solely onsocial media and display advertising. However, as part of its arguments infavour of a more broadly scoped investigation, Privacy International did refer
specifically to social media being included. It argued that, by launching amarket investigation, the CMA could, amongst other things, ‘use its ordermaking powers to introduce increased interoperability in social media’.

Support for a market investigation reference in general search
9.16

Three of the calls for a market investigation were focused on the markets forgeneral search and search advertising. The responses all emphasised theurgent need for action in the market, from different perspectives and withdifferent concerns in mind. For example, one from Google’s competitor(DuckDuckGo) noted the scale advantage Google has as a search engine,whereas another from an online travel comparison service emphasised
Google’s ability to implement changes affecting downstream markets, and its
ability to bundle different services together.

Support for a market investigation reference in open display advertising
9.17

11 responses called explicitly for a targeted market investigation in the open
display advertising market. Nine of these were from the national and regional
news media, including for example News UK, DMG Media, the GuardianMedia Group and News Media Association.

9.18

The arguments provided in favour of a market investigation in open display
are summarised below under three high-level themes:423

•A market investigation would complement the development of a new exante regulatory regime. Several respondents made this point, explainingthat the structural issues identified in the open display market may not beadequately dealt with by behavioural measures, and that through amarket investigation, the CMA could continue to gather evidence andinform any broader regulatory reform such as development of a code.

•

Interventions through a market investigation could take effect earlier thanthose through a legislative route (eg the code of conduct). Several
publishers considered their very existence to be under threat, with somesuch as DMG Media raising the concern that ‘regulatory intervention may
come too late to ensure the survival of the news industry’.

•A market investigation is an opportunity for the UK to influence the global
debate in relation to online platforms.

Support for a market investigation without specifying a scope
9.19

There were seven further responses that indicated clear support for a market
investigation, though they did not specify a particular candidate for the scope.
These included, for example, Privacy International, Digital Policy Alliance andArete Research. It is possible that some of the seven were in favour of aninvestigation with the same broad scope as this market study.

9.20

The reasons provided by these stakeholders were similar to those in supportof the specific candidates outlined above – in particular, that it could becomplementary to government reforms, that it could further shine a light on
the market and inform government decision making, and that the global
nature of the issues identified should not deter the CMA from taking action.

Developments since our consultation
9.21

There have been some important developments since publication of ourinterim report that we have taken into account when reaching our decision.
The most significant of these have been the commissioning of the DigitalMarkets Taskforce by government, and the global disruption caused by the
COVID-19 outbreak.

Digital Markets Taskforce
9.22

In the Budget of 11 March 2020, the government formally accepted all six of
the Furman Review’s strategic recommendations for unlocking competition indigital markets. To take this work forward, it also commissioned a DigitalMarkets Taskforce, to be led by the CMA, to advise it on the development of a424

pro-competition regime for digital platform markets. 509 The purpose of theTaskforce is to provide advice to government on the practical application of
the interventions set out by the Furman Review, which are fully consistent
with the findings and recommendations of this market study.
9.23

Government’s willingness to regulate to address our concerns was one of the
key factors highlighted in our interim report as influencing our decision onwhether to make a reference at the final report stage. We are therefore
strongly encouraged by these developments, which indicate that the
government is committed to action in this area, in particular regarding thedevelopment of a code of conduct to be overseen by a Digital Markets Unit
and other tools to address the sources of market power in general search andsocial media.

9.24

In our study, we have identified a wide range of serious concerns in a large
and growing part of the economy that will have an enduring impact on anumber of UK businesses and on UK consumers. The complexity and rangeof these problems, and their fast-evolving nature, is such that one-off
interventions of the sort that we can implement are likely to be insufficient.
Rather, a dedicated regulatory body – a Digital Markets Unit advocated by the
Furman Review – empowered with a bespoke toolkit is required to tackle
them.

9.25

In particular, and as discussed in Chapter 7, an ex ante code of conduct, withongoing powers to enforce it on a timely basis, is not a tool currently available
to the CMA. We regard the establishment through legislation of such a tool
and a dedicated regulatory body to enforce it as the best route to the swift
resolution of many of the concerns we have identified in this study.

9.26

We have formally launched the work of the Digital Markets Taskforce
alongside publication of this report, which will provide advice to governmentby the end of the year. 510 Chapter 10 sets out more detail on the objectives ofand next steps for the work of the Taskforce.

Coronavirus (COVID-19)
9.27

Since publishing our interim report in December, the majority of the global
population has been forced to adjust and adapt to substantial restrictions on
its freedom and usual way of life due to the COVID-19 pandemic, and as aresult, some forecasts suggest the UK will face the most severe downturn ineconomic output seen for hundreds of years.8 There have also been some

509 UK Treasury, Budget 2020: Delivering on our promises to the British people, paragraph 2.266.
510 The terms of reference are available here.

425inevitable consequences for the work of this study, with the CMA and parties
we have engaged with facing significant disruption and uncertainty. The CMA
has launched a taskforce to monitor and identify harmful sales and pricing
practices, warning firms suspected of exploiting consumers during the current
pandemic and taking enforcement action if there is evidence that firms may
have breached competition or consumer protection law. 511
9.28

We are also acutely aware of the pressures that so many companies areunder during these challenging times, and recognise that many parties who
would have a strong interest in engaging in a market investigation do notcurrently have the capacity to do so.

9.29

In this context, we must consider very carefully the risks of launching any new
projects that may impose additional burdens on businesses that are struggling
to cope in the current crisis, or that may draw resources away from otherareas of priority, such as the CMA’s COVID-19 taskforce.

Our decision
9.30

We noted in our interim report that the statutory test for making a market
investigation reference was met, and this continues to be the case. Ourassessment on whether to launch a market investigation at the conclusion ofthis market study has therefore rested primarily on whether it is the mostappropriate and effective mechanism for delivering the kinds of interventions
we are proposing.

9.31

The broad spectrum of differing views set out in the responses to ourconsultation 512 reflected the large number of relevant considerations that wehave needed to take into account in reaching a final decision on a reference:•

There were a significant number of calls for us to make a market
investigation reference, each setting out reasons to support their case.
These responses included calls for investigations into a number ofdifferent markets, and to solve multiple different issues and competition
concerns.

•

We also received strong support from a number of stakeholders for our
proposal not to make a market investigation reference. These

511 CMA COVID-19 taskforce

512 See Appendix B for a more detailed summary of these views, and our case page where the responses havebeen published.

426

respondents agreed with our reasoning to pursue change throughrecommendations to government at this stage.
•

We also note that the majority of respondents to our consultation did notcomment on this issue at all.

9.32

As noted above, we received a number of valid arguments in favour of areference, and in more than one market, and we agree with many
stakeholders that the statutory test for a reference has been met. However,there have been two significant developments since our consultation thathave reinforced our view that a market investigation is not the mostappropriate way forward at this time.

9.33

Firstly, and most significantly, the acceptance by the government of the
Furman Review’s strategic recommendations, coupled with commissioning of
the Digital Markets Taskforce, has given us renewed confidence that the
government is committed to taking forward pro-competitive reforms in thisarea, which are consistent with the findings and aims of this market study. In
particular, government confirmed it intends to set up a Digital Markets Unit
that will enforce a code of conduct for platforms with Strategic Market Status.

9.34

This development is consistent with our conclusion that a new pro-competition
regulatory regime is essential to delivering and overseeing the kinds ofinterventions we have proposed in this report. We believe that the mostappropriate and effective mechanism to achieve this outcome will be throughlegislation, and that we can best support such legislation through detailed andpractical recommendations to government regarding the powers it shouldallocate to the DMU, both through this report and, subsequently, through theDigital Markets Taskforce. We do not consider it would be helpful to theprocess of designing such legislation if we were to run a market investigationin parallel, as this would risk cutting across broader regulatory reform.

9.35

Second, the disruption caused by the COVID-19 pandemic, to the CMA but
also to so many of our stakeholders, has been significant. We are mindful thatlaunching any market investigation introduces burdens onto the businesses
within its scope, and given the current disruption to the economy we do notthink it would be appropriate, or in the best interests of consumers, to launch
any market investigation at this stage.

9.36

These developments, alongside our further assessment that a new regulatory
regime is essential to tackling the problems we have identified, havestrengthened our view that recommendations to the government, including
through the Digital Markets Taskforce, are at this time the most appropriate
course of action.
427

9.37

After the work of the Taskforce has concluded, we will assess whether theactions being taken by the government are sufficient to address the full range
of issues we have identified, or whether direct action by the CMA is likely tobe required. This future action could take the form of enforcement cases orfurther markets work, including, potentially, a market investigation.

9.38

In the next chapter, we set out the next steps the CMA will now be
undertaking to take forward the findings and recommendations of this market
study, including our work leading the Digital Markets Taskforce, and advocacy
and engagement with UK and international partners.

428

10. Further work by the CMAIntroduction
10.1

In this market study we have had two overarching objectives. First, we aimed
to investigate the extent of concerns in the consumer-facing and digitaladvertising markets within our scope, and to develop interventions to addressthese concerns. Second, we aimed to influence the broader debate about theregulation of online platforms, both in the UK and abroad.

10.2

The publication of this final report is an important milestone in theachievement of these aims, but substantive further work remains to be done.
This chapter sets out the key next steps the CMA will be taking towards thesegoals over the short to medium term. The main components of our strategy
are:•our work leading the Digital Markets Taskforce to further inform thedevelopment of a pro-competition regulatory regime for online platforms;•

proactive engagement and advocacy with our international counterparts;•

work with the Information Commissioner’s Office (ICO) on a number ofareas relating to the interaction between data protection regulation andcompetition; and•ongoing consideration of direct intervention by the CMA to address theconcerns we have identified, in the form of enforcement action and/or
further markets work.

Digital Markets Taskforce
10.3

The government made two very significant announcements relevant to thismarket study in its budget of March 2020.

10.4

First, the government has formally accepted all six of the strategic
recommendations made by the Furman Review, which included theestablishment of a pro-competition Digital Markets Unit (DMU), which thereview recommended should have a range of functions including establishinga code of conduct for digital platforms with strategic market status and powers
to deploy a powerful set of data-related tools to create new opportunities forcompetition, including data mobility, open standards and data openness.

10.5

Second, as means of taking those recommendations forward, the government
asked the CMA to lead a Digital Markets Taskforce, also incorporating429

expertise from Ofcom and the ICO. The objective of the Taskforce is toprovide the government with expert advice to inform its decisions on what
action is necessary to promote competition and innovation in digital platform
markets and to address the anti-competitive effects that can arise from theexercise of market power in those markets.
10.6

Specifically, the Taskforce will consider the practical application of thepotential pro-competitive measures set out in the Furman Review. The termsof reference for the Taskforce’s work set out a series of detailed issues thatthe advice will cover. These include advice on: a potential methodology todesignate digital platforms with SMS; the form and content of the code of
conduct; and the case for data-related remedies beyond those we haveidentified in the study, including any additional powers required to implement
these. 513

10.7

The Taskforce will draw on a wide range of evidence to inform its advice,including the findings and recommendations of this market study. The scopeof the Taskforce is broader than that of the study, as it will cover platforms
with a wide range of monetisation strategies, including those that are fundedby commission from transactions (eg online marketplaces and App stores) as
well as those that are funded by advertising. As the Taskforce is not a market
study, it will not have formal evidence-gathering powers, and so the analysis
and findings for transaction-funded platforms will necessarily be higher level
than has been achieved in this study.

10.8

The Taskforce is seeking to engage with digital platforms, consumer andbusiness groups as well as academics and wider industry expertise. The CMA
has now formally launched this work by publishing a call for inputs.
Responses to that consultation are requested by 31 July 2020. 514 The
Taskforce will now provide advice to government by the end of the year. The
revised timing is as a result of the disruption caused by COVID-19.

10.9

Building on the important work of this market study, the Taskforce will be a
critical next step in the journey towards development of a new pro-competition
regime for digital platform markets.

International engagement
10.10 Throughout the market study the CMA has engaged extensively with otherinternational authorities. This includes discussions with countries undertaking
similar market studies into digital advertising; countries developing proposals

513 Digital Markets Taskforce terms of reference
514 Digital Markets Taskforce case page.

430

for ex ante regulation of platforms; and countries taking enforcement action in
relation to digital advertising. We believe these forms of international
engagement are vital in seeking to develop a consensus on the issues and on
potential solutions to the challenges posed by digital platforms.
10.11 Over the past year there has been increasing alignment between a number ofcountries on the need for tools that allow earlier intervention in digital markets.
For example:•

In Australia, the government established a special unit within the ACCC toproactively enforce, monitor and investigate competition and consumer
protection in digital platform markets, 515 and asked the ACCC to create amandatory code of conduct to govern the commercial relationshipbetween digital platforms and media companies. 516•

In Germany, there is draft legislation proposing that the national
competition authority, the Bundeskartellamt have the ability to designate
platforms as dominant where they have ‘paramount significance forcompetition across markets’ and that the Bundeskartellamt have powers
to prohibit platforms engaging in a range of conduct. 517•

In Japan, the government established a ‘Headquarters for Digital Market
Competition’ in September 2019 with an aim to facilitate discussions on
the transparency of the dealings with digital platform businesses and theprotection of privacy. 518 In June 2020 it released an interim report
proposing that ex ante regulation be applied to digital platforms.

•

The national competition authorities of Belgium, the Netherlands andLuxembourg issued a joint memorandum proposing a tool with which
competition authorities could impose proportionate remedies on dominantcompanies in order to prevent competition problems, rather than relying
on after-the-fact enforcement. 519•

The European Commission is considering ‘how best to address more
systemic issues related to platforms and data, including by ex ante
regulation if appropriate, to ensure that markets stay open and fair’. 520 It iscurrently considering rules and regulations to ensure there is a levelplaying field in European digital markets, given it considers that ‘currently

515 The Australian government media release announcing its response to the ACCC report.
516 Australia announces mandatory media code between platforms and media companies.
517 Proposed German legislation

518 Media release announcing the Japanese Headquarters for Digital Competition

519 Joint memorandum from the Belgian, Netherlands and Luxembourg competition authorities.
520 A European strategy for data.

431

a few large online platforms act as gatekeepers’. The proposed rules areto address these market imbalances, to ensure that consumers have thewidest choice and that the EU single market for digital services remains
competitive and open to innovation. 521 Separately, the EC is also currently
inviting comments on a possible new market investigation tool that would
allow it to remedy structural competition problems in a timely and effective
manner, including in digital markets. 522
10.12 Digital advertising markets have become the focus for increased scrutiny. A
number of countries have completed, or are in the process of conducting
market studies into digital advertising including Australia, 523 France, 524
Germany, 525 Netherlands, 526 Spain, 527 and Sweden. 528 The CMA has been
sharing knowledge with these jurisdictions, including through dedicated days
to discuss emerging digital platform issues, secondments of staff and thesharing of knowledge and information.
10.13 A number of jurisdictions have recently completed or have ongoing
enforcement investigations, including authorities in Germany, Australia,
France and the European Commission. In the United Sates, there have been
several announcements in the past twelve months from the US Department ofJustice, Federal Trade Commission and State Attorneys General that they are
investigating Google and Facebook. 529
10.14 In the course of our market study we have been engaging with several ofthese authorities undertaking or considering enforcement cases to understandtheir concerns and approaches and to share our knowledge andunderstanding. This has included discussions with several jurisdictions about
approaches to information gathering, and sharing resources aroundinvestigative techniques.

521 Commission launches consultation to seek views on Digital Services Act package.
522 Antitrust: Commission consults stakeholders on a possible new competition tool.

523 In Australia, the ACCC is currently conducting an inquiry into adtech and ad agencies, which builds on thework it previously did examining digital advertising markets more generally in its digital platforms inquiry.
524 In France, the Autorité de la concurrence published an Opinion on data processing in online advertising
sector.
525 In Germany, the BKartA is conducting a sector inquiry into market conditions in online advertising sector.
526 In the Netherlands, the ACM has been looking at choice architecture relevant to digital advertising markets.
527 In Spain, The CNMC has started a market study on online advertising, and has undertaken consultation.
528 In Sweden, the Swedish Competition Authority is performing a market study of the functioning of competition
on digital platforms in Sweden, including examining digital advertising issues.
529The US Department of Justice announced it is reviewing the practices of a number of platforms that may
create or maintain structural impediments to greater competition. Facebook disclosed publicly that the US
Federal Trade Commission had opened an antitrust investigation of its conduct. Also, 50 US State Attorneys
General have instigated a multistate, bipartisan investigation of Google’s business practices; and a coalition of
Attorneys General are investigating Facebook.

432

10.15 Further, the work we published in our interim report has been influential insteering the broader debate about the case for enforcement in the markets wehave analysed. For example, academic commentators have drawn on theanalysis we presented to posit theories of harm that could lead to cases being
taken under current US law, if the market conditions in the US were similar to
those we set out in the interim report. 530
10.16 Following the completion of the market study the CMA will continue to look to
inform the international debate about how to address concerns relating toonline platforms funded by digital advertising. In particular, we will:•

Disseminate the final report findings through seminars, and bilateral andmultilateral engagement. We will invite all countries currently undertaking
market studies into digital advertising to partake in a knowledge sharing
workshop, and separately, invite leading academics to partake in a digitalseminar series to discuss the findings and recommendations of our report.

•

Advocate the need for ex ante regulation through fora such as the OECDand International Competition Network.

•

Work closely with any enforcement agency investigating issues in digitaladvertising markets to share the knowledge and investigative techniques
we have learnt. The CMA will host a digital seminar for countries todiscuss theories of harm in relation to digital advertising markets

Engagement with the ICO
10.17 We have had constructive engagement with the ICO throughout this market
study on the issues raised in Chapter 5 of the report concerning theintersection of competition and data protection law, and on the potential
design and development of several of the interventions we have discussed in
Chapter 8. While both the CMA and the ICO are independent statutory
authorities with different mandates, priorities and roles, there is considerable
scope for the two organisations to work together. After the completion of thestudy, we will build on this positive collaboration with the ICO as part of an
ongoing programme of joint work to promote markets which are competitive,
empower consumers and safeguard individuals’ rights to privacy.
10.18 Our intention in undertaking this work is to ensure that consumers rather thanplatforms are in control of their personal data, and to encourage a modern
view of data protection regulation, which empowers consumers and avoids

530 Roadmap for a Digital Advertising Monopolization Case Against Google; Roadmap for an antitrust caseagainst Facebook433

favouring large integrated platforms over smaller publishers. In relation to
consumer empowerment, we want to explore how consumers can bepresented with choices that are unbiased, meaningful to them and easy to act
upon, avoiding friction and confusion and facilitating genuine control. In
relation to competition, we want to address the concern that some platforms
are increasingly acting in a quasi-regulatory capacity, judging the appropriate
application of data protection regulations not just for themselves but forothers, with an incentive to interpret these regulations in a way that favours
their own businesses. This work will have several components.
10.19 First, a key focus of our work with the ICO in the near to medium term will beon the issues discussed in Chapters 5 and 6 on the interaction between
competition and data protection regulation in digital advertising markets. In
this respect, we welcome the fact that the ICO is now the data protection
supervisory authority for Google in respect of the processing of UK users’
personal data and is likely to be for Facebook when the Brexit transition
period ends.
10.20 Drawing on the analysis in Chapter 8, our work with the ICO will explore theprinciple of competition neutrality in the design and application of dataprotection regulation in digital advertising, including, for example, through theestablishment of codes of conduct and certification regimes, and consider thedata protection, consumer empowerment and competition implications ofdifferent models of consumer control over data, including privacy-enhancing
technologies (PETs) and Personal Information Management services (PIMS),
and different regulatory approaches, including data silos and data accessinterventions.
10.21 In concrete terms, an important element of this work will be how to respond toand engage with Google’s proposals for phasing out third party cookies on
Chrome and the development of its Privacy Sandbox proposals on Chromium
browsers over the next 18 months. We will wish to consider, for example, howadequate Google’s proposed alternatives for targeting and attribution arelikely to be for market participants, whether such browser-focused approaches
for targeting and attribution raise competition concerns and if so how thesecan be addressed, and whether there is a need to consider in parallel
constraints on integrated platforms’ ability to share data for targeting andattribution across their ecosystems. We will continue to monitor these
proposals as they are developed and tested by platforms and the web
standards community.
10.22 The second focus of our work with the ICO will be on the development of
thinking on the Fairness by Design intervention as a key means of434

encouraging informed consumer control, and how it would complement theData Protection by Design obligation under data protection regulation.
10.23 Third, we will consider how data-related remedies may apply to other digitalplatform markets outside the consumer-facing and digital advertising markets
we have reviewed in this study. We will collaborate with the ICO on theseissues as part of the Digital Markets Taskforce.
10.24 Fourth, competition, consumer and data protection policy have similar broad
objectives of promoting the welfare of individuals for the benefit of society but
may seek to achieve this in different ways. We believe there is clear scope tocollaborate on the process for achieving these objectives across other digitalmarkets to build on the findings from this market study. Issues may include forexample the role of cross-market features such as:•

the use of defaults (which may tend towards over-collection of data);•

control mechanisms which do not appear to respect consumer choiceover time (for example repeated requests to ‘opt in’); and•the presentation of choices which appear designed to over-collectconsumer data.

10.25 In the longer term, we believe that data mobility and interoperability
interventions can be powerful levers to promote greater competition while
preserving privacy. We propose to explore the potential benefits which may
derive from the development of business practices or technologies in whichdata mobility and interoperability is a key feature including PETs, PIMS andPersonal Data Stores (PDS). These may offer consumers greater control overdata as an alternative to current business models, but they are still in thedevelopment stage. We will also seek to further develop our understanding
and relationships with internet governance and the web standards community,
to continue to develop our own technical expertise, and to draw on relevant
academic and industry research to help address these complex challenges at
the interface of competition, privacy and digital markets.
10.26 We have today announced the establishment of a Digital Regulation
Cooperation Forum (DRCF) to support regulatory coordination in online
services, and cooperation on areas of mutual importance between the CMA,ICO and Ofcom. It will coordinate relevant work undertaken by the three
institutions and ensure that synergies and tensions between different policy
objectives are effectively managed. The further work that we are proposing toundertake with the ICO on the issues arising from this study would beoverseen by this Forum.
435

Potential CMA interventions using our markets and enforcement
powers10.27 For the reasons set out in the previous chapter, we have decided not tolaunch a market investigation at this stage into the markets within the scope of
this study. We have made a series of important recommendations togovernment for reform, many of which build on the Furman Review’s
recommendations that government has accepted, and we are committed toensuring that they are taken forward. In light of this, and the ongoing
disruption caused by COVID-19, we have decided that the right focus for the
CMA now is to add further clarity and practical detail on how many of these
proposals can be implemented, and we will do this initially through the DigitalMarkets Taskforce.
10.28 We are not ruling out further markets work in this area in the future. We are
optimistic that, following the report of the Taskforce, the government will beready to take forward the necessary legislation for establishing the DigitalMarkets Unit in good time. If that turns out not to be the case, or if some of ourrecommendations are judged not to be well-suited to the emerging new
regime, then the CMA will stand ready to take direct action of its own througha market investigation. The CMA will keep this option under review following
the conclusion of the Taskforce.
10.29 In relation to enforcement action, the CMA is currently actively considering
possible cases in the digital sector, drawing on the work of the market study.
More broadly, the CMA will also continue to consider any examples of digitalplatforms exploiting their market power or otherwise engaging in anticompetitive conduct, and will stand ready to take enforcement action where it
identifies evidence of anti-competitive conduct.
10.30 To the extent that the European Commission initiates any antitrust cases inthe digital sector prior to the end of the transition period following the UK’s exitfrom the European Union, the outcome of those cases would continue toapply to the UK market after the end of that transition period and the CMA willcontinue to work closely with the European Commission.
10.31 The CMA also continues incrementally to develop its approach to digitalmerger cases. This can be seen in the forward-looking approach it has taken
in recent cases such as Google/Looker, 531 PayPal/iZettle 532 andExperian/Clearscore, 533 and also in the ongoing update of its Merger

531 CMA, Google LLC / Looker Data Sciences, Inc merger inquiry.
532 CMA, PayPal Holdings, Inc / iZettle AB merger inquiry.

533 CMA, Experian Limited / Credit Laser Holdings (Clearscore).

436Assessment Guidelines, to reflect the latest research and experience.
Although we continue to believe that the UK merger control regime is largely
fit-for-purpose, we are considering the need for legislative changes to ensurethat we have the right tools to prevent harm to consumers arising frommergers in digital markets.

Concluding the market study
10.32 Through the work of this market study we have built up a comprehensive
understanding of online platforms that are funded by digital advertising, while
supporting the diagnosis of our competition concerns with extensive detail andevidence on the functioning of the markets in which they operate.
10.33 The content of this final report and supporting appendices will ensure that the
CMA, the government, and also our international partners are well-placed totake forward this important emerging policy agenda with a soundunderstanding of the issues. We would like to thank the very many
stakeholders that have cooperated constructively with the market study andenabled us to achieve this positive outcome within the 12 month timeframe.
10.34 We look forward to continuing our work in this area in the various ways
outlined above, and in particular to contributing further towards thedevelopment of a new pro-competition regime here in the UK, while also
promoting a coordinated approach to these issues globally.
10.35 If you would like to discuss the findings of this market study with us, you cancontact us by email at: onlineplatforms@cma.gov.uk

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