The EU’s recent intense antitrust spotlight on Google can’t help but illuminate some of what EU antitrust authorities think about other dominant consumer technology platforms adjacent to Google -- i.e. Amazon, Facebook, and Apple – companies Europe collectively refers to as “GAFA” particularly in the context of the EU’s Digital Single Market strategy.
In 2011, Alphabet Chairman Eric Schmidt was the first to identify, and publicly bring attention to, these particular four dominant consumer technology companies “exploiting platform strategies” ironically by branding them the “gang of four.”
Prophetically, Dr. Schmidt further explained in 2012 that: “We believe that modern technology platforms, such as Google, Facebook, Amazon and Apple, are even more powerful than most people realize. These platforms constitute a true paradigm shift, and what gives them power is their ability to grow – specifically, their speed to scale. Almost nothing, short of a biological virus, can scale as quickly, efficiently or aggressively as these technology platforms and this makes the people who build, control, and use them powerful too.”
By way of background, the EU has now issued three Google abuse-of-dominance Statement of Objections covering search, mobile, and advertising. They span seven separately defined antitrust markets in the EU: (1) “general Internet search services;” (2) “comparison shopping services;” (3) “licensable smart mobile operating systems;” (4) “app stores for the Android mobile operating system;” (5) “merchant platforms;” (6) “online search advertising;” and (7) “search advertising intermediation.”
Given that the EU has defined the boundaries of several of the most fundamental boundaries separating markets within the EU’s nascent Digital Single Market, by inference, we now know a lot of what the EU likely thinks about the market power of the other three dominant consumer technology platforms, Amazon, Facebook and Apple, because market definitions cut to the quick of how companies compete and with whom.
What do the market definitions in the three EU-Google antitrust cases implicitly tell us?
Most importantly, we can conclude that the EU does not view the “gang of four” as direct platform competitors to each other because they are not competitive substitutes in their different core businesses.
Simply, Google is in the Internet search/search-advertising platform market; Amazon is in the Internet merchant platform market; Facebook is in the social platform/advertising market; and Apple is in the smart device manufacturing market.
By extension, this analysis will show this means that the EU will likely find Amazon and Facebook dominant in their core Internet businesses, when they eventually hear complaints of abuses of their respective dominance, and that the EU will likely not find Apple dominant in its core smartphone/device manufacturing market, but maybe in some vertical markets.
Thus this analysis will conclude the EU ultimately is likely to find three Internet consumer-Internet platforms dominant in their core markets -- Google, Amazon and Facebook -- as it lays all the groundwork for a successful and sustainable Digital Single Market.
What about Amazon?
In the EU’s latest statement of objections they made clear that Google and Amazon are not direct competitors, because Amazon is a “merchant platform” and by definition not a core Internet search/search-advertising provider.
We also know that Google in its public antitrust defense, asserted “shopping services like Amazon and eBay… are the largest players in this space.” The EU in response, studied Amazon and eBay, and concluded based on new evidence that they are part of the “merchant platform” market, implicitly an Internet platform market definition that likely excludes realspace merchants.
If one looks at public evidence of Amazon’s and eBay’s relative market strength as “the largest players in this space” it’s very likely Amazon would be found dominant in this new “merchant platform” market.
Simply consider that Amazon generates over ten times eBay’s annual revenues, and that it is in the process of taking massive market share from #2 eBay by consistently growing revenues at ~20% on a >$100b annual revenue base when eBay yields negative growth on a >$10b annual revenue base.
Amazon can thank Google for ultimately throwing Amazon under the EU antitrust bus in the EU by pretending that Amazon was its biggest shopping competitor when the EU investigation examined reality and the facts and concluded Google and Amazon are in separate markets, in large part because predominantly, Amazon is generally paid by consumers and Google is generally paid by advertisers.
What about Facebook?
By inference, the EU’s market definitions make clear that Google and Facebook are not direct competitors. And the public evidence makes it obvious that Facebook in dominant in its likely defined market in the EU.
In three statements of objections, the EU has concluded Google is in the core business of “general Internet search services.” We know Facebook is not publicly or materially offering “general Internet search services.”
We know the EU now defines the market of Google’s primary monetization engine as “online search advertising;” and “search advertising intermediation.” How search and advertising function is that Google is in the market of delivering targeted advertising around individual demand for certain information.
We know that Facebook is generally in yet-to-be-defined markets of: general social/sharing services and social advertising, because Facebook is in the market of delivering general (brand) advertising around group demand for certain group activities or shared interests.
If EU antitrust authorities define Facebook’s markets similarly to the logic behind their definition of Google’s separate markets, the evidence will show Facebook to be a dominant consumer Internet platform as well.
At a basic level, what’s the evidence of Facebook’s Internet platform dominance?
Facebook commands the top four English-based, social/messaging apps in the world: Facebook, WhatsApp, Messenger, and Instagram, with 1.65b, 1.0b, 1.0b and .5b monthly active users respectively per Business Insider. (By the way, Twitter and Snapchat have only .3b monthly active users each.)
Facebook can also thank Google for effectively proving in a global public marketplace experiment that Facebook is indeed the dominant social networking platform.
Google launched its Google+ social network in 2011 and via a variety of full-line forcing (tying) maneuvers, Google was able to blog that Google+ became “the fastest-growing network thingy ever. More than 500 million people have upgraded” in just 18 months.
Despite that early phenomenal growth, Google apparently could force sign-up, but it could not force sharing on or usage of Google+ among its users. As of 2015 Google+ commands only ~100m monthly active users, ~fifteen times less active users than Facebook.
Why? Google proved publicly the monopoly power of Facebook’s network effects. Google+ could not “compete” with Facebook’s sharing network effects because users naturally wanted to share where their entire group was, and they did not want to try and have a shared group experience in a second redundant place.
The reality that Google and Facebook don’t and can’t compete with each other’s dominant core platforms spotlights another reality forced by the EU’s third Google advertising case.
That reality is both Google and Facebook dominate their separate respective advertising defined markets in advertising. These two dominant, Internet advertising gatekeepers, Google for Search and Facebook for Social, together are poised increasingly to squeeze out other forms of online advertising.
Consider Mary Meeker’s influential annual Internet Trends report (p. 44), that spotlighted that “Google + Facebook = 76% (& rising) share of Internet Advertising Growth, USA.” Ms. Meeker’s analysis also shows that Google commanded ~50% of the U.S. Internet advertising business in 2015 and Facebook >25% (which is a rough proxy for the EU.)
In addition, Zenith Optimedia projects that 88% of worldwide ad spending growth by medium is expected to come from mobile advertising, the two areas Google and Facebook have dominated most on their separate and distinct consumer Internet platforms.
Put these two trajectories together, and the EU will likely be confronting both Google and Facebook over time as dominant advertising monetization gatekeepers, as the EU tries to establish a real and sustainable Digital Single Market.
What about Apple?
Lastly and briefly, we learned from the EU-Google-Android OS case that for antitrust purposes, Google and Apple are not direct competitors because they have completely different ecosystem models. Google seeks to serve all potential customers with most all types of products and services, whereas Apple manufactures and sells vertically integrated smart devices for the high end of the market.
That does not mean that Apple does not face antitrust risk in the EU or elsewhere, it just qualifies that its antitrust risks are not of the overall platform dominance type and consequence like those facing Google, Amazon, and Facebook, which are fueled by unmatchable Internetwork effects.
Apple has a ton of physical world manufacturing scale, but its scale, scope, and reach is not in the same Internet league as the internetwork effects of Google, Amazon, and Facebook.
Conclusion
In short, the EU’s broad investigation into the Internet marketplace -- via its three separate Google antitrust cases covering search, mobile, and advertising and its seven different defined Internet markets -- provide enough new and solid evidence to preliminarily conclude that there are likely three distinct dominant consumer Internet platforms/gatekeepers going forward – Google, Amazon, and Facebook – which antitrust authorities around the world will have to deal with in the decade ahead.
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Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an emergent enterprise risk consultancy for Fortune 500 companies, some of which are Google competitors. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.
