Chapter 2: The importance of online platforms
The benefits of online platforms
11.The inclusion of an initiative on online platforms in the European Commission’s Digital Single Market Strategy reflects their growing centrality to social and economic life. Martin Bailey, of DG Connect, said: “Platforms are constantly raised in the context of almost every discussion about digital … there is hardly an area of economic and, arguably, social interaction these days that is left untouched by platforms in some way.”5
12.Mr Bailey also noted that “platforms are a key driver of growth”.6 TechUK agreed, saying that the platform model was “so fundamental … to the functioning of the digital economy that it is difficult to separate out the benefits of platforms from the benefits of the digital economy as a whole”; they estimated that “platforms contributed an estimated €430bn to the EU economy in 2012.”7 To give one example, Google said that “British businesses using Search and AdWords generated at least £11 billion in economic activity” in 2014.8
Benefits for businesses
13.Witnesses agreed that online platforms provided businesses with efficient access to global markets. The British Hospitality Association said: “there is consensus that on-line platforms, including on-line travel agents (OTAs) and search engines, have been instrumental in enabling the industry to reach customers globally, resulting in an increase in business and exposure to a wider audience in Europe and the rest of the world.”9 Richard French, Legal Director at Digital Catapult, said that platforms provided “low-cost access to big supply chains”:
“If start-ups are writing an app—a fitness, health or well-being app, for example—they can put it into the iTunes App Store or on Google Play and they can get access to hundreds of millions of consumers.”10
14.We heard that small businesses particularly benefited from these opportunities. Professor Eric Clemons, from the Wharton School at the University of Pennsylvania, told us that platforms had ‘empowered’ smaller businesses, which “might be unable to reach a larger market if they had to pay for advertising.”11 Experian said: “Platforms provide SMEs as well as large companies [with] a distribution channel, and in many ways can help level the competitive playing field between the two, ensuring small companies can get the same exposure to potential customers as the larger companies.”12 Etsy, a collaborative economy platform for craft goods, said: “For 43% of UK sellers, Etsy was the first place they sold their goods, while 36% said they would not have been able to start were it not for a platform like Etsy.”13
15.A number of witnesses emphasised that online platforms had facilitated the growth of cross-border trade in the single market. TechUK told us that the wider customer base offered by online platforms had “led to a surge in SME exports: intra-EU cross-border trade by online SMEs grew four times that of traditional firms in the period 2010 to 2014.”14 Amazon provided figures bearing out this assessment:
“In 2014, small and medium-sized businesses … generated intra-EU exports of €2.8bn through Amazon’s websites. In the same period, UK-based SMEs who sell on Amazon’s various websites in the UK and around the world sold more than 400 million units in total, and generated more than £1 billion of exports .”15
16.Witnesses said that, in addition to facilitating e-commerce, platforms had provided a range of productivity-enhancing applications that benefited all businesses. Antony Walker, Deputy CEO of TechUK, explained: “Services like PayPal are very low-cost ways of processing payments. There are back-office functions, with things like QuickBooks, which provide simple accounting software for very small companies. If you want to run an event, you can use something like Eventbrite.” Mr Walker said that all businesses used multiple platforms in this way, because “it drives efficiency and it drives productivity.”16
17.Online platforms enable the more efficient allocation of resources. Sharing Economy UK said that collaborative economy platforms allowed people “to share property, resources, time and skills across online platforms”, which could “unlock previously unused, or under-used assets—helping people make money from their empty spare room and the tools in their sheds they use once a year.” They continued: “PwC has calculated that on a global basis, the sharing economy is currently worth £9bn—with this set to rise to a massive £230bn by 2025.”17
18.Online platforms were also credited with creating employment. Orange Group, the European telecom company, said: “In France alone, it is estimated that 500 SMEs and 10,000 jobs have been created over the last decade through the development of mobile apps sold on online platforms”.18 Google told us that it supported “200,000 jobs in 2014.”19 Etsy described how its business supported women entrepreneurs:
“The vast majority (91%) of UK-based Etsy sellers are women, and 61% are under 45. This is in spite of the typical entrepreneur in the UK being male and in his late forties. Most (95%) run their creative businesses out of their home and very few (less than 1%) required a bank loan. A substantial minority of Etsy sellers are low-income—roughly a third have annual household incomes that are less that the £23,000 UK median average.”20
Benefits for consumers
19.BEUC, the European consumer protection organisation, told us that “From a consumer perspective, platforms play a fundamental role in the digital economy as they work as entry points for consumers to access goods, services and digital content.”21 Google cited the work of the Boston Consulting Group, showing that “the consumer surplus (value of free services) of online media is about €1,100 per individual. In nine European countries, this is 40–60% of the perceived value that consumers get from all media, including offline.”22
20.According to the German Monopolies Commission, online marketplace platforms offered “a large number of advantages for consumers, such as greater market transparency, a broader selection of products, overcoming confidence problems when shopping on the Internet, a reduction of transaction costs, as well as the ability to engage in cross-border transactions.”23 Amazon agreed: “The presence of many competing sellers on the same e-commerce site strengthens competition to provide the best offers and prices. It also enables customers to easily compare competing offers by brand, quality, price, speed of delivery or other attributes and select the offers that best meet their needs.”24
21.Several witnesses highlighted the role of online platforms in promoting political activism and empowering citizens. The think-tank Demos and polling organisation Ipsos MORI suggested that social network and communication platforms had “become an integral part of daily life, enabling new forms of communication, political activism and self-expression”.25 Joe McNamee, Executive Director of European Digital Rights (EDRi), said: “A service like Facebook creates a new public space, a new way of communicating and campaigning”.26 Sally Broughton Micova, from the University of East Anglia, and Damian Tambini, from the London School of Economics, said that online platforms had “provided a voice to those previously without”.27
22.We also heard of the benefits of the sharing economy. Agustín Reyna, Senior Legal Officer at BEUC, said that sharing economy platforms benefited consumers by addressing market failures: “The whole discussion about the sharing economy is around its emergence as a response to failures in the traditional markets. People were not happy about how traditional markets in financial services, transportation and accommodation were working.”28
23.Which? felt that there were significant benefits to consumers: “We believe that the rise of new, innovative business models such as online platforms increases competition and therefore choice for consumers.”29 The Competition and Markets Authority (CMA) wrote that “Vast numbers of consumers are embracing the digital economy: the sheer mass of users responding to novel, creative online offerings reflects strong consumer preferences.”30
24.Online platforms are drivers of growth, innovation and competition, which enable businesses and consumers to make the most of the opportunities provided by the digital economy.
25.E-commerce platforms allow SMEs to access global markets without having to invest in costly digital infrastructure, and provide consumers with increased choice. Search engines enable their users to navigate the web efficiently, and enable businesses to engage in more targeted advertising. Social media and communication platforms provide citizens with new opportunities for interaction, self-expression and activism.
26.Policymakers should take care when examining the challenges these rapidly developing markets present not to lose sight of the very considerable benefits that online platforms provide.
Wider concerns
27.Despite these acknowledged benefits, United States-based platforms operating in Europe have recently been subjected to increasing media coverage and public scrutiny.
28.There are various reasons for this development. Concerns about privacy have assumed an increasingly high profile in the wake of the revelations from Edward Snowden that US security services were scrutinising non-US citizens’ personal data held in the US, and that such data were being provided by Apple, Facebook and Google, among others.31 On 6 October 2015, shortly after the launch of this inquiry, the Court of Justice of the European Union ruled against the EU-US ‘Safe Harbour’ agreement, which provided the basis upon which personal data could be transferred between the EU and the US, on the grounds that the agreement did not protect EU citizens’ fundamental rights.32 In the aftermath of this decision an article in the Financial Times noted that: “The scrapping of this so-called ‘Safe Harbour’ clause fits a recent pattern of European resistance to the global march of Silicon Valley.”33
29.Concerns about a number of online platforms’ tax contributions have also flared up in the UK and other Member States. Professor Annabelle Gawer, Professor of Digital Economy at the University of Surrey, said: “firms such as Google and other dominant platforms have been found to try to pay as little tax as possible in Europe, using Luxemburg or Ireland as fiscal domiciliation to pay tax that does not reflect the income generated in European countries.”34 When, during the course of this inquiry, it was announced that Google had reached a tax agreement with the UK Government that saw it pay £130 million in back taxes, the deal was widely criticised, and Margrethe Vestager, the European Commissioner for Competition, said that she would be willing to investigate Google’s tax arrangements in the UK if someone filed a complaint.35
30.The on-demand transport platform Uber has also been the subject of protests across Europe. On 11 June 2014 taxi drivers in London, Madrid, Milan and Paris protested against what they considered to be Uber’s unfair competition.36 On 26 June 2015, Uber was the subject of a public protest in France in which key highways around Paris were blocked and tyres were burnt; this led to France’s interior Minister ordering a ban on the low-cost service UberPop. Shortly after, French police arrested two Uber executives charged with commercial deception and running an illegal taxi operation.37
31.While these events illustrate the broad climate in which this inquiry was proposed, other developments more directly influenced the Commission’s decision to launch an initiative looking into platforms. According to Vicky Ford MEP, Chair of the Internal Market Committee of the European Parliament: “the initiative to investigate and look into this was partly driven by competition issues.”38 Ms Ford referred to a non-binding resolution passed by the European Parliament in November 2014, which called on the Commission to consider ‘unbundling’ Google: “The Parliament wanted to throw a rocket across their bows to say, ‘If you can’t act in a competitive way then the Commission should consider forcing an unbundling of certain parts of your package’”.39
32.Shortly before the publication of the Digital Single Market Strategy, it was widely reported that the French and German economic ministers, Emmanuel Macron and Sigmar Gabriel, had written to Vice President of the European Commission Andrus Ansip, stating that the growing market power of online platforms “warrants a policy consultation with the aim of establishing an appropriate general regulatory framework for ‘essential digital platforms’”.40 An article in The Economist suggested that “aides to Günther Oettinger, another commissioner with digital responsibilities, are said to have already started drafting plans for a powerful new platform regulator.”41 The Computer and Communications Industry Association (CCIA) said: “the European Commission is conducting this enquiry following political pressure.”42
33.Professor Gawer suggested that such concerns had led to allegations of protectionism: “The United States is looking at Europe and saying, ‘All this talk about regulating platforms is just a covert industrial policy by European countries that are lagging behind in the competition for the digital space. They are trying to slam on Google and on Facebook because they are American companies’”.43
34.The Commission defended the integrity of its consultation against such allegations. Vice President Ansip said that concerns about how to deal with the challenges posed by platforms were not unique to Europe, arguing that “the approach in the European Union is exactly the same as in the United States of America”, where collaborative economy platforms were also “a new phenomenon”, on which the US Government “does not have clear ideas.” Vice President Ansip continued: “Will it [the US] regulate or deregulate? It would like to collect information to understand whether it has problems and, if so, how to react.”44
35.Other witnesses also supported the Commission’s actions. Ofcom, the UK communications regulator, said: “The scale and impact on the European economy of some of the largest operators mentioned—such as Google, Facebook, eBay, or Amazon—is clearly significant. It is appropriate and timely to consider whether the current competition rules and general regulatory frameworks are adequate, and whether additional or different regulation may be needed.”45 The CMA agreed:
“As online platforms play a significant role in today’s economy, the Commission’s [Digital Single Market] strategy should serve to increase the evidence base concerning the application of existing regulatory frameworks to online platforms. This will assist in helping legislators, policymakers and enforcement agencies to identify any concerns and how such concerns might be addressed.”46
36.Microsoft told us that the Commission’s analysis could help to improve understanding of platforms, but stressed that it should be informed by neutral economic analysis:
“We hope that this inquiry, combined with the Commission’s work in this area, produces a thorough, thoughtful, economically-grounded analysis of the complex and multi-sided platform ecosystem. We believe this would be very valuable and improve current understanding of how the platform market functions.”47
37.The Commission’s decision to conduct a comprehensive assessment of online platforms should not be seen as inherently protectionist. Given the impact these businesses have had on people’s lives and the economy, and concerns about whether existing regulatory regimes are still fit for purpose, a thorough analysis of online platforms is timely. If the growth of Europe’s digital economy is to be maximised, it is important that such concerns are investigated and, where appropriate, addressed.
7 Written evidence from TechUK (OPL0056) citing Copenhagen Economics, ‘The impact of online intermediaries on the EU economy’ (April 2013): http://www.copenhageneconomics.com/dyn/resources/Publication/publicationPDF/6/226/0/The%20impact%20of%20online%20intermediaries%20-%20April%202013.pdf [accessed 16 March 2016]
31 ‘NSA Prism program taps into user data of Apple, Google and others; The Guardian (7 June 2013): http://www.theguardian.com/world/2013/jun/06/us-tech-giants-nsa-data [accessed 3 March 2016]
32 CJEU, Case C-362/14, Maximillan Schrems v Data Protection Commissioner; BBC, EU and US clinch data-transfer deal to replace Safe Harbour (2 February 2016): http://www.bbc.co.uk/news/technology-35471851 [accessed on 3 March 2016]
The EU Commission subsequently published the legal text of an EU-U.S. ‘Privacy Shield’ designed to replace the Safe Harbour agreement. For more information, please see: Communication from the Commission, Transatlantic Data Flows: Restoring Trust through Strong Safeguards COM(2016) 117 (29 February 2016)
33 ‘Data Protection: No Safe Harbour’, The Financial Times, (9 October 2015): available at http://www.ft.com/cms/s/0/f2ecc7ca-6e65-11e5-aca9-d87542bf8673.html#axzz40GgbFmcU [accessed 3 March 2016]
35 BBC, UK Google tax deal: EU’s Margrethe Vestager will investigate ‘if asked’ (26 January 2016): http://www.bbc.co.uk/news/business-35426896 [accessed 3 March 2016]
36 ‘Thousands of European Cab Drivers Protest Uber, Taxi Apps’, Wall Street Journal (11 June 2014): http://www.wsj.com/articles/londons-black-cab-drivers-protest-against-taxi-apps-1402499319 [accessed 3 March 2016]
37 BBC, Uber managers arrested in France over ‘illicit’ taxi service (29 June 2015): http://www.bbc.co.uk/news/world-europe-33313145 [accessed 24 March 2016]
40 ‘EU to probe popular US sites over data use and search’, The Financial Times (30 April 2015): available at http://www.ft.com/cms/s/0/9ff2c0b4-ef13-11e4-a6d2-00144feab7de.html#axzz40GgbFmcU [accessed 3 March 2016]
41 ‘Disconnected Continent’, The Economist (9 May 2015): available at http://www.economist.com/news/business/21650558-eus-digital-master-plan-all-right-far-it-goes-disconnected-continent [accessed 3 March 2016]