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Europe’s beef with GAFA


Big tech faces competition and privacyconcerns in Brussels


And the sector may be the better for it


Ms Vestager is hardly at the vanguard of amovement: even in its domestic French market, Qwant has less than 1% marketshare. Nor, at first, might her focus on privacy seem linked to hertrustbusting brief. But, as she has explained, popular services like Facebookuse their customers as part of the “production machinery”. You may not pay incash to like a friend’s pictures, or every time you ask Alexa what a “cup” ofbutter is in grams—but you might as well do, given how much personal data youhave to fork over. Rather melodramatically, Ms Vestager says what seem to befree services are ones for which you “pay with your life”.


Those appointed, by governments orthemselves, to worry about competition have a strong interest in big tech firmssuch as Google and its parent Alphabet, Apple, Amazon and Facebook. How couldthey not, given how quickly those firms have come to dominate the businesslandscape. On both sides of the Atlantic, the reputation that big-techcompanies other than Apple have for making free with people’s data has led torules being tightened, and there is talk of tightening them more. There are otherconcerns, too. Europeans have a fairly strong feeling that the firms do not payenough tax. Everywhere there are worries about the content which theyspread—such as, for a while, video of the massacre in Christchurch—and thatwhich they are thought to suppress.


Tech groups have hordes of lobbyistsexperienced in weathering these various issues. Occasional losses—such as the1.5bn ($1.7bn) that Google was fined on March 20th for abusing its clout inthe online-advertising market—can to some extent just be treated as a cost ofdoing business. What they are not so well prepared for is the crossing of someof these streams of complaint. European regulators are bringing togetherconcerns about privacy and rules about competition to create constraints thatcould up-end the way companies do business online.


Common market power


Campaigners have long lamented that,although the users of online platforms tell pollsters that they care aboutprivacy, they do not act as if they do. If privacy becomes tied to antitrustconcerns, though, users do not need to care. They merely need to be contentthat regulators armed with big sticks—European regulators are empowered to levyfines on companies operating in Europe that are a significant fraction of theirglobal revenue—should care on their behalf. Ms Vestager and her colleagues seemhappy to do the honours.


The measure of market power usually used tojustify action on competition grounds is, roughly speaking, that a company isable to raise prices without losing customers. Such an ability suggests thatthe level of competition in the market needs at least looking into, and perhapsredressing. Facebook, being free to its public users (though not to theadvertisers who buy the users’ attention), cannot have its market poweranalysed in this way. But Mr Mundt says that the company’s ability to encroachever more on its users’ privacy without seeing them leave—for example, bystarting to track them while they browse sites not connected to Facebook—isalso a measure of market power.


This analysis is leading to strict newrules on the amount of data Facebook can collect from German users. It can nolonger mesh together the data it gathers from its various services, includingWhatsApp and Instagram, as it has said it wants to do. There are alsorestrictions on how much it can track its users when they browse the internetbeyond Facebook. Mr Mundt compares these new constraints on the flow ofinformation inside the company to Facebook being “internally broken up”.


The logical step beyond limiting theaccrual of data is demanding their disbursement. If tech companies are dominantby virtue of their data troves, competition authorities working with privacyregulators may feel justified in demanding they share those data, either withthe people who generate them or with other companies in the market. That couldwhittle away a big chunk of what makes big tech so valuable, both becauseEurope is a large market, and because regulators elsewhere may see Europe’sactions as a model to copy. It could also open up new paths to innovation.


Europe is not an impressive performer whenit comes to creating tech behemoths. It is as well represented among big globaltech companies as companies other than Google are in search-engine statistics:there is just one (sap, a business software company) in the top 20. Look at thetop 200 internet companies and things are, if anything, a touch worse; justeight. But in regulatory heft the eu punches far above its members’ businessweight.


There are various ways of explaining this.One is that Europe’s keenness to regulate stops its tech firms from growing in theway that hands-off America encourages. Another is that the rigours of itszealous regulation are experienced, in the main, only by foreigners—which makesthem more palatable to, or even popular with, politicians and the public.“Would Brussels be so tough on big tech companies if they were French orGerman?” asks one American executive, rhetorically.


There is also the consideration that thecompanies potentially “disrupted” by internet innovators include Europeancarmakers, telecoms companies and media groups, about whom European politicianscare a lot. New copyright regulations being voted on by the European Parliamentnext week have been widely criticised for putting the interests of copyrightholders, which largely means media companies, far ahead of the interests ofonline companies and, indeed, the free expression of users.


Regardless of motive, though, this is nowthe way of the world. A look at the annual reports of big tech companiesclearly shows that they have a lot of European issues to face, including taxes(see chart 1). And this means that differences between the ways in whichEuropeans and Americans think about competition and privacy matter a lot.


Brussels rules
Take competition first. Much of theunderlying law governing cartels, mergers and competition is quite similar onboth sides of the Atlantic. But the continents’ approaches to handling bigcompanies are leagues apart.


In recent decades, American antitrustpolicy has been dominated by free-marketeers of the so-called Chicago School,deeply sceptical of the government’s role in any but the most egregious cases.Dominant firms are frequently left unmolested in the belief they will soon losetheir perch anyway: remember MySpace? The lure of fat profits is, after all,what motivates firms to innovate in the first place. While there is healthyacademic debate over whether online businesses naturally, or even inevitably,have a tendency towards monopoly, it has yet to have much effect on regulation.American courts view dominant firms as a problem only if their position doesclear harm to consumers.


By contrast, “Europe is philosophicallymore sceptical of firms that have market power,” says Cristina Caffarra atCharles River Associates, an economics consultancy. Its regulators want to seecompetitors that have been less successful continue to exist, and even thrive.Competition is seen as valuable in and of itself, to ensure innovation happensbeyond one firm that has conquered the market.

相反,“冷靜的歐洲對擁有市場權力的企業感到懷疑”,來自經濟咨詢公司Charles River Associates(查爾斯里弗聯合公司)的克里斯蒂娜·卡法拉說道。歐洲監管機構希望不太成功的競爭對手繼續生存乃至發達起來。歐洲認為競爭本身是有益的,它能確保創新不局限于單獨一家壟斷企業。

There is not just more interest inregulating big tech in Europe; there is also more power to do so. WilliamKovacic, a former boss of the Federal Trade Commission in America, saidrecently that Brussels is “the capital of the world” for antitrust, leaving itsAmerican counterparts “in the shade”. American antitrust typically involvesprosecuting the case in front of a judge. The European Commission can decideand impose fines by itself, without the approval of national governments,though the decisions are subject to appeal in the courts. And whereas, inAmerica, only federal agencies can apply federal law, European antitrust lawcan be applied both by national authorities and the commission.


Every major tech group has had run-ins withEuropean antitrust rules. Since 2017, Google has been sanctioned three times,running up 8.2bn in fines for promoting its own shopping-comparison service insearch results and edging out rivals with its Android phone software, as wellas for abusing its strength in advertising. It is appealing the decisions. In2017 Facebook was fined 110m for misinforming the eu about its plans forintegrating WhatsApp with its flagship social network.


In the same year Amazon was rebuked for theway it sold e-books, agreeing to change its practices. It is now under anearly-stage investigation both in Germany and Europe-wide for the way it usessales data from its “Marketplace” platform to compete with the independentretailers who sell through it. On March 13th Spotify, a Swedish music-streamingservice, demanded that the commission step in to stop Apple levying hefty feesfrom those who sell services through its App Store.


Then there is privacy. In the past centuryalmost all European countries have experienced dictatorship, either home-grownor imposed through occupation, which has raised sensitivities. “Privacy is afundamental right at eu level, in a way that it is not in America,” says AndreaRenda of the Centre for European Policy Studies, a think-tank. That right isenshrined in the eu Charter of Fundamental Rights in the same way that freespeech is protected by America’s constitution. Polls show Europeans, andparticularly Germans, to be more concerned about the use of their personal databy private companies than Americans are.

再一個是隱私問題。過去一百年來,幾乎所有的歐洲國家都遭受過獨裁統治,要么來自本土,要么外來勢力通過占領而強制實行,這都提高了歐洲人對隱私的敏感性。“隱私是歐盟的基本權利,美國從某種程度上來說不是這樣”,歐洲政策研究中心(Centre for European Policy Studies)智囊機構的安德里亞·倫達說道。隱私權已被載入歐盟基本權利憲章,正如言論自由受到美國憲法的保護。民調顯示,歐洲人比美國人更在意個人信息被私企所利用,尤其是德國人。

When American tech companies firstencountered these concerns they were relatively trifling. In 2010 Germanauthorities demanded Google blur the homes of anyone who objected to appearingin its Street View service. (Rural Germany remains one of the last places wherewell-off people live beyond the service’s coverage.) Four years later, aneu-wide “right to be forgotten” provided some circumstances in which citizenscould expunge stories about them from search results.


The General Data Protection Regulation(gdpr), which came into force last May, raised the issue to a new level. Beyondharmonising data protection across Europe, it also established a principle thatindividuals should be able to choose how the information about them is used.This is an issue not just for the companies which currently dominate the onlineworld—the provisions of the gdpr were central to the German ruling onFacebook—but also for that world’s basic business model.


The data about their users collected byapps and browsers is the bedrock of online advertising—a business which in 2018was worth $108bn in America according to eMarketer, a consultancy. The mostvaluable part of the industry works by selling the user’s attention to thehighest bidder, a simple-sounding proposition which requires a labyrinthine andpotentially leaky “adtech” infrastructure.


Enterprises called “supply-side platforms”use data from apps and from cookies in browsers to pass a profile of everyperson who visits an advertising-supported page to an advertising exchange.There the rights to show adverts are auctioned off user by user. Bidders usethe data from the supply-side, along with further data procured from brokers,to decide how likely the user is to act on their ad, and thus how much it isworth to show it to him. The highest bidder gets to put its ad on the user’sscreen (see chart 2). Meanwhile, data associated with the transaction are usedto update the brokers’ records.


The more pertinent data the bidders get,the more the winning advertiser is likely to bid. This builds in incentives toget as much data to as many bidders as feasible. And that is not particularlyconducive to the protection of privacy.


The introduction of the gdpr spurred legalchallenges to this system across Europe (see article). Some decisions arealready headed to appeal, and it seems sure that eventually at least a few willmake it all the way up the tree to the European Court of Justice.


Tech lobbyists in Brussels worry that MsVestager agrees with those who believe that their data empires make Google andits like natural monopolies, in that no one else can replicate Google’sknowledge of what users have searched for, or Amazon’s of what they havebought. She sent shivers through the business in January when she compared suchcompanies to water and electricity utilities, whichbecause of their irreproducible networks of pipes and power lines are stringently regulated.


Sometimes the power of such networks getsthem broken up: witness at&t. Elizabeth Warren, a senator who wants to bethe Democratic Party’s presidential candidate in 2020, has suggested Facebookand Google could also be split up. Ms Vestager pours cold water on the idea.But Europe’s privacy-plus-antitrust approach offers a halfway house: force thecompanies to share their data, thus weakening their market power and empoweringthe citizenry.


In mid-March a panel appointed by theBritish government and led by Jason Furman, a Harvard economist who was anadviser in Barack Obama’s White House, advocated such an approach, suggesting aregulator empowered to liberate data from firms to which it provided “strategicmarket status”. An eu panel with a similar remit is expected to issuerecommendations along the same lines soon.


The idea is for consumers to be able tomove data about their Google searches, Amazon purchasing history or Uber ridesto a rival service. So, for example, social-media users could post messages toFacebook from other platforms with approaches to privacy that they prefer. Theinnovative engineers of the tech incumbents would still have vast troves ofdata to work with. They could just no longer count on privileged access tothem. The same principle might also lead to firms being able to demand anonymisedbulk data from Google to strengthen rival search engines. ViktorMayer-Schönberger of Oxford University points to precedent: large Germaninsurers have to share data with smaller rivals to help them gauge risk.

目的是允許消費者將自己的谷歌搜索數據、亞馬遜購物歷史、優步打車記錄轉移到對手的服務平臺。例如:社交媒體用戶可將其他平臺的消息發布到臉書上,前者的隱私政策受到用戶的喜愛。在位科技公司的創意工程師仍有海量數據可用,只是再也無法獨享了。這一原則還可以使企業向谷歌公司索要匿名批量數據,以加強競爭對手的搜索引擎。牛津大學的Viktor Mayer-Schönberger指出先例:德國大型保險公司必須與規模較小的競爭對手分享數據,以幫助后者評估風險。

This may not be as fine a solution as itmight sound. Getting lots of personal data to move freely while also keeping itsafe is not straightforward. Users would be required to give serious thought tothe question of with whom they wanted to share their information, as opposed toblindly clicking “Accept” buttons to get rid of pop-ups, as mostly happenstoday. Anonymising a large dataset—such as a compendium of Google searcheswhich might then be used to train a rival’s algorithms—is harder than it mightseem. Identifiable data about individuals can seep regardless.


And there may not be much appetite for it.Following Britain’s lead, the eu has forced banks to allow their clients tomove their data to third parties. But demand for services that letpersonal-finance apps look at your bank statements has yet to take off. Googleand Facebook offer their users the possibility of downloading a portion of thedata those users have provided to the firms (though those taking the offer upare best advised to have a large hard drive). But few rivals have invested incomplementary systems that allow you to upload those data, suggesting that alack of user data is not the factor limiting their ability to take on today’sincumbents.


Still, the assumption remains that acombined focus on antitrust and privacy could, over time, both reduce theincumbents’ market power and open up new routes to competition. Enthusiastspoint to ibm, faced with antitrust action, divorcing its software and hardwarebusinesses in 1969. That created a new industry for software writers toexplore. A world of social networks empowered to share aspects of Facebook’smap of who knows whom and likes what, while being free to explore businessmodels other than advertising could produce all sorts of profitable, sociallyuseful innovation by firms in Europe and around the world. And though Facebookmight not do as well in such a future as it would if given free rein, it couldstill prosper. The past half-century has not been an irredeemably shabby onefor ibm.


Europe alone might not be able to bring allthis about. But a mixture of the accommodations companies make to it and theexample it sets to others could have a catalysing effect. The appearance of aEuropean commissioner at sxsw is a rarity. ProgressiveAmerican politicians were this year rarely a thumbdrive-throw away. Theycould have done worse than stop by and listen. Demanding that tech giants bebroken up may get the odd rally chanting, but it would be hard to bring about.Calling on them to give power back to the people, though, has a certain ring toit.