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The wrong suspect: A debate about platform neutrality finds little evidence of consumer harm

· March 16, 2015

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European digital policy debate is in flux. In the new uncertain mix we find new EU leadership figures; gridlocked legal proposals on data protection; Parliament nakedly chasing after Google; and posturing by the French and German governments to ban or regulate certain platforms in order to create ‘platform neutrality.’

This final demand occupied the minds of panelists at a recent CCIA event at Bloomberg last week. It was a relief to hear figures such as Kaja Kallas MEP, Chris Sherwood (Allegro Group), Adam Cohen (Google) and Brian Williamson (Plum Consulting) agreed that the shadow boxing needs to end. They collectively pinned down the problem: Europe can’t afford to be fighting imaginary opponents or dancing around the issues holding back digital companies. Europe keeps trapping itself by looking backwards.

For Kallas, the invention of debates around ‘platform neutrality’ is “protectionism in disguise.” She’s not wrong. The French and German governments have failed to make an adequate case about why certain digital companies need special regulation ; they simply resort to alluring phrases and words like ‘neutrality.’ This tactic dresses up the favours they’d like to do for Europe’s non-existent search engine champion, but it doesn’t change the market reality. Digital innovations are continuing to integrate into the economy, meaning the idea of ‘platform neutrality’ is quickly moving from the category of ‘flimsy’ to ‘irrelevant.’

“A shopping mall is a platform too,” says Plum’s Brian Williamson. Google’s Cohen backs him up “Everyone can be a platform to everyone else. An online music streaming system is a platform, found on another platform like an app store, existing on someone’s desktop or phone platform, and made use of through another layer of platform like search.”

See what I mean? What are we even trying to make neutral here ?

The case for ‘platform neutrality’ pivots around the view that competition law has failed to achieve adequate competition in the face of the rapid rise of internet giants. And given that those internet giants are now involved in so many parts of life, only a strong regulator can could keep you safe from them. In my view that’s a massive misreading of the market .

According to Sherwood of the Poland-headquartered Allegro Group, platform discussions should not start from the basis that “these American platforms are interrupting our European intellectual property rights because in many cases the platforms aren’t American. We should not see the internet as something that is foreign and dangerous and disruptive. Instead we should be looking to create a Europe that exports those services, not merely a place designed for the consumption of those services.”

At another level Kaja Kallas says ‘It is very difficult to draw a line around digital services, where the digital and the non-digital lines are. Is there even an online search market? In a consumer’s mind they can search online and offline, and they just want the information. It’s not all Google or nothing. Shops have real goods but connected and search experiences. You can order things online, try them on at home and send them back if they don’t fit.”

But that consumer experience and understanding is not the one reaching the majority of policy-makers in Brussels. Strong lobbying from telecoms companies means that many EU decision-makers have come to see telecoms companies in black and white terms as intermediaries between consumers and internet platforms. “It’s not as simple as that” says Allegro’s Sherwood, “You and I can be both producers and consumers via the same connection. The internet in reality is a multi-billion sided market. It is impossible to imagine a market more interesting than the internet.”

Speaking on behalf of Telefonica, the Spanish telecoms behemoth, Carlos Rodriguez argued that platforms are not just gateways but “may favour their own services over others” on the platform. “We agree with the idea of openness we just don’t understand why it should only apply to access networks and not other parts of the ecosystem,” he said. Sherwood agreed that Google does have a case to answer and that indeed “the telecoms industry has a very legitimate gripe about over-regulation.” But when it comes to competition issues, telecoms companies have behaved worse than Google by openly blocking services like Skype, and without a hint of penalty from authorities, despite the European-wide nature of the problem being known since at least 2010.

The direction of travel may also be positive rather than negative for competition when it comes to platforms: “In the transition to mobile the devices are now a lot more integrated. The platforms, whether PC or Apple App Store are increasingly open to third party innovation,” said Williamson.

Internet throws up different competition dynamics to a more traditional market: “the competition is broader than it appears and certainly highly innovative,” a case of serial disruption and different business models competing with each other.

Google’s Adam Cohen believes we can’t look at internet-driven competition in the same way as traditional markets: “there is a tendency (in Europe) to look at internet services like it is a railroad, a single line connecting people from one destination to the next. But people are not stuck in the same way on the internet as they are in a train.” Kallas agrees: “it’s about the need for new techniques, not (new) tools. You can’t do a dawn raid of online systems.” For Sherwood the question is less ‘what new tools do competition authorities need?’ than whether they are risking even their current tools with current haphazard interventions: “If the competition community wants to keep its tools, it needs to act faster than (over a period of) five years.”

The consequences of new rules targeting specific companies would quickly spill over into others companies and sectors: “if we start to regulate the internet or close it down we actually harm our start-ups” says the Estonian MEP Kallas. The greatest irony would be if efforts to rein in American giants led Europe to shoot its own internet companies in the foot. You can’t build a law that covers all companies based on perceived problems that you have with Google and Facebook. You might slow Google and Facebook down but you slow the European competitors down more because it is harder for them to hide,” warns Sherwood.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.