Summary: This paper considers one of the recent regulatory developments in the EU, the DMA and analyses the potential for this Act to increase competition in the digital advertising market. The author proposes the DMA is welcomed in its effort to increase vertical competition however more ought to be done to safeguard against potential rival firms being disproportionately subjected to, and restricted by, the same obligations as the two dominant players in the market, Facebook and Google.
Advertising based business models have been an accepted feature in society for a significant period. Traditionally, publishers would sell inventory directly to advertisers.[i] With the growth of digital advertising the relations between publishers, advertisers and consumers have become technologically advanced.[ii] Facebook and Google utilised their resources, in particular access data to gain significant market power in digital advertising. The creation of a concentrated duopolistic market has resulted in regulation to tame the giants controlling digital advertising and promote competition in the market. This paper seeks to analyse the potential for regulation, namely the Digital Markets Act (DMA), to inject competition back into the advertising market. Specific focus will be placed on the role of data access in creating competitive advantages to firms and the impact of privacy considerations in the DMA.
Digital Advertising Explained
Digital advertising can be divided into two categories, namely, search and display advertising. Search advertising involves an advertiser paying for their advert to appear next to consumers search results on the platform. Adverts are selected and targeted using key words, the advertiser pays for their advert to appear when the user enters the key word into the search engine. On the other hand, advertisers use display advertising to place adverts on websites or apps. These usually appear as banners and may be static or video ads.[iii]
Display advertising can be further divided into open display advertising and owned and operated advertising. Owned and operated advertising is conducted by publishers who sell their own inventory to advertisers using their own systems or platforms. For example, Facebook sells ads on its properties such as Facebook and Instagram through its own system called Facebook Ads manager.[iv] This form of advertising is described as a ‘walled garden,’ allowing the publishers to use their own data to determine which adverts to show to certain users. Open display advertising is available for platforms which do not hold the resources to sell their own inventory. Instead, publishers sell inventory to advertisers through a complex chain of third-party intermediaries also known as ad tech services.[v] On the demand side, buying tools or demand side platforms are used by advertisers to find ad space. On the supply side, ad servers or supply side platforms are used by publishers to sell their inventory to the highest bidding advertisers. Ad servers track the ad spaces held by a publisher, when a space becomes available for sale the ad server directs the ad space to trading venues also known as ad exchanges. This allows ad spaces to be sold in real time without the need for publishers and advertisers to ever meet. After this transaction the web page is loaded showing the ads before the user notices anything has occurred.[vi] Intermediaries utilise their access to data and algorithmic matching techniques to connect advertisers and publishers and make advertising individualistic, tailored to each consumer. As a result, consumers see ads correlating to their interests on apps, social media and search engines.
Targeted ads are beneficial for users, businesses and advertisers. Users prefer to see relevant adverts and business are more likely to receive sales where their adverts are targeted accurately towards interested users. Additionally, advertisers are paid either by cost per click or per impression therefore adverts seen more regularly and targeted accurately will generate greater returns. Evidently data is key to accurately targeting ads. The level of personalisation in advertising online often leads consumers to conclude the only explanation ought to be, Google and Facebook are listening to them. However, it is in fact a result of the use of data by firms to make inferences and target highly relevant ads to specific audiences. Access to data is crucial for providing targeted advertising and is necessary to succeed in the digital advertising market
The Duopolistic Market
As identified by the CMA Market study, Google generates nearly all search advertising while Facebook has strong position in display advertising.[vii] These duopolistic conditions can be attributed to features on the digital markets which offer competitive advantages to these firms. Digital markets are characterised by networks effects and economies of scale, therefore once a platform has reached a certain size obtaining access to a significant amount of data, it becomes difficult for rivals to compete and challenge their position.[viii] Smaller businesses opt to utilise large established platforms due to the significant reach of these firms. Additionally, platforms with a greater number of users will also have access to a large, detailed data sets.
The expansion of Googles online eco-system has allowed for extensive collection of data. For example, data is collected directly through Google services and android mobile devices. Google also has access to data regarding the apps, browsers and devices used to access google services and obtains information relating to users’ activity on Google services. Additionally, google services can also provide detailed data on user location. Facebook in comparison obtains user data such as name, age, gender and interests when a consumer joins the services. Data relating to user engagement in relation to Facebooks content is also collected as well as device data. Google hold the largest data set and Facebook has an exceptionally large audience of 43 million monthly active users.[ix] These platforms have significant reach and scale with access to high quality data. This data is then used by the platforms to constantly improve their algorithms resulting in targeting capabilities which are often alarmingly accurate. Advertising on Facebook has been described as a ‘must have’ or ‘unavoidable’ due to the scale and reach of the platform and the access to highly detailed data allowing for highly personalised advertising.[x]
In the absence of regulation, platforms in the past were able to adopt intrusive methods of collecting data, such as third-party cookies. This enabled these platforms to build informative user profiles which are utilised when deciding whether to show ads to a user, which ads to show them, and when measuring user behaviour after they were exposed to the ad. Third party cookies were the most used method adopted to track users across the internet. Originally cookies (a small piece of data) were intended to allow websites to remember users and their previous activity on the website. Initially, only the website which placed the cookies on the user’s device had access to them, these are known as third party cookies. However, third party cookies allow external parties with access to the website, such as ad servers, to place cookies on websites enabling data collectors to track user activity, identify the user accessing a particular website and track when the visit occurred.[xi]
Dominant firms have also utilised their vast data sets to leverage power into other markets. This is best demonstrated by Googles use of search advertising data to leverage their way into display advertising as well. Google created its own ‘walled garden’ in display advertising through acquisition of ad tech services. These acquisitions enabled Google to become a dominant player at each level of the ad tech stack further restricting competition on the market. In 2007 Google made the significant acquisition of double click, the number one ad server at the time which had already acquired data from many publishers including Wall Street Journal and Sports Illustrated. Google were then able to restrict access to double click data by hashing IDs.[xii] After purchasing YouTube, Google also prevented advertisers from bidding on YouTube inventory using their DSP of choice, YouTube inventory can now only be accessed through Googles DSP.[xiii] This leveraging endorsed Googles position in the digital advertising, increased their access to data and furthered the duopolistic conditions of the market.
Impact of the DMA on competition in digital advertising
The movement towards protecting privacy and increased recognition of the highly concentrated markets, prompted EU regulation in attempt to control the tech giants and promote competition in the digital advertising sector. This led to the introduction of the DMA which aims to promote fair and contestable markets. Fair markets will undoubtedly be concerned with user privacy however as Schwab stated, the DMA is intended to have the effect of making digital markets as large as possible enabling new innovative companies to enter and participate in the market.[xiv] Thus, the purpose of the DMA is to increase competition on digital markets.
The DMA makes a commendable effort to increase vertical competition in relation to digital advertising through transparency obligations. The lack of transparency in digital advertising restricts competition. For example, advertisers are only aware of the price they paid for an ad space, the fees taken by intermediaries and amount paid to publishers is not revealed. Similarly, publishers are only aware of the amount agreed with the SSP and the amount the inventory was sold for, publishers are not told of the price paid by the advertisers. Crucial information about auctions is kept a secret, therefore firms such as Google have potential to rig auctions and charge hidden fees.[xv] Lack of transparency limits the ability of publishers and advertisers to access bidding data. Thus, making it more difficult for both publishers to sell their own inventory. Publishers are harmed whilst advertising services soak up the profits, for example between 2005 and 2018, news organisation saw revenue fall by 70%.[xvi] Advertisers may also find it more challenging to secure the cheapest price for inventory.
Articles 6(1) (h),(i) and (j) ensure business users have a right to access to data generated by their actions and its end users on a platform. This increases transparency in digital advertising as advertisers gain insight into end users. Business users would be able to use this data to improve algorithms and compete in the market. Greater transparency is further promoted by Article 5(g) requiring gatekeepers, which supply advertising services, to provide advertisers and publishers with information concerning prices paid by each party and the remuneration paid to the publisher and the advertising services. The DMA has since been amended by the Parliament, increasing the information obligation and requiring gatekeepers to provide information on pricing mechanisms and conditions as well as performance data (Article 6(1)(g). Transparency in the market is furthered by the prohibition of self-preferencing. As prescribed by Article 6(1)(a) gatekeepers must not apply ambiguous, unfair and discriminatory conditions to third party products. Thus, self-preferencing in ad tech services will be prohibited.
These obligations promote transparency in digital advertising, ensure business users and end users do not lose touch through the operation of an intermediary service. Information obligations prevents hoarding of data and opens the potential for advertisers to target consumers without the need for intermediaries and platforms. Efforts to increase transparency in digital advertising are welcomed as market participants will be provided with greater understanding of bidding auctions providing them with a better opportunity to compete. However, increased transparency alone will not transform competition in the digital advertising market.
Greater consideration of how the DMA will impact horizontal competition is required as the ability of rivals to challenge dominant firms is central to a competitive market. The DMA will apply to all firms which come within the definition of gatekeeper. Concerns have been raised as to the designation of gatekeepers, particularly due to the quantitative requirements which create a presumption of gatekeeper status. Geradin warns, the EU must refrain making the DMA under or over inclusive.[xvii] Basing designation on quantitative requirements may result in all firms which meet the size requirement being subjected to the DMA regulation. This will safeguard against smaller companies being obliged to comply with the same obligations of big tech companies.
However, larger rival firms which meet the quantitative requirements of the DMA will be restricted in their ability to challenge the dominant players in the market. For example, Trade Desk inc. have arisen as an impending rival to Googles dominance in ad tech. The firm’s new tool, Open Path, cuts out the need for intermediaries[xviii] thus has the potential to significantly rival Google. However, if Trade desk were subject to the same regulatory requirements as Google, the challenge of entering the market may be increased. Akman is of the opinion market investigation is a more appropriate method of designation, taking into account elements which the author believes are more ‘in tune with the economics and empirics of multi-sided platforms.’[xix]
A significant way in which the DMA may restrict the ability of rival firms to compete is through Article 5(a) which limits access to data. Article 5(a) prescribes gatekeepers must refrain from combining personal data from a Core platform service with personal data from other services, unless the user was presented with specific choice and consent. As a result, gatekeeper platforms will no longer be able to combine data from different aspects of their eco-systems, thus constraining data profiling. This provision reflects the privacy concerns related to data collection. Privacy and data protection concerns have arisen in the wake of various scandals including the Cambridge Analytica- Facebook scandal in 2018 when data was being used to influence election outcomes.[xx] There has been increased recognition that platforms should not be allowed to collect excessive amounts of user data.
The inclusion of user’s consent in the provision was highly criticised as it was said to undermine the ability of the DMA to restrict the data free for all by preventing combination of data. Consumers would continue to be nudged into providing consent.[xxi] As a result of this criticism, the European Parliament amended the provision to require users to be presented with choice in an explicit and clear manner. This amendment alongside Article 11(3) which requires, Gatekeepers should not make the exercise of rights or choices in Article 5 or 6 unduly difficult,[xxii] may help to tackle the issue of dark patterns coercing consent. Consumers will be more likely to decline consent thus restricting the creation of extensive data profiles.
Consumers are correct to be concerned about data collection and tracking, especially where it can be used to exploit vulnerable consumers. For example, people with risk/problem gambling report increased exposure to gambling advertising. Individuals struggling with addiction may be targeted as a result of the websites which they frequently visit.[xxiii] Data collection must be regulated however this must be done using the regulatory framework designed to address these concerns, not the DMA. Article 5(a) may be beneficial for users in relation to their privacy which is evidently a key concern related to digital markets however this provision may in fact have a negative impact on competition in the digital advertising markets. The reason for this being, big tech giants have already collected their data and built extensive data profiles.
Firms such as Google have benefited from the lack of regulation on digital markets for years. In the years leading up to the DMA big tech firms have invaded users’ privacy without contestation enabling them to create extremely detailed accurate data profiles which will continue to be used to their advantage in the digital advertising market. In contrast, rival firms with real potential to challenge the position of Google and Facebook on the market will be hampered by regulation. Provisions relating to privacy will limit the ability of rival firms to collect personal data and as noted above, an abundance of personal data is key to success in the digital advertising market. Where firms are unable to create data sets comparable to the likes of Facebook and Google their algorithms will remain weaker and their products and services will be less attractive for users. Balancing the need for privacy and competition in digital markets is a challenging task. Privacy ought to be a raised concern when discussing digital regulation. However, the main objective of the DMA is to increase competition, therefore this should remain the focus, privacy concerns ought to be addressed elsewhere in existing mechanisms such as the e-privacy directive and GDPR. Too significant a focus on privacy may result in a situation where regulation intended to promote competition operates in favour of big tech firms, further entrenching their position in the market.[xxiv]
Big tech firms have a remarkable capability to conform with the letter of the law whilst circumventing the intended effect.[xxv] A particular issue which demonstrates this concern currently is the introduction of Googles Privacy Sandbox. Google has proposed to stop cross site tracking using third-party cookies in attempt to protect user privacy. Prima facie this may be considered to reflect an impressive attempt by Google to comply with regulatory efforts. However, given the highly intrusive nature of Google in the past, it is questionable why privacy is now an important concern for the firm. It is more plausible; this is in fact a further attempt to entrench Googles dominance disguised by privacy concerns. By restricting the user information available to third parties, rival ad services would find it much more difficult to compete.[xxvi] Although this would also impact Googles targeting capabilities, Google has access to an extensive amount of first party data and no longer relies on third party cookies to the same extent its rivals do.[xxvii] Safari and Firefox already block third party cookies, if Google also adopts this strategy third party cookies will be practically extinct. This will limit targeting capabilities of advertising, meaning the largest firms with access to first party data will succeed. With the demise of third-party cookies, first party data becomes extremely valuable. Unsurprisingly, Google has expanded its ecosystem to increase collection of first party data. As noted, a large degree of data collected by Google now stems from data collected directly from Google products and services. For example, Google maps will provide highly detailed data which can be used for digital advertising allowing google to personalise adverts according to the location of users. Katsifis et al note that ‘the expected privacy benefits resulting from Googles privacy sandbox may be smaller than one would initially think.’[xxviii] For example, first party cookies can be used for cross-site tracking. The third-party blocking measures implemented by Firefox and Safari have been circumvented by Facebook which has introduced a first party cookie allowing advertisers to track user activity across browsers.[xxix] Arguably this change in direction in the digital advertising market may operate in favour of publishers who have access to data on their own audiences which can be used to target ads. However, no publisher will have access to a scale of first party data like that of Google.[xxx]Cinar and Ates note the irony of the fact a ‘cookie free future will likely put Big Tech in a stronger position in the digital advertising universe’.[xxxi]
To deal with the prevalent issue of big tech firms complying with the letter of the law but not with the spirit of it, the DMA has introduced anti-circumvention provisions to ensure provisions ensure obligations are fully and effectively complied with. The European Parliament has proposed to amend the DMA to include anticircumvention provisions in Article 6. By doing so this the provision is strengthened as firms could be held directly liable for actions contrary to the DMA regardless of whether all the prescribed obligations have been met. The logic behind such provisions is understandable however firms ought to be aware of what is required of them regardless of their market power. If they do not, this risks contradiction of the rule of law.
To conclude, the obligations in the DMA will impose greater restrictions on gatekeepers thus limiting their power however whether this will in fact open the markets to rivals is subject to debate. For example, many of the obligations are aimed to prevent the extensive collection and processing of data however firms such as Google have already developed accurate user profiles therefore the limitation is more likely to impact up and coming rivals of Google. The many years of no regulation has provided the dominant firms with extensive resources to ensure their position in the market is not threatened. Competing firms do not benefit from such advantages. The DMA has made a noticeable effort to protect user privacy online however where too much weight is placed on privacy considerations, competition in the market may be negatively impacted. Rival firms will be subject to restrictive provisions which the likes of Facebook and Google did not have to tackle. This is particularly problematic if the designation process in the DMA is over inclusive. If rival firms are subjected to the same obligations as Google and Facebook, they will be disproportionately impacted particularly in relation to their ability to access data. Although, access to data ought to be regulated to protect privacy concerns, the DMA must refrain from further entrenching the market power of already dominant firms. Big tech firms using regulation to their advantage is a key concern in digital advertising which is seen in relation to Googles privacy sandbox. The anti-circumvention provisions would potentially be capable of dealing with this issue thus protecting competition. However, the DMA must be applied fairly, dominant firms must be provided with guidance as to how to ensure compliance. Therefore, anti-circumvention provisions cannot be relied upon to improve competition in digital advertising. Overall, if the DMA is to increase competition on digital advertising markets, rival firms must be allowed to unrestrictedly compete with dominant players and there must be acknowledgement of the many years of data collection which provide a significant competitive advantage in this market.
[i]Gilbert, Good Data: An Optimists Guide to our Digital Future (Welbeck, 2021)
[ii] Oles Andriychuk, ‘How Big Media Handed Digital Advertising to Big Tech’ (Promarket, 3 February 2022) <https://promarket.org/2022/02/03/big-media-google-facebook-duopoly-advertising-digital-platforms/> accessed 6 February 2022
[iii] CMA, ‘Online Platforms and Digital Advertising Market Study Final Report’ (GOV.UK, July 2020)
[iv] ACCC, ‘Digital advertising services inquiry: Final report’ (ACCC.gov.au, September 2021) <https://www.accc.gov.au/publications/digital-advertising-services-inquiry-final-report> accessed 3 February 2022
[vi] Srinivasan, ‘Why Google Dominates Advertising Markets’  24 STAN. TECH. L. REV. <https://law.stanford.edu/wp-content/uploads/2020/12/Srinivasan-FINAL-Why-Google-Dominates-Advertising-Markets.pdf> accessed 3 February 2022
[ix] CMA ‘Appendix F: The Role of Data in Digital Advertising’ (GOV.UK 2020) < https://www.gov.uk/cma-cases/online-platforms-and-digital-advertising-market-study> accessed 15 February 2022
[x] U.S. House of Representatives, Investigation of Competition in Digital Markets (The New York Times, 2020) <https://int.nyt.com/data/documenttools/house-antitrust-report-on-big-tech/b2ec22cf340e1af1/full.pdf> accessed 10 February 2022
[xi] Cooper et al, Privacy considerations for online advertising: a stakeholder’s perspective to programmatic advertising (2022) Journal of Consumer Marketing <https://www.emerald.com/insight/content/doi/10.1108/JCM-04-2021-4577/full/html> accessed 11 February 2022
[xiv] Andreas Schwab oral contribution at the ‘Strathclyde Centre for Internet Law and Policy Seminar’ available at (https://www.youtube.com/watch?v=0DUh4QcFwXU)
[xvi] The costs of tracking ads (Tracking Free Ads Coalition, 2022) <https://trackingfreeads.eu> accessed 7 February 2022
[xvii]Geradin, One needed area of improvement for the digital markets act: The designation of gatekeepers (The Platform Law Blog,2022) <https://theplatformlaw.blog/2022/01/10/one-needed-area-of-improvement-for-the-digital-markets-act-the-designation-of-gatekeepers/> accessed 12 February 2022
[xviii] Haggin, ‘Google Crushed Many Digital Ad Rivals. But a Challenger Is Rising’ (Wall Street, 2021) <https://www.proquest.com/docview/2496414312/36C5249F1CAF4686PQ/1?accountid=14116> accessed 12 February 2022
[xix] Akman, Regulating Competition in Digital Platform Markets: A Critical Assessment of the Framework and Approach of the EU Digital Markets Act (2022) European Law Review <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3978625> accessed 13 February 2022
[xxii] European Parliament, Digital Markets Act, (2021) <https://www.europarl.europa.eu/doceo/document/TA-9-2021-0499_EN.html> accessed 12 February 2022
[xxiii] Syvertsen et al, Relationships Between Exposure to Different Gambling Advertising Types, Advertising Impact and Problem Gambling (2021) <https://link.springer.com/article/10.1007/s10899-021-10038-x#citeas> accessed 11 February
[xxiv] Fourberg et al, ‘Online Advertising: The impact of targeted advertising on advertisers, market access and consumer choice’ (European Parliament, 2021) <https://www.europarl.europa.eu/RegData/etudes/STUD/2021/662913/IPOL_STU(2021)662913_EN.pdf>
[xxv]Andriychuk, ‘Proposal and justification of the amendments to the text of the DMA as adopted by the European Parliament on 15 December 2021’ (December 2021)
[xxvi]Cooper et al, Privacy considerations for online advertising: A stakeholder’s perspective to programmatic advertising (Emerald, 2021) Journal of Consumer Marketing (forthcoming) <https://www.emerald.com/insight/content/doi/10.1108/JCM-04-2021-4577/full/pdf?title=privacy-considerations-for-online-advertising-a-stakeholders-perspective-to-programmatic-advertisin> accessed 15 February 2022
[xxvii]Morrision & Molla, Google Chrome’s cookie ban is good news for Google — and maybe your privacy (Vox, 2020)<https://www.vox.com/recode/2020/1/16/21065641/google-chrome-cookie-ban-advertisers> accessed 15 February 2022
[xxviii] Katsifis D, Geradin D & Karanikioti T, ‘Google as a de facto Privacy Regulator: Analyzing Chrome’s Removal of Third-party Cookies from an Antitrust Perspective’ (2020). TILEC Discussion Paper No. DP2020-034 <https://ssrn.com/abstract=3738107> accessed 11 March 2022
[xxix] Marvin, “Facebook to release first-party cookie option for ads, pull web analytics from Safari”, (Martech, 2018) <https://martech.org/facebook-to-release-first-party-pixel-for-ads-web-analytics-from-browsers-like-safari/> accessed 11 March 2022
[xxxi] Çınar N, Ates S ‘Data Privacy in Digital Advertising: Towards a post third party cookie era’ in Filimowicz Privacy: Algorithms and Society (2022, Routledge)