The tech policy debate can be characterized by regulatory efforts that, on the surface, seem like do-goodism, but in reality are corporate cronyism. A case in point is the Federal Communication Commission’s (FCC’s) latest effort to regulate privacy. The pretense of protecting consumers’ privacy is employed by the FCC to limit competition in the online advertising market in service of Internet behemoths wanting to protect their turf. When the FCC (a presumed expert, independent agency) is captured by Internet companies, consumers and fledgling advertisers are prevented from enjoying the competition that broadband providers can bring to the online advertising marketplace.
The Internet advertising industry needs more competition
Internet advertising was a $50 billion industry in the US in 2014 (0), on track to double by 2019. Its revenue exceeds that from ads on broadcast and cable TV by 25 percent. The Internet Advertising Bureau tracks (1) growth of the industry driven primarily by the sale of ads in search, display, and on mobile platforms. A single company emerges as the overwhelming winner: Google. Over two-thirds of searches in the US are performed in Google, and Google takes the lion’s share of advertising revenue. Facebook collected about one quarter of total display advertising revenue, (2) about $5 billion in 2014, but was followed closely by Google at $3 billion. In the $19 billion mobile advertising market in 2014, Google earned 37 percent of the revenue. Globally, Google earned $44 billion (3) on advertising on its websites in 2014.
There is no doubt that Google is inventive when it comes to advertising. It has pioneered analytics-based marketing, long the holy grail of advertisers who didn’t know which part of their marketing strategy worked. But not all advertisers are satisfied with the company. Peruse SearchEngineLand.com (4) and SearchEngineWatch.com (5) for a taste of the challenges advertisers face when working with Google. According to search engine optimization guru Andreas Ramos (6), Google has largely stopped showing ads on the right-hand side of the search engine, which eliminates weak advertisers and focuses click traffic on the top advertisers. This signals that amateur advertisers will have a hard time using Google and need alternatives.
From the user perspective, Google is valuable, but some are concerned about its dominant trifecta (7) of its search engine, Android operating system, and Chrome browser, which direct users to its 193 properties infused with Google advertising. Many users are reluctant to be part of its walled garden, citing creepiness (8) and privacy concerns (9), even demanding that competition authorities do more to curtail the giant (10).
But there would be little need for antitrust intervention if regulators simply allowed competition. Instead, the FCC perpetuates the power of existing advertising behemoths with another tricky do-goodism — net neutrality — which actually limits the ability of broadband providers to compete with Internet companies.
Disruptive competition is coming — if the FCC gets out of the way
As the Internet experience shifts from desktop to mobile, market forces are already at play to allow new competitors to emerge. Facebook, the social media advertising leader, is Google’s most credible competitor, with a disruptive video platform and social and messaging functionality that can be accessed independently of Google Play (11). Telecom and cable providers, on a much smaller scale, could also provide competition in advertising, but face a major barrier in the FCC.
As a consequence of its decision to classify broadband in the same category as the telephone network, the FCC has jurisdiction to regulate privacy in broadband. Chairman Wheeler’s FCC, which has little regard for the facts (12), is set to launch a new rulemaking procedure. The proposed rulemaking purports (13) that broadband providers need to be regulated because they “can piece together significant amounts of information about you — including private information such as a chronic medical condition or financial problems — based on your online activity.” This scenario sounds quite similar to what Google gets to do without being regulated. In any case, an assiduous paper (14) by Swire, Hemmings, and Kirkland proves that broadband providers do not access information like the FCC purports. But even if they did, that in itself is not adequate justification for regulation.
If the FCC really cared about end users, it would enforce its Open Internet rules on all actors, but its Enforcement Bureau has said in no uncertain terms that it would not regulate edge providers (15) such as Google, even if they were breaking the law.
Consumers and advertisers deserve more choice
Broadband providers have deployed experiments to create advertising competition, such as AT&T’s Sponsored Data and Verizon’s FreeBee Data. One of their value propositions is advertising deployed with a paid contractual relationship with the end user, putting the subscriber in charge, unlike that of an amorphous user agreement for a “free” service.
One novel feature of these programs is that they showcase advertisers you have never heard of, or at least ones that are not household names. The point is that they are creating meaningful opportunities for companies you might never find in a Google or Facebook advertisement — and that’s a good thing. Even if these programs were fully deployed, they would represent less than .001 percent of any advertising market. They are clearly not anti-competitive from a market-share perspective, and if consumers find them irrelevant, they will simply disregard the ads. Broadband providers launch many programs, but most never succeed. Consumers decide for themselves whether they want a given service and don’t need the FCC deciding for them.
When Chairman Wheeler chants “competition, competition, competition (16),” what he really means is “protectionism, protectionism, protectionism.” With a thin veil on its cronyism, the FCC has lost its way as an expert, independent agency and is in serious need of a reboot.