Business models of online platforms

(some negatives of social media cont.)

Free

The use of the word "free" by online platforms cleverly hides a real intention of the tech giants, ie to monetise your data. They

"...exploit behavioural biases due to the emotional appeal of free offers...... marketing services as free presents customers with a narrow way of thinking that focuses on only one or a few aspects of a more complex decision problem...... customers are likely to focus more on zero monetary cost of signing up to a digital platform and less on the other potential costs of providing digital platforms with their data...... less likely to receive digital platforms as commercial identity supplying advertising services, which may have the effect of lowering their guard in transactions would digital platforms..."

ACCC report as quoted by Tony Boyd 2019e

Online Platforms

Their business model is

"...to monetarise your attention and your data..."

Rod Sims as quoted by Tony Boyd 2019e

Players like Facebook, Google, Amazon, etc are very good at this and make a lot of money. They have the ability, incentive and resources to disadvantage any rival or competition. Their position of market power is reinforced as they collect more data, ie

"...For example, the collection data by Facebook and Google, from consumers' use of independent apps. The app for example on the Google Play Store, 88% of them send data to Google and 43% of them send data to Facebook..."

Rod Sims as quoted by Tony Boyd 2019e

In Australia there have been numerous complaints from a wide range of sectors, eg travel, home sales, job search, app developers, etc about the abuse of market power by these tech giants.

"...The privacy policies of Facebook and Google give the illusion of data control and user privacy. In reality, these policies are really permission to use your data. Their privacy policies are long, complex, vague and difficult to navigate. They also use bundled or take-it-or-leave it terms that limit consumer choice and control. So if you want to use the platforms, you really have to agree to the data collection practices that company uses. Consumers effectively pay for services, with attention and your data and your privacy..."

Rod Sims as quoted by Tony Boyd 2019e

One of the problems regulators have is that major tests (SSNIP - small but significant non-transitory increase in price test) used to traditionally measure market power is limited in its use with respect to these online platforms.

"...when products are free and markets are two sided, as in many online platform markets, the SSNIP test does not perform well......conduct that is harmless or even procompetitive on one side of the market can damage competition on the other side, requiring balancing of effects that is very difficult to carry out objectively and rigorously. Competition policy also is not particularly adept yet in dealing with cases that involve nominally free products......it was possible that the combination of Internet connectivity and data analytics may result in reactive algorithmic pricing that is adept at reaching and enforcing outcomes identical to what collusion would achieve..."

OECD report as quoted by Tony Boyd 2019e

"...the digitalised world may feature computers that are as good as, or even are better than, humans are in creating and maintaining cartels..."

Rod Sims as quoted by Tony Boyd 2019e

"...combine this bartering of personal information with the network effect, scale without mass and powerful algorithms, you end up where we are now with a handful of global corporations holding concentrated positions in markets where regulators and governments are playing catch up..."

 

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