Chapter 2Background
Overview
2.1The term ‘Big Tech’ refers to large digital platforms, in particular, the five largest platforms: Alphabet (Google), Amazon, Apple, Meta and Microsoft.
2.2These companies in many instances have acquired other popular platforms— for example, Google owns YouTube, while Meta owns Instagram and WhatsApp. The term may also encapsulate other smaller companies with dominance in a particular segment of the market or high valuations such as Adobe, Netflix, Nvidia, Oracle, Salesforce, Snap, Twitter (X Corp.) and Uber.
2.3This chapter details:
economic benefits from the rise of digital technology;
respective market shares of Big Tech firms; and
risks of concentrated market power of Big Tech.
Technology is important
2.4Digital platforms are important to Australia as they provide pivotal business and consumer services and drive economic growth. Consumers rely on digital platforms for various services, such as connecting with others, accessing information and entertainment, conducting business, and purchasing goods and services. The significance of digital platforms means ensuring competition and consumer protections is integral to the economy.
Economic growth
2.5Big Tech has contributed to a thriving technology sector, stimulating innovation and opportunities for emerging companies to grow.
2.6The digital technology sector, of which digital platforms play a large role, contributed an estimated $167 billion to the Australian economy in the 2021 financial year, equivalent to 8.5 per cent of gross domestic product. It is Australia’s third largest industry, with over 100 tech companies originating from Australia valued at $100 million or more, including over 20 unicorn companies.
2.7Ms Belinda Dennett, Corporate Affairs Director, Microsoft, commented:
… foundational investments in cloud infrastructure by global tech companies have contributed to Australia’s strong track record by launching globally successful tech companies, with 2.3 per cent of the world's tech unicorns having come from Australia despite our much smaller 1.6 per cent share of global GDP [gross domestic product].
2.8The Tech Council of Australia commented on the economic contribution of Big Tech and the potential for the future:
Our research highlights that both Australian starts-ups and scales-ups, and large global tech companies, will play an important role in helping grow the economic contribution of the tech sector in the future to meet the targets of delivering $250 billion per annum to Australia’s GDP, and seeing 1.2 million people in tech jobs by 2030 … While Australia has shown its potential in the tech sector, we still have significant room to grow. Our research shows the direct tech sector in Australia is only 3.8% of GDP. In Canada it is 6.8%, in the UK 8.1% and in the US 10.2%.
2.9Submitters provided several examples of investments by Big Tech firms:
Google, through its Digital Future Initiative, announced a $1 billion investment in research, infrastructure and partnerships, including in Quantum and artificial intelligence (AI) technologies in Australia.
Apple invests in clean energy in Australia, developing new sources of renewable energy, expanding coding education programs, and forging partnerships with Indigenous-led non-profits. In 2022, Apple invested more than $20 billion in research and development.
Amazon Web Services (AWS) plans to invest $6.8 billion in the Asia Pacific Region from 2022 to 2037, contributing an estimated $15.9 billion to Australia’s GDP from 2022 to 2037. AWS investment from 2022 to 2037 will support an estimated annual average of more than 2 500 full-time equivalent jobs at local vendors in the data centre supply chain.
Amazon’s Prime Video service has commissioned 27 Amazon Original series in Australia since its launch, investing well over $150 million in local productions, and resulting in more than 2 500 jobs across Australia.
Small businesses and employment
2.10Many Australian businesses benefit from tech services, including search and advertising services that allow them to reach larger audiences. The global availability of tech makes it possible for businesses of all sizes to reach international customers.
2.11Meta commented on the benefit of digital platforms to small businesses:
A recent report by Deloitte found that 82 per cent of Australian small businesses reported using free, ad-supported Meta apps to help them start their business, and 71 per cent of Australian small businesses that use personalised advertising reported that it is important for the success of their business.
2.12DoorDash submitted that digital platforms provide not only economic benefits for businesses, but support job growth and help consumers:
Since our launch in Australia, merchants have earned over $1 billion AUD in sales from orders placed on DoorDash Marketplace, including over $100million AUD for non-restaurant merchants. In addition from 2021 to 2022, sales on DoorDash Marketplace grew by 94% for merchants and by 570% for non-restaurant merchants.
2.13The Australian Computer Society’s Digital Pulse 2022 Report found that by 2024 there will be more than 1 million technology workers in Australia, growing to 1.2 million by 2027. This will mean the proportion of the Australian workforce in technology roles will rise to 8.5 per cent by 2027, outpacing broader employment growth.
2.14Mr Michael Cooley, Director, Public Policy Australia, Amazon Australia, highlighted how Amazon’s expansion into Australia has resulted in job growth and allowed small businesses access to more consumers. Mr Cooley estimated Amazon has:
… created more than 20,000 Australian jobs to support their Amazon related business activities … Just two weeks ago, we announced our seventh fulfilment centre has commenced construction in Craigieburn, north-east Melbourne. Targeting completion in 2025, the new site will create around 2,000 local jobs once fully operational and an additional 2,000 local jobs during the construction and fit-out.
2.15Ms Dennett indicated that Microsoft partners with emerging technology companies, supporting business growth and creating jobs:
In Australia we have over 9,000 partners. Seventy per cent of those are Australian small and medium-sized businesses, employing over 200,000 Australians in every corner of the country. In 2020 those partners contributed over $55 billion to the economy, of which 48 per cent was directly attributable to Microsoft. Those partners created $1.5 billion of new and repeatable IP built on the Microsoft platform.
2.16Mr Kyle Andeer, Vice President, Products and Regulatory Law, Apple Inc., stated that the Apple app store supported more than 150 000 Australian jobs and facilitated $14 billion in commerce in Australia and New Zealand in 2022.
2.17Large technology firms also contribute to education and reskilling opportunities for students and workers. Many companies partner with Australian educational institutions to strengthen science, technology, engineering, and mathematics education or provide alternate courses to incentivise workers to transition into tech roles. For example, Google has provided free digital skills training to over 600 000 Australian small businesses and individuals under the Grow with Google program.
Benefits for consumers
2.18Benefits of technology growth for consumers include convenience, affordability and efficiency of services. Many of these improvements are made possible due to market power of Big Tech, as when many people use the same platform, the platform can aggregate data and improve services.
2.19The Australian Competition and Consumer Commission (ACCC) noted it has been estimated that digital platforms generate a consumer surplus of approximately $5 000 per Australian household per year through free or cheaper and more convenient goods and services. Google’s services alone are estimated to create over $50 billion of annual economic value that flows to Australian businesses and consumers.
2.20Ms Dennett commented on the benefits of widespread technology to consumers during the COVID-19 pandemic. Technology was:
… critical in enabling many Australians to work from home, learn from home and stay connected to their families and friends, and critical for the parliament to continue to sit, for government to continue to deliver services and for most of us to continue to buy the things we needed.
… [B]y enabling remote working, collaboration technologies … helped to keep employed 3.2 million Australians who would otherwise have been unable to keep working.
2.21Meta stated that personalised advertising provided by digital platforms is beneficial to consumers as it provides them access to products and services relevant to their interests.
2.22Similarly, Amazon Australia highlighted that access to information through digital platforms gives consumers greater choice as they can research prices, product information and retailers.
Climate change
2.23Submitters also highlighted how digital platforms are working to combat climate change. For example, Google is enabling the use of AI for natural disaster detection and post-disaster rebuilding applications to strengthen Australia’s resilience against the impacts of climate change.
Market power
2.24Many digital platform markets are dominated by one or two large providers that face limited competitive constraint.
2.25Together, Alphabet, Apple, Meta, Amazon and Microsoft have a joint market capitalisation of around US$4.5 trillion. Each company holds dominant market power in various sectors: app stores (Google and Apple), search (Google), adtech (Google), social media (Meta), e-commerce (Amazon), desktop operating systems (Microsoft) and cloud (Amazon and Microsoft). While they have market strengths, they compete for market share across various areas, such as hardware, PC and mobile operating systems and entertainment.
2.26An analysis of the time Australians spend on particular apps and websites reveals the market share that Google, Apple, Meta and Microsoft command of time spent online in Australia, with Australians spending the most time on Google (including YouTube and search engines) and Meta-owned platforms (Facebook, Messenger, Instagram and Whatsapp) (see Figure 2.1 below).
Figure 2.1Apps and websites Australians spent the most time on, as of 2019, by platform
Source: Australian Competition and Consumer Commission, Digital Platforms Inquiry – Final Report, July 2019, p. 6, citing Nielsen Digital Panel, February 2019.
2.27The ACCC’s Digital platform services inquiry, Interim report No. 5 – Regulatory reform found globally dominant digital platforms are also the most widely used digital platforms in Australia:
Among search engines, in 2018 Google Search accounted for 90 per cent of search traffic originating from Australian desktop computer users and over 98 per cent of search traffic from Australian mobile users.
Among social media platforms, Facebook has by far the largest user base in Australia, with approximately 17 million users accessing its platform on a monthly basis in 2019. Assuming the users are all adults, this equates to approximately 84 per cent of Australian adults accessing the Facebook platform at least monthly.
Instagram (owned by Facebook) is the next most popular social media platform with approximately 11 million monthly users … equating to approximately 54 per cent of Australian adults.
Competition and consumer risks
2.28There is growing international consensus that reform is needed to control the market power of Big Tech.
2.29Because of the significance of technology in our lives, the potential for harm in digital platform markets is high. The importance and widespread use of digital platforms creates more opportunities and incentives for these platforms to engage in conduct that is anti-competitive or may harm consumers.
2.30Companies with dominant market power may take advantage of inadequate protections and exploit power imbalances to the detriment of consumers and small businesses. This directly harms platform users, as well as reducing trust in digital services and inhibiting economic growth.
2.31Further, limited competitive constraints reduce incentives to innovate and improve. This could result in higher prices, greater exposure to advertising or increased harvesting of personal data. Lack of competition can also result in reduced consumer choice.
2.32Digital platform markets in Australia have high levels of concentrated market power, with markets such as app stores, search services, and ad tech dominated by a small number of platforms with principal market power. The lack of competition in the digital platforms sector gives Big Tech the opportunity to engage in anti-competitive conduct that benefits themselves, to the detriment of consumers and competitors.
2.33Some submissions argued many of these issues arise in other industries across the economy. For instance, Meta commented:
Many of the characteristics of digital markets identified by Australian policymakers (such as economies of scale, use of data, self-preferencing, optimising the user experience, and M&A [merger & acquisition] activity) are not unique to digital platforms. They occur in industries right across the economy and can either deliver significant benefits or result in certain harms, depending on a range of factors. Regulating specific services or segments too narrowly will create market distortions between digital platforms and other competitors (such as print and broadcasting advertisers) and inhibit innovation and investment.
2.34However, these issues raise particular challenges when they occur on digital platform services. The ACCC summarised the unique economic and commercial characteristics of digital platforms that contribute to high barriers to entry and expansion and support market concentration. These include:
Strong network effects: where the value of a service depends on the number of users with whom other users can interact. In markets with strong positive network effects, users will be drawn to the platform with the largest number of users.
Significant economies of scale and sunk costs: where the average cost of providing services decreases with increased use. In markets where these dynamics are present, larger platforms have a cost advantage, while high fixed costs of entering can dissuade new entry and put smaller rivals at a cost disadvantage.
Advantages of scope and expansive ecosystems: where supplying multiple related services advantages a large platform through the ability to share and combine data, the ability to leverage existing user-bases across services, or lower average costs. This can raise barriers to entry and expansion, which may be reinforced when platforms make their services incompatible with other services outside their ecosystem.
Barriers to switching: where consumer inertia, switching costs and a platform’s interface design can increase consumer lock-in, often to the incumbent’s advantage.
Access to high-quality user data: where vast amounts of individual-level data are required to train algorithms and offer higher-quality and personalised services (including targeted advertising). Access to such data provides a considerable competitive advantage to established digital platforms.
These characteristics also provide large incumbent digital platforms with the ability and incentive to engage in strategic conduct to entrench and expand their market power.
2.35The substantial market power held by digital platforms gives them the ability and incentive to engage in anti-competitive conduct that entrenches and expands their market power.
2.36Anti-competitive conduct may reduce incentives for smaller businesses to enter digital platform markets, innovate and improve services. Ultimately, for consumers, this leads to limited choice, lower quality services and higher costs.
2.37Ms Kate Reader, General Manager, Digital Platforms Branch, ACCC, explained these harms:
I think we're seeing a lack of choice, especially lock-in effects. We're seeing a lack of innovation compared to a market—if you had more players and more competition, there'd probably be a lot more innovation. We're seeing prices go up or be higher than they would be in the competitive market, so, when you pay for apps, a large chunk of your payment is going to the digital platforms. Even when things seem free, you're paying in terms of looking at all the advertising. If the market were more competitive, there would be quite a good chance that there would be less advertising exposure.
2.38Competition and consumer risks are discussed in greater depth in the following chapters.
Digital platform regulators
2.39Primary responsibility for regulating digital platforms is shared between the Australian Communications and Media Authority (ACMA), the ACCC, the Office of the Australian Information Commissioner (OAIC), and the Office of the eSafety Commissioner (eSafety).
2.40Together, these bodies share information about, and collaborate on, cross‑cutting issues and activities on the regulation of digital platforms in an informal body called the Digital Platforms Regulators Forum (DP-REG). See Figure 2.2 for a summary of each agency’s responsibilities.
2.41The ACMA oversees content regulation in Australia, including matters related to some online content, broadcasting standards and classification, radiocommunications and telecommunications. Digital platforms may be subject to obligations regarding harmful or illegal content, such as child exploitation material, violence, or hate speech. The ACMA also oversees the Australian Code of Practice on Disinformation and Misinformation relating to targeting of a person with dis- and misinformation.
2.42The ACCC conducts inquiries and law enforcement cases in relation to Australian Consumer Law and anti-competitive behaviour by digital platforms. Recent inquiries have focused on issues relating to market dominance, mergers and acquisitions, and the impact on competition in the digital advertising market.
2.43The OAIC has three main functions:
Privacy functions: protecting the privacy of individuals under the Privacy Act 1988 and other legislation;
Freedom of information functions: access to information held by the Commonwealth Government in accordance with the Freedom of Information Act 1982; and
Information management functions as set out in the Australian Information Commissioner Act 2010.
2.44eSafety is the primary agency tasked with regulating online safety. Its enabling legislation is the Online Safety Act 2021 (OSA). eSafety’s role includes administering complaints and investigation schemes for four types of online harms:
cyberbullying of children,
cyber abuse of adults,
the non-consensual sharing of intimate images, and
illegal or restricted online content.
2.45The OSA also provides eSafety with ‘powers to regulate digital platforms’ broader systems and processes’. eSafety advised that it:
… closely monitors new and emerging tech trends and challenges, including those occurring on major international digital platforms, and advocates for greater transparency and accountability in their efforts to address online safety issues. We also work with local and international stakeholders to examine new research, policy and legislative developments, and provide resources and tools for industry’s use.
Figure 2.2DP-REG member's remits and perspectives
Source: Digital Platforms Regulators Forum, Submission 34, p. 4.