At the beginning of the internet, governments put in place policies and interventions to stimulate economic activity and opportunities. Now, over 30 years later having been through various bubbles and crashes the world looks very different. The most powerful companies in the world constitutes digital platforms and governments are now looking to understand how best to curb the market consolidation of power and to stimulate further digital competition and innovation. Digital success in a world of innovation and increasing regulation requires a different approach. It considers the impact of data sharing and the value of ecosystems and collaboration…
As a business leader working with clients to deliver their interpretations of digital transformations with everything from yield management in the online booking systems to connecting citizens directly with their local council services. Having recently read the UK Government’s report on unlocking digital competition this is my perspective of the digital transformation world and innovating in an environment of increasing regulation.
When the commercial internet was born in the 1990s, governments made many allowances for young companies navigating this new space. They were given carve-outs and exemptions, either explicitly or implicitly, from laws and regulations that older legacy businesses faced in areas ranging from tax, to liability for user misconduct on their sites, to copyright infringement.
After years of excesses, Big Tech companies now face a flurry of efforts to curb their dominance through regulation, from India to the US. In this highly fragmented landscape, the UK government recently published its contribution, with a roadmap for ensuring competition in a sector which has arguably struggled to safeguard it.
The Report of the Digital Competition Expert Panel, led by Jason Furman, a former adviser to President Barack Obama, criticises the restricting effect of companies including Google and Facebook. It calls on them to share data with other firms and to make it easier for users to switch to competitors. The proposal is that this arrangement would be enforced by a new “digital markets unit” with an industry wide code of conduct on competition. Scrutiny on mergers and takeovers in the tech world would also be increased.
Agreeing a definition of Digital
Whilst the report specifically name checks the big five; Facebook, Apple, Amazon, Google and Microsoft, these aren’t the only challengers. In my world when I think about “digital” and the reality that every part of our lives across all sectors and functions is becoming digital by default. I believe we should not restrict ourselves to these “Big Tech” companies mentioned above but should include major IT Services firms, such as Accenture, IBM and DXC. These IT Services firms have merged and acquired on as equally regular basis as the big five, in some case more. Yes, they may be slightly older and offer a diversity of business to business services, but they too are essentially digital businesses. The line between “digital” and IT service is blurring and I would make the argument that it doesn’t exist today in many areas. We shouldn’t just fall into the trap of developing a simplified definition to target a handful of firms.
As a specialist IT and Digital Transformation provider we have seen a number of our competitors acquired by industry majors. However, the proposal for a closer eye on acquisitions is particularly welcome. The fact that no Big Tech mergers and acquisitions have been blocked suggests some may have been allowed that would have been vetoed if proper rules were in place, as the report notes. Whilst the report is a bit of a long read at 150 pages, its recommendations on how to toughen up merger guidelines by focusing on long-term effects are clear and to me seem workable.
Apart from the tight definition on who warrants being a digital player with a concentration of market power, other aspects of the digital markets proposal unit are problematic and may be a case of veiling capability gaps. Opening access to Big Tech’s immense data pool would be of huge value, particularly for innovative areas such as Machine Learning and Artificial Intelligence. However, my feeling is that legislating the tech firms make switching to competitors easier is fraught. Previous efforts to ensure choice in sectors such as banking and utilities have not greatly widened choice, in a large part as a result of inertia. Switching also brings with it a host of other potential problems, such as teaser rates. Also, from my experience once a data silo or data lock-in has been removed from firm requesting access to data, the capacity of firms to truly dig and understand the data isn’t always readily available and the actual service standard and level of innovation has a risks deterioration.
The report contrasts with the more radical proposals in the US to treat Big Tech firms and to break them up, in the way in which they did for AT&T or Standard Oil. As the authors of the report note, “the option of breaking up Google, for example, is not a policy option for the UK”. In my opinion this wouldn’t be something I would go for as I believe that the market and competition is the best mechanism of generating innovation and technological advancement and those global questions are not what are keeping my clients up at night when thinking about their digital transformations.
Bring it to life with innovation ecosystems
For a specialist firm based near Cambridge, it is common place that our clients come to us with an international component to their requirements. We tackle this with our business ecosystem of partners. They are our network of organisations — including suppliers, distributors, customers, competitors, government agencies, involved in the delivery of a specific product or service through both competition and cooperation. We are proud to have real diverse mix which includes the likes of NTT and Silver Peak.
A real tactical example of this is where we are working with Silver Peak’s, Unity Edge Connect software-defined wide area network platform and optimisation experience from the likes of the London Marathon, and complementing it with NTT Communications’ network management, security and solution services who are innovating for the forthcoming Tokyo Olympics, all for a client that is wishing to use Skype for business.
In this and many other examples, bringing together a US specialist software firm, Japan’s largest IT service provider and a specialist digital transformation firm is how and where the real innovation comes to market. We should be thinking how to make this process easier across each of the ten types of innovation as well as some of the proposals on the table.
It’s not impossible for the UK to encourage changes to competition law and other regulation along the lines of the report. I would welcome any measure that drive great diversity and innovation in the marketplace for us to tap into and make it easier to deliver technology benefits to our clients. In my opinion it will however, take a substantial effort, potentially reducing innovation in the short term. The digital markets unit must demonstrate an extremely high level of competence, beginning by determining a workable definition of “digital” and where its remit should start and stop. It will need to bare its teeth when facing the next Big Tech merger.
Everything old is new again
It is my view, that if done correctly, particularly when it comes to working with wider stakeholders in the EU and US, the technology landscape over the next five to ten years will be substantially different. As the shifts to services and digital continues along with the technological advancement of self-managing smart contracts a market not just of a small number of digital goliaths but a broader diverse community of smaller specialist firms and their global ecosystems will emerge. This movement back to the earlier days of the internet will continue to demonstrate there is nothing really new in the world, even when it comes to digital innovation and competition.
We are always on the look out for exciting innovation partners we can work with to help our clients achieve their technology goals. If you would like more details on anything mentioned here or would wish to explore working together, drop me an email to pjob@intergence.com or contact The Future Shapers.
