Chillin'Competition

Continuing the “inter-platform dialogue” on platforms started by my post last week, we are very pleased to post a guest contribution from Jakob Kucharczyk, Director of Public Policy at CCIA‘s Brussels office, that will also go up on the DisCo blog. I hope you the reader enjoy this exchange of views.

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As a trade association representing many of the most popular online platforms, CCIA obviously has some strong views as regards the many elements of the debate on platforms, as well as its roots which Alfonso adequately described in his post. While Alfonso tackled the debate from a competition law perspective, I will look into this debate from a regulatory perspective. As an immediate reaction to Alfonso’s points I have to say that regulation should have one key commonality with competition law enforcement: it should be a fact- and evidence-intensive exercise. However, very often there is a difficulty in Brussels to frame the regulatory debate against actual market dynamics and facts. While regulation is somehow bound to be subject to greater political influence than competition law enforcement because of the legislative process, good regulation should at the minimum be based on the concrete identification of economic or societal problems that merit regulatory intervention.

As the initiator of legislative proposals at European level, the Commission has extraordinary responsibility to base proposals on solid evidence in tune with its recently announced better regulation package. I guess in competition law terms one can say that in light of the Commission’s quasi monopoly on legislative initiatives is carries a special responsibility.

So let me start this dialogue with some good news and insights into Europe’s digital economy which I think are worthwhile to keep in mind when discussing online platforms.

Investment into European E-Commerce Ventures is Booming

Alfonso mentioned how political frustration with competition law enforcement in digital markets led to increased regulatory pressure on platforms. The mythical ineffectiveness of competition law, however, is often accompanied by a political belief that European online players are unable to compete in a market ‘dominated’ by mostly American players. This might explain why European policymakers seem quite willing to explore the regulatory path since intervention would not primarily hit European interests. I will discuss this argument later but for now let’s shed some light on the market. At CCIA we wanted to have insights from investors, people who are detached from Brussels and who invest ‘real’ money into e-commerce ventures. What do they think about the chances of European e-commerce companies?

Well, here is the good news — they seem to be very optimistic. Investments into European e-commerce ventures are booming. Our friends from ‘The Analyst’, an independent equity research house based in London, found investments into their study’s sample group of 25 publicly traded, pure e-commerce companies have increased by 27 times over the last three years. Capital inflows into the sample group of 500 private e-commerce companies, many in the startup/early development phase, increased by 4.5 times in the same period. In aggregate numbers, since 2012 the group of 25 publicly listed e-commerce companies raised €12 billion and the group of 500 private companies raised over €5 billion. Yes, money is essentially pouring in and the report illustrates several success stories in fashion, real-estate, and food delivery, whose range shows how the e-commerce market is becoming more diverse. (You can see Mark Hiley, CEO of The Analyst, speaking about the report here).

While these findings are a snapshot of the e-commerce sector, they confirm the one of the main characteristics of digital markets: very low barriers to entry (see e.g. here for our previous discussion of this theme). European e-commerce ventures are vibrant and in the process of greater diversification. Investors continue to bet on this positive development. All of this is indicative of healthy market dynamics and should send a clear signal to policymakers. European businesses are competing and platform regulation as a tool of industrial policy would be misplaced. In fact, increasing regulatory barriers might go the other way and stifle this development because it benefits today’s ‘incumbents’. In all likelihood they will be able to deal with more regulation which will shield them from more agile competitors. Policymakers need to keep this potentially disproportionate impact of regulation in mind when weighing the pros and cons of intervention.

Definition of ‘Platform’ – The Never Ending Debate  

Let me give you examples of Europe’s e-commerce success stories: in only eight years, Germany’s Zalando became Europe’s largest mass-market fashion e-tailer. Rightmove has become the UK’s leading residential property portal, providing services to estate agents. Italian-Swiss Yoox/Net-a-Porter operates the leading online, luxury apparel portal in Europe and after only four years the online food ordering platform Delivery Hero operates in 34 markets across five continents.

Apart from being successful and growing businesses, what else do these companies have in common? Of course, they are all platforms. But is that true? Alfonso rightly suggested that the answer to this question may not be easy as we currently witness a lot of blind men trying to describe the elephant — hence definitions are quite subjective. Therefore, let’s have a look at the definition provided by the Commission in its consultation on platforms. Interestingly, it does make sense but it seems that the consultation is inconsistent in the application of that definition. The consultation states that an online platform is “an undertaking operating in two (or multi)-sided markets, which uses the Internet to enable interactions between two or more distinct but interdependent groups of users”. However, it is not clear why a company like Netflix, which is explicitly mentioned as an example, would fall under that definition because it essentially functions as a retailer for audiovisual content. While there might be network effects, there is no direct interaction between content rights owners and consumers. Netflix negotiates with rights owners, ‘stocks’ the content at own risk and offers it to its subscribers. Amazon as such, for example, does also not fit neatly under the definition. Amazon’s online retail business is a one-sided market while its open marketplace does indeed bring together two distinct but interdependent groups: sellers and consumers. Today Zalando operates an online retail business in a one-sided market. Should it change its business model and open its site to third party sellers, just like Amazon did, it would suddenly fall under the Commission’s definition of an online platform.

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