Digital economy has raised various new questions in front of various competition enforcement authorities. Wide reliance on new methods for interacting with users, new business strategies involving huge reliance on data (accumulation and use of the same), have baffled authorities. What is the remedy for the same has further intrigued authorities across the globe.
The scope of this paper is to find search for out of the box equitable remedies which can be enforced by Competition Commission of India, which can bring competition to life in the field monopolized by few firms. For the purposes of this researcher has limited himself to study of Social Networking and Consumer Communication applications alone, by taking up Facebook Inc, and its services i.e. Facebook and WhatsApp as prime example.
Setting up background
Network Effect stifling competition:-
WhatsApp services are a part of the instant messaging communication industry where the value of service to the user increases as the number of users of the service grows. The classic example is the telephone. The more people own telephones, the more valuable the telephone network is to each owner. If there are N owners, each one of them can call the other N-1 owners: a total of N(N-1) communications can be made. Thus the network’s value grows with exponentially with number of users. The value of a network is proportional to the square of the number of members within the network. Thus, when a product/service becomes valuable with the increase of the number of users it is known as Network Effects.
The concept of network effects is not new to the Indian competition law jurisprudence and has already been recognized by Competition Commission of India as ‘Network effect means that a product/service become valuable with the increase of the number of users.’ (Prasar Bharati Vs. TAM Media Research Private Limited).[1] Furthermore, in another case Competition Commission explained network effect as the concept by which the value to the users in an industry increases with increase in the number of its users (MCX Stock Exchange Ltd. vs. National Stock Exchange of India Ltd.)[2]
WhatsApp introduced its services in the year 2008 and it was the first of its kind application that linked the user’s contact number in providing the communication services. Since WhatsApp used internet connectivity in sending messages and was free, thus it completely substituted erstwhile, similar service of SMS and grabbed an instant popularity in the relevant market. In mere span of five years, WhatsApp became the most popular means of instant messaging communication in the society and had emerged to be the only app that had an enormous user base of active users. In the present situation, WhatsApp has become a need of the hour and has the most monthly active users. In the present scenario, if a person is not using WhatsApp, he will be handicapped in communicating instantly and purposefully with his peers as it is the most popular consumer communication app and at the end of the day, he will, howsoever unwillingly, have to use the services of WhatsApp for communicating with them. Resultantly, the person becomes a part of the network and increases its network size, following to the same, his peers who desire to contact him will also join the network and start using the services of WhatsApp, thus giving a birth to a chain reaction.
In the present scenario, because of network effects, the consumers are dependent on the services provided by WhatsApp as it has become a valuable service for them because it has such an enormous base of active users. WhatsApp has become a must have application in every smartphone.
Therefore, one cannot simply shift to another consumer communication application available in the relevant market without bearing high switching costs. Thus, bringing WhatsApp to a position in which the users are dependent on its service because of network effects in which no matter what conditions WhatsApp imposes on its users they will have to accept it.
In light of Whatapp’s ignorance for privacy protection, a consumer may prefer a better technology or the benefits of a competitor’s business; however, he/she is prevented from doing the same by the presence of network effects. Consumer communication applications such as the present one rely entirely on the presence of a user network to be meaningful to their users. High concentration of users on one app means the existence of a wide network on it, which is difficult to replicate on another network in a short-term or with minimum effort. Even where the switching cost from the dominant network to another is low or even absent, as in the present case, the consumer will still not be able to switch to another network since network effects ensure that there is a high level of coordination required between the consumers; given the number of consumers, this coordination will be impractical and difficult to achieve.
The Researcher has used only the examply of WhatsApp in this particular case, while the same analogy can be stretched even towards the working of Facebook, due to constrain of wordlimit the researcher has made a decision to not include the same in the paper.
User as true asset for these companies
Herein it is to be noted that Facebook Inc and WhatsApp Inc. both are service providing platform, which is later used by users and the usage of the same creates value for the platform itself. Thus user is the real asset for any platform providing service, in following two ways:-
Asset in form of License: WhatsApp in consideration for providing its service takes a license from its users.[3] This license includes right to use, process, store, and sublicense, transfer these rights to others amongst various other rights. While the user continues to be the owner of the data so processed, they can use these data in the manner so provided in the License. Similar Licenses are also taken by Facebook Inc.[4] Later these entities utilize data so obtained under license for the purpose of processing, and providing services to the users, and further sustain the platform. Thus the license it has individually obtained from users is an asset for both entity i.e. Facebook Inc and WhatsApp Inc.
Global Perspective in regards with asset:- For the internet based services like that of WhatsApp Inc. which provides platform to its user, it is to be noted that valuation on basis “value per user” is prevalent practice. It is to be noted that European Competition Commission while considering the basis of valuation of WhatsApp took into account the value per user.[5] Thus it in fact shows that the real asset of any platform based service which includes Facebook and WhatsApp Inc is the users on its platform. Other Consumer Communication Applications similar to WhatsApp were also evaluated on the criteria on multiple occasions i.e. Rakuten’s acquisition of Viber, or Skype’s acquisition by Microsoft, Instagram acquisition by Facebook, or even when Line took out IPO in 2014.
Company’s own perspective:- Facebook Inc in “Unaudited Pro Forma Condensed Combined Financial Information (Exhibit 99.3).”,[6] filed before U.S. SECURITIES AND EXCHANGE COMMISSION, under head Intangible Assets acquired in connection with acquisition of WhatsApp title “Acquired Users”. Thus, Company admits that USERS on the platform are the true assets of the company.
Interoperability as remedy
Interoperability in its simplest terms can be defined as one platform’s ability to interact and work with other platforms. In regards with web software this is generally achieved through Application Programming Interfaces (API)- which by far allow different softwares to interact with each other in. Simplest example could be when different websites use Facebook’s API for the verification purposes on their website and also use the same to access various sets of data and sometimes even post on their behalf.
The benefits arising from interoperability provided by platform can significantly improve the overall conditions in the market. With new and noble markets emerging, such as various developers entering and developing tools which in turn make the platform more usable and valuable because of the innovative steps taken by future developers. Further it also paves way for entry of various new players in the market, making market more and more decentralized and federated, as we can see in the case of telephone services, email services and World Wide Web. Lack of interoperability and systematically closing down possibility of interoperability has helped Facebook/WhatsApp cement the position they currently enjoy in the market, unchallenged, and powerful enough even to topple elections.
The systematically closing down opportunity to interoperate can be seen very evidently from the “platform policy” of the Facebook itself. Although it is all done in the name of user, they generally tend to serve the purpose of enterprise. This has been elaborately deal in next session. Just to highlight attempt to frustrate the interoperability can be seen from condition wherein the Facebook actively prohibits developers from changing UI or / and further prevent even users from adjusting the same according to their own needs. Section 4.2 prevents offering “experiences that change the way Facebook looks and functions.” Read with other clauses such as “respect the limits we’ve placed on Facebook functionality,” evidences Facebook Company’s intend maintain tight control over their platform.
Perhaps the most express bar can be seen from the condition where Facebook explicitly bars any social network from communicating with Facebook which is enshrined in condition Section 4.1 states, “Don’t replicate core functionality that Facebook already provides.”
As a general practice most successful interoperability is powered by open standards. For example we can look at Email, which uses the protocols of SMTP and IMAP, which facilitates sending emails across the platforms, from Yahoo to Hotmail to Gmail, AOL, and virtually every other platform seamlessly. This has allowed users to choose the platform though which they want to host their messages as well the kind of service they want to avail in order to send across their messages. This has made Email a truly decentralized and federated market wherein competition still does exist.
Similar API’s for Social media services also exist in the market, these API have been approved and developed by World Wide Web consortium, ActivityStreams and ActivityPub, are prime examples of the same. Either Facebook could be forced to adopt either of these two open standards or open source the standard they are already having in place. This would allow new players to come into market, and make Facebook one of the many players in the market. Giving users more power and flexibility in terms of choosing platform which hosts their data on terms and conditions they find agreeable, and still manage to connect with their groups.
Thus these remedy not only cures the problem of concentration of the market, but also further paves the way for future development of the market, both in the direct competition in upstream and downstream, while at the same time ensuring the benefits to consumers.
Data Portability as remedy
Data portability defined in simplest terms is facilitation of movement of data from one platform to another platform. Data portability allows user to move from one platform to another, like in case you might be user of WhatsApp for years and have created multiple chats, stared message and other data; you might be hindered from actually moving to another platform for the fear of losing all that data. Thus allowing unhindered movement from one platform to another is facilitated by data portability for the existing users of the services.
Facebook has been one of the first firms to take advantage from data portability efforts taken up by different platforms, which in turn helped it growing its network. This could be seen where Facebook in its inital days used to borrow contact lists from Gmail and Live, for its users and which in turn built its social network.
While the Facebook while citing security reasons have very often than not shied away from giving its share in data portability. It would very often show the email address on profile (amongst other details) in form of images instead of text, thus making it impossible to download data in readily usable form.
One interesting development in this regards is Europe’s GDPR (General Data Privacy Regulation), which took effect from 25th May 2018. It made it obligatory on part of social media to provide for data portability. Though Facebook has taken steps in that regards and allowed users to download their data in JSON format, but it is to be noted that the data so downloadable is only subset of total data which Facebook has in regards with user. Thus it is only compliance factor which has been changed and users have not been empowered in true sense. Thus using that data user cannot move to new platform.
Facebook has built itself taking advantage of data ported from other services and now it is high time it returns the favour.
It is also to be noted that the ownership of the data the user creates continue to lie with user as per “Statement of Rights and Responsibilities” issued by the Facebook. [7] “You own all of the content and information you post on Facebook,” further the definition of post not only include the information which is actively provided by user but also the information which Facebook automatically collects by observing the behaviour of the user pattern over its platform.
As the owner of the data the user ought to have more right and control over the data. As previously mentioned that Facebook has merely license to use the same, thus how that particular license has been used must be informed to user. And if user wants to revoke the license and take control over their data the same must be allowed.
Thus data portability is not only an issue of importance from point of view of competitors and upstream and downstream market, but also an question equity and justness from point of view of User.
Conclusion
The remedies so suggested in this paper that is Interoperability and Data Portability, possibility and power to enforce the same exists in the hands of Competition Commission of India. Not only these remedies remove the major hurdle in innovation and centralization which these company have caused, but also further pave the way for further innovation. And also at the same time ensure consumer welfare. Currently pattern of asking to pay damages causes only temporary setback to these companies and without any long term consequences which can improve the market. Once these remedies are being implemented on these companies, they will be forced to compete on strength of their product rather than just the dominant position they currently enjoy in the market. Further the users will be unfettered from sick system in which they are trapped. Freeing their data and giving them control are the first steps towards a cure.
Views expressed are personal, please take independent Legal advice from a professionals.
[1] Prasar Bharati Vs. TAM Media Research Private Limited , COMPETITION COMMISSION OF INDIA Case No. 70 of 2012.
[2] MCX Stock Exchange Ltd. vs. National Stock Exchange of India Ltd, COMPETITION COMMISSION OF INDIA, CASE NO. 13/2009.
[3] Your License to WhatsApp. In order to operate and provide our Services, you grant WhatsApp a worldwide, non-exclusive, royalty-free, sublicensable, and transferable license to use, reproduce, distribute, create derivative works of, display, and perform the information (including the content) that you upload, submit, store, send, or receive on or through our Services. The rights you grant in this license are for the limited purpose of operating and providing our Services (such as to allow us to display your profile picture and status message, transmit your messages, store your undelivered messages on our servers for up to 30 days as we try to deliver them, and otherwise as described in our Privacy Policy). https://www.whatsapp.com/legal/#terms-of-service
[4] https://www.facebook.com/legal/terms/plain_text_terms
[5] CASE M.8228 – FACEBOOK / MERGER PROCEDURE, European Commission, http://ec.europa.eu/competition/mergers/cases/decisions/m8228_493_3.pdf
[6] https://www.sec.gov/Archives/edgar/data/1326801/000132680114000047/exhibit993unauditedproform.htm
[7] https://www.facebook.com/legal/terms/previous?ref=new_policy
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