Unlockd, Sked lawsuits unfold in shadow of Australia’s Facebook, Google inquiry

07 June 2019 00:00 by James Panichi

When Australia’s ground-breaking digital-platforms inquiry into the impact of Facebook and Google on the media and advertising industries hands its final report to the government at the end of this month, all eyes will be on how the competition regulator has dealt with a handful of hot-button issues.

Should merger and acquisition laws be redrafted to take into account the platforms’ knack of pre-emptively knocking off potential rivals? Are the country’s privacy safeguards adequate to manage the harvesting of big data? Will Australia be the first jurisdiction in the world to establish a digital regulator?

Yet far from the limelight, deep in the report’s fine print, are likely to be key regulatory settings that, if implemented, could affect the livelihood of a less prominent, yet important galaxy of third-party companies that eke out a living by using the tech giants to act as an intermediary through which to interact with customers.

Companies such as Australia’s Unlockd, which saw its business model go up in flames last year after Google denied the start-up access to its advertising services; or Sked Social, a local hero that has turned to the courts to overturn Facebook and Instagram’s decision to block its access to their platforms.

What these cases point to is that the relationship between the platforms and third-party companies is often fraught, and concerns already expressed by the Australian Competition & Consumer Commission in its draft report appears to back up that reading.

The problem, as the ACCC sees it, is one of vertical integration. Third-parties relying on the flow of advertising provided by the platforms — for example, Google’s AdMob and AdSense services — may find themselves competing against the platforms’ own businesses in the same space.

As critics see it, third-party operators are using a pipeline owned by the platforms but are also competing for space against the platforms within that pipeline. The ACCC reckons the potential for anticompetitive mischief-making on the part of vertically integrated platforms is now beyond doubt.

For Unlockd, the ACCC’s final recommendations to government may be too little, too late; the legal challenge to Google by the start-up’s liquidators has tanked in both Australia and the UK, with the ACCC’s ongoing probe into the matter the sole, slim thread of hope it has left.

Yet for other third-party companies orbiting Google and Facebook, how the ACCC chooses to deal with vertical integration — be it through the display of advertising or the treatment of media companies on Facebook — could mean the difference between success and failure.

Back-end regulation

On the issue of advertising, the ACCC’s draft report on the operation of digital platforms was clear: Facebook and Google dominate both sides of the market. The two platforms “are the channels by which most digital advertising is purchased and sold in Australia.”

At the front end, Google and Facebook provide advertisers with the ability specifically to target certain audiences — albeit with some shortcomings related to how the effectiveness of that targeted advertising is audited.

But it’s at the other end of the business model, where third -party companies can monetize their relationship with the platforms’ flow of online traffic, that different competitive concerns kick in.

“Facebook and Google are vertically integrated businesses and each is likely to have the ability and incentive to favor their own related businesses or businesses with which they have an existing relationship,” the ACCC’s interim report says.

“This could occur without third parties, such as advertisers or online media sites, being aware that it is happening,” it says, before going on to recommend the setting up of a regulatory authority to “monitor and report on these issues.”

It’s unknown whether the interim report’s call for a digital regulator will survive in the final draft and, more importantly, whether a recommendation of that kind would be embraced by government. Some industry players believe an expansion of roles for existing regulators is a more likely outcome.

What we do know is that the platforms are opposed to an industry-specific regulator — with Facebook particularly concerned by the prospect of an agency ferreting around its relationship with both advertisers and third-party companies, including media organizations.

For Google, the stakes are even higher, with the prospect of a future regulator micromanaging both AdSense and AdMob in a bid to scupper concerns over behind-the-scenes anticompetitive practices.

Unlockd undone

The ACCC doesn’t comment on open investigations, but MLex has been able to confirm that the regulator is, indeed, investigating the circumstances that led to Unlockd’s demise.

The investigation isn’t directly related to the digital platforms inquiry, but the ACCC readily concedes that the expertise acquired through the broad Facebook and Google probe is being fed into to other aspects of its work, including investigations and merger assessments.

Melbourne-based Unlockd was, while it lasted, a platform that allowed owners of smartphones using Google’s Android operating system to receive targeted advertisements when unlocking their mobile devices in return for in-kind payments.

The app relied on Google’s AdMob, which is described by the ACCC’s interim report as a “service offered to application developers to help monetize their applications by allowing Google to sell advertising opportunities on their applications through AdMob to advertisers on their behalf.”

Without access to both AdMob and Google Play — Google’s app retail outlet — Unlockd couldn’t operate. That became clear when, in March 2018, Google wrote to Unlockd to inform the Australian start-up that its access to AdMob had been cut off. The company went belly-up.

Company administrators ultimately abandoned action at the Federal Court of Australia to focus on the UK lawsuit. Last month, Unlockd walked away from that legal action as well, after failing to obtain funding to litigate. Unlockd’s administrators were obliged to pay Google’s costs.

The best-case scenario for what remains of a company that had once been able to raise $42 million in funding is that the ACCC’s probe provide it with redemption without resurrection — Unlockd appears to have reached the end of the road.

Yet Unlockd’s unfinished business over its access to the AdMob service has created uncertainty for other third-party players. Court documents in Australia show that Unlockd had planned to argue that Google’s actions had violated both Australian competition and consumer law — claims that weren’t put to the test.

Google is adamant that its decision to turn off the flow of ads to Unlockd was purely the result of the Australian start-up falling foul of Google's policies. In a statement to MLex last year, Google said it had given Unlockd time to fix the problem and find alternatives, but that Unlockd had failed to act.

Yet the wording of the ACCC’s draft report would suggest that the regulator wouldn’t take Google’s explanation at face value.

“In terms of advertising services, digital platforms could seek to maximize their own profits, rather than optimize outcomes for advertisers and websites,” it says — the interim report uses the word “websites” to include applications, which would include Unlockd.

The platforms may do this, the ACCC suggests, by “favoring their own inventory” while also “favoring their own advertising services by excluding rival suppliers of advertising from other products.” As an example, the draft report mentions “refusing rival advertising apps access to the Google Play Store.”

Need for dialogue

The lawsuit brought against Facebook and Facebook-owned Instagram by Dialogue Consulting, the parent company of start-up Sked Social, is about market power rather than access to advertising. Yet the Australian software company’s arguments also go hand in hand with concerns raised by the ACCC.

Sked, formerly known as Schedugram, is a social media management and scheduling tool. It helps companies plan and schedule their posts and videos on Instagram and Facebook, a service until recently not provided by the social media platforms themselves.

The service is simple. A company that doesn’t have the expertise to schedule content on Facebook and Instagram can use Sked’s services. All those businesses need to do is hand over login details of their Facebook and Instagram account and Sked takes over the management of their social media campaigns.

According to court documents, on Feb. 12, 2019, domains used by Dialogue were banned from Facebook and Instagram “without any warning.” That had an immediate and devastating impact because Sked could no longer deliver the key service it had advertised.

What happened? According to court documents filed by Dialogue, how things played out had nothing to do with alleged violations of user terms and conditions, and everything to do with Facebook attempting to strangle a competitor.

The argument is that Sked provided — and continues to provide, with a court injunction in place until November — serious competition to services now offered by Instagram. Again — the claim is that the pipeline’s owner had started to compete for space in the pipeline itself.

“Instagram changed its policy on third parties managing posts to its platform by introducing its own Instagram content publishing [application programming interface] which was offered — discriminately — to a select few app developers which compete with Dialogue, but not to Dialogue,” the documents say.

Dialogue’s court filings were written five months after the ACCC’s draft report on digital platforms, and the wording the company uses appears to echo that of the report.

“In the market for social media marketing and management services with added value features ... Dialogue is a significant competitor,” the documents say, adding that Instagram has a “substantial degree of market power in the market for social media marketing and management services.”

Compare this with the interim report’s conclusion on the technology giant’s market position: “Facebook has substantial market power in the market for social media services (the consumer facing market),” the document says.

Although the ACCC says its finding of market power doesn’t equate to proof of an abuse of that market power, the draft report says that a company such as Facebook could “maintain or advance its position by restricting or undermining its rivals’ ability to compete, rather than by offering a more attractive product.”

When Dialogue’s lawsuit comes to court in November, the company’s lawyers may be able to quote the ACCC’s final report into digital platforms when arguing their case.

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