June 1, 2011

Governments need to prevent formation of big monopolies in the new global digital economy

I attended the first e-G8 Forum in Paris last week. The purpose of the Forum was to engage in debates and discussions about the Internet and the digital ecosystem in order to set the agenda on this important topic for the Heads of State and Governement of the Group of Eight – Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States – during this year's G8 Summit that was held right after the e-G8 Forum.

The format of the e-G8 Forum was very similar to The World Economic Forum that is annually held in Davos. After every debate/session, three to five key messages were captured, which were at the end again massaged and prioritized to frame the final agenda for the G8 Summit. While the process was a bit frustrating, I think an honest effort was made by Nicolas Sarkozy, President of France and the current President of the G8, to incorporate feedback from all the stakeholders. I commend Sarkozy, who addressed us while inaugurating e-G8, for this initiative, which may become a regular event during all future annual G8 Summits.

However, there was a cloud of suspicion throughout the entire Forum that the event was an effort by entrenched big corporations and governments to establish policies and laws which will essentially hijack this fledgling new medium to meet their vested interests at the expense of small startups and masses. The latter are primarily responsible for most of the innovation and creativity enabled by the democratizing nature of the Internet medium that is thus far free from restrictive government laws.

Unfortunately, I doubt that the above concerns were resolved after the conclusion of last week's inaugural e-G8 Forum. 

Internet continues to lead an economy with "winner takes all" outcomes in most of the industries it is affecting fundamental changes. Google, Apple, Facebook are clear examples of very deep, entrenched players in the digital ecosystem. 

To give an example, despite what Google officially argues with policy makers in Washington DC and EU, the numbers prove the fact that the company is a clear monopoly in most global markets in the online Search and Advertising industry (China being a major exception, for different reasons though). Google continues to leverage its dominant position in online search and advertising to attain dominance in emerging, new adjacent areas of the Internet economy like mobile (Android). When Google is not able to win through its organic efforts, it has a history of successfully acquiring key startups which were able to establish market leading positions. DoubleClick (online brand advertising) and AdMob (mobile advertising) are  two clear examples. These acquisitions were approved by the U.S. Justice Department.

The entrenched players have erected major barriers for entry for new players which are needed to keep the new digital economy competitive. While a very healthy, venture-funded startup activity continues to encourage new entrants, increasingly, the only exit for them is an acquisition by a handful of established, entrenched players in the sector. 

If I have to give one key message to the G8 leaders on their role in the Internet and digital ecosystem, it will be to ensure that they closely scrutinize anti-competitive business practices and acquisition activities of the industry's dominant players.

Europe gets a grade B, and U.S. gets D in this test thus far.