To regulate or to compete?

IT'S MONDAY AND THIS IS DIGITAL POLITICS. I'm Mark Scott, and as I enter the third week of my new job, I bring you actual footage of me now that the work has kicked off for real.

Let's get started:

— Europe is caught between doubling down on regulation and embracing its inner-American to compete in the next global tech race.

— Yes, it's true. Gen Z'ers do get their news from TikTok. But older generations aren't that far behind either.

— Google's latest antitrust lawsuit in the United States comes down to two things: the past/future of advertising and publishers' lobbying power.

Send in the Man from Rome

MARIO DRAGHI IS THE QUINTESSENTIAL European technocrat. The 77-year-old, multilingual Italian served as his country's prime minister, the governor of the Bank of Italy and president of the European Central Bank. But he also worked at Goldman Sachs — the epitome of American capitalism. So it's no surprise, then, that Draghi's long-awaited report on improving the European Union's competitive edge (chapter one, chapter two) wouldn't be out of place if authored by a Wall Street analyst. Yes, it was framed in eurocratic language of solidarity, equality and human rights. But its message was clear: Europe is failing to keep pace with global rivals like the US and China — and time is running out.

For the digital wonks among us, part of Draghi's pitch for reform was squarely aimed at areas like artificial intelligence, telecommunications and quantum computing. "With the world on the cusp of an AI revolution, Europe cannot afford to remain stuck in the 'middle technologies and industries' of the previous century," the Italian quipped. "We must unlock our innovative potential."

To that, I couldn't agree more. Draghi took aim at the multitude of digital rules and regulations — 100 tech-focused laws and over 270 regulators involved in digital enforcement, per his tally — and cried: 'enough is enough.' If Europe wants to stand alongside China and the US on tech, he argued, then the 27-country bloc needs to tap into pan-EU pots of capital; reinvigorate innovation, in part through state-funded research and development; and put a lid of the ongoing need to regulate that has set Brussels apart from Washington.

The Italian used the EU's privacy rules, known as the General Data Protection Regulation, as an example of where things have gone wrong. Yes, protection of people's fundamental rights is non-negotiable. But the regulatory burden — let alone the ongoing infighting between national data protection authorities over which agency gets to enforce — has fallen more heavily on small businesses. That has allowed bigger firms, with greater in-house regulatory expertise and legal resources, to gain an advantage over smaller rivals — often placing European companies at a serious disadvantage.

For Draghi, this isn't just about the past. He questioned how the same regulate-first approach to artificial intelligence (via the bloc's Artificial Intelligence Act, or AI Act); online content (via the Digital Services Act, or DSA); and digital competition (via the Digital Markets Act, or DMA) would allow European firms to compete against international rivals that don't have similar domestic rules putting checks on their growth. Caveat: most global firms need the EU as a market, so almost all comply with the bloc's regulation. "Implementation must avoid producing administrative and compliance burdens and legal uncertainties as the GDPR (did)," Draghi warned about Europe's next generation of digital rulemaking.

Couple of points: Not everyone in Brussels (and EU national capitals) agrees with Draghi's assessment. And it's still very much unclear if his pitch of paring back digital regulation will be anything more than a (very long) report on improving the bloc's competitive edge. The former Italian prime minister is not close to the current government in Rome — one that has been more eager to use state funds for growth and on whom Ursula von der Leyen, the upcoming European Commission president, needs to keep happy for inter-EU political reasons. Others also view Europe's litany of (not only) digital rules and see it as a differentiator for local firms — as well as a way to keep locals safe from harm.

But Draghi's key question — does Brussels want to regulate or compete? — is one that will define the next five years of the next Commission's tenure. Officials are already struggling to enforce existing digital rules, all while European companies continue to lose out to international rivals on everything from AI to cloud services to quantum computing. Is that because Europe has too many rules? Possibly. But it's also because the bloc isn't (and I can't believe I have to say this) an actual country like the US and China is. The EU doesn't have a single market, really. Its financial markets are disjointed and inefficient. That's not regulation's fault. That's just how things work when you're corralling 27 countries to agree on a way forward.

Many outside of the EU, especially in the US, eye the cavalcade of digital rules that have been passed (see above) with envy. 'If only we could do something similar,' they claim, 'then we would be onto something.' Another caveat: many also view the regulatory burden created by the DSA, DMA and AI Act and say: 'no grazie.' It's ironic that just when Europe still believes (somewhat too proudly) it's the de facto Western leader on digital regulation that one of its most prominent economic minds believes it's time to throw out many of those rules in the name of global competitiveness.

That is one thing that EU officials still struggle to realize. It's great you've created an ongoing conveyor belt of digital rulemaking. But if you want others to follow — and provide real social benefit to Europeans, themselves — then those laws also need to prove effective. How we define that 'effectiveness' is often in the eye of the beholder. But if Brussels fails to deliver results with its new generation of digital rules, two things will likely happen. 1) The bloc's long-term economic prospects will suffer; and 2) Other countries will start looking elsewhere for leadership.

One to watch: The European Commission may unveil its new structure — and officials to run the different parts of the EU's executive branch — on Sept. 17. It's still unclear how much detail we'll get due to a last-minute political tussle in Slovenia (don't ask.) Names to watch: Henna Virkkunen, a Finnish politician, may take over the digital files. Thierry Breton, the current French digital chief, bowed out of a second term in Brussels after von der Leyen asked Paris to nominate someone else.

Chart of the Week

Americans of different generations were asked how often they used TikTok, the China-linked social network, to learn about news and information related to political and social issues.

One to watch: The US Court of Appeals for the District of Columbia Circuit will weigh arguments on Sept. 16 from both TikTok and the US government over the legality of federal legislation that will either see the social media giant sold or banned by Jan. 19, 2025. 

What's Really Driving the Google Advertising Antitrust Battle

I GET IT. IT'S HARD TO GET EXCITED ABOUT the murky world of digital advertising. But, like it or not, this multi-billion dollar industry powers much of the internet. And the beginning, last week, of the lawsuit brought by the US Department of Justice and several US states against Google's alleged abuse of its dominant position in online ads is a prime example of enforcers trying to wrangle the complexities of a Big Tech giant's (incredibly lucrative) business model.

"One industry behemoth, Google, has corrupted legitimate competition in the ad tech industry by engaging in a systematic campaign to seize control of the wide swath of high-tech tools used by publishers, advertisers, and brokers, to facilitate digital advertising," the Department of Justice wrote in its submission. Google, not surprisingly, disagrees. For the search giant, its practices didn't skew the market, and it faces tough competition from the likes of Disney and TikTok. "We are going to show the court we are one big company among many others," Karen Dunn, Google's lawyer (who also helped to prepare Kamala Harris ahead of last week's debate with Donald Trump) told the court.

If you want to get lost in the every turn of last week's trial, here are the best blow-by-blow accounts: The Verge; Digiday; and The Conversation. ICYMI, Washington also isn't the only enforcer to target Google's dominant advertising business whose annual revenue (at least for the part under scrutiny in the US case) generated more than $31 billion in 2023. The European Commission filed separate charges against the tech giant about its alleged abusive position in the ad tech market last year. The United Kingdom's competition authority also dropped its own charges, also related to Google's advertising business, last week. In both jurisdictions, the company denies wrongdoing.

At first glance, the details of the case don't look good for Google. US authorities have a long-listed of former Google executives — and an even longer list of officials from competitors — outlining how the tech giant used its dominant position, on both sides of the buying/selling side of the online advertising industry, to nudge customers toward its own services. Internal emails, too, show that some Google executives were eager to use every weapon available to beat rivals. “I really believe that if we can execute on this stuff, we’ll be able to crush the other networks," wrote David Rosenblatt, then the chief executive of DoubleClick, which had recently been bought by Google for $3.1 billion.

Yet for Google, this is old news. And, to a degree, it's right. The US lawsuit focuses primarily on old-school so-called display and banner ads, or the paid-for messages that you see when scrolling through media outlet's websites. In an era when almost no one reads newspapers and everything has shifted to social media, the idea of litigating who owns those types of ads feels very much yesterday's news. In social media advertising — let alone other forms of advertising like on streaming services — Google does have tougher competition from the likes of Meta and Amazon. How can the search giant be abusing its dominant position in this new era of advertising, goes the theory? If it was an unfair monopoly, wouldn't it have snuffed out that competition, too?

It's a good theory. But one that doesn't take away from the fact that traditional digital advertising is still worth tens of billions of dollars each year. And if Google — or any other company, for that matter — abused its dominance to tilt the scales unfairly toward its services over rivals, then such historic illegality should face the full force of the law. If Google's argument is that the industry has moved on, and whatever may have happened is water under the bridge, then that's not how countries' competition laws actually work. (I say, as a non-lawyer.)

Part of this is Google's efforts to focus on legal areas — like its growing competition in social media advertising — where it feels it is on more solid legal ground. It also takes away from the inevitable murkiness of the ad tech world where concepts like 'ad exchanges,' 'demand-side platforms,' and 'open auction transactions' make even the wonkiest of digital policy geeks turn away in boredom.

But the main question that Google needs to contend with is how it ensured it wasn't taking too much of the revenue from digital advertising — at a time when it pretty much owned both sides of the buy/sell relationship. That allowed the search giant to pocket roughly 30 percent of every dollar that flowed to publishers' websites. Is that good value? Why couldn't smaller rivals find a way to break into that market, even when offering to take a smaller percentage? Did Google lock in customers with labyrinthine technology that made it next to impossible to leave? These are the crucial points as the judge weighs up the merits of the Department of Justice's case

What the lawsuit also showed — and this is coming from an ex-journalist — is how powerful the role of publishers (many of which are likely witnesses against Google) has been. That goes for both this current US case and the years of anti-Google lobbying that has pushed almost all Western antitrust enforcers to take a hard look at the tech giant's advertising business. Many of these media outlets, in both the US, Europe and elsewhere, saw drastic reductions of advertising revenue when Google used technology to entice companies to shift their marketing dollars. There was an assumption, by many publishers, that this was unfair. In reality, it was inevitable because a sharper rival offered advertisers a better way to reach would-be customers.

Many of these outlets, too, also had their own digital advertising offerings that just weren't as good as those offered by Google. In response, many have turned to lobbying against the tech giant, often directly at national leaders, to get countries to act. It's not something that gets much, if any, coverage in the media — mostly because it requires publishers to willingly delve into some of their own lobbying tactics. FWIW, I wrote this in 2015, and it remains one of the only efforts (that I can find) to call media companies out for what they are doing.

That doesn't mean publishers don't have a point (see the entire section above.) But it's worth remembering, as you read about the US antitrust case in media outlets that often have skin in the game — but, rarely, acknowledge it.

One to watch: The European Commission won a surprise last-minute victory against Apple in a long-running state-aid case that focused on tax breaks the iPhone maker received in Ireland.

What I'm Reading

— Domestic institutions, and relations between national governments and private industry in the EU, US and China are central to understanding how these three powers will shape the future 'global tech war,' argue Anu Bradford, Eileen Li and Matthew X Waxman for the Harvard National Security Journal.

— Meta will soon restart using public content posted on Facebook and Instagram in the UK to train its AI systems after pausing those efforts when local privacy enforcers questioned the legality of such data collection. More here.

— The recent efforts by US law enforcement to combat covert Russian disinformation campaigns that targeted local voters highlights the limited powers American agencies have in combating the ongoing threat, claims Dean Jackson in Tech Policy Press.

— If you want a one-stop guide to all of Europe's digital rules, Bruegel has updated their (very complicated) chart. Be warned: it's a doozy.

— Shout-out to my colleagues, who put together an exhaustive analysis on the global web of spyware companies that have relationships with companies, investors and individuals spread across multiple jurisdictions.