Dark patterns of digital putting behavioural economics in the ACCC’s crosshairs

Welcome to Unmade, mostly written on Tuesday afternoon at a pleasant enough hotel in a pleasant enough part of Sydney.

It looks like I picked the right week for a trip away from Tasmania. I know the severed internet was supposedly some sort of accident, however, I’ve a hunch that my fellow Taswegians were attempting the full Brigadoon. (Others will merely see a rain dirty valley, of course.)

Happy International Rescue Cat Day. Enjoy your special holiday by trying not to vomit up a hairball, Loki & Sophia…

The platforms problem

I’m not saying that it took a long time to read the ACCC’s latest discussion paper for its Digital Platforms Inquiry, but I was in Tasmania during the summer when I started it, and in Sydney in the autumn by the time I was done.

Which admittedly means I started it on Monday and finished it on Tuesday. And it’s also a rather unfair characterisation of what could be a dry document, but instead takes little more than 100 pages to explore the complexities of the competitive landscape in a remarkably plain-speaking way.

The rigorous work by the ACCC in building a detailed understanding of the platforms since it began its inquiry in 2020 is one of the few impressive media policy initiatives to have come out of the eight-and-a-half years of Coalition government. The media ownership reforms were so much less complex.

Up until now, the key focus of the multi-stage inquiry has been on how the platforms’ scale has distorted the news market, and how the programmatic advertising market has been stacked in Google’s favour. If you’re a marketer who doesn’t yet understand that most of every digital display advertising dollar is ending up in the pocket of Google, Facebook and other intermediaries – as Bob Hoffman puts it: “I know 97% of my programmatic ad budget is wasted, I just don’t know which 97%.” – then you’ve not been paying attention.

In this week’s white paper, which only marks the half way point of the inquiry which is due to run until 2025, the ACCC is sharing some of its thinking about whether, or how, consumer protection laws should be changed.

Having looked at the impact on other businesses in the space (and creating the News Medias Bargaining Code which nudged the big two platforms to start giving millions of dollars to the big media players) in this white paper, the ACCC is considering more directly how consumers are influenced.

The tone of the report is pragmatic. When it’s all laid out, the way in which big digital companies have made the world their own in little more than a decade is actually very impressive. They’ve been clever, strategic and have often improved people’s working and personal lives.

Take the good that Google has contributed. I’m old enough to have done journalism without the benefit of Google search. Cuttings libraries are less comprehensive. I’ve come to expect my Gmail to be seamless, and would be lost without my Google calendar. And as for Facebook, well, I guess I wouldn’t know which bins to put out without the Sisters Beach Facebook group.

Along the way though, they’ve built up dominant, non-competitive niches. The reason Google is able to own the programmatic advertising chain is because it built or bought all the pipes. The reason why so many advertisers’ dollars go to Facebook is because (Bob Hoffman jokes aside) it’s so good at targeting the right people. Marketers put their money behind what works.

When Mumbrella’s events business was at its peak we came to rely on supplementing our own channels by spending a small fortune on digital advertising. That meant either Facebook or the Google Ads. With some of our less profitable events, while we did all the work, Facebook and Google made greater margins than us. But they were essential, because they delivered better results than anyone else.

But for advertisers there are many hidden costs. Take one example. A while back, I clicked on an ad on Facebook for Mott & Bow jeans and bought a pair (I was impressed, by the way). Since then I’ve been bombarded with Facebook ads not just from Mott & Bow, but from all of their competitors.

Think about the logic of that. Mott & Bow paid to advertise to me, and I’m their customer. But Facebook is making that data available to any brand that’s willing to pay for it. Why be loyal to their advertising customer Mott & Bow, who were the ones who converted me into a buyer, when Facebook can make more be making me available to their rivals too?

Facebook rather cutely describes the practice as “lookalike audience” targeting.

Sounds so benign, doesn’t it?

And that’s a small example of how the ACCC is thinking about the world. When you reach the point where platforms are so dominant that competitors can’t compete, then they can charge what they like. At that point they’re imposing a tax on business, not charging for a service.

As I pointed out last month, Google is making an operating margin of 31%. It pulled in global revenues of $257.6bn in 2021, and a profit of $76bn. It also put up the price of advertising by 35%. Because it could.

An intriguing new front in this week’s white paper that goes beyond the big two is behavioural economics, or “dark patterns”, as the ACCC puts it.

Ever clicked on the “best value” or “most popular” payment option on a website? That was behavioural economics in action.

Heck, if I were to remind you that you’ve only got 10 days left to take us up on our 60% discount on subscribing to Unmade to mark the arrival of my colleague Damian Francis, then that’s behavioural economics in action.

If you clicked on the button above then your fear of missing out (on a very good deal) was a classic behavioural economics nudge.

The dark patterns the ACCC speaks of goes a little further though. Humans are vulnerable to clever and manipulative algorithms.

That Amazon product search page is excellent at nudging people into buying what Amazon wants them to, rather than what they first intended. And Kogan has already fallen foul of the regulator for the way it has manipulated sales prices in the past.

There’s more to come from the ACCC on the retailers in the next few days:

A political reality is also looming. This five year inquiry may well be inherited by shadow communications minister Michelle Rowland. The decision on whether to act on the recommendations of the ACCC civil servants will be a political one.

Depending on when the election is called, and who wins, it may well be Rowland who will have to decide quite soon whether to designate Facebook under the News Media Bargaining Code, for taking the calculated decision to lock out the likes of The Conversation, SBS and other smaller players from the deals it’s been giving to the big end of town.

Another question floated in the white paper is for the ACCC or a new body to be given additional powers. The problem with going that route is that for every proper watchdog like the ACCC you get a lapdog like the Australian Communications and Media Authority. Regulatory capture, where the regulated’s lobbyists start to call the shots, seems to be particularly big in Australia.

I wonder whether Labor will be reluctant to champion the good work of the ACCC on the digital platforms if it risks giving credit to the Coalition. I hope not.

War. What is it good for? Stock prices

Like the wider ASX All Ords, the Unmade Index of media and marketing shares rose on Tuesday. The war in Ukraine may delay the point when interest rates are put up by central banks, and investors like that.

Every stock in The Unmade Index was up yesterday with Seven West Media the biggest winner, with shares jumping more than 8%

Time to let you go about your Wednesday. I’m off to test the level of foolishness in my decision to come to Sydney without an umbrella

I always welcome your thoughts. Email me via letters@unmade.media. I’ll be particularly delighted if anyone at all gets the Waterboys reference hidden somewhere in this email.

Have as dry a day as possible.

Toodlepip…

Tim Burrowes

Unmade