In today’s Finshots, we give you a primer on the government’s idea to bring about a law to regulate digital businesses.

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The Story

In 1983, Lotus Development Corporation launched a spreadsheet application called Lotus 1-2-3.

And it instantly became a darling among computer users at the time. They didn’t have to worry about crunching numbers manually. They didn’t have to recalculate when they altered a single digit or an errant figure in their accounts. And they could update pretty much anything they wanted without excessive intervention. It worked like a charm, and it was better than most spreadsheet software available in the market. Spreadsheet software like Microsoft’s Multiplan.

Yeah, Microsoft wasn’t as big in the spreadsheet space back then. And it wanted to fix that. So, a few years later it revamped its spreadsheet software and launched ‘Excel’.

Today Excel is one of the most widely used spreadsheet software globally. And Lotus 1-2-3 is long gone. Now no doubt, Excel is a great product. But Microsoft managed to bag the top spot in large part thanks to its dominance in the Operating Systems (OS) market.

This is why it could push its spreadsheet software as a bundled service along with a suite of other applications. And as the Windows operating system began picking up steam, Excel managed to capture people’s imagination because that’s pretty much all they could imagine.

This is a classic example of unfair competition.

Microsoft used its status as a monopoly in the OS market to crush other spreadsheets. In fact, it did this on several other occasions. It imposed legal and technical restrictions on PC manufacturers and users who intended to opt for Netscape (as a web browser) and engaged in similar shady practices elsewhere.

This forced the US government to take matters into its own hands and eventually, the Department of Justice filed an antitrust lawsuit against the software giant. The judge presiding over the matter even ordered the company to split itself into two separate entities in a bid to curb Microsoft’s dominance. But in the end, political intervention and other concessions allowed Microsoft to remain intact.

This was supposed to be a landmark case. A once in a lifetime event that would set things right. Nobody could ever again abuse their dominant position to crush competition. But two decades later, not much has changed.

We have even bigger names engaging in anti-competitive practices. Names like Apple, Google, Meta and Amazon. And that’s exactly why global regulators feel the need for stronger laws that can offer every competitor in the market a level playing field. For instance, the European Union (EU) introduced the Digital Markets Act (DMA) a couple of years ago. The US is pondering over an American Innovation and Choice Online (AICO) Bill. And the UK has formally set up a Digital Markets Unit (DMU) under its existing Competition Authority.

All of these laws and policies have just one goal ― to ensure fair competition among businesses.

And maybe this has inspired India too. India has over 350 million users who transact online across e-commerce, shopping, travel, hospitality and OTT apps thanks to affordable data. And that number is only set to double by 2030, accounting for about 70% of internet users by then. Also, India’s consumer based digital economy is expected to be a whopping $800 billion market in 2030. That’s a 10x growth from 2020!

And in the absence of strong regulation in a fast-growing digital economy, big companies will likely use their scale, size and influence to restrict new players from entering the market.

So in 2022, the government sat with the folks running these big companies and sought out their perspective on the matter, eventually coming up with the idea of having a separate law in the form of a Digital Competition Act (or Bill before it’s passed by the parliament) to prevent anti-competitive practices.

Now, it’s not as though India doesn’t have a regulation in place. At the moment, it’s the Competition Act doing all the heavy lifting. The law does prevent unfair competition. But it was devised over two decades ago. And despite having its fair share of amendments, it has not been able to keep up with the growing size of India’s digital economy. So yeah, that’s why the government is thinking about a new bill i.e. The Digital Competition Bill.

But what is it really?

Well, the idea here is actually pretty straightforward. Identify big players who are likely to bully others with their market power based on their revenues, market capitalisation and number of active product users. Classify them as Systemically Important Digital Intermediaries (SIDIs). And slap a self-reporting obligation. Simply put, these entities will have to declare that their operations are fair and transparent.

And if everything works out there should be fewer anti-steering measures i.e. the thing that happens when Apple or Google mandate the use of their payment systems for in-app purchases. And little self-preferencing i.e. when Google nudges you to use its pre-installed apps on Android by not letting you uninstall them. And fewer instances of deep discounting i.e. when companies like Flipkart or Amazon sell products at extremely low prices which others can’t compete with.

Also, bringing in a Digital Competition Bill means floating an ex-ante regulation.

What’s that, you ask?

Well, it’s simple. Right now, we deal with anti-competitive practices post ante or after something unfair happens. For instance, remember when the Competition Commission of India (CCI) accused MakeMyTrip of colluding with OYO and controlling prices in the market?

The CCI went after these companies only after the collusion transpired. It had to go through a whole lengthy process of cherry-picking offences that the companies committed.

But had a regulation existed, things would have been easier and quicker. The CCI could just say “Hey, MakeMyTrip and OYO have gone against the code we’ve already chalked out. So, we are going to take them to task.” That’s an ex-ante approach.

And we know all this sounds like wishful thinking. But here’s the thing. Laws like this have sort of worked globally.

Just look at the EU’s DMA. After it took shape, it was able to save Epic Games from Apple’s nifty tricks. Not long ago, Epic Games had planned to launch its app store for iOS, Apple’s operating system. And knowing Apple, you can probably already guess what it did. It simply banned Epic from its online store by revoking its developer licence. But then came the DMA. It opened an inquiry into the matter. And voila! Epic Games will now be allowed to have its own app store on iOS in Europe.

That’s not a sole example. EU’s DMA has also pushed Apple to allow EU-based iPhone users to uninstall its default Safari browser by the end of this year. And by 2025, it will even have a more user-friendly option to transfer data from an iPhone to a non-Apple phone.

But perks like that come with drawbacks too.

Well, perhaps one point of contention is that global markets that have rules to curb digital dominance are mostly developed economies. While India is not. And some observers believe that these laws can actually stifle innovation in a country like ours. Startups may have to deal with onerous compliance burden and the law may empower officers to just go after everyone without due consideration.

So yeah, the Digital Competition Bill means well. But we still have to make sure that we don’t get too carried away. Which perhaps also explains why it's been on the government’s to-do list for a while now and hasn’t yet seen the light of day.

Will it happen anytime soon? We don’t know. But if does, we hope that it promotes fair competition.

Until then…

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