Australians’ high reliance on smart devices, social media, and cloud storage have made competition and consumer law reform critical to prevent their being trapped in digital giants’ proprietary ecosystems, the ACCC’s Digital Platforms Inquiry (DPI) has warned.

Although the size of digital giants Alphabet/Google, Amazon, Apple, Meta, and Microsoft is not a concern on its own, the DPI’s market analysis – contained in its newly released 230-page seventh interim report – warned that their rapid expansion into new markets such as Generative AI (GenAI), digital health services, information storage, education, and financial products is exposing weaknesses in existing competition and consumer laws.

Common practices such as pre-installation and setting particular services as defaults can limit customer choice, as can the bundling and tying of products – a practice that, the DPI warned, has become common as operating system providers bind consumers to integrated cloud storage services like Google Drive, Microsoft OneDrive, and Apple iCloud.

With 72 per cent of Australians aged 16 and over currently using online cloud storage and backup services to store photos, documents, and other content, their potential use for customer lock-in has become a concern to competition authorities.

Many services force consumers to accept “unpalatable” data collection practices, ACCC chair Gina Cass-Gottlieb said in releasing the latest report, “due to a lack of suitable alternatives or because it is simply too inconvenient or costly to move out of that ecosystem.”

While it does not level specific accusations of anti-competitive behaviour, the report warns that unchecked expansion – even where tight integration of cloud services “may have consumer benefits” – risks “the creation of large multi-product ecosystems in fast-moving and fluid markets [that] could give rise to harms to competition and consumers.”

Such harms include, for example, the need to provide personal data to set up smart home devices that subsequently collect large volumes of personal data – or many customers’ lack of awareness that email and other accounts advertised as ‘free’ come with small default data allowances that must be upgraded, for a cost, when those allowances are depleted.

“Integrated cloud storage services can be convenient for consumers,” she said, “but they can also discourage consumers from purchasing new products and services outside the ecosystem, [making] it harder for competitors.”

Voice assistance such as Apple’s Siri, Google and Amazon’s Alexa, used by 83 per cent of Australian adults, exacerbate the problem by cementing digital giants’ roles as ‘gatekeepers’ – a designation that the EU, in particular, has recently used to force standardisation and interoperability changes – and may, the report warns, “provide an opportunity for Google, Apple and Amazon to encourage users to favour their products and services to the detriment of rivals.”

Digital giants are boiling frogs – and we are the frogs

The digital giants’ ‘boiling frog’ upselling and retention strategy is based on a simple idea: the more deeply integrated consumers’ lives are with their cloud file storage, social media, photo storage, and other services, the harder it is for those consumers to consider alternatives.

When they do, the results can be palpable for digital giants: Google’s share price recently slid after parent company Alphabet revealed that its quarterly Google Cloud revenues had fallen short of targets because large numbers of customers were reviewing their use of cloud services and trimming out excess costs.

Even as the companies refine their consumer lock-in strategies, consumer protections are at risk as companies jockey for “strategically important positions in an evolving digital economy”, the new report warns in evoking the call for regulatory recommendations the DPI made in its fifth report a year ago.

The sheer size of the five largest digital platforms providers – the smallest of which, Meta, has five times the market capitalisation of Australia’s largest company, BHP Group – is helping them outspend rivals with massive R&D investments that will, the ACCC fears, increasingly dominate development of game-changing technologies like GenAI, virtual and augmented reality, robotics, and quantum computing.

With new technologies promising a cavalcade of new service offerings, the risk of further anti-consumer behaviour necessitates updated competition and consumer laws, the latest ACCC report argues – with Cass-Gottlieb calling for reforms including targeted consumer protections and service-specific codes tightly tailored to the activities of the five biggest companies.

“The critical role digital platform service providers have in the development of new technologies like AI and cloud computing demonstrates their importance to the Australian economy, now and in the future,” she said.

“It is also further evidence that we need to ensure our competition laws are fit-for-purpose to respond to the potential challenges posed by these technological and market developments.”