Digital Competition Bill to counter Google play store can backfire for start-ups

31 May 2024: Digital India Foundation, a leading public policy think-tank, hosted a virtual briefing titled “Synergies and Ecosystems: Navigating Collaborations Between Small Enterprises and Large Players”. The session delved into the complex dynamics between small and large enterprises in the digital age, underscoring their crucial role in fostering mutual growth and innovation. It also explored the symbiotic nature of these relationships while evaluating the potential ramifications of the draft Digital Competition Bill (DCB) on such collaborations.

Emphasizing how the rapid evolution of technology and digital platforms has significantly transformed the business landscape, experts agreed that small enterprises collaborating with large established players create a more integrated and dynamic market ecosystem. These partnerships help smaller brands gain visibility and scale and enable larger corporations to infuse their traditional strategies with innovation and agility, offering promising potential dividends. Services such as single sign-on have further streamlined customer acquisition and facilitated business expansion for MSMEs through the platforms’ extensive user bases. To encourage collaboration, large corporations can involve startups and small enterprises in open innovation platforms and accelerator programs, fostering an exchange of creativity, and resources for mutual development and commercialization of new solutions. Risk-sharing models, like joint ventures, mitigate financial burdens for small businesses while allowing large enterprises to capitalize on their flexibility, leading to shared risks and rewards. However, the draft Digital Competition Bill (DCB), with its focus on curtailing the data and bundling practices of Systemically Significant Digital Enterprises (SSDEs), threatens to disrupt this symbiotic relationship between MSMEs and large digital platforms.

Dr. Lazar Radic, Senior Scholar, Competition Policy, International Center for Law & Economics, and Adjunct Professor of Law, IE University, said, “The Digital Markets Act (DMA) prioritizes fairness over efficiency, shifting focus from consumer welfare to addressing power dynamics between large ‘gatekeeper’ platforms and other entities. While it claims to facilitate access to digital markets, the DMA may inadvertently have the opposite effect by reducing platform quality and, by extension, consumer engagement. SMEs and startups in particular stand to lose the most from this as new entrants disproportionately benefit from digital platforms’ reputation with end-users and goodwill to gain a foothold in the market. Similarly, India’s draft Digital Competition Bill (DCB) requires established enterprises to redesign some of their core products and services through strict ex-ante rules which, unlike traditional competition law, require no proof of harm and admit little to no countervailing evidence. To the extent that such rigid and experimental provisions may diminish platform quality and owners’ incentive to invest in those platforms, they may also hinder startups‘ and SMEs’ ability to attract and maintain a critical mass of end-users. For instance, while some startups see the DCB as a silver bullet against Google‘s dominance, it is important to note that DMA-style ex-ante rules could also disrupt the symbiotic relationship between platforms and business users by hampering Google‘s ability to curate content and apps, thereby alienating end-users. Issues like Google‘s gatekeeping role therefore need careful case-by-case assessment to ensure that Google can continue improving the overall quality of its ecosystem while also curbing any potential anticompetitive practices. In my view, the Competition Act 2002 is generally well-suited for this task.”

Mr. Vinod Kumar, President, India SME Forum, said, “The agility and entrepreneurial spirit of small enterprises, combined with the stability and resources of large corporations, creates a powerful synergy that can propel India’s digital economy forward. However, the proposed Digital Competition Bill (DCB) presents significant challenges for MSMEs, potentially stifling their growth and competitive edge. We urge policymakers to reconsider the bill‘s restrictive provisions and engage in inclusive consultations to ensure that the digital policies support sustainable growth and innovation for all stakeholders. To ensure our concerns are heard, we plan to initiate an outreach to around a hundred Parliamentarians, interfacing them with  MSMEs and allowing MSMEs to share their distress and apprehensions directly.”

Dr. Vikash Gautam, Adjunct Fellow, Esya Centre, said, Our recent survey of 300 businesses, predominantly MSMEs, underscores the significant backing for digital advertising, attributed to its revenue generation and cost-saving advantages. However, 60% reported potential adverse impacts from restrictions on data usage and bundling which will adversely impact digital advertising or single sign-on, underscoring the necessity for careful consideration in regulatory frameworks. Alarmingly, 74% of surveyed MSMEs did not engage in the Committee Digital Competition Law (CDCL) consultation, with 22% unaware of its existence. Policy decisions must be made with comprehensive consultations, ensuring the voices of these essential businesses are heard and their growth is supported.

Mr. Arvind Gupta, Head and Co-Founder, Digital India Foundation, said, “India has long championed the principles of participatory governance, and this tradition must continue with the proposed Digital Competition Bill. Our discussion today emphasized the necessity of involving diverse stakeholders—including venture capitalists, startup founders, MSMEs, and entrepreneurs—in the legislative process. By incorporating the insights and experiences of these groups, we can ensure that the new bill fosters an environment of sustainable growth and innovation. Inclusive consultations are essential to crafting policies that reflect the needs and aspirations of all participants in our digital economy.

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