California’s Proposed Legislation Would Break Digital Tools — and Hurt Small Businesses

Newly proposed California legislation, the Blocking Anti-Competitive Self-Preferencing by Entrenched Dominant Platforms Act (the BASED Act), would break apart affordable, integrated digital tools that help small businesses grow, compete, and succeed in today’s digital economy. 

BASED is closely modeled on federal legislation called the American Innovation and Choice Online Act (AICOA), which failed twice amid bipartisan concerns about likely harms to small businesses. AICOA, in turn, was modeled on Europe’s 2022 Digital Markets Act (DMA), which has cost European small businesses billions in lost revenue and increased compliance expenses while stifling European tech investment and innovation. Notably, the California Law Revision Commission (CLRC) recently recommended against the state’s pursuit of tech-specific antitrust legislation like BASED.

BASED’s Threat to Integrated Digital Tools — and Small Businesses

Millions of small California businesses use integrated digital tools like HubSpot, Google Workspace, and Fulfillment by Amazon (FBA) to reach customers, grow efficiently, and manage logistics. According to recent 3C research, 63% of small business leaders say digital tools that integrate products and services save them time and money.

BASED, like AICOA and the DMA, would require large digital platforms to break apart those integrated tools; the bill’s supporters argue that the products and services integrated within the tools have an unfair advantage over non-integrated, competitor products and services. BASED also contains new provisions that would prohibit covered tech companies from designing, deploying, or using AI in ways that “systematically favor” their own products or content — threatening low-cost, high-efficiency tools popular with small businesses and consumers, including generative AI summaries and AI-powered product recommendations. Oddly, BASED appears to ignore the fact that breaking apart integrated tech tools would almost certainly lead to worse service and higher prices for small businesses and consumers.

Here’s what it would do to many of small businesses’ most valuable tools:

Break Google Business Profiles. We’re all familiar with Google Business Profile – the informative box that pops up when we search for a local business. That box shows the business’s location, hours, phone number, and customer reviews. It’s free for small businesses, and an incredibly valuable marketing tool that seamlessly integrates Google Maps and Google Reviews with Google Search.

BASED would ban the integration of those components, forcing Google to give equal placement to lower-quality competitors like Yelp or Mapquest — even if the result is a more confusing and time-consuming search experience for users, and diminished visibility, foot traffic, and sales for small and local businesses. Moreover, companies like Yelp typically charge for services that Google offers for free, like changing company information or moderating reviews. 

The net result? Consumers will have a worse online experience, while small businesses pay more for less effective marketing tools. 

Sink Amazon’s Shipping Services — and Damage Prime. Fulfillment by Amazon (FBA), Amazon’s in-house warehousing, shipping, customer returns, and analytics tool, makes it easy for small businesses to qualify for the platform’s valuable Prime badge. Customers love Prime’s guarantee of fast, low-cost shipping, making Prime a powerful tool for boosting sales. And FBA typically costs sellers significantly less than it would to handle fulfillment services themselves. Moreover, Amazon sellers don’t have to use FBA to qualify for Prime; as long as they meet Prime’s expectations for shipping speed, they can use any service they like. 

BASED deems FBA unfair to other logistics-service providers, and would force Amazon to either 1) allow other logistics services to integrate with Prime, regardless of their cost, speed, or reliability; or 2) Make Prime exclusive to products sold by Amazon directly — locking out millions of third-party sellers that use Prime to drive sales. In either case, small businesses and consumers would lose out — paying more money for delivery services that would be less streamlined, and likely less affordable and dependable.

At a time when small businesses are already struggling with economic uncertainty and rising costs, it makes no sense to break tools they count on to succeed.

The Bottom Line

By disrupting the digital ecosystem that millions of California small businesses rely on, the BASED Act would make it harder for California small businesses to leverage digital tools that help them compete with businesses in other states and succeed in today’s digital economy. Just as the DMA hurt European businesses, BASED would hurt California businesses. California small businesses deserve smart legislation that will help them succeed — not a rehash of misguided policies intended to break the tools that empower them to thrive.