RESPONDING TO THE FTC

RESPONDING TO THE FTC

The Federal Trade Commission (FTC) recently asked for public comment while considering the issues of data collection, consumer privacy, the effects of artificial intelligence and predictive analytics on consumers, and others. Their actions will have a profound effect on small businesses and the digital tools they rely on.

The Connected Commerce Council (3C) understands the value of digital tools to businesses, and is making it our mission to ensure that small businesses across the United States can continue using these tools. As the FTC turns its attention to digital tools, 3C urges the Commission to appreciate and accommodate the needs of small businesses that rely on these tools to compete (often against large industry incumbents), to gain digital economies of scale that small businesses simply cannot generate independently, and thereby to facilitate the supply of higher quality and lower-priced products to consumers from small businesses.

3C is working with members of its small business network to advocate for the protection of SMBs’ access to digital tools. With regards to the agency’s recommendations for regulating technology platforms, 3C asks the FTC to consider the following key principles:

  • Large digital platforms like Facebook, Google, Amazon, Etsy, Quickbooks and others offer small businesses inexpensive ways to operate their business, reach customers, learn which products and features customers value most, and then offer that value at competitive prices.
  • Efforts to regulate digital networks, products and tools by “fixing” competition and data protection concerns may reduce those products’ capabilities – which will harm small businesses and cost consumers.
  • Overly severe limits on digital platforms’ ability to collect, aggregate, and analyze data will disproportionately affect small businesses and hinder their ability to compete with larger companies. 3C urges the FTC to appreciate and accommodate the needs of small businesses that rely on digital tools to compete against large industry incumbents.
  • All businesses owe consumers fairness and honest disclosure of data collection practices and industry-standard data security protocols. 3C asks the FTC to bear in mind that small businesses often depend on larger platform partners or sophisticated specialist partners to write and comply with the security protocols, and that small companies are not always able to audit their larger partners’ compliance.
  • Some public officials have raised concerns about potential misuse of predictive analytics, algorithmic business tools and artificial intelligence. 3C urges the FTC to focus its enforcement and regulatory authority on the misuse of these tools, and to avoid regulating or enforcing in ways that will inhibit their proper, lawful use.
  • 3C and its small-business members urge state and federal authorities to harmonize their policies regarding consumer privacy and data protection, in order to lower the burden on small businesses of complying with confusing and inconsistent laws and regulations.

FULL 3C FTC SUBMISSION:

CONNECTED COMMERCE COUNCIL’S COMMENTS ON COMPETITION AND CONSUMER PROTECTION IN THE 21ST CENTURY

The Connected Commerce Council (3C) is a non-profit membership organization with a single goal: to promote small businesses’ success through the adoption of essential digital technologies and tools.  3C provides small businesses with services to facilitate access to the market’s most effective digital tools, delivers education and coaching to help small businesses optimize growth and efficiency, and works to cultivate a policy environment that considers and respects the interests of today’s small businesses and that thereby promotes consumer welfare.

The digital economy has drastically changed how small businesses operate, and so 3C and its small business members have a strong interest in these hearings.  Before, a small business might connect to consumers via the Yellow Pages and other print advertising, direct mail, billboards, brick-and-mortar stores, radio and television advertising, and trade shows.  Small businesses would often need local lawyers, accounting firms, human resource managers, payroll providers and conference rooms for on-site meetings.

But now there are digital platforms, including Facebook, eBay, Google, Amazon, YouTube, Snap, Oath, Etsy, Expensify, Quickbooks, OpenTable, Slack, Square, Houzz, Pinterest and a host of others, that allow businesses to reach more potential customers, operate more efficiently and internationally, and offer better and innovative products at lower prices.  For small businesses, especially startups with very small budgets, today’s digital platforms and tools offer inexpensive ways to operate their business, reach prospective customers, learn which products and features customers value most, and then offer that value at competitive prices that drives sales and increases revenue.

Some 3C companies operate entirely digitally; some have physical product that they source, market and sell digitally; and many are traditional brick-and-mortar businesses that have adopted digital opportunities to increase revenue more quickly, operate more efficiently, and be more successful. One common thread is our member companies’ delight upon discovering new digital tools.

“I had avoided hiring employees for so long because the paperwork involved with different states, tax systems and red tape seemed like a nightmare. Because Gusto made it easy I’ve been able to transform my team and create 5 new jobs in the last 18 months.”

“I remember making my first website using Microsoft Front Page. Making that website launched my real estate career.”

“There are many firsts that I was excited about, but the first that comes to mind was being able to list my products for sale on Amazon. This now accounts for 15% of our revenue – a sizeable chunk that I would not be able to achieve through my wholesale customers.”

“Our a-ha moment was when we started playing around with Facebook. We joined because it was free and we had no marketing budget left. We had spent hundreds of thousands of dollars on print and television advertising and had seen no marked increase in sales volume. In contrast, Facebook delivered almost immediate growth in our day-to-day bookings.”

As the FTC turns its attention to digital tools, 3C urges the Commission to appreciate and accommodate the needs of small businesses that rely on these tools to compete (often against large industry incumbents), to gain digital economies of scale that small businesses simply cannot generate independently, and thereby to facilitate the supply of higher quality and lower-priced products to consumers from small businesses.  Small businesses need “off the shelf” digital products that work quickly and seamlessly. Small businesses benefit tremendously by utilizing no-cost and low-cost services and tools offered by platforms, and as a result consumers benefit when small businesses can compete more aggressively and price more competitively.

Efforts to regulate digital networks, products and tools by “fixing” competition and data protection concerns may reduce those products’ capabilities – which will harm small businesses and cost consumers, who will face higher prices, reduced quality, and stunted innovation.  It is critical that the FTC consider the cost and impact of potential regulation, investigation, and enforcement on the millions of small businesses that drive today’s economy—and on the consumers who benefit as a result.

Competition and consumer protection issues in communication, information, and media technology networks

Small businesses rely heavily on communication, information and media technology networks and platforms. For purposes of this section (focusing on networks) and the following section (focusing on platforms), it is important to define and distinguish networks and platforms.

At their root, networks are systems of interconnected people or things.  Unidirectional networks include conventional broadcasters, like radio and television, which enable communication by one to be delivered to many.  Multidirectional networks enable two-way communications, including one-to-one or many-to-many. Multidirectional networks include America’s traditional “copper wire” telephone network, as well as the increasingly fiber optic cables and wireless transmission software that comprise broadband internet infrastructure.

Platforms are digital (for the purposes of this submission) products and services that utilize the network’s data transmission capabilities. Some platforms are one-sided, such as accounting, payroll or contact management software that enables companies to create and store their own data and access the product’s functionality “in the cloud” rather than on only one computer’s hard drive or on one local server.  Other platforms are multi-sided, allowing different third parties to interact with each other as they utilize the product.

Small businesses rely on existing and emerging technological networks.  For example, 3C small business members benefit tremendously from networks that have:

  • Geographic Reach: “I am able to work with experts anywhere in the United States and the world.  I have benefited from hiring agencies and freelance experts wherever they may live, at a cost my small company can afford.  Previously, I would have had to work with a local marketing agency that had no experience in my niche market, or a huge (and unaffordable) agency in New York or San Francisco.”
  • Robust Data Capacity: “Google Drive has become our new go-to for quick access to photos that our technicians take in the field.  Often it was difficult to get the field photos into the office quickly as the files were too big for email attachments.  Being able to upload them to Google Drive is fast, efficient and helps our staff keep workflow running smoothly.”
  • Speed: Many 3C members are advertising and selling products digitally, globally and in real-time.  Network speed is critically important in competitive and price-sensitive activities, including online advertising, auctions and marketplace selling.

Moreover, it is important for even the smallest businesses that networks continue to increase data capacity, transmission speed, geographic reach, data security and physical stability.  Continuing investment in networks is critical for all businesses, but especially small businesses that – financially and technically – will never be able to build or otherwise substitute for the foundational global networks that support our digitally-powered enterprises.  Network competition is important for all network consumers, including 3C small business members, but regulators and policymakers must balance extremely carefully the challenges of promoting competition and the need for operators to have enough investment capital to fund network improvements and sustainability.

The identification and measurement of market power and entry barriers, and the evaluation of collusive, exclusionary, or predatory conduct or conduct that violates the consumer protection statutes enforced by the FTC, in markets featuring “platform” businesses

Millions of small businesses are enabled and boosted by digital platforms, and our economy and society are stronger as a result.

When discussing their businesses, 3C members frequently reference well-known brands that are foundations of small businesses, including Wix, WordPress, Shopify, Slack, Basecamp, Square, Evernote and Pinterest, as well as various properties owned by Amazon, Facebook and Google.  Additionally, however, 3C members mention new competitors that they are using, such as Zoho, AirTable, ManyChat and Canva. This illustrates the dynamic digital platform and product marketplace that is continuing to attract investment, excitement and new competition.

Today’s digital platforms are more powerful and provide more value than ever before.  Instead of building a website and driving people to visit it, today’s digitally-powered small businesses use modern platforms that help find customers and help determine what products and services they need.

“My first successful use of a digital platform was launching a Facebook-based business in 2011.  Using only Facebook for sales and PayPal for invoicing, in our first year we booked $1M in revenue.”

“Square enables me to sell my products at fairs and conventions nationwide.”

Modern digital platforms – including Facebook, eBay, Amazon, Shopify and many more – democratize the power of algorithms and artificial intelligence by delivering these technologies to small businesses at very low cost. Barriers to entry have almost been eliminated by the ability to quickly create elegant websites, access on-demand server space, buy low-cost high-impact advertising, utilize on-demand logistical support and customer service, and include best practices compliance software.

“Shopify helps me build a good-looking e-commerce store that incorporates best practices.” (emphasis added)

For some 3C small companies, digital platforms power national and international success.

“We operate a global community platform. We have members on six continents. Because our job is to network them together, our business literally could not exist without digital tools, and for many of our members the same is true for their businesses.”

“Google GSuite and Skype allow me to live part-time in Costa Rica and Jamaica while running a business and managing teams in the United States and Canada.”

With these and many more digital marketing and business tools, small businesses spend less on customer acquisition and earn more—and consumers benefit from lower prices and products that better fit their needs.

It is also the case that digital powers more than basic business leads and transactions – it enables small companies to share their culture and values with prospective customers in ways that previously would have cost many thousands of dollars.

“When you are on paper you can make something pretty but that doesn’t help anyone get a feel for who you are and what is your culture.  The real advantage of digital, like with Facebook and YouTube, is that people get a real feel for your company and your people, and with reviews and public comments on Facebook and Google they get a real feel for what your customers think of you.  The people are touching and feeling you and your business ethic.”

As indicated here, many 3C members combine digital platforms and tools into a unified modern-day marketing strategy that works for their small business.

“You do a Facebook Live video, upload it to YouTube, embed it into your webpage and then spread the word on LinkedIn and Pinterest.  Then use your email list to drive early hits and see if your video climbs the Google rankings because people are watching the entire video and posting positive comments.”

Perhaps most important to small businesses is that so many digital tools are free or very low-cost.

“When I am not leading digital marketing for my company I give tips to individual ‘nail girls’ and hair stylists who work in salons but are independent businesswomen.  They can become amazing marketers for themselves by using lots of free tools. My stylist tells me that she definitely got new clients after experimenting with social media, and I have seen $5 advertising spends lead to real revenue gains.”

At the heart of these digital platforms are products that work “out of the box” for small businesses.  This is critically important, as small non-software businesses generally do not have the technical or financial capability to build or substantially customize their business operations software or marketing/e-commerce software.  This difference, between small and large businesses, is critically important when the Commission considers the competition aspects of software platforms.

Antitrust law is currently evolving in response to the economic complexity of digital platforms and software tools.  For example, the Supreme Court’s recent opinion, Ohio v. American Express instructs that in certain two-sided transaction markets courts and regulators cannot only consider the impacts of platforms on one side of the market (i.e., the consumers using the platform products), but rather must also consider how those platforms affect the other side as well (i.e., the businesses using those platforms).  In this regard many digital platforms are like credit cards, as both connect consumers and merchants. Regulators should heed this guidance also, particularly when addressing complex multi-sided software platforms.

Although American Express did not explore this issue, courts and regulators should also explore the differences within the “seller” side of a multisided platform, considering the contrast between large corporations and small businesses that operate on platforms.  For example, many large corporations may have the ability to replicate software platforms if needed, or to replicate various functions if regulators deemed them anticompetitive when provided by the platform. In contrast, small businesses rely on platform products to work immediately “off the shelf,” and are unable to replicate or even approximate functions or audience reach provided by platforms.

Some have called for competition and consumer protection authorities to regulate platform software algorithms or platforms’ data collection, but here again these limitations would primarily harm small businesses. Small businesses simply do not have the resources to collect and analyze the data necessary to make digital tools – especially multisided platforms – work effectively.  If the government limits platforms’ ability to collect, aggregate, and analyze data, or to offer tools and services that leverage this data, small businesses will not be able to make up the difference. The resulting loss of platform capabilities will be felt not only by small businesses, but consumers as well when competition is severely reduced. The beneficiaries will be large incumbents in those industries (that are currently being disrupted by small business entrants) that have in-house technical capabilities, vast volumes of internal data, and the funds to purchase more data and more technical support.

A valuable feature of digital networks, as compared to traditional physical networks, is the ability of new competitors to build on top of the largely public Internet.  This contrasts quite significantly with traditional physical networks, such as railroads and wired communications, that required new entrants to have millions or billions of investment dollars to build alternative networks before realizing the first dollar of revenue.  Investors and entrepreneurs seem to have insatiable appetites for new competitors in digital products and services. For example:

  • Some believe that Expedia and Priceline are long-term dominant players in online travel, a multi-sided digital platform industry that many small hotel and activity businesses participate in.  But there are constantly new entrants in the digital travel industry and it is easy for individual providers to promote new competition by uploading their hotel or service to the new platform.
  • Email, texting and even voice communications services continue to innovate and competition remains fierce, notwithstanding the once-apparent market dominance of traditional mobile carriers and device manufacturers.  Switching providers – even for business services – has become almost seamless due to a proliferation of APIs that move Contacts data, Email history and other key data from old to new providers.
  • Small 3C businesses have many choices in offline and online advertising.  When one 3C company reduced annual spend on Yellow Pages by hundreds of thousands of dollars, its competitors thought it was going out of business.  But this company had discovered Facebook and was spending 95% less on advertisements that also delivered more revenue. More recently, a small e-commerce company reported shifting a substantial portion of its advertising spend to Amazon – an option that barely existed even three years ago.
  • It is quite common for small businesses to utilize multiple platforms for the same content, e.g., posting the same video on Vimeo, YouTube and Facebook Live, or the same blog post on a corporate website, Medium and Facebook.  Having multiple alternatives illustrates the healthy competitiveness of these platforms and the options for small business consumers.

The intersection between privacy, big data, and competition

Data is important to all businesses, but particularly critical to startups and small businesses that are trying to understand their potential markets and attract new customers.  Many small businesses launch without data and experiment in the market, collecting their own data as consumers respond. Alternatively, many small businesses are enabled by digital platforms that provide scale and reach, and that help them understand and use data.  These partnerships accelerate go-to-market timetables and early small business success, which benefits competition and consumers.

Most businesses make a point of knowing their customers, communicating with them frequently and trying to anticipate their needs.  New businesses are different because they need to test more, experiment in the market and then adapt offerings to customer feedback.  

Virtually every e-commerce and digital marketing platform helps small businesses know how long people are spending on a web or Facebook page; measure clicks and conversions on advertisements, videos and links; understand what consumer flows and pages lead to transactions or successful interactions; and how to optimize customer experience.  The best platforms aggregate each small businesses’ data with much larger (and anonymized) data sets in order to deliver customized guidance that the small business could never access using only its own data. Platforms democratize artificial intelligence by sharing the best (and anonymous) algorithms with small business partners.

By creating efficiencies for small businesses to compete aggressively, these platform partnerships allow consumers to benefit from lower prices, better products, and increased innovation.  Consumers also benefit from superior choices offered based on their own preferences, as measured by their previous purchases and interactions.

Small businesses worry that an increasing focus on regulating data may increase market access barriers for small businesses and hinder small business success.  For example, overly-restrictive privacy rules may seriously hinder marketing and payment tools that rely on the exchange of information. Startups can and do frequently launch new businesses with no existing data, relying on their innovative products to attract useful consumer data quickly.  And in today’s economy, digital tools and platforms allow small businesses to super-charge this data utilization, allowing them to collect better data more quickly. If regulators change the digital tools that small businesses purchase “off the shelf,” the effect can be to raise barriers for small businesses to access the market.  

Big companies that own the digital tools can respond to forceful regulation of data, but small businesses cannot.  Further, even regulation of the digital platforms themselves may harm small businesses, which rely on those tools to work “off the shelf.”  

“My clients and millions of small businesses want nothing to do with personal data unless consumers directly choose to share it. But if the data privacy problem is “fixed” by regulating digital platforms and reducing their capabilities, I am sure that small businesses will be harmed far more than the giant digital companies.”

The FTC should carefully consider the impact of data regulation on small businesses, which would struggle or shut down in the face of aggressive regulation—creating fewer choices and higher prices for consumers.

“The big guys in the digital economy will survive.  The true drivers of the economy are small business, and if the government restricts ways to identify consumers and potential consumers then the results will be drastic.”

For example, an overly-prescriptive emphasis on consumer-facing data flow processes, such as front-facing data disclosures and opt-in consent, may mean that consumers are hesitant about granting their trust to more than a handful of firms.  This will decrease competition, meaning that only a few ‘full service’ firms (such as the largest tech companies) end up receiving consumers’ trust for their willingness to transact and provide data. This could entrench market power among the biggest players, and hurt market demand for small businesses.

Another proposed model – creating a new informational fiduciary duty – also risks consolidating power in increasingly fewer large technology firms.  As the legal duties for data ownership increase, fewer companies will have the legal or technical sophistication to comply, locking user data behind the gates of fewer competitors.  This would raise significant barriers to entry for small businesses and allow big tech companies to accrue even more power in digital marketing. Regulations – even on the biggest and wealthiest companies in the world – are not costless.  As one 3C small business member stated:

“When I watched politicians interrogate Mark Zuckerberg it was very obvious that they know very little about how Facebook advertising and the Facebook ecosystem – including millions of small businesses – actually works. If misinformed policies undermine the ecosystem it will drastically harm small companies that rely on that ecosystem.”  

The Commission’s remedial authority to deter unfair and deceptive conduct in privacy and data security matters

All businesses, regardless of size, owe consumers fairness and honest disclosure of data collection practices and industry-standard data security protocols.  Of course, the Commission is keenly aware that small companies generally rely on substantially larger platform partners or sophisticated specialist partners to write and comply with the security protocols, and small companies are not positioned to effectively audit their larger partners’ compliance.

In these circumstances 3C encourages the Commission to focus its investigative and remedial authority on the sources of data practice misstatements and security breaches, and to consider that smaller companies are often the victims alongside the small companies’ consumers.  Moreover, small companies generally do not have the resources to comply with time- and resource-consuming FTC investigations or enforcement actions. Thus, the consequences of an FTC investigation or enforcement action – in terms of expense, burden, and reputational harm – can drive a small company out of business before it can take steps to remedy the targeted conduct, rendering the investigation moot and essentially valueless.

Privacy and data security enforcement against digital platforms is an important policy tool that can effectively result in important benefits to consumers and platforms’ small business partners.  But 3C urges the Commission to focus narrowly on actual harms to consumers and try to avoid remedies that destroy “out of the box” products and solutions on which small businesses and consumers rely.  If platforms are burdened with over-enforcement then small businesses will suffer also, and the competition and consumer welfare generated by 3C members and other small businesses will diminish.

The consumer welfare implications associated with the use of algorithmic decision tools, artificial intelligence, and predictive analytics

Data science is the foundation of the digital economy and the basis of many benefits delivered by today’s leading digital innovators.  Advanced data science – a.k.a. algorithmic decision tools, artificial intelligence and predictive analytics – is utilized by millions of small businesses and beloved by hundreds of millions of people who have little visibility into its complexity and the computer processing power that makes it work.  But it does work.

Before the Internet, consumers had to rely on traditional means to connect with small businesses: Yellow Pages advertisements, word-of-mouth, and price comparisons at competing retail stores.  With the early Internet, consumers could transact with small businesses if they had websites.

In contrast, millions of consumers now primarily use so-called online “platforms,” such as Amazon, Google, Facebook, Etsy, and Open Table, to connect with businesses.  Digital platforms allow consumers to identify small businesses by product choice, geography, reputation, price and many other personal or suitability factors they care about.  Platforms properly allow small businesses to identify consumers based on location, product preferences, shipping suitability, previous purchases and returns, and other appropriate indicia.  

Consumers benefit as they save time and money.  Small businesses benefit as they connect to more consumers that value precisely what the business has available at that moment.  This promotes opportunity and competition, which benefits small business owners and consumers alike.

Some have raised concerns about potential misuse of predictive analytics, algorithmic business tools and artificial intelligence.  3C urges the Commission to focus its enforcement and regulatory authority on the misuse, and to avoid regulating or enforcing in ways that will inhibit further development of these tools that have enormous benefits for society.

The interpretation and harmonization of state and federal statutes and regulations that prohibit unfair and deceptive acts and practices

3C small business members operate across state lines (and internationally).  If patchwork state regulation creates compliance challenges for small business and legal conflicts that undermine platform features’ “out of the box” success, the digital economy will suffer to the detriment of competition and consumers.

This legal patchwork would not only harm small businesses that operate nationally, such as an artisan on Etsy, but also a local-only business such as a plumber.  Both types of business rely on the same digital tools, and both need them to work “out of the box.” A platform will be challenged to make features available only for qualified single-state business partners and restrict their use by businesses that operate in several states.  The patchwork undermines the very benefits that digital platforms deliver to small businesses – that of a safe, reliable and compliant foundation that simplifies business operations and allows the small business to focus on what it does best – source and distribute great products and services.

3C and its small-business members urge state and federal authorities to harmonize their policies regarding “unfair and deceptive acts and practices,” and thereby lower the burden on small businesses of complying with confusing and inconsistent laws and regulations.