Text/ Professor Wang Hao, National Institute of Development Studies, Peking University
On September 13, 2021, Zhao Zhiguo, spokesman of the Ministry of Industry and Information Technology and director of the Information and Communication Administration, pointed out at the press conference of the New Office of the State Council that "interconnection is an inevitable choice for the high-quality development of the Internet industry, and allowing users to use the Internet smoothly and safely is also the direction of the Internet industry's efforts". This crackdown on "connectivity" will be a milestone in the development of digital platforms.
The origin of connectivity
The term "connectivity" is no stranger and is widely known in the traditional economic era. Typical examples are communications and bank remittances, both of which have significant network externalities, and like today's Internet platforms, consumers have a strong preference for large enterprises with network effects, so they are prone to "winner-take-all" results. However, due to mandatory interconnection regulations, consumers are not so mindful of which communication company's services or which bank to open an account, thus avoiding the common problem of the network industry where consumers are concentrated.
In the communications and banking sectors, governments are not concerned about monopolies, but too many entrants, so they have also set thresholds to prevent "over-competitiveness" or systemic risks. In contrast, in the digital platform industry, a small number of platform systems have "grown barbarically", and the government has broken its heart for insufficient competition.
Even under the regulation of interconnection, there is still competition between enterprises, and it is still very fierce. The point of force is no longer to burn money to pursue network advantages and try to monopolize the market, but to strive to improve the quality of service. This is a healthier form of competition, the most needed form of competition in the market economy.
Consumers benefit greatly from this regulation, not only enjoying the convenience of interconnection, but also taking advantage of competition between enterprises to enjoy low prices. Due to the huge influence of industries such as communications and banking, interconnection can even be said to have made an important contribution to the national economy. The only ones who are a little upset are the industry bosses, who could have monopolized the market.
Demolition of walls: remediation of "blocked URL links"
Blocking URL links is not only a departure from interconnection, but in many cases a refusal to transact. For example, shopping links on video platforms could have brought opportunities for e-commerce platforms to trade goods, but the latter may not be willing to accept links from video platforms in view of competition in advertising business. If the revenue of an e-commerce platform relies heavily on in-platform advertising rather than channel charges, the incentive to block links will be stronger.
Similarly, the core business of social platforms is to provide traffic for a fee, and although external links can increase the value of social platforms, they also use the platform's traffic for free. If such a traffic service does not have appropriate consideration, it is an act of "benefiting others and not benefiting themselves" for social platforms. External links may also bring competition to the related business of social platforms themselves, and even bring information security risks.
Blocking URL links undoubtedly reduces the convenience of consumers to use platform services, which is not conducive to giving full play to the platform's contribution to society. Blocking URL links often blocks competition at the same time, which is not conducive to reducing the price of various services. The biggest beneficiaries of the "wall removal" initiative are consumers, which will be a good thing for society, and overall it is a very worthwhile thing to do.
In the process of remediation, there may be bittersweet inequality between platforms. For example, some platforms obtain free traffic through "tearing down walls", and the cost of business expansion has dropped significantly, while other platforms have not benefited much from it, and may even need to significantly increase investment in information security, resulting in damage to interests, which is a phenomenon that the government needs to pay attention to in the process of rectification.
In the bank remittance business, large banks often charge higher fees for inter-bank remittances, which is not very consistent with the spirit of interconnection, and also reflects a certain attitude of large banks to interconnection. In the process of dismantling the link barrier between digital platforms, the interests of different platforms may and should also be properly considered. If there is a clear bitterness between the platforms from the "wall demolition" operation, an appropriate compensation mechanism can be established under the coordination of the government.
Bridge-building: A powerful tool for platform antitrust
Interconnection in the strict sense is not only to dismantle the link barrier between platforms, but also to open up the core business of competing platforms, that is to say, not only to "tear down the wall", but also to "build a bridge". For example, learn from the practices of the communication industry to establish interconnection between social platforms, allowing users of different platforms to establish contacts and communicate with each other. Similar practices can be extended to other areas such as ride-hailing, takeaway, and bike-sharing.
"Bridging" is a technical job. Communications and bank remittances can achieve efficient interconnection, which may be related to the relative homogeneity of business content, while the digital platform business is relatively complex, the differences between platforms are large, and thorough interconnection may be more difficult. But the connection at the basic business level should be technically explorable.
"Bridge-building" will undoubtedly bring great convenience to consumers, even if it is a small platform user, it can also touch the resources of the entire social network, and can be compared among more merchants. Connectivity can also promote competition between platform businesses without hindering economies of scale, encourage new platforms to enter and develop, and ultimately improve the overall welfare level of society.
Most importantly, inter-platform connectivity provides a solution worth exploring for the current platform antitrust. As we have seen in industries such as communications, connectivity will strengthen the healthy competitive relationship between platform companies, thus effectively preventing the "barbaric growth" of individual platform groups. Compared with anti-monopoly measures such as network splitting and restricting expansion, interconnection will not destroy network effects, will not lead to efficiency losses at the social level, and may even improve efficiency.
In short, we should like the "wall removal" action of rectifying the blocked URL links, and hope to go further and explore the possibility of "bridging" between digital platforms, not only to achieve the purpose of "allowing users to use the Internet smoothly and safely", but also to contribute to the anti-monopoly of digital platforms.
Edited by Chen Li Proofread by Liu Baoqing