- As you are aware, the twenty-first century has already set in motion such gigantic technology-driven steps that it is not difficult at all to term it as the most eagerly awaited period. Not a day passes without an earth-shattering innovation in the information technology world that only helps in easing humankind’s quest for newer inventions. No wonder, every government worth its salt has embraced dynamic technology in its efforts to go digital for the larger benefit of citizens. In other words, digitization will rule the roost for the foreseeable future in literally every walk of life. None can question this aspect for sure. Now, as new developments occur perpetually in the digital field, it becomes incumbent to also have in place a strong regulatory mechanism as well.
PC: Freepik
- Let’s delve deeper to understand how the envisaged regulatory mechanism would work vis-à-vis the information technology world. We all know how Artificial Intelligence’s byproduct ChatGPT has taken the world by storm in the last few months. The advent of ChatGPT heralds an interesting battle between two dominant Big Tech firms, Google and Microsoft. Note that Google has a market share of around 90% in search engines and Microsoft dominates the desktop operating systems with a share of around 74%. OpenAI, which created ChatGPT, received substantial funding from Microsoft. A consequence is that Microsoft has now blended ChatGPT with its own search engine Bing. This is where things take an interesting turn.
- Thus, the internet search engine market is set for the first consequential shakeup in two decades. The promise of a serious challenge to Google has raised questions on the wisdom of pursuing a regulatory framework to loosen the hold of Big Tech and create space for competition. If Google’s dominance could not prevent it from allowing a competitor to gain the first-mover advantage in its most profitable segment, is there a case for a new regulatory framework? To answer this question, consider two features of the digital economy that allow a handful of firms to become dominant. First, there’s the network effect where an increase in the number of users enhances the value of the product. Second, economies of scope where efficiencies come from usage.
PC: Freepik
- Conversely, dominance in traditional industries comes from economies of scale or volume. Consider how Microsoft plans to use its new tool. It will first seek to leverage network effects as the AI facility will be freely available on its search engine. Expect the search queries to Bing to drive up traffic. Further, the capabilities of this generative AI will be used across the spectrum of Microsoft products, an area where the company is already dominant. In effect, what’s being billed as the big war among technology firms is not going to lead to a nimbler competitor shaking up a market segment. Economies of scope will ensure the winner will dominate related areas. Thus, the regulators need to keep working on evolving a regulatory framework to address dominance that’s a direct result of the nature of the digital economy. Some thinking here is desirous.
