The Australian Competition and Consumer Commission’s (ACCC’s) latest Digital Platform Services Inquiry report examines competition between social media services in Australia and how consumers and businesses interact with social media services.

While acknowledging the importance and benefits of social media to businesses, it also identifies a range of harms to consumers and small businesses, including excessive data collection practices, lack of effective dispute resolution options, prevalence of scams, lack of transparency for advertisers and inadequate disclosure of sponsored content by influencers and brands.

Scams and misleading content

Australian businesses rely on social media platforms to advertise their products and engage with consumers. Small and medium businesses are increasingly reliant on platforms like Facebook and Instagram for targeted, easy to use and cost-effective advertising solutions. Despite this, the platforms are also causing increasing financial losses to scams on social media.

In 2022, Australians reported losses of more than $80 million to scams initiated on social media alone. This is up from reported losses of $56 million in 2021 and $27 million in 2020.

The report highlights the growth of the influencer marketing industry and raises concerns about inadequate disclosure of sponsored posts by influencers and brands. The ACCC launched a sweep earlier this year to identify misleading testimonials and endorsements by social media influencers after 150 tip-offs from consumers about potentially misleading posts.

Fake ratings and reviews, and the manipulation of ratings and reviews, also have the potential to harm both consumers and businesses. The high volume of consumer activity on digital platforms and the relative speed and ease with which reviews and ratings can be published increases the degree of harm posed by fake reviews.

This is also compounded by fake accounts, which are one way that scammers and other bad actors target their potential victims. The inflation of user numbers and post views through fake accounts, discussed further in section, can make it difficult for consumers to identify scam content.

Meta’s market power

The ACCC’s report also highlights the significant market power of Meta (Facebook and Instagram) in social media services, despite the entry of TikTok and smaller platforms such as BeReal.

Barriers to entry also remain high, and Meta’s users can face high switching costs as Meta’s platforms (particularly Facebook) have attracted and retained many users for a significant period who have invested in uploading material and building a large network of social contacts.

The ACCC considers that limited competition among social media platforms means users are more likely to accept conditions they otherwise would reject if there was greater choice.

ACCC Chair Gina Cass-Gottlieb says: “Social media services are an essential part of our daily lives and have provided many benefits to society. But we are concerned about the level of influence social media platforms hold over users and their position as critical intermediaries for businesses to reach customers.

“Limited competition in these services can lead to poorer outcomes for consumers and small businesses.

“This report reinforces the need for reform, including specific mandatory processes for consumers and businesses to report and social media platforms to remove scams, harmful apps and fake reviews, and establishing an external Digital Ombuds Scheme.”

Recommendations

In its Digital Platforms Regulatory Reform Report (released in November 2022), the ACCC made a range of recommendations to address harms to Australian consumers, small businesses and competition.

Ms Cass-Gottlieb adds: “We continue to support reforms to address the harms we’ve observed, including an economy-wide prohibition against unfair trading practices, targeted consumer protections and service specific codes of conduct that would apply to designated digital platforms.

“Globally, similar reforms continue to be progressed. For example, the European Digital Markets Act obligations due to apply in March 2024, and the UK Digital Markets, Competition and Consumers Bill being recently introduced to parliament.”