The European Commission today released the preliminary results of its sector inquiry into the markets for Internet of Things (IoT)-related products and services for consumers in the European Union. The preliminary report confirms the rapid growth of these markets, but also highlights potential concerns raised by respondents to the sector inquiry.
Executive Vice President Margrethe Vestager, in charge of competition policy, commented, "When we launched this sector inquiry, we were concerned about the risk of the emergence of gatekeepers in this sector. Our concern was that they could use their power to harm competition to the detriment of business and consumer development. The initial results released today show that many in the industry share our concerns. Fair competition is needed to maximize the great potential of the Internet of Things for consumers in their daily lives. This analysis will feed into our future enforcement and regulation, and so we look forward to receiving further feedback from all stakeholders in the coming months."
The sector inquiry into the Internet of Things for consumers was launched on July 16, 2020, as part of the Commission's digital strategy and following the announcement in the Commission Communication "Shaping Europe's Digital Future.". During the research, the Commission gathered information from more than 200 companies of various sizes operating in the Internet of Things for Consumers product and service markets and located throughout Europe, Asia and the United States. In addition, these companies shared more than 1,000 agreements with the Commission. This information forms the basis of the preliminary report released today.
The findings of the Preliminary Report on the Consumer IoT Sector Survey focus on: i) the characteristics of consumer IoT products and services, ii) the characteristics of competition in these markets, iii) the key issues that respondents may be concerned about regarding the current functioning of consumer IoT markets and their future prospects.
According to the preliminary report, although the Internet of Things is a relatively new area for consumers, it is growing rapidly and becoming more and more a part of our daily lives. In addition, the trend is occurring with the increasing availability of voice assistants and their increasing appearance as user interfaces that allow consumers to interact with various smart devices and IoT services.
Most respondents to the sector survey point to the cost of investment in technology and the competitive situation as the main barriers to entry or expansion in the sector. According to the responses, the cost of investment in technology is particularly high in the voice assistant market. About the competitive situation, a large number of respondents reported that it is difficult to compete with vertically integrated companies that have built their own ecosystems inside and outside the consumer Internet of Things sector (e.g. Google, Amazon or Apple). Since these players provide the most common operating systems for smart and mobile devices and the leading voice assistants, they determine which processes are employed to integrate smart devices and services into a consumer IoT system.
Respondents expressed concern about certain exclusivity and pairing practices related to voice assistants, as well as practices that limit the ability to use different voice assistants on the same smart device.
The preliminary report notes a number of potential concerns from respondents regarding the intermediate position that voice assistants and operating systems of smart devices occupy between users on one side and smart devices or consumer IoT services on the other. This position, combined with their key role in generating and collecting data, would allow voice assistants and operating systems to maintain control over user relationships. In this regard, respondents also expressed concern about the discoverability and visibility of their IoT services to consumers.
Providers of smart device operating systems and voice assistants appear to have broad access to data, including information about user interaction with third-party smart devices and IoT services for consumers. According to industry survey respondents, to improve their overall voice assistants and in terms of their market position, voice assistant providers would not only benefit from this access to large amounts of data and its accumulation, but would also be able to more easily leverage adjacent markets.
According to respondents, proprietary technologies are widespread and sometimes lead to the development of "de facto standards": along with the fragmentation of technology and lack of common standards, this raises concerns about the lack of interoperability in the consumer IoT sector. In particular, some providers of voice assistants and operating systems would unilaterally control interoperability and integration processes. This would allow them to limit the functionalities of third-party smart devices and consumer IoT services relative to their own.
The preliminary report on the findings of the sector inquiry will now be submitted to a public consultation for a period of 12 weeks, through September 1, 2020. All stakeholders will have the opportunity to comment on the findings of the sector inquiry, submit additional information or raise other concerns.
The Commission wishes to release the final report in the first half of 2022.
The information gathered from the sector inquiry into consumer IoT will serve to guide the Commission's future enforcement and regulatory activities. Any competition enforcement action resulting from the sector inquiry should be based on a case-by-case assessment. The findings of this sector inquiry may also contribute to the ongoing legislative debate on the Commission's proposal for the Digital Markets Act.
