On 14 December 2023, the Competition and Markets Authority (CMA) published its first horizon scanning report examining ten trends in digital markets that the CMA expects will be relevant over the next five years and beyond.
The report aims to “draw on available evidence to discuss and present possible future developments and potential implications for competition and consumers”. The trends focus on areas such as artificial intelligence (AI), interoperability, and privacy.
The report is the first publication by the CMA’s “Technology Horizon Scanning Function”, which was launched in November 2021 and is led jointly by its Data, Technology, and Analytics Unit and its Digital Markets Unit.
While the CMA emphasised that the report does not constitute an official CMA legal or policy position (but rather sets out “exploratory thinking”), the 71-page report does signal the topics and areas of development the CMA is monitoring and will take into account when analysing markets and how these might change in the future.
This blog post summarises the ten trends identified in the report, along with the CMA’s view on their potential impact on competition and/or consumers.
The 10 Trends
Trend 1: Rapid and widespread deployment of AI Foundation Models
Trend: The CMA’s assessment of this trend largely reflects the findings of its initial report on foundation models (FMs) published in September 2023 (see our blog here). The CMA emphasises the transformative potential of FMs in all sectors, noting in particular the possibility of virtual personal assistants and new robotics applications.
Potential impact: The CMA notes the importance of FM developers having access to key inputs such as computing power, data, technical expertise and capital to compete effectively. There could, the CMA finds, be a negative impact on competition if larger firms are able to constrain access to key inputs limiting smaller FM developers’ ability to compete and/or gain or entrench strong market positions in downstream markets where FMs are deployed. It concludes that this could potentially harm consumers if it results in a decrease in competition and innovation in FMs or leads to lower quality products or services and/or higher prices.
Trend 2: Increasing technology convergence enables the creation of new and disruptive products and services
Trend: The CMA anticipates that technology convergence (TC) (i.e.,when two or more existing technologies are combined to create new products or services) may become more common in light of the integration of AI technologies. It lists chatbots, the Internet of Things (IoT), smartwatches, and rideshare apps as recent examples of TC. The CMA highlights the following examples of possible future TC:
- Immersive devices (including augmented reality and virtual reality) converging with IoT, digital twins (i.e., a digital representation of a physical object, process, or person), AI, and/or robotics to create new immersive interfaces or digital reality applications.
- Nanotechnologies, biotechnologies, information technologies, and cognitive science converging to improve human performance.
- Neural technologies or brain-computer interfaces converging with AI to provide more efficient and effective ways of analysing electrical brain data to allow the creation of new devices controlled by brain signals.
Potential impact: The CMA notes that established firms may have an advantage with respect to TC due to their existing expertise and access to talent, compute power, and resources, as well as through acquiring or investing in smaller firms with new technology. The creation of new TC markets may also allow new innovative firms to thrive provided they can enter or expand their activities. In this environment, new products and services created by TC may disrupt or transform existing markets (e.g., traditional taxi services when rideshare apps were launched). The report considers that some markets may become entirely obsolete. Consumers may benefit from new innovative products and services, but there may also be risks if new products present safety or security issues.
Trend 3: Digital platforms increasingly integrate additional services
Trend: The CMA notes a general trend towards greater platform integration and a move towards “one app for everything” (e.g., in-app shopping and financial services on social media platforms). The CMA also envisages that FM providers might in the future seek to reduce friction in the consumer journey by further integrating plugins to services such as Expedia, Klarna, and OpenTable, with a view to avoiding the need for consumers to have to leave the FM service to complete transactions on providers’ websites.
Potential impact: The CMA notes the risk that the market for integrated platforms or super-apps could become concentrated within one or a small number of alternative platforms, partly due to network effects. There may also be concerns if platforms choose to partner only with certain organisations, potentially excluding competing apps. The CMA notes that it is not yet clear whether consumers would choose to use one or more integrated platforms.
The CMA observes that the “app-in-app” approach could challenge app stores’ roles as gateways to apps and that “interesting competition dynamics might arise between super-apps and the Apple and Android mobile app ecosystems”. The CMA notes that integrated apps may offer benefits to consumers, but the impact of consumer lock-in and the implications for data privacy would need to be considered.
Trend 4: Digital firms continue to raise prices for API access
Trend: The CMA notes some firms have started to monetise access to their application programming interfaces (APIs) that support interoperability and data exchange between separate systems. The CMA expects this to continue, in particular due to AI FMs using large amounts of data accessed via APIs for training and development, which has resulted in firms seeking to turn their APIs into a source of revenue. The CMA points to X’s Tweetbot and Reddit’s Apollo as examples of formerly freely available APIs, which have since been monetised. The CMA notes this could result in reduced interoperability if larger platforms choose to keep their data behind paywalls and increased costs for developing a FM.
Potential impact: The CMA notes that the trend could result in innovation and better value propositions for users, but also identifies the following potential concerns:
- Charging for access to data through APIs could lead to reduced interoperability.
- API costs could inhibit firms’ ability to compete with API suppliers, ultimately reducing consumer choice.
- FMs could become more expensive to develop, leading to concentration of market power.
- Increased costs could be passed on to consumers.
Trend 5: Growing activity in the markets for CPUs, GPUs and AI accelerators
Trend: The CMA identifies increased innovation by incumbents and new entrants in core logic chip markets, including central processing units (CPUs), graphics processing units (GPUs), and AI accelerator microchips. The acceleration of generative AI developments has also increased firms’ demand for these microchips. The CMA notes that the microchip industry has been volatile due to supply chain disruptions, geographic concentration of manufacturing, and talent shortages. Various initiatives are underway to tackle this, including the UK’s National Semiconductor Strategy.
Potential impact: The CMA notes that if the developments result in increased competition, this may result in cheaper and more innovative microchips, as well as increased choice, to the benefit of the digital economy. However, the CMA identifies potential risks to competition such as possible long-term market concentration if incumbent manufacturers benefit from economies of scale and network effects, as well as from M&A activity. It further notes that the trend towards proprietary in-house AI accelerator chips by cloud service providers could lead to further vertical integration and potential vendor lock-in.
Trend 6: Interoperability improvements are uneven but remain an important driver of market outcomes
Trend: The CMA states that interoperability continues to be an “important aspect of effective competition in digital markets”. Although the CMA states that interoperability is improving through regulatory intervention (e.g.,the EU’s DMA and the UK DMCC Bill) and industry initiatives, the fast pace of innovation may lead to regulation failing to keep up with technological developments, which may render interoperability standards obsolete. The CMA highlights the importance of both horizontal interoperability (allowing products at the same level of the value chain to work with each other, such as sending messaging between email providers) and vertical interoperability (allowing services to exchange data or functionality at different levels of the value chain, such as the ability to install apps from an app store).
Potential impact: The CMA notes that horizontal interoperability may limit network effects, lowering barriers to entry and reducing switching costs. Vertical interoperability may unlock access to downstream markets, especially in vertically integrated ecosystems. Both forms of interoperability can increase consumer choice and control. If regulation fails to keep up with technological developments, the CMA predicts that companies may choose to adopt less interoperable solutions. However, the effects of interoperability depend on the specific market context. As a result, the CMA concludes that trade-offs have to be considered on a case-by-case basis and the “desired level of interoperability” has to be managed by measuring security and innovation risks against the potential consumer and competition benefits.
Trend 7: Larger technology firms continue to expand into new markets
Trend: The CMA explains that large companies are moving into new markets such as finance, energy, and health. The CMA’s research focused on increased investment in ‘HealthTech’ (e.g., wearable health devices) and AI, which may enable technologies to become more integrated into healthcare research and treatment.
Potential impact: The CMA acknowledges the potential benefits of larger firms with access to data, technologies, or computing power investing in HealthTech with opportunities for innovation in new technologies or treatments. However, it identifies four main risks:
- If large firms enter by buying smaller firms and incorporating acquired businesses’ products and services into their ecosystems instead of developing their own through R&D, this could lead to a reduction in competitive offerings and fewer choices in the market.
- If HealthTech is provided by the ecosystems of larger firms, it could result in lock-in with high exit costs for healthcare firms, providers, and patients.
- Standards and protocols could attract investment and support innovation. However, market leaders could set precedents, standards, or protocols that new entrants struggle to adhere to, thereby erecting barriers to entry and reducing competition.
- HealthTech may give rise to concerns around data privacy, algorithmic biases, and the reliability and accuracy of new technologies.
Trend 8: Increased application of digital twins
Trend: Digital twinning is the “virtual modelling of a physical system, object or process to simulate its life cycle or behaviour” (e.g., consumer products, physical landscapes, cities, jet engines, and bodily organs). Digital twins (DTs) can be used for modelling, product development, and monitoring purposes. The CMA notes the growth of DT markets and increased potential as IoT sensor technology becomes more advanced and widely adopted (which enables more data flows to support DTs). AI and machine learning (ML) are also identified as increasing DT functionality such that these sectors may grow in tandem.
Potential impact: The CMA notes the potential of DTs to create new markets, services, and business models, or to revitalise existing sectors or encourage new entrants. Consumers may benefit from this development, for example through highly accurate, real-time health monitoring and predictive capabilities; products designed for individual needs, or enhanced resilience and risk management protocols. The CMA notes the following potential impacts with respect to the increased application of DTs:
- Smaller firms’ entry, for example in niche specialised services, could improve competition, although it may be difficult for smaller firms to compete due to the level of capital and technological sophistication required for digital twinning.
- The role of AI, ML, and big data in DT may favour larger firms with existing capabilities.
- DTs may rely on data accessibility between firms, industry standards, and interoperability. There are risks of lock-in if switching costs are high.
- DT platforms may be characterised by network effects if a twin platform becomes more valuable as more users engage with it, which could give rise to entry barriers.
- DTs may result in potential risks of misuse of data by malicious actors.
Trend 9: Increased development and usage of open-source software and hardware
Trend: The CMA notes that development and usage of open-source software and hardware is increasing and has helped to lower barriers to entry by providing critical inputs, reducing total costs of ownership and preventing vendor lock-in. It predicts that open source as a development and licensing model will continue to grow in digital markets.
Potential impact: The CMA notes that open-source software generally contributes positively to innovation and the development of open standards and interoperability, lowering costs and barriers to entry. However, some research has shown that “competition between proprietary software and [open-source software] may result in worse proprietary software quality” in certain situations. In addition, some open-source developers are adopting more restrictive licensing, which may impact competition. The CMA also highlights the risks to consumers of misleading use of the “open source” label and the creation of new security challenges as open-source software can be more vulnerable to attack.
Trend 10: Consumers continue to want personalised experiences but remain conscious of how their data is used
Trend: The CMA notes that many users of digital platforms now expect personalisation and firms have found that personalised experiences can lead to higher conversion rates. Platforms use data collected from users alongside algorithms to tailor their services in line with user preferences and usage patterns. The CMA notes that personalisation could increase in the future, even to a level where it becomes pre-emptive (i.e., the users’ needs are addressed before they are expressed). Alternatively, personalisation levels could remain the same or decrease due to consumer concerns about the collection of the data used to offer personalised experiences or due to potential regulatory developments.
Potential impact: According to the CMA, platforms with access to more and richer data can personalise their services better than their competitors, which can give rise to concerns around incumbency and barriers to entry. In addition, use of user data can give risk to privacy concerns. Privacy enhancing technologies can help balance efficiencies, competition, and privacy, but could equally strengthen the position of incumbents. They could also introduce “further complexity and opacity in how data is used for personalisation”. Smaller firms may be encouraged to innovate and to utilise specialised offerings. Finally, the CMA notes that personalisation may enable firms to exploit consumers’ vulnerabilities and biases and heighten the information imbalance between businesses and consumers. The CMA notes the risk of harmful website designs tricking consumers into giving up more of their personal data than they would like.
This report is the first of its kind and is a welcome insight into the horizon scanning that the CMA has been undertakings to identify potential future trends in the next five years and beyond, and the possible risks to competition and consumer that may raise.
According to the CMA, the analysis presented in the report will feed into “continuing preparations for the digital markets competition regime” as well as the next phase of its AI Foundation Models review.
The report acts as a useful guide for stakeholders involved in each of the trends as they plan their activities in the market to anticipate the CMA’s potential areas of concern. This is especially true in light of the CMA’s acknowledgement of the benefits to competition, innovation, and consumers that each of the trends it identifies can bring about. The report emphasises that the benefits and risks must be “carefully assessed and managed” in every case.
 CMA Trends in Digital Markets Report, Foreword, page 2.
 CMA Trends in Digital Markets Report, paragraph 35.
 CMA Trends in Digital Markets Report, paragraph 42.
 CMA Trends in Digital Markets Report, paragraph 56.
 CMA Trends in Digital Markets Report, Executive Summary, page 6.
 CMA Trends in Digital Markets Report, paragraph 127.
 CMA Trends in Digital Markets Report, paragraph 151.
 CMA Trends in Digital Markets Report, paragraph 187.
 CMA Trends in Digital Markets Report, paragraph 215.
 CMA Trends in Digital Markets Report, paragraph 220.
 CMA Trends in Digital Markets Report, paragraph 41.