The Center for Data Innovation appreciates the opportunity to submit this response to the Competition and Markets Authority (CMA)’s call for views on its proposed decision report as part of its strategic market status (SMS) investigation into Google’s provision of general search services under Part 1 of the Digital Markets, Competition and Consumers Act (DMCCA) 2024.[1] The CMA proposed designating Google as having SMS in its general search services.

The Center for Data Innovation studies the intersection of data, technology, and public policy. Its mission is to formulate and promote pragmatic public policies designed to maximize the benefits of data-driven innovation in the public and private sectors. It educates policymakers and the public about the opportunities and challenges associated with data, as well as technology trends such as open data, artificial intelligence, and the Internet of Things. The Center is part of the Information Technology and Innovation Foundation (ITIF), a nonprofit, nonpartisan think tank.

Executive Summary

The Center recommends that the CMA avoid regulatory overreach under the new DMCCA regime by maintaining clear boundaries between distinct digital markets and recognizing the importance of dynamic competition to support innovation and regulatory predictability, while addressing concerns over search market concentration.

In particular, the CMA should:

1. Limit the scope of the proposed SMS designation to clear boundaries that do not bleed into other, distinct digital markets; and

2. Explicitly factor in the disruptive potential of AI as part of its assessment of “substantial and entrenched market power.”

Limit the scope of the proposed SMS designation to clear boundaries that do not bleed into other, distinct digital markets

In its proposed decision, the CMA concludes that Gemini—Google’s AI assistant—currently falls outside the scope of the designated “digital activity,” as its use cases are nascent, mixed, and dynamic. Yet the CMA also explicitly notes that it will “keep this under careful review” and may bring “search use cases” of Gemini within scope following further consultation. Furthermore, the CMA’s roadmap of potential measures to improve competition in search suggests it will monitor AI services, creating confusion about their regulatory status.[2] This equivocation introduces ambiguity regarding Gemini’s status and whether it too falls within the scope of regulation under the proposed SMS designation. The CMA is not excluding AI assistants from its scope if it maintains the option to regulate them as functionally equivalent to general search.

The CMA should clarify how it interprets section 20(3)(c) of the DMCCA, which allows the imposition of conduct requirements related to a product or service not directly linked to the designated digital activity, provided the SMS firm has market power in the original activity. Applying conduct requirements to AI products, such as Gemini, without first establishing market power in those products risks regulatory overreach. The CMA should clearly delineate the boundaries between general search (where it proposes an SMS designation) and generative AI (where it has not made such a determination).

This regulatory ambiguity undermines predictability for firms and contradicts the CMA’s stated objective to embed its “4Ps”—proportionality, pace, predictability, and process—into its enforcement approach. Likewise, the CMA risks contradicting its annual plan to drive growth and promote investment by discouraging competition in an emerging market.[3]

Explicitly factor in the disruptive potential of AI as part of its assessment of “substantial and entrenched market power”

The CMA’s proposed five-year horizon for assessing “substantial and entrenched market power” fails to account for the dynamic and disruptive nature of competition in digital markets. This approach reflects a static view of market power, whereas what is needed is a shift toward a more dynamic understanding of competition—one that acknowledges that dominance today can be swiftly overturned by innovation tomorrow, a phenomenon especially relevant to digital markets.

Competition in innovation-driven markets does not hinge on price or output in a static equilibrium but on firms’ ability to introduce new, superior products and services that render incumbents obsolete. This process—what economist Joseph Schumpeter termed “creative destruction”—is already unfolding in the search market, where AI-powered assistants like Perplexity AI and ChatGPT are emerging as radically new interfaces for information retrieval. These tools bypass traditional search engines and advertising models entirely, offering users conversational, multimodal, or domain-specific alternatives.

Indeed, the CMA’s own AI Foundation Models Report acknowledges that foundation models could “drive competition and disrupt incumbent firms,” and that their downstream deployment could fundamentally alter competitive dynamics.[4] These developments signal not merely incremental change but the potential for leapfrog competition—precisely the kind of disruptive innovation that is the hallmark of effective market forces and is already transforming the search space.

Given the transformative impact of AI on traditional search, reliance on current dependency metrics as indicators of competition is increasingly obsolete. Amazon’s advertising spend on Google, for example, may reflect a final-stage investment in a declining distribution channel rather than evidence of structural competitive weakness. Similarly, the CMA's emphasis on Google’s superior search infrastructure presumes the continued relevance of traditional crawling and ranking—even as AI assistants can synthesize information from multiple specialized databases without relying on comprehensive web indexing. This shift could render Google’s infrastructure advantage a stranded asset rather than an insurmountable barrier.

The CMA should not regulate a nascent and rapidly evolving field like AI chatbots as a gateway to search in cases where competition limits the potential for market power. Nor should it impose regulation on search simply because AI is becoming integrated into traditional services—an example of digital transformation the UK should welcome as part of its broader growth agenda.

AI represents a disruptive force in search, driving innovation and increasing competition to the benefit of users. Intervention at this inflection point risks freezing market relationships just as they are becoming naturally contestable. The CMA should recognize that the current market structure represents the final phase of the traditional search era, not the foundation for future competitive dynamics, and that regulatory restraint during this technological transition would allow market forces to address competitive concerns more effectively than administrative intervention.

Regulatory action risks imposing unnecessary costs, disrupting a search market that is already evolving, and stifling progress in AI. The emergence of AI systems signals that digital markets are functioning—not failing—and warrants regulatory restraint to avoid undermining pro-competitive developments.

Endnotes