Europe’s Digital Markets Act is the region’s latest salvo in its crackdown on big tech. Expect tough enforcement and even more action if nothing changes.
European politicians late Thursday agreed on the details of a sweeping regulation of so-called gatekeepers that will reshape how companies like Google, Facebook, Apple and Amazon operate in the European Union. The act will come into effect six months after a final round of approvals expected shortly.
It will apply to big companies that run a “core” platform—such as an app store, marketplace, social network, cloud or advertising services—in at least three EU nations. The company must serve more than 45 million EU users monthly and 10,000 business users, and have a market capitalization over €75 billion, equivalent to $83 billion, or EU revenues of more than €7.5 billion in the past three years.
The act seeks to ensure gatekeepers don’t use their market power to prevent competitors from accessing their own users. It contains a list of do’s and don’ts, including requiring messaging apps to work with other services and a ban on preferential treatment for a platform’s own products, services or payment tools. Rule breakers can be hit with fines of up to 10% of global revenues, rising to 20% for repeat offenders.
If this sounds punitive, that is intentional. EU officials created the rules because they grew frustrated that their antitrust cases failed to stop digital giants doing things they believe hamper competitors. Tech companies have adjusted some practices, but European regulators see most of the changes as complying with the letter of judgments, not the spirit.
U.S. tech companies have been sufficiently worried about the act to mount a massive yet ultimately unsuccessful lobbying effort against it. Many of their concerns about the rules remain unaddressed. Meanwhile, work continues on the Digital Services Act, a related set of rules covering illegal content, disinformation and advertising.
Apple, Facebook, Google and Amazon all have significant European sales. They have little choice but to follow the new rules, but can choose to implement them minimally or maximally. The former path could delay some of the more costly impacts, but it would also likely antagonize EU officials and lead to a further crackdown.
Microsoft’s European antitrust fight in the early 2000s offers an instructive example. For years the software giant rejected the EU’s arguments that it had dominant market power which limited how others could compete. Things only eased off once the company started behaving as if it believed European officials were right. Whether or not Microsoft had a true change of heart or a lesson in realpolitik, the crackdown ended—though the company might also qualify as a gatekeeper under the new rules.
Today’s tech giants could likewise choose to take a conciliatory approach. That might involve a slightly bigger hit, but it would come with the chance of a lasting truce with the EU. Given that other countries have a record of following the bloc’s lead on tech regulation, a detente in Europe could prove valuable globally.
While the incoming rules are tough, they also offer the tech giants a chance to reset their relationship with an important regulator. Otherwise the hits will likely keep coming.