By John Battelle
“The US litigates, the EU legislates.” That’s what one confidential source told me when I asked about the Digital Services Act and the Digital Markets Act, the European Union’s twin set of Internet regulations coming into force this year. And indeed, even as the United States government continues an endless parade of lawsuits aimed at big tech, the EU has legislated its way to the front of the line when it comes to impacting how the largest and most powerful companies in technology do business. It may be tempting to dismiss both the DSA and the DMA as limited to only Europe, and impacting only Big Tech, but that would be a mistake. It’s still very early – much of the laws’ impact has yet to play out – but there’s no doubt the new legislation will drive deep changes to markets around the world. And even if you aren’t a digital platform, your own business practices may well be in for meaningful change.
So what do the DSA and DMA do? Both pieces of legislation target “big tech” – most of the targeted companies are in the US – and require them to enact novel forms of accountability for how both consumers and businesses interact with digital services. The DSA, which came into force in August, targets “very large online platforms” with more than 45 million users in the EU – sites like Meta’s Facebook and Instagram, Apple’s App Store, Bing, Google Search, Microsoft’s Bing and LinkedIn, Snap, Twitter, and TikTok. The DSA’s goal is to define online services’ responsibilities related to content moderation, including new rules around use of algorithms and data, user choice, annual audits for compliance, and advertising to minors. In short, the DSA seeks to make the Internet a safer and more transparent place to shop, do business, and be entertained.
The DMA came into effect this past May, and focuses on “unfair” and anti-competitive behavior by the largest companies on the web – what the EU calls “gatekeepers.” These include Amazon, Apple, Google, Microsoft and Meta. Many of the DMA’s provisions address the same behavior that has prompted various US agencies and states to sue – Apple’s refusal to allow competitive app stores, for example, or Amazon and Google’s alleged practice of favoring their own products and services over those of competitors. Under the DMA, Apple and Google can no longer force app makers to use their app stores, for example. Platforms are required to share data with their customers, obtain explicit opt-in consent to use data across services, design systems that are interoperable, and are barred from using their data to gain competitive advantage.
That means search results for just about every major platform in the EU – whether it be Google, Amazon, Microsoft, and even Meta, will be changing soon. “We are still at the level of philosophy,” as to how those changes might look, said one tech company insider who asked to remain anonymous. “The laws are not yet being enforced.” But what’s certain, he continued, was that “we need to provide new choices and spaces for consumers and competitors.”
The two pieces of legislation are dense with theory and explication, but the core intent is clear. As the DMA puts it, large online platforms have led to “serious imbalances in bargaining power and, consequently, to unfair practices and conditions for business users, as well as for end users of core platform services provided by gatekeepers, to the detriment of prices, quality, fair competition, choice and innovation in the digital sector.”
In short, the EU isn’t messing around. Importantly, the new laws require that platforms be in compliance by early next year, and they must continue to prove compliance on an annual basis. And the laws create full time regulators responsible for enforcement and fines, which are steep – up to 10 to even 20 percent of a company’s EU turnover. That means tech companies can’t see fines as a cost of doing business. Net net: a lot is going to change over the next two quarters.
So how might the new laws change business for non-tech companies, both inside and outside the EU? The most direct impact will be for marketers – if you’re targeting children under 18, you’ll lose access to that personalized data on all major platforms. You may also lose cross-service data – between Google Maps and YouTube, for example – if companies like Google fail to get explicit opt in from their customers.
In addition, the DSA requires that platforms create up-to-date repositories of data on advertising purchases, exposing the strategies and investment levels of every advertiser on the platform. “The DSA requires us to give almost live information about the amount of money being spent on ads,” said the tech company insider. “I think that will be interesting for marketers.” Indeed it will be – that kind of information was previously considered top secret, and will certainly re-shuffle go-to-market strategies for most CMOs.
If you’re a vendor on Amazon, for another example, you’ll suddenly find yourself free to compete on a more level playing field. The threat of Amazon using its data to undercut you on pricing, or to create and market a generic version of your branded product, is now gone in Europe. “Amazon is not going to be able to use data from other shampoo makers to compete against P&G,” said Fiona M. Scott Morton, the Theodore Nierenberg Professor of Economics at the Yale School of Management. “And P&G will have access to tools to access, evaluate and track advertising that they place on site,” allowing the company to evaluate how their investments are performing relative to historic and industry norms.
But the true impact of the DSA and DMA may be in how the overall business ecosystem adapts over time, and this is where it pays to imagine a few out-of-the-box scenarios. Imagine, for example, that the DSA and DMA work well in the EU, and companies of all sizes begin to demand similar types of affordances in the other large markets. Might legislators adopt similar regulations once they are pressured by the likes of P&G, Walmart, or Nestle? It’s possible, says Daphne Keller, Director of the Program on Platform Regulation at the Stanford Cyber Policy Center. More likely than not, “whatever big picture changes they make to appease EU regulators will end up being done globally.”
Beyond the potential for the DMA and DSA to become de facto standards outside the EU, there are also subtle, insistent market pressures to consider. Prior to the regulations taking force, no company – whether startup or large platform – would have ever attempted to create an app store that competed with Apple. But now, “Facebook could just create an advertising program that directly installs apps on a person’s phone, bypassing Apple altogether,” points out the tech company insider. Apps installed in this fashion would not pay Apple’s 30 percent tax on app revenue – a powerful new incentive for entrepreneurs to innovate.
In short, don’t sleep on the EU’s new DSA and DMA regulations – they will not only change how consumers interact with large platforms, they may also end up changing the rules of business on the Internet for good.