Tomorrow of the European Union Digital Markets Act (DMA) comes into effect. It aims to put an end to unfair practices by “gatekeepers in the online platform economy.” In the coming year, this is likely to force major US tech companies – such as Google, Meta and Amazon – to change the way they operate in Europe. It’s the latest in a wide-ranging series of EU regulations that have a huge impact on American businesses.
The DMA is introducing a series of new rules that so-called custodians of ten “core platform services” will have to comply with if they want to operate in the EU. These include companies responsible for online mediation, online search engines, social networks, video sharing platforms, some messaging services, operating systems, cloud services, online advertising networks, web browsers and virtual assistants. In short, it basically applies to all the major services of companies like Amazon, Apple, Alphabet (Google’s parent company), Microsoft and Meta.
Fortunately for small businesses, the law’s harshest terms only apply to the largest companies. If a company has an annual turnover of more than €7.5 billion (~$7.4 billion) in the EU or a market capitalization of €75 billion (~$74 billion) and serves more than 45 million monthly European end users and 10,000 businesses customers annually for the previous three years is considered a custodian and is required to comply with the DMA.
Under DMA, gatekeepers “have an additional responsibility to behave in a way that ensures an open online environment that is fair to businesses and consumers.” In practice, this means there is a list of “rights and wrongs” that companies must adhere to, which will likely force major US tech companies to change the way their systems operate.
For example, DMA would radically change the way Apple’s iOS operating system works if strictly enforced. Under the DMA, Apple would have to allow users to install third-party apps and app stores, allow third parties to interact with its services (possibly including deeper iOS functionality), and be prohibited from requiring developers of applications to use its payment processing to be included in the App Store. EU users will be able to install Google Chrome from its official website and set it as the default – and then uninstall Safari.
Likewise, gatekeepers will be prohibited from using data from their platform business to compete on their own platform. This means that they may not be able to prioritize their own services over their competitors. Amazon could not then use the sales data to develop its own label products, nor did it can it rank them more favorably by defaultand Google couldn’t automatically advertise Google Flights through Skyscanner on its home page.
How this will all play out remains to be seen and will likely involve lengthy legal battles. Unlike an antitrust investigation and a fine after some misconduct, the big change with the DMA is that it will put the onus on watchdogs to show they are playing fair from the start. If they cannot show that they provide a fair and open platform, they will not be allowed to operate in the 26 EU member states.
It’s also unclear how global the law’s effects will be. Previous EU laws such as GDPR and the French right to repair law have changed the way big tech companies operate in non-EU countries as well. Apple, for example, adds USB-C to all his iPhones because it’s cheaper and easier than creating a special EU addendum with a different port. But at least with digital services, companies could likely comply with certain prohibitions only in the EU, while continuing to operate in a way that the EU considers unfair in the rest of the world.
As with all things EU, the DMA is moving slowly but inexorably. Although the law takes effect tomorrow, it won’t actually be applicable until May 2, 2023. Different parts will also be implemented in different stages, so the big gatekeepers won’t have to fully comply with its terms until at least mid-2024.