DMA in Action: Redefining Digital Innovation and the User Experience of Europeans
Main takeaways
- The Digital Markets Act (DMA) requires ‘gatekeeper’-designated companies to change the way they operate online services in the European Union
- The compliance deadline is 7 March, yet the DMA’s impact remains uncertain – it could mean less consumer choice, unwanted changes to products, less innovation
- The DMA should not be expected to change market outcomes, that’s not its purpose
In just a few days, on 7 March, the digital space will change. Or at least the EU rules that digital companies need to comply with. How that change occurs in practice though, and how it will affect the hundreds of millions of Europeans using digital services and products, is much less clear.
In short, companies designated as ‘gatekeepers’ under the EU’s Digital Markets Act (DMA) will need to change the way they operate certain online services (so-called Core Platform Services) in Europe. These designated services have to follow new rules prescribed by the DMA, including a long list of prohibitions and obligations that will impact their functioning.
The European Commission stated before that it believes the “[DMA] obligations will help to open up possibilities for companies to contest markets and challenge gatekeepers based on the merits of their products and services, giving them more space to innovate.”
That sure sounds ambitious, but what to expect in reality? Over the past few months, both gatekeepers and access seekers have been actively speaking with the new DMA enforcers, engaging in a detailed dialogue. Yet, even those two sides of the coin cannot predict with certainty what will occur once DMA implementation is underway.
The Commission’s ambitions aside, implementation of the DMA comes with various tradeoffs, the outcome of which is difficult to predict. Indeed, consumers could receive updates they don’t want, notice changes to their favourite products they don’t like, and perhaps react in ways that policymakers in Brussels don’t expect. In that respect, there are four key tradeoffs in particular to keep an eye on.
1. Risking product degradation and less choice
Gatekeepers have to comply with the DMA, although that’s easier said than done. In some instances the DMA is prescriptive, yet in others it is vague and unclear, and the way each gatekeeper has been designated impacts remedies and actions. It’s why certain court challenges have been brought – not to challenge the DMA itself, but to receive much needed clarity on its provisions and how they apply to a specific company’s designated services.
Companies have had only a few months to often radically change services that Europeans have taken for granted for years, adapting to prohibitions that prevent some companies from engaging in a range of business practices that are generally considered pro-competitive. That includes changes to practices that create benefit and value to consumers, both online and offline. For example, an online platform that bundles additional services and features is often innovating in order to meet consumer needs. If that suddenly disappears, consumers will feel the loss of something they now expect. And given that many consumers don’t know about the DMA, or what it intends to do, they might be in for a big surprise.
If pro-competitive conduct is prohibited, products will be impacted, and some of the companies that have introduced these innovations may no longer have incentives to introduce new helpful features going forward. That’s why it’s necessary to consider what the DMA’s tradeoffs are – including that it might hinder innovation and result in Europeans missing out on digital offerings that will remain available to consumers in other territories. These changes could also hinder ongoing partnerships between access seekers and gatekeepers.
Some companies have already chosen not to roll out new products in Europe at all – either due to divergent national rules, heavy bureaucracy, or the risk that they will lead to prohibitions. Similarly, companies close to potential ‘gatekeeper’ designation are directly disincentivised from launching new services, or even from growing their business.
2. Picking DMA losers and winners
While the DMA is intended to create more contestability and fairness in digital markets, it should not become a tool for companies to attack others’ business models for the sake of it. Unfortunately, there already have been many attacks on the pre-compliance deadline efforts of gatekeepers. Most of those attacks are about promoting very specific business priorities, rather than properly reading the DMA rules and goals.
As previously addressed, “the DMA could encourage them (business users) to choose a ‘remedy taker’ business model, foregoing independent innovation in favour of Commission enforced access to platform interfaces and resources”. This would effectively make them mere resellers, not rivals, which would go against what the DMA strives to achieve.
We’ve seen some areas of discrepancies already, where similar services haven’t been treated the same way. It will be vital to see if each gatekeeper is offered the chance to have their own distinct remedies for their own specific Core Platform Services. In other words, will enforcers avoid pushing for one-size-fits-all solutions? Only time will tell if this tradeoff between competitiveness, contestability, innovation, and consumer choice will pay off.
3. Prioritising industrial policy over contestability and fairness
As of now, there are six companies designated as gatekeepers who offer Core Platform Services. Five of these companies are originally American and one is Chinese. There are no European companies designated as gatekeepers under the DMA so far, although that is likely to change soon. It will be interesting to see how the DMA is perceived as soon as it hits a wider net of companies and services, which it will.
DisCo previously speculated that, rather than promoting competition, the DMA could end up distorting competition between those in and out of DMA’s scope. Many companies offer very similar products and services, and it’s not always clear why some are in scope and others are not, in particular when looking at the streaming, e-commerce, and advertising sectors.
Will the Commission become a gatekeeper of sorts, wielding the power of the DMA to favour certain (European) companies over other (non-EU) ones? Will the regulator be able to judge what constitutes the kind of innovation it wants and the kind of products it judges to be acceptable? That situation could foster a model where the Commission has gatekeeping authority over digital innovation, product integration, and engineering design of tech companies. In some cases, they could even compel companies to share trade secrets, IP, data, technical designs, or other valuable resources directly with their competitors.
This would have huge repercussions, but wouldn’t solve the EU’s inferiority complex on innovation, and it’s doubtful this would become a successful form of industrial policy.
4. Forgetting about safety
What has now emerged with increasing importance in the public debate, both in discussions with the Commission and recently at the Munich Security Conference, is how the safety of designated services risks being impacted by DMA compliance solutions that tech firms are forced to introduce. Indeed, EU policy makers and regulators have only recently begun to look into the safety implications of the DMA. Probably too late, one could argue.
At a principle level, EU policymakers seem to unanimously agree that the DMA shouldn’t be used to degrade user security and privacy. But in practice, that’s a different story. For example, should Russian search engine Yandex be one of the search engines presented to EU users next time they open their web browser, on a par with – let’s say – DuckDuckGo and Ecosia? Sure, in theory that would increase contestability, just like the DMA prescribes, but is it also desirable from a security point of view?
Likewise, to what extent should the portability and non-discriminatory treatment obligations of the DMA facilitate user data access for all interested parties? Should that also be done to the benefit of Aspiegel, Huawei’s wholly-owned European subsidiary, for example? And should security-critical APIs be opened to any party that wants to challenge a ‘gatekeeper’ – regardless of who they are and what their agenda is?
It remains to be seen how these changes, and others prescribed by the DMA, will impact users’ safety and security. While this argument might sound provocative, some of those companies that I mentioned definitely have huge expectations and want to leverage the DMA. It’s not at all clear on what grounds the Commission will be able to dismiss complaints by such companies about potential differentiated treatment by gatekeepers seeking to fulfil their DMA obligations “without prejudice” to users’ privacy and security online.
At a time when Europe is deeply concerned by the safety and security of its vital infrastructure, we’ve increasingly been discussing the need for chief security officers for the EU and how dedicated experts must review all rules with a view to improving the overall safety of EU legislation. There have been some successes, but the impact and tradeoffs of the DMA are difficult to judge. This must be monitored closely to ensure that DMA-enforced changes don’t become exploited security risks for European consumers, companies, and governments.
What’s next
As this is an ongoing process, it’s worth pointing out the March deadline is a first tiny step into a new world. Gatekeepers and access seekers will continue to work with regulators in a detailed manner on each step that will follow. It’s unlikely everyone will get everything perfectly right at the first attempt, nor is it a black-or-white compliance story.
This will be an iterative process, going step by step to identify questions, addressing gaps together, and building strong lasting and positive relationships. These new regulatory powers come with the responsibility of getting it right and not bowing to political pressure. There is real good will on both sides, and it’s clear that both sides – industry and regulator – want proper implementation and will also benefit from it, if done successfully.
Fundamentally, the DMA’s effectiveness should not be judged by whether it radically changes the market or consumer behaviour – now, in a few months, or even years. The DMA must not become the start of a process where some companies with certain services are barred from completely unrelated sectors (something another DisCo author will address soon).
The regulator should set clear rules and expectations, not choose favourites and try to change the market in their favour. The DMA is all about giving consumers choice and ensuring fair competition, while ensuring markets stay open and competitive. In the end, it will always be the consumer who decides which services and products they prefer, and that’s how it should be.
