Is Europe’s Digital Markets Act (DMA) is Short-Sighted?

by Ken Dulaney

European leaders have developed new rules that attempt to curb the dominance of Big Tech. Big Tech includes companies such as Google, Apple and Facebook. The rules are targeted at opening their wall garden environments where most activity results in monetary profits for the controlling entity and to a lesser extent the application provider. This limits or shuts out competing businesses that can draw upon the vast communities of users these organizations own. The European Parliament believes that this law will create a more competitive environment, lowering prices and improving innovation.

How Will the Digital Markets Act Impact Platforms?

Examples of what might be required include wider choices for the browser on various platforms, widening the messaging alternatives, etc. The goal in part would be to lessen the control that these platforms have over the information generated by activities conducted within these environments. Such control enables these platforms to target ads and other revenue-generating functions toward users and to mine such data for other platform improvements. Data is the gold that this law wants to spread among more competitive products.

The platform providers have warned that loosening control may lead to privacy and security vulnerabilities. This is a classic argument by controlled platforms versus open platforms and it’s not without merit. But in a world where these classic trade-offs exist, a transition to a more open platform must be accompanied by regulation that protects the source platform. We cannot have more freedom without some transfer of responsibility. This is missing from the DMA initiative.

Who Does the Digital Markets Act Law Target?

The law is targeted at those with sales of 7.5 billion Euros and at least 45 million users. This again is short-sighted. So, the small providers can do the very things that the EU finds offensive, namely the control of data.  It seems that this is a pervasive problem and must be addressed as an industry-wide issue. Furthermore, if competitive platforms grow and they are not prepared at their foundation to open when they reach the metrics as defined, they could lose competitiveness as they retrofit to comply with DMA.

It might also be argued that if you are going to address Big Tech for what they control, then there are many other organizations collecting information that could be used by an emerging European software market. Those organizations too should be considered in the DMA’s purview so that their information can be used in the development of new applications.

DMA targets mostly U.S. platforms, which may be a bit unfair. But products like Tik Tok that are Chinese would seem to also be targeted. This could run head-on against the political rules of the Chinese government and we can only speculate how this would play out both as public commitments and those which the government will never reveal.

Will the Digital Markets Act Really Do Much?

Ultimately the key question is whether DMA will really do much. European software developers have a track record of never building a significant portfolio of global offerings. In my opinion, this is largely because their marketing efforts pale in comparison to the U.S. software products. We are always reminded that Europe is not a country and that solutions developed within the EU must embrace multiple marketing approaches. European developers have done a great job building multi-language platforms but have never been able to reach critical mass compared to the U.S. platforms (exceptions include SAP and their efforts in setting wireless communication standards).

We must also consider the other situations where this has occurred. Regulators forced Microsoft to offer browser choices on Windows but as of February 2022, 63% of users have chosen Chrome. They moved from one controlling platform to another and the browser innovation that was hoped failed. The main reason is that users want their software solutions to be based on the innovations and convenience that comes from a large user base. Google can provide search accuracy the users want because of the widespread adoption of the product.

Bottom Line

So, we believe that DMA will provide little of what its objectives seem to be, mostly because it doesn’t recognize the motivations of the users in using these platforms. What is needed is to recognize the real threat is that these platforms control a mountain of data about their users. The only way to resolve this is to split the data from the platform. We need to realize that information banks are public utilities. This could be addressed by forcing these companies to open access to the data they collect. Not an easy solution and one which would be fought by Big Tech.