Will Big Tech agree to play by Europe’s new digital rules?

Large online platforms have to comply with new EU regulations on competition. Too little too late, say some

Christian Kroll is frustrated.

The founder of Berlin-based search engine start-up Ecosia says he has been feeling stressed these past few months about how his company’s larger rival Google will abide by new EU rules aimed at opening up competition.

In order to comply with the Digital Markets Act, Google must present its users with a so-called choice screen for them to decide on default services, such as internet browsers or search engines.

But Kroll fears the rules risk leaving his company worse off than before the rules were in place because Google is still able to offer its own services alongside less familiar alternatives.

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He has already seen evidence that traffic will go straight to Google. “You can’t assume that someone who has been using Google for 20 years will choose something else,” Kroll says. He adds: “The reason this law was made was to repair the damage done to competition. This is not happening. It might even be damaging us.”

Google insists it wants to comply with the rules and that it believes in giving users “choice and control” and in competing “on the merits”. It adds: “The design of our choice screen is based on choice research, user testing and many months of engagement with the [European] Commission and the industry.”

Still, Ecosia’s Kroll is not alone in his scepticism about the effectiveness of the new law in reining in Big Tech companies like Google. Concerns also come from many lawyers, regulatory experts and investors.

For years, Brussels has wondered how to prevent the largest online platforms from using their market dominance to crush rivals and build monopolies. Despite a decade of antitrust action that has gone further than other regulators around the world, including levying three fines against Google totalling €8.2 billion, the European Commission has done little to prise open Big Tech’s core markets.

The commission’s answer was the DMA: a sweeping set of rules unveiled in March 2022 that, on paper, challenges the core business practices of a half-dozen tech companies that critics say have too much power in the digital marketplace.

The rules dictate how the largest, systemic companies – defined as “gatekeepers” – must compete in the EU’s market. They are being closely watched around the world as a test of whether the tech giants that have dominated the economies of the early 21st century can be successfully regulated.

This month brought a pivotal moment. The six gatekeepers – Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft – were given until March 7th to show they are obeying the rules.

Yet, there is little evidence yet to suggest that the law is having the desired effect. Industry groups representing travel apps such as Airbnb and Booking.com, and entertainment apps like Spotify and Deezer, complain the tech companies are focused on the letter of the law rather than the spirit of it, and it is having no meaningful impact on their businesses.

Judging by the record stock market highs enjoyed by some of these companies, Wall Street doesn’t believe it will have much practical effect on profits or the level of competition either – particularly as the tech industry hurtles into the AI age, resetting the competitive dynamics in some of the core tech markets.

The big companies have been adept in the past at redesigning their services to sidestep regulations, making it very difficult for under-resourced government agencies to keep up, this investor says.

The law does grant European regulators extraordinary powers of enforcement, including fines of up to 20 per cent of total worldwide annual turnover for repeat infringements or, as a “last resort option”, forced structural changes such as the break-up of businesses.

Alphabet

The Google Chrome browser, Google Maps app, Google Android operating system and YouTube all fall under the law’s auspices. Among the policies in response, Google will allow users in Europe to decide which of its services can share data between them, and it will also be obliged to treat third-party services the same as its own services in Search.

Yet some doubt whether the commission will be confident enough, or aggressive enough, to uphold the law. “The question has always been: will [Brussels] enforce it effectively?” says Paul Gallant, a tech regulation analyst at TD Cowen in Washington. “The companies have virtually unlimited resources [to fight the regulations].”

Last week, the EU executive signalled it was unafraid to pursue the biggest names in tech by fining Apple €1.8 billion for breaking existing antitrust rules by stifling competition from rival music streaming services. The iPhone maker said it would appeal against the decision.

But some Big Tech rivals, including Kroll, believe the way the DMA is set up gives tech companies too much leeway to subvert the rules. “If you let monopolists choose how they will comply, they will play with time and be ineffective,” he says. “It will be difficult to repair the damage.”

A gatekeeper is defined by the law as a platform with an annual turnover of more than €7.5 billion, a market cap above €75 billion and active monthly users in the EU of 45 million.

The commission has singled out 22 “core platform services” offered by the six, ranging from Google’s search engine and Meta’s Facebook and Instagram services to Apple’s App Store.

The law forbids the tech companies giving favourable treatment to their in-house services at the expense of third parties – a practice known as self-preferencing – and obliges them to open up their platforms to more alternative services, presenting users with more choices.

It also challenges their power to share data between their own services – between Facebook and WhatsApp, for example – without their users’ consent, and seeks to make it easier to switch by making it simpler for users to export their data.

“The gatekeeper theory of industry domination is profound,” says Megan Gray, formerly a US Federal Trade Commission lawyer and general counsel at search company DuckDuckGo. At least in theory, it gives the regulators a powerful weapon, she says.

On paper, the law could have a direct impact on the profitability of some important tech services, says Gallant. “The DMA poses some risk to Apple’s App Store commissions, which is the biggest part of their services business,” he says.

Meta

Under the new rules, the company’s WhatsApp messaging service will be obliged to introduce interoperability with other platforms – so, in theory, WhatsApp users could soon be able to send messages to be received on iMessage, Signal or Telegram. Instagram and Facebook users will also be asked what data they would like to share between services.

It has already had some visible effects. Google, for example, has said it will stop showing its flight search service in its search results in the EU – something that has increased its sway in the travel industry – and will give rival comparison sites more prominence.

Yet most regulatory experts say the changes outlined so far will have little impact on competition. According to Gray, the entrenched nature of the dominant platforms, and in particular the tight linkages between their services that have turned them into powerful digital “ecosystems”, will make it hard to pick them apart by attacking individual products or services.

The most drastic effects of the new regulations are also likely to be blunted by the manner in which the tech companies have said they will adapt their services to comply with the DMA.

Choice screens, such as the one complained of by Ecosia, are a case in point. Brussels has backed the use of choice screens in the past as a way to bring more competition to tech markets.

But regulators have never released any data about the effectiveness of these screens, and with little information to go on about the alternatives they are being offered, most users are believed to stick with the best-known services from the biggest tech companies.

Tech companies are also implementing changes in ways that allow them to hold on to their competitive advantage.

This year, Apple published a highly detailed set of technical changes that in effect open the way for rival app stores on the iPhone and iPad, while also allowing developers to stop using its payments service.

But it also said that anyone choosing to take advantage of these new arrangements would have to pay a new fee of €0.50 for every app downloaded over a million installations – something that would hit companies that have large numbers of free app users on mobile platforms, making them less likely to take advantage of the new freedom to launch an app store of their own.

The music streaming app Spotify, for example, said the new fee meant it would end up in a worse position if it opted out of Apple’s current App Store arrangement.

Apple

Among the changes being rolled out in response to the DMA, Apple will permit alternative app stores where users can buy apps and developers can sell them. But the company has courted controversy by requesting developers selling on third-party app stores pay a fee of €0.50 for every user who installs their app after it has passed 1 million installations.

“Spotify, like so many other developers, now faces an untenable situation,” it said following Apple’s announcement. “Under the new terms, if we stay in the App Store and want to offer our own in-app payment, we will pay a 17 per cent commission and a €0.50 cent core technology fee per install and year. This equates for us to being the same or worse as under the old rules.”

The changes were designed to give developers like Spotify choice, Apple said. “Every developer can choose to stay on the same terms in place today,” it said, “and under the new terms, more than 99 per cent of developers would pay the same or less to Apple.”

The tech companies have also limited most of their technical changes to users in the EU, rather than extending them worldwide – limiting the likelihood of their wider adoption, and creating obstacles for developers.

It’s going to take a while for people to realise the easy fixes aren’t effective

Mozilla, maker of the Firefox browser, says the law gives it the option to use a different browser engine – the software that turns HTML documents into the web page seen by the user – on its iOS app, rather than the WebKit engine required by Apple. But if it did so, it would have to maintain two different engines for users in different parts of the world.

In some ways, the rules could directly lead to less choice for consumers. Apple initially said that it would block the apps of alternative browser engines from being installed on its home screen, a move it said would be necessary to protect a heightened risk to user security. The company later reversed its decision after threats of a probe by the EU – yet analysts say the move still shows the lengths Big Tech companies are willing to go to in order to protect their business models.

The broad principles laid down in the law still carry “some potential for real enforcement”, says Gray. But in terms of increasing competition, “it’s going to take a while for people to realise the easy fixes aren’t effective”.

As the deadline for compliance neared, it became clear that the Big Tech companies were not going to dramatically change the way they do business to accommodate the law – at least, not without a fight.

“Early indications seem to show we were probably too optimistic, expecting proactive compliance and self-enforcing legislation,” says Anu Bradford, a professor at Columbia University and author of Digital Empires. “I think the DMA will eventually work, but it’s going to take a while.”

Moving towards more aggressive enforcement could be the work of the next decade, Gray predicts – provided there is a political will in Europe to see it through. “It’s always, ultimately, a political calculation,” she says.

Brussels insists enforcement is an imperfect process that will take time. The EU’s competition chief herself said she doubted they would see full compliance at the outset.

At a press conference in advance of the compliance deadline, Margrethe Vestager said: “One can hope for everything to be perfectly fine on compliance day, March 7th, to the letter in the spirit of the legislation. I have reservations as to whether or not we will have full compliance.”

EU officials privately say they are keen to show they are not just “idiot bureaucrats” when it comes to enforcing the DMA. But the question in coming months will be whether they are willing to entertain the “nuclear option” of breaking up companies that repeatedly break the law, with all the legal and political turmoil that would bring.

Yet for some, it is already too late. Antitrust battles are moving on to deal with the rapid emergence of new players in artificial intelligence, as the gatekeepers seem to be moving fast to corner these markets. Last month, the EU said it was examining Microsoft’s €15 million stake in France’s AI start-up Mistral.

“For the commission, the DMA is existential,” says an adviser to Big Tech. “But regulators are struggling to bring gatekeepers to come to the table to deal with stuff that’s a decade old. And in the meantime, new battles in AI are emerging.” – Copyright The Financial Times Limited 2024