The new Digital Markets Act in Europe is set to challenge the dominance and anti-competition practices of big tech monopolies
The build once, sell-to-everyone business model of tech companies has left power and wealth concentrated in the hands of a tiny group of big tech companies over the last few decades. New anti-trust legislation in Europe, the Digital Markets Act, may well bring those companies back under legal control and revolutionise how we shop and work online in the coming years.
Dirty practices of big tech companies
Big tech companies have developed some very dirty habits over the years. Take for example, those online clips you see of influencers who have ‘found amazing Amazon dupes’. It won’t have taken much time and effort to locate them. Amazon is the parent business to hundreds of small companies that manufacture products under different brand names. Its business model is simple: use Amazon sales data to identify best-selling products, commission a clone, undercut the original prices, place the Amazon clone at the coveted top end of search returns, and offer free Prime next day delivery as a final incentive. It effectively steals all the business from companies that believe they have a client relationship with Amazon but, at some point, became their direct competitors. Anti-counterfeit laws have had little to no impact on this shady practice over the years.
It’s not just Amazon using their power to make more money. Google and Apple may appear fierce rivals in the iPhone and Android market. They are not. Google pays a percentage of their profits to Apple to ensure that they remain the default search engine behind the Safari logo. It was a deal struck in 2007, and has allowed Google to control around 90-95 per cent of all queries in the US. To put that in perspective, anti-monopoly laws used to consider any company that controlled 25 per cent of a specific market to be a threat to economic stability. These large tech companies have become too big to care, but that may be about to change across Europe.
Who is impacted by the Digital Markets Act?
The Digital Markets Act aims to reverse these practices, and comes into force across Europe in October 2023. It has largely gone unnoticed in business circles, partly because only a handful of gatekeeper companies need to directly adapt to comply, but we all stand to benefit.
Today, only the big five tech giants match the definition of a ‘gatekeeper’ company: Apple, Meta (Facebook), Alphabet (Google), Amazon and Microsoft. There are social disadvantages that come with refusing the services of these companies, but very soon we will be able to shop, use online services and share information with smaller rivals with few negative consequences.
For a start, Amazon’s use of 3rd party data to commission clones will become illegal practice across Europe overnight, giving greater protection to small- to medium-sized businesses. Messaging apps will be forced to operate like email and allow external companies to link in. We rarely question that we can send an email from Outlook to users with a Yahoo or Gmail address and things will render fine. That is because email developed before big tech leaders got greedy and built closed loop systems. Messaging services and social media came afterwards. The new interoperability clauses in the Digital Markets Act mean that advantage will disappear and small competitors can viably allow users to send messages from a rival messenger service to, say, Facebook’s Messenger.
The laws on uninstall rights perhaps provide the greatest protections, though. There are certain apps on your phone that you cannot uninstall. Phone manufacturers retain tight control over the App Store for good reasons. This allows them to refuse any business that they do not like, citing ‘technical incompatibility’ issues. For example, when Apple and Google were renegotiating their deal in 2019, Apple blocked all Google employees from using the phones in a tit-for-tat public spat.
This gives them a dangerous level of control. Swedish-owned Spotify could, for example, be blocked from phones and put out of business at any moment under the current laws. The App Stores also allow phone giants to force users through their payments system, where they charge premium fees. The Digital Markets Act will allow users to delete the default app and use a rival, fairer, and cheaper provider if they wish.
Possible impact of Digital Markets Act
So, will it reign in these tech giants? The companies affected are inevitably bringing their considerable resources to bear to fight these laws, despite them passing the European Parliament. The tide may finally be turning on big tech, though. The punishments for breaches will be brutal — up to 10 per cent of annual revenue for a first offence and 20 per cent for repeated violations.
When GDPR was introduced, it seemed ineffective at first. Huge companies like the Interactive Advertising Bureau (IAB) Europe blatantly evaded GDPR, taking data before consent. It was a gamble that backfired earlier this year, though, and a court ruling against them may put them out of business entirely. Europe means to take back control of their economy, and these companies may not be too big to operate above the rule of law after all.
Around the world, there are similar plans. The Competition and Markets Authority (CMA) is looking into similar changes in the UK, and anti-gatekeeper laws have been slowly making their way through the US government, with bi-partisan support.
Much of the success of the Digital Markets Act will depend on the public recognising the benefits and making the decision to switch providers. We have seen similar laws on interoperable data rights in banking in the UK, introduced in 2018. The major banks still dominate the UK markets, but the law created an environment ripe for innovation and several new companies are now thriving. These new protections create tremendous opportunities for small companies to innovate and compete in the coming months.
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