The effect of the EU's Digital Rules on Big Tech+
The effect of the EU's Digital Rules on Big Tech+
6 Gatekeepers + more coming? AAPL, META, AMZN, GOOG, MSFT
So you think it’s all sunshine and rainbows in Big Tech Land? Think again!
The EU has got a bone to pick with the global tech giants eating our souls and making big bucks in the process…
Meanwhile catch up with some of my Downside pieces below:
The Digital Markets Act
The DMA is a piece of EU legislation that went into effect in May of 2023. The DMA seeks to prevent big companies operating in the digital world from engaging in anti-competitive practices.
The intended purpose of the DMA is to increase competition by allowing smaller companies to compete in the space, increase the offering for consumers, lower prices etc.
The Digital Services Act
The DSA went into force in February 2024 — it regulates online intermediaries and platforms such as marketplaces, social networks, content-sharing platforms, app stores, and online travel and accommodation platforms.
Its main goal is to prevent illegal and harmful activities online and the spread of disinformation. It ensures user safety, protects fundamental rights, and creates a fair and open online platform environment.
Gatekeeper?
In September 2023, the European Commission (EC) has designated six “gatekeepers” under the DMA, and 22 “core platform services” offered by those six gatekeepers. The EC can designate more under the DMA.
Gatekeepers are digital platforms that provide an important gateway between businesses and consumers in relation to core platform services.
See the infographics below to the get the picture.
So the six (up to now!) gatekeepers have in total 22 (up to now!) core platform services that have been earmarked by the EC.
Google: Maps, Play, Shopping, Google Ads, YouTube, Google Search, Chrome, Android
Amazon: Amazon Marketplace & Ads
Apple: App Store, Safari and iOS
ByteDance: TikTok
Meta: Facebook, Instagram, WhatsApp, Messenger, Meta Marketplace & Meta
Microsoft: Windows & LinkedIn
Translate this, Philo..
BASICALLY - the EU is breaking up the technology-led US-born monopolies that have enabled the US to dominate the world in ways not previously possible!
Apart from 1) the clear incentive the EU has in helping homegrown startups possibly take up some of the market, 2) if gatekeepers don’t comply with the DMA — they risk a fine of up to 10% of their global revenue, that’s a lot of money for the EU…
What do I mean breaking up?…
Strictly speaking, Europe doesn’t have the power to break up these companies in the legal sense — but it is simply telling them that all their monopolistic anti-competitive practices need to STOP.
—> The problem is they have been MOSTLY relying on these practices to survive and prosper.
Let’s dig in company by company and have a thought experiment on how things can shift down the line…
Apple
All these years Apple thought that their ecosystem was their biggest moat, that the more users on the iOS ecosystem the exponentially more power that Apple would gather..
Well now the App Store, the Safari browser and the Apple Smartphone operating system (iOS) have all been designated as core platform services. The first fine has already dropped on Apple, 1.8bln because of abusive App Store rules regarding music-streaming apps.
Apple has already appealed the fine, as one would naturally expect: Big Tech is increasingly using the law to hold its position, whether by extracting a legal arbitrage when they break the law — which could take years to come back to them or by appealing fines and legal decisions when they eventually get hit with something of the sort.
Additionally, Apple has recently been sued by the US DoJ on antitrust grounds.
The complaint, filed in the U.S. District Court for the District of New Jersey, alleges that Apple illegally maintains a monopoly over smartphones by selectively imposing contractual restrictions on, and withholding critical access points from, developers. Apple undermines apps, products, and services that would otherwise make users less reliant on the iPhone, promote interoperability, and lower costs for consumers and developers. Apple exercises its monopoly power to extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others. Through this monopolization lawsuit, the Justice Department and state Attorneys General are seeking relief to restore competition to these vital markets on behalf of the American public.
What could happen to Apple?
Apple wants tight control of its ecosystem — by doing this it not only earns much more fee and services-related revenue, but more importantly it staves off competition from any willing new-entrant smartphone player that may want to join the competition..
The competitor would say, “Why build a new smartphone? No one would buy it anyway. They are locked into the iOS ecosystem... We don’t stand a chance!”
Now with these developments the field would become more level, motivating willing entrants to build a better/cheaper smartphone which would now have access to the iOS ecosystem as Apple would be forced to open it.
The DMA also forced Apple to make it easier for users to choose other web browsers on their iPhones apart from Safari. Remember that we discovered recently, due to the US DoJ Vs Google proceedings that Apple receives $20bln from Google annually to make Google the default search-engine on Safari.
Well Apple would stand to lose that if users move away from Safari. But also if Google/Apple are forced to stop engaging in that arrangement, as a consequence of the Google antitrust case currently in the works.
Which brings us to Google…
Google!
Where do I start? Google has antitrust cases coming out of their ...keyboards!
Google has 8 services that have been designated as core platform services (CPS), but let’s focus on the important ones — Ads and Search.
It has been long known that Google is messing with the ad market, way back in 2017, Google and Facebook colluded to kill the header bidding — which is a way for multiple ad exchanges to compete fairly in automated ad auctions.
Google has two Antitrust cases against them at the moment, one in search and the other in advertising. I break down the details below..
US Vs Google, Lawsuit #1
In October 2020, the US DoJ filed an antitrust lawsuit against Google on the grounds the company abused a monopoly position in the general search markets.
The trial started last September, and the DoJ alleged that Google struck anticompetitive deals with Apple and others for prime placement of its search engine to maintain this dominant position. Google says their dominant position is a result of its superior product.
My thinking is, if Google was such a superior product it wouldn’t have to pay Apple $20bln a year for this prime placement! Let’s not get into the nitty gritty of the case, but my idea is Google’s position isn’t great right now!
The trial concluded in November 2023 and closing arguments were heard this month (May 2024). The Judge has reserved judgment and we await for his findings when they do come out. Whatever the outcome, experts say there will be an appeal.
US Vs Google, Lawsuit #2
In January of 2023, the DoJ filed another antitrust lawsuit against Google, this time on illegally monopolising the advertising market. The suit aims to force Google to sell off significant portions of its adtech business and require the company to cease certain business practices. The case goes on trial September 2024.
The owners of the platform giants consider themselves the masters of the universe, but in fact they are slaves to preserving their dominant position. It is only a matter of time before the global dominance of the US IT monopolies is broken. Davos is a good place to announce that their days are numbered. Regulation and taxation will be their undoing and EU Competition Commissioner Vestager will be their nemesis.
—George Soros, World Economic Forum, Davos 2018
What could happen to Google?
Simple, if Google loses its power over global search and advertising markets — what does it have left? Google Docs and Youtube may not be enough to keep their earnings power intact 😂
Want to read more on antitrust-related company breakups? Read about Standard Oil here.
META
I can’t say I like Zuckerberg very much, the man is a thief of the highest order — and he is leeching on our soul to feed his tech empire —> 10 arguments to quit social media by Jaron Lanier: VIDEO
Meta is the owner of the most-widely used messenger apps — Whatsapp and Facebook Messenger, but Vestager wants to make them interoperable. That means I don’t have to have those two apps to message you on Whatsapp or Messenger…LOL!
But that’s not the most important aspect of the Meta investigation — remember when Meta had trouble monetising from ads because of Apple’s privacy-focused changes?
Well now Meta is receiving pushback from the EU on its processing of personal data (to then use to target ads and make loads of money!). As a consequence of this pushback, Meta introduced the “pay or consent model” in EU territory.
Pay or Consent says you either pay a monthly fee or consent to having your data processed…the EU didn’t like that. Basically the gist is, Meta needs to tightly control the ads market and also be able to process a lot of your data to target you effectively. The EU is taking aim at both of those verticals!
Meta has serious regulatory issues in the US as well, as the FTC has been trying to force it to divest WhatsApp and Instagram — platforms it alleges Meta bought illegally.
“For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users,” New York Attorney General Letitia James, who led the effort by the AGs to sue Facebook.
“Today, we are taking action to stand up for the millions of consumers and many small businesses that have been harmed by Facebook’s illegal behavior.”
Amazon
It is well known to people in the space that Amazon (primarily a marketplace, 3P, that is) is using its marketplace to give its own brands preferential treatment relative to non-Amazon sellers that sell on the marketplace.
This is anti-competitive as Amazon here uses its strong distribution model to front-run the sellers on its platform to make more money, while putting them out of business.
Amazon has two core platform services designated under the DMA — Amazon Marketplace (as it’s an online intermediation service) and Amazon Ads. The latter has also been the target of the EC as Amazon will be forced to give more data to advertisers, allowing the more effectively assess how their campaigns are doing — things are opening up everywhere.
At a time where Amazon is spending big bucks in capex to stay ahead in the Cloud/AI race, and competing with Chinese marketplaces that are trying to bust the West wide open, problems in their marketplace could cause issues.
In the US, Amazon has an antitrust lawsuit as well, as it’s being accused of maintaining monopoly power — I think they are.
Microsoft
Windows has been labeled as a Core Platform Service under the DMA and being targeted for changes. Basically, Windows is a serious platform running on billions of computers and Microsoft isn’t allowed to use that as an advantage to promote its other services.
Bing results aren’t allowed to be shown on general Windows search (users can choose Google if they want!). Windows users will also be able to uninstall pre-installed apps and install other ones that compete with the Microsoft ecosystem.
Microsoft now says is 100% compliant with the EU DMA after allowing users the flexibility explained above. LINK.
It doesn’t seem that Microsoft will be affected financially by these small changes — in fact the game is played on the Cloud for this company. Read the piece below:
Let’s try and keep this piece short, I will be back for more on this theme, as always.
Sincerely,
Philo 🦉