Europe’s New Digital Rules Are Giving Tech Leaders Nightmares

April 04, 2022
Europe’s New Digital Rules Are Giving Tech Leaders Nightmares
The DMA requires "gatekeeper" companies to obtain consent to target ads base.

Europe’s new competition rules for Big Tech giants could make their services less secure and more fragmented, tech executives fear. And as a six-month deadline for compliance looms, the new laws aren’t yet fully baked.

Driving the news: European regulators came to an agreement last month on a near-final version of the Digital Markets Act, which could force Google, Apple, Meta and Amazon to reshape their businesses after being designated “gatekeepers.”

State of play: As platforms stare down strict new rules and a short timetable, they worry that compliance might mess with what made their products popular in the first place.

How it works: The DMA requires “gatekeeper” companies to obtain consent to target ads based on personal data.

  • Instant messaging platforms like Apple’s iMessage must enable the exchange of messages with smaller services.
  • And large platforms must give users freedom to select browsers, search engines and voice assistants.

Here’s what’s keeping tech executives up at night:

Time frame: European officials have said gatekeepers will have a clear understanding of rules and their application, but tech officials tell Axios details on that are scant so far.

  • The European Parliament will pass the DMA this summer and be formally adopted by the fall. Companies believe they’ll have six months from being deemed a “gatekeeper” to comply, though there’s not yet an exact timeline of enactment and enforcement.
  • “Whether companies are going to receive enough guidance from regulators that they can implement in a way that minimizes disruption to their users, is an open question,” Matt Schruers, president of the Computer & Communications Industry Association, which represents major tech companies, told Axios.

Different experiences in different countries: Platforms may decide to pull a product or service entirely if there’s no way to tweak it without breaking the rules. “Will [tech products] look different for European consumers and U.S. consumers? Probably, yes,” a tech industry insider at a “gatekeeper” U.S. firm told Axios.

  • “I suspect that rather than hamstring products in the U.S., companies designated as a gatekeeper will either exit the EU marketplace or offer different products in different regions,” CCIA’s Schruers said.

Security concerns: The DMA’s messaging interoperability requirement has raised alarms.

  • “Interoperability can have benefits, but if it’s not done carefully, this could cause a tragic weakening of security and privacy in Europe,” Will Cathcart, chief of Meta-owned messaging system Whatsapp, tweeted.
  • FBI Cyber Division assistant director Bryan Vorndran said on Capitol Hill last week he is worried aspects of the DMA could create security vulnerabilities and weaken encryption.

What they’re saying: “What the commission has written sounds like a good idea on paper, and it’s hard to disagree with on a principle level,” the tech industry insider said. “But how do you make it real? It’s anybody’s game to guess.”

  • Former Google CEO Eric Schmidt told Axios, in an interview last week, that implementation and consequences matter. “What I worry about with European regulation, rather than saying what they’re trying to do — increase competition and keep prices under control — they’re micro-regulating.”

Flashback: Before the last major European tech proposal, the General Data Protection Regulation, was implemented, there was a lot of confusion about how it would work in practice.

  • Five years later, companies are still getting massive fines for breaching GDPR.
  • But tech has also made user privacy a selling principle, which was mostly not the case before. DMA may prove to have the same effect on company marketing strategy long-term.

The big picture: Momentum and public sentiment is not on Big Tech’s side. The EU’s moves come at a time when there are kindred spirits at the U.S. Justice Department, Federal Trade Commission and in Congress seeking to rein in big tech companies.

  • FTC chair Lina Khan said in Brussels last week the DMA was a “landmark proposal to promote fair access to markets controlled by digital gatekeepers,” per Bloomberg.
  • Those pushing for antitrust action in the U.S., including some smaller tech companies and pro-competition groups, are cheering Europe on.

Yes, but: Various U.S. officials, including Commerce Secretary Gina Raimondo, have called the rules discriminatory against American companies.

What’s next: “The DMA aims to bring seismic change to digital markets. But it’s going to take years, maybe decades, for courts and businesses to figure out, one case at a time, what that change will look like,” Daniel Francis, former deputy director of the FTC competition bureau, told Axios.