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EU closes in on regulating big tech with Digital Markets Act

While there are some areas the EU's Digital Markets Act gets right, Boston University professor Marshall Van Alstyne said it's still a work in progress.

The European Commission is moving fast on legislation that would change how tech giants operate in the digital marketplace.

The proposed Digital Markets Act (DMA), introduced in 2020, specifically targets the practices of "gatekeeper online platforms." Governments, including the U.S., use the term gatekeepers to describe the power that companies like Apple, Google and Amazon have over third parties that use their platforms. The Digital Markets Act was introduced alongside the Digital Services Act (DSA), complementary legislation that aims to protect users online by providing transparency into how content algorithms work.

The DMA removes the ability of tech giants to enact a preference toward their products and keep users from connecting to third parties outside their platforms. The DMA would also allow users to remove any preinstalled apps on their phones.

The European Commission, the executive arm of the European Union, will likely pass the DMA and DSA sometime before July, according to Cédric O, France's minister for digital and telecommunications. If passed this year, the legislation will be implemented in 2023 and will be applied across the EU.

"The DMA is about updating our conventional antitrust rules in order to adapt to the digital world, and the DSA is about content moderation," O said during a webinar presented by the Atlantic Council, a nonpartisan think tank based in Washington, D.C. "Within 18 months, Europe would have been able to propose, negotiate and adopt two of the most important texts in the history of the internet."

The DMA still needs significant work for it to be effective legislation, said Marshall Van Alstyne, professor of information systems at Boston University's Questrom School of Business.

Where the Digital Markets Act needs work

The goals of the DMA -- to create fairness and competition -- are good ones, Van Alstyne said. However, he said the DMA is missing one essential goal: to create value.

Marshall Van Alstyne, professor, Boston University Questrom School of BusinessMarshall Van Alstyne

Van Alstyne said the premise behind the DMA is the belief that market concentration is too high, making the markets less competitive, and too much of the wealth is being appropriated by large firms and not shared equitably across users and smaller firms in the digital ecosystem.

By making value the goal, "you might actually get better policy," he said.

One of the DMA policies that prevents value creation is the inability to combine data sources without explicit user opt-in, which makes it harder to create network effects. Network effects is the concept that a product or service's value increases as the number of people using that product or service increases.

One example is COVID-19 tracing, he said. "You can't really do effective COVID tracing if everyone has to explicitly go opt-in. You can't create good networks in that context."

Another is the DMA's proposed restricting of tech giants' abilities to make acquisitions. According to the DMA proposal, online platforms identified as gatekeepers would be required to report intended mergers or acquisitions to the European Commission.

While some mergers or acquisitions are problematic and should be stopped or challenged, Van Alstyne said not all mergers are bad. Indeed, large companies acquiring smaller firms can set those larger firms up to be competitors to other large firms, he said.

If you simply stop at 'the big platforms can't do this,' that's a problem.
Marshall Van AlstyneProfessor, Boston University

"If you simply stop at 'the big platforms can't do this,' that's a problem," he said.

The DMA is specific on what activities big tech companies can and can't engage in, which may create issues down the road as the tech environment changes since it's not as adaptable, he said.

What the Digital Markets Act gets right

Van Alstyne said one of the first areas the DMA gets right is elimination of most-favored nation clauses.

Oftentimes, when large platforms contract with third parties to let them sell on their platforms, the contract terms stipulate that the third parties must offer their products at prices as good as or better than other platforms with which the third parties may do business.

Van Alsytne said that makes it hard for third parties operating on the platform to offer better prices even on their own websites.

"It makes it very hard for them to do better, and it makes the platform monopolistic," he said.

Other valuable pieces of the DMA include potentially including a concept called in situ data rights. In situ data rights gives users the power to keep their data in one location, such as Facebook, and determine what third-party companies can access that data.

Van Alstyne said providing users with in situ data rights addresses issues created by legislation such as the General Data Protection Regulation, which entrenched data with companies like Facebook and Google under privacy protections.

"Startups could access the data without having to remove it from its original location, they could just get API permission and start to access large quantities of it in location," he said. "So you should be able to combine more data sets with users' permission to create more value, to create more of the network effects."

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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