In this post, I’ll discuss what is the Digital Markets Act (DMA), why it’s much needed, what regulations are included and how big tech firms (Apple, Google, Facebook, Microsoft and Amazon) have to comply.
This new set of rules is likely to have an enormous impact on society and the economy at large, including how tech investors and innovators, daily web users, consumers and small companies use and invest on the web.
In fact, the Digital Markets Act is going to be, most probably, the most powerful regulation in the EU since GDPR. In terms of impact, it’s going to be bigger than the Windows / Internet Explorer unbundle back in 2009.
So if you want to understand how your job will change in the future (especially if you are a search marketing pro), then you’ll have to read this post.
Ready to get on?
How tech giants built their monopolies and favoured their products - at the expense of everyone else
Before we move on with today’s post on the Digital Markets Act, it’s necessary a quick story. I’ll specifically focus only on Google and Amazon due to the nature of my profession (SEO consultant) and how they have built their monopolies over the last 20 years.
If you want to learn more about the history of acquisitions that made Google a monopoly, here is the whole story.
Google is a search engine, but it entered an entirely different market of comparison shopping in Europe in 2004 with a product first known as “Froogle,” which was renamed “Google Product Search” in 2008 and has been known as “Google Shopping” since 2013.
Google Shopping enables users to compare items and prices online and locate deals from a variety of online merchants, including manufacturer’s online stores, platforms (such as Amazon and eBay), and other re-sellers.
Surprisingly, in 2006 the European Commission uncovered Google internal documents revealing that Froogle simply doesn’t work. The reasons why it didn’t work are in the linked resource.
So to make it work, in 2008 Google changed its strategy and started to push its comparison shopping service with the goal of dominating the entire internet search.
After close monitoring, the European Commission found that Google crashed competition by adding two unfair advantages:
- Google ranked its own comparison shopping service on top of search results in 100% of the cases.
- Google pushed down competitors in its search results.
Of course, these are not competitive advantages but rather unfair tactics.
We all know that Google has a certain number of ranking factors to determine where a page should rank in its search results. However, the EU found that the most prominent competitors ranked on average on page 4, for no particular reason.
In SEO, we have the old joke that if you want to hide a dead body, you place it on page 2 of Google, nobody will ever find it.
But page 4? It’s like getting a drop lost in the ocean.
Problem was that Google’s own shopping service wasn’t subject to the same rules as everyone else.
As the EU explained:
“As a result, Google’s comparison shopping service is much more visible to consumers in Google’s search results, whilst rival comparison shopping services are much less visible.”
What happened after this massive monitoring from the EU?
Not surprisingly, Google started to receive lots of complaints from big tech companies including Expedia, TripAdvisor and Microsoft.
Long story short, many companies sued Google, they won and the EU fined Google £2.1 Billion in 2017. It took the EU over 10 years to find a settlement agreement.
Now that you can see what the EU is capable of doing when companies breach antitrust rules, let’s see why we need new antitrust laws and regulations to prevent situations like this one in the future.
Reason #1: Companies (a.k.a. investors) want to grow
Companies are built to grow, they all want to have more users, more revenue, more market share to the point where they become so big that a monopoly is created.
Why are big tech companies favouring themselves?
The Atlantic revealed that an Amazon statement admitted profitability being the reason why they display products above everyone else.
Why is this a problem?
Don’t get me wrong, monopoly and increased profitability themselves are not a problem. For example, nobody has a problem with WordPress having over 60% of market share for CMS. More than any other CMS put together.
Luxottica, the Italian eyeglass giant, controls over 80% of the global market share. They own Ray-Ban, Vogue, Persol, Prada, Oliver Peoples sunglasses, John Lewis Opticians in the UK and LensCrafters in the US.
In 2017, Luxottica had a combined customer base that is somewhere between Apple’s and Facebook’s.
Got the idea?
Well, the issue arise when these companies, in the effort of expanding beyond their own industries, start to invade different places.
Imagine Luxottica forcing all eyeglass suppliers to use their own, Luxottica made, lens by exploiting their market power to exclude all new lens suppliers.
How about Luxottica invading the sports market? Every sport person, from golfers to beach volleyballers using sunglasses, have to use Luxottica.
How about Luxottica buying out the suppliers? What happens to those NOT owned by Luxottica? They’ll probably fail and shut down their operations because nobody would buy their lenses.
In other words, Luxottica would prevent all suppliers from selling, innovating and expanding, thus destroying the entire eyeglasses market and achieving complete domination.
Does it seem fair to you? Shouldn’t everyone have a fair share to play this game?
This is why antitrust laws exist: to make sure competition is healthy. Luckily for the eyeglasses market there isn’t a single dominant force. But we have this problem in the tech market and it has been going for 20 years.
Reason #2: Existing antitrust laws can't keep up with tech lightning fast changes
The only fact that it took over 10 years for the EU to fine Google £2.1 billion for violating antitrust is something that blows my mind.
Why did it take so long?
Simply because current antitrust laws are not able to keep up with the speed of how Internet technology progresses.
But what does this mean in fact? It’s extremely difficult to monitor and prove that tech companies are in reality doing something wrong, the Atlantic said.
The EU moves and apply its rules when some smaller company starts to make complaints about Amazon and Google, not before.
The current regulations are lacking a good watchdog, and if there is one, it’s a one-eye dog with fluffy hair in front.
Or maybe, it’s just not his job.
And ProPublica researched many stories of how Amazon is favouring their own products on Amazon search results at the expense of smaller retailers, who started to complain.
This means the EU approach in stopping unfair competition is more reactive in nature rather than proactive, at least until the Digital Markets Act was born.
Another problem with current antitrust laws is to be found in the inherent difficulty of monitoring the algorithms on a permanent basis.
It’s not easy to spot when big search companies make a change to unfairly give themselves a competitive advantage and this is the main argument they use when criticized for doing so:
“We haven’t changed anything”.
And you might be fooled that they are right, on appearances, nothing changed. The search results provide a familiar looking website (Google and Amazon) to which users accustomed to, and nobody noticed any difference.
Unlike Luxottica example, where changes are under the glass eye (no pun intended) of everyone, spotting changes in tech requires a special skill: looking for the invisible.
Reason #3: Out of sight, out of mind
Wired shows the example of the Foundem’s website being the equivalent of a boarded-up house.
And who remembers the story Hipmunk, the travel search engine that is no longer with us since January 2020. This is another victim of Google’s monopoly abuse of the travel industry.
Hipmunk used to provide search engine not just based on the lowest price, which can be deceiving, but based on the overall experience with the flights you want to book.
Here is an example of tech innovation, that used to be.
Is RyanAir the cheapest airline out there? Not really. Once you add the cost of baggages, the cost for food, priority entrance, seat upgrade and priority check-in and maybe a flight connection, suddenly RyanAir is not the cheapest, right?
This is exactly what Hipmunk was providing, the best overall flying experience including all of the above information in one go, provided with an “anxiety” meter.
But, despite the genius innovation that was benefitting many users, Google consistently ranked it below its Google flight search engine.
Do you think that’s unfair? Of course. And to add more drama to the story, ErticoNetwork found in 2014 that Google actually copied some of the Hipmunk most successful UX functionalities and quietly published them on their own Google search engine tool, without saying a word to anyone.
Because again, nobody would probably notice them anyway.
So if you want to see the effects of monopoly abuse, then you need to look into the invisible consequences.
What should have been.
What should have happened. What we didn’t see. The growth that didn’t occur.
I mean, when was the last time we saw a tech unicorn taking over the world? Google was founded in 1998, Amazon in 1994, Facebook in 2004 and Apple and Microsoft in the late ’70s.
Ask yourself, how and when we will see again a new Google/ Amazon/ Facebook?
This is what brings us to the birth of the Digital Markets Act.
What is the Digital Markets Act?
The Digital Markets Act is the EU’s new regulation designed to make the digital industry more competitive.
In other words, the DMA will ban unfair competition practices before they even start.
In my opinion, this law is not only proactive in the sense that prevents unfair advantages, but it’s also very welcome for web creators/ innovators and users alike.
To give you an idea, investors thinking to start another Hipmunk success story can actually dream of doing so, without worrying about what Google and Amazon (or Apple and Facebook for that matter) will do to outrank them.
Not only that, but on the consumers’ side, things will improve as well because users will have more choices. And chances are that they’ll favour new entrants to established giants when making their purchase.
This is why the DMA is designed to support innovation. When opportunities open up, new companies will start, new funds are allocated to tech innovation and new tech unicorns will start to emerge.
The new law completely disrupts the status quo and it only targets specifically designed “gatekeepers” that are more likely to breach those competition rules, due to the huge monopolies they created.
What are the DMA gatekeepers criteria?
The EU created specific criteria to identify gatekeepers and there they are:
- Companies with a market capitalisation of at least 75 billion Euros or an annual turnover of 7.5 billion Euros.
- They provide certain services such as browsers, search engines, messengers or social media, which have at least 45 million monthly end-users in the EU and 10,000 annual business users.
Airbnb and Booking.com are also added to the list of gatekeepers because they are big enough to be considered a monopoly and thus a risk to the travel and hospitality sector.
What are the obligations big tech companies have to adhere to?
The list of requirements includes:
- Legal obligations against the self-preferencing techniques used by platforms to promote their own products (such as preferential results for Google’s products when using Google Search);
- Prohibitions on the combination of data collected from two different services owned by the same company (for example, Facebook and WhatsApp);
- Provisions for the protection of business users of platforms (including advertisers and publishers);
“The Digital Markets Act puts an end to the ever-increasing dominance of Big Tech companies,” lead MEP Andreas Schwab said. “From now on, Big Tech companies must show that they also allow for fair competition on the internet.”
“The new rules will help enforce that basic principle. The time of long antitrust cases is over during which the authorities were lagging behind the big tech companies. Europe is thus ensuring more competition, more innovation and more choice for users.”
How does the EU's role change?
To keep using the same metaphor, I would say, the EU will go from a one-eyed dog with fluffy hair to a giant bulldog on steroids.
The question is whether the EU can really keep up with the role it has given itself.
It remains to be seen whether the EU watchdog can spot irregularities and breaches of rules and what type of resources are needed to keep these tech giants in a straight line.
Some would argue that the EU will succeed at introducing the law, but will fail at implementing it as happened with GDPR laws.
Don’t get me wrong, the EU is very powerful when it comes to investigating potential breach of rules, as we have seen in the first story at the beginning of this article. They have lots of human and financial resources.
However, big techs spend a staggering 97 Million Euros a year budget for lobbyists and lawyers, which means big techs are gaining not just economic power but also political power.
What are the sanctions?
A gatekeeper that disobeys the new regulations faces a punishment of up to 10% of its annual global turnover (revenues).
In the event of frequent or systemic violations, stronger penalties are planned, which may eventually result in behavioural or structural solutions.
These are serious remedies, and the fear of fines of this magnitude ought to serve as a powerful deterrent.
“The size of fines that can be imposed – not just for this legislation but other parts of GDPR and anti-trust regulations is setting up a long-term war between the very concepts of corporations and nation-states. 10-20% of worldwide turnover for these companies is HUGE, but only if they decide to pay. What is the EU going to do? bomb if the corporation just says no!?”
If I was a Facebook or Google considering a battle plan, instead of a conformity plan, I’d dust off Sun Tzu’s “Art of War” and look at my options. I could create my currency, or start bartering products and services, thus reducing – or at least masking – my actual turnover.”
“That would reduce any overall fine.”
How are our digital marketing jobs changing?
If you come so far to this point of the post, you have my respect. It’s not easy to digest all of this information in one go.
So what happens when this law passes:
- Google will have to change the way results are displayed on its search engine and apply the same algorithmic rules for everyone. No more favoritism for its own products and brands.
- Same for Amazon: it cannot promote its own products and brands on top of search results.
- Facebook cannot use Whatsapp data for Facebook ads.
- Apple will have to change the way it charges developers.
Impacts on innovation:
- Millions of Google and Bing clicks will go to advertisers and websites organically. Data will change and metrics such as CTR, impressions, clicks and positioning will also change massively.
- Some verticals that previously suffered unfair competition will start seeing some light out of the tunnel: travel, e-commerce, video, hotels and many more.
- Any company that saw Google invading their market should have more market opportunities.
The Digital Markets Act is not just an astonishing piece of legislation, but also a much needed one in these times of economic downturns and uncertainties.
In fact, the DMA can really impact the whole economy and politics of the entire planet and help stabilise democracies. Don’t forget that these companies were founded in the Silicon Valley, California, so every change they make in the European markets will also be made in the US markets and globally.
I hope this article helped you understand more about how things will change when the DMA comes into practice, which is planned to happen in the second half of 2023.