How Are the European Union’s Regulations Influencing Big Tech?

The European Union officially enacted new stringent regulations on the big tech industry, with the major components of these laws properly coming into effect towards the end of 2023 and in March of 2024.

The reasoning behind this increased regulation is due to concerns regarding the supposed disproportionate amount of power held by the largest players in the industry and their apparent role as “gatekeepers”, preventing the success of smaller businesses.

Furthermore, this move has also been motivated by concerns regarding the safety and security of users and the ways in which industry giants require far more supervision to ensure they’re operating in such a way that adequately protects users.

So, what exactly are the regulations that the European Union has introduced, and how are they affecting major players in the industry?

 

The European Union’s Regulations on Big Tech

 

The European Union established its digital strategy in an effort to control the activities of big companies in big tech by means of a series of rules and regulations, namely the DSA and DMA.

The broad incentive behind this move is to establish Europe’s “digital sovereignty”, and to do this, the institution is setting its own clear standards focused on technology, data and infrastructure.

These standards are all about maintaining market fairness and combatting anti-competitive practices as well as protecting the safety and security of users by monitoring internal security protocols and regulations.

Two of the most significant regulations established by the European Union include the Digital Services Act (DSA) and the Digital Markets Act (DMA).

 

DSA and DMA: What Are They? 

 

While both regulations are attempting to moderate big tech, they’re doing so in different ways.

The DMA, on the one hand, aims to deal with the issue of large tech companies eliminating the opportunity for competition by means of their relative dominance.

Meanwhile, the DSA is more focused on maintaining the safety and security of users and protecting them from potentially harmful content.

How is the European Union working to achieve the goals set out by the DMA and the DSA?

 

 

How the DMA Aims to Achieve Its Objectives

 

Since the DMA is poised to influence the activity of big tech companies directly, the idea is that it allows the European Union to identify so-called “gatekeepers” in the industry.

The is that once gatekeepers are identified, they can be controlled and prevented from acting on any anti-competitive behaviour.

The hope is that this will create an “even playing field” for all businesses in the digital sector, as many small companies are prevented from properly competing in the industry due to the immense power and sway of large corporations.

Of course, one of the most poignant questions being asked is, how exactly is the DMA going to do this?

The answers is complex and largely unknown, but it seems as though there are many ways they’re going to be able to make changes.

First and foremost, they’ve introduced strict rules about what companies can and can’t do. This includes, among many more policies, things like the fact that platforms must allow business users to access data that they generate on their platform (that is, the “gatekeeper’s” platform).

Another one is that “gatekeepers” have to allow third parties to inter-operate with the “gatekeeper’s” own services in certain contexts.

Finally, one of the biggest things that the DMA allows the European Union to do is actually block acquisitions and mergers in the interest of preventing the formation of monopolies.

One such example of this was Adobe’s planned acquisition of Figma in 2023, the announcement of which received an official antitrust complaint from EU regulators.

This was a big blow to both Adobe and Figma, and it resulted in a lot of discussion about the appropriateness of the European Union’s extended control of the market.

 

How the DSA is Supposed to Achieve Its Objectives

 

The DSA, on the other hand, is all about protecting digital consumers by means of setting clear and proportionate rules to be adhered to by service providers. The European Union says that the purpose of these regulations is to “rebalance” the roles of users, platforms and authorities, “placing users at the centre”.

The main platforms and intermediaries that are moderated by the DSA include things like marketplaces, app stores, social networks, online accommodation and travel platforms and content-sharing platforms.

The hope is to provide users with more control, choice and protection, as well as less exposure to illegal and inappropriate content, especially for children.

On the flip side of the coin, digital service providers are also supposed to benefit in the long run,  by means of legal certainty, a single set of rules across the EU and an easier path to scale up on the content.

Overall, the EU Union purports that their regulations are doing a service for society at large, allowing for more democratic control over these platforms, as well as mitigating the risk of manipulation and the dissemination of misinformation by means of these platforms.

As of 17 February 2024, the full extent of the rules set out by the DSA was set to apply to all platforms, whereas the initial rollout in 2023 only applied to certain sectors and industry players.

 

Is Increased Regulation Scaring Tech Companies Off? 

 

The regulations introduced by the European Union since 2020 have had a fairly significant impact on big tech, especially on specific companies that have been barred from taking certain actions that wouldn’t have been controlled in the past.

The intentions of the regulations are supposed to achieve fairness and equal opportunity in the tech industry, as well as protect all players, from individual users and small business users to relatively smaller competing tech companies, from unfair power and potentially dangerous activity.

And, in many ways, this certainly is what they’re doing, but the radical increase in regulation market intervention hasn’t been accepted as favourably by all involved.

That is, these regulations have removed the incentive for large corporations to grow past a certain point due to the supposed unavoidable barring of large business acquisitions, such as that of Figma by Adobe.

Normally, businesses and their founders aim to grow to a point that other larger corporations want to buy them out, allowing for significant payouts. However, the DMA aims to prevent most of these big moves from happening, as they’re supposedly playing into a decrease in competition in relative markets, making it harder for smaller businesses to operate.

However, the natural consequence of this is that businesses now have less incentive to grow, because they can’t necessarily be bought out and receive large payouts as they would have in the past.

Indeed, the argument against this DMA regulation is that it’s putting a cap on the potential of such companies and inhibiting market growth by means of over-manipulation. The consequences of this, may DMA critics argue, is that it’ll result in less innovation overall and it’ll result in inferior services for customers in the long run.

Furthermore, it has been argued that the DMA and DSA has attempted to implement a very broad, single set of rules for a large industry, and this introduces to major issues (among others). First, it’s not necessarily going to impact the largest corporations, like Apple and Google, that actually require the most regulation.

Second, critics have argued that EU lawmakers haven’t been pragmatic enough, ignoring potential negative effects such as decreases in motivation for innovation and more. This creates the risk of the European Union losing its credibility before it has the chance to make any real, long-lasting changes in the industry.

Essentially, we’re still in the early days of the full and widespread implementation of both the DSA and DMA, so the ways in which the European Union chooses to reinforce its new regulations and the long-term effects that this has remains to be seen.