New big tech regulations to slow down technology innovation

July the 3rd marked an important stage in implementing the EU’s new big tech regulations under the Digital Markets Act (DMA). The European Commission started thresholds checks for large internet platforms that are considered to have a strong economic position and a large user base to impact the internal market. 

According to the Commission, such companies act as “gatekeepers” or, in other words, use their position to gain an undue advantage on the internal market. Big techs were required to notify their data to the Commission for thresholds checks. In early September the Commission will designate gatekeepers and apply a number of do’s and don’ts to ensure that they “behave in a fair way.”

Failure to adapt to the new obligations will result in fines of up to 10% of a company’s global annual turnover as early as next year.

Don’ts for gatekeepers 

Once named as gatekeepers, big techs will be banned from treating their own services and products more favourably in ranking in their core platform service than similar services or products offered by third parties on the gatekeeper’s platform.

This means that Amazon will no longer be able to display Amazon Basics products in better positions, and Apple will have to accept that on their devices apps will not necessarily be downloaded through App Store or bought only through Apple Pay. Similarly, the Google Search engine may no longer offer navigation links through Google Maps as the first option.

Let’s take Apple, for example. Users choose to pay for the whole package of a unique and qualitative network of services that Apple offers. Apple competes by offering a unique product package rather than by price. It follows that the DMA regulation indirectly (or perhaps directly) supports strategies of companies that compete by prices and quality, making it easier for them to absorb the markets of players that outperform rivals by offering unique products or distinct quality. Removing this pivotal dimension of competition may result in market concentration, so that the DMA, which is originally crafted to increase competition in the digital market, risks to bring the opposite effect.

In addition, large internet companies may no longer prevent users from un-installing any pre-installed software or app if they wish so. This rule seems to twist the very essence of benefits that some digital platforms bring for their users. By imposing this obligation the DMA indirectly intervenes in private business models and strategies.

Is more choice always better?

The regulation aims to create “more and better services to choose from, more opportunities to switch their provider if they [consumers] wish so”.  “More” services in the era of information overflow, has long ago stopped being an asset. Users pay – either with their money or with their data – not for more options, but for the most relevant options that are best fit for them and selected on their behalf. A total of 92 % of Google Search traffic ends on the first page of the search, with 67.6 % only opening the top five search results. These statistics indicate that users want to save time and get only the most relevant results for their personal search. So multiplying providers should not be the end goal in itself. The number of providers is important only as much as it allows consumers to obtain the best product at the lowest price. And this is possible only when competition unfolds naturally in the market and is driven by consumer preferences, not by  bureaucracy and regulation.

If Google Maps provides the best end result for the user, this platform can easily be the first choice leading from Google Search. As soon as it starts failing at its core service, customers will be the first to observe it and they will naturally shift to other providers, at their own will and not because regulations say so. If customers had more demand for “more choice” and were ready to pay for it, more options would naturally evolve. With the DMA in place, the new regulations are artificially creating the choice that is not actually needed.

At the end of the day markets regulate best 

The costs of compliance with the new bans and restrictions and likely fines may result in higher prices, lower quality and fewer digital products and services from online platforms falling under the EC’s “gatekeeper” definition. The new rules may also reduce incentives to invest in innovation, distort competitive conditions for digital technology services, increase the risk of market concentration, and allow market inefficiencies.

It was users that made such platforms as MySpace, Nokia, and Yahoo to change their course and allowed today’s tech giants to grow. It is new potential projects like AI virtual assistants that sustain the current search engines. A regulation that aims to restrict the practices of large digital platforms today lacks a long-term perspective. New products from rivals, investment in innovations, and unrestricted user choices have effectively regulated the practices of large platforms. More than that, more investment in innovation leads to more competition for big techs. The new rules threaten the opposite – less investment and less competition.

From now on the conditions that consumers, business clients, and startups have in the digital markets will be shaped by government-imposed regulations rather than by consumers and market processes.

Read more The EU Activates Digital Markets Act. What business users, customers and innovators need to know.

Originally published at Brussels Report