In the last decade, many new laws and regulations have been introduced to protect the data, rights, and privacy of users in online spaces. Regulations such as the General Data Protection Regulations (GDPR) in Europe, the Lei Geral de Proteção de Dados (LGPD) in Brazil, and the California Consumer Privacy Act (CCPA) in the United States have set new standards for data protection and user privacy. We are now seeing the impact of the Digital Markets Act (DMA) introduced by the European Commission (EC). The DMA aims to level the playing field of how core platform services compete in the European digital market. With the DMA, the EC aims to regulate the digital space by ensuring fair competition, protecting user data, and maintaining integrity in the digital market environment. IT managers of Small and Medium Enterprises (SMEs) should be prepared to adapt their IT strategy and policies to make the most from the DMA. Read this article to gain the knowledge and strategic insights required to navigate this evolving landscape.
Tech Titans Face New EU Rules: DMA Takes Effect
The DMA regulates companies, known as “gatekeepers”, who provide 22 identified core platform services such as social networks, search engines, ad delivery systems, and operating systems, among others. It defines a "gatekeeper" as a platform that meets specific criteria, including size, user base, and geographic reach. Below is a table that details the criteria used to define a "gatekeeper" under the DMA. These criteria include size, user base, and geographic reach, each with specific thresholds that must be met.
| Criterion | Description |
|---|---|
| Size | Annual EU turnover or gross revenue of at least €7.5 billion over the last three years or a market valuation of €75 billion |
| User Base | At least 45 million monthly active end users and 10,000 business users in the EU |
| Geographic Reach | Operates in at least three EU member states |
Table 1: Criteria for Identifying "Gatekeepers"
The Act has been in effect since May 2023, however, the EC named six (6) tech giants, Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft, as the gatekeepers to core platform services in the EU. These companies were given six (6) months, from September 2023, to ensure they fully comply with the DMA. These companies must adhere to key obligations that include:
- Offering users greater choice in software on operating systems.
- Ensuring that unsubscribing from core platform services is as easy as subscribing.
- Submitting accurate data on the number of users to confirm their status as gatekeepers.
- Providing business users access to their marketing or advertising performance data on the platform.
- Informing the EC about their acquisitions and mergers
- Practising fair marketing by not self-preferencing their products on their platforms
- Ensuring basic functionalities of instant messaging services are interoperable, allowing users to exchange messages, voice messages, or files across different platforms.
Levelling the Digital Playing Field for SMEs
The DMA can present increased opportunities for SMEs competing or seeking to compete in the European digital market.
- Fair market access: the DMA fosters fair access to digital markets. This ensures that bigger companies won’t be able to overpower these SMEs trying to compete in the market ensuring that competition remains fair. This would be a driver for innovation and investments.
- Increased transparency: The DMA's increased transparency mandates gatekeepers to disclose their ranking algorithms and policies, benefiting smaller companies in various ways. For example, small online retailers can better understand platform ranking systems by optimizing listings for enhanced visibility and sales.
- Safeguarding User Data: Since gatekeepers can no longer share user data across platforms without explicit consent providing an unfair advantage, SMEs now have access to the same level of data as bigger tech companies which would help level the playground
- Streamlined complaint mechanisms: DMA introduces streamlined complaint mechanisms, empowering small businesses to challenge unfair practices by gatekeepers, and fostering a competitive digital marketplace.
- Access to and Use of Data: For many digital enterprises, obtaining data is key to their business model. The DMA’s stance on data portability, data sharing and interoperability can have a significant impact on how businesses access, use and benefit from data. This is especially important for businesses that rely heavily on data-driven decision-making.
Potential Collateral Damage for SMEs
The DMA may bring collateral damage which may inadvertently harm SMEs. The following are a few challenges that SMEs may face after gatekeepers make the required changes to their core platform services:
- SMEs using gatekeeper platforms may be affected by changes to these platforms. The limitations imposed on the gatekeepers’ platforms would inadvertently be imposed on the offerings by the smaller company, therefore limiting their reach.
- The DMA’s complexity can increase costs and barriers for new businesses, unintentionally protecting big tech companies instead of challenging them.
- If the strict regulations cause a gatekeeper to remove one or more of its core platforms from the EU’s digital market to a less regulated market, SMEs who utilize these core platforms would have to adapt to new platforms or markets, potentially facing increased costs and operational challenges.
Recommendations
The following outlines actionable strategies and insights aimed at empowering SMEs to seize new opportunities to outpace competitors in this dynamic environment.
- Evaluate your current technological capabilities and offerings to ensure competitiveness with the tech leaders. As the DMA would provide fairer access to the market, it is crucial to ensure your SME can remain competitive with the current market leaders. This, coupled with a strong marketing push, can increase your user base as individuals strive for better options.
- Ensure your platforms and infrastructure can adequately handle increasing user demands and traffic needs. This includes the traffic to your actual core services and the traffic to your customer service tools to ensure smooth operation and user experience.
- Closely monitor the changes to gatekeepers’ platforms that integrate with your technological stack as modifications to those platforms can significantly influence your operations. The changes made by core platform services to comply with the DMA can, in turn, impact the IT products and services offered by SMEs. DMAs may have to change pricing structures, access to APIs or data-sharing policies. This can affect the availability, reach and costs of your organization’s technological offerings.
- Employ tools and technologies that would automate the process of compliance. With so many different regulations to navigate, SMEs need to invest in a consent management platform, such as Usercentrics and OneTrust, that would automate not only compliance processes but also ensure regulatory compliance across different regulations and jurisdictions.
- Speak to legal or privacy experts to gain a deeper understanding of the DMA and its implications. This can help SMEs make informed decisions and develop strategies to mitigate potential risks and leverage new opportunities.
Bottom Line
The DMA and other EU regulations, such as the Digital Services Act and the Artificial Intelligence Act, may empower other countries and economic regions to adopt similar Acts and regulations to ensure fair competition and consumer protection in the digital market. IT professionals in SMEs should proactively adjust their IT strategies and enhance their systems for compliance with the DMA and take proactive steps to gain a competitive advantage in the advent of gatekeeper platform changes.
References
- Digital Markets Act: Commission designates six gatekeepers, European Commission, September 2023
- DMA designated Gatekeepers, European Commission, n.d.
- The Digital Markets Act: ensuring fair and open digital markets, European Commission, n.d.
- The Digital Markets Act: criticism and its potential negative impact on Small and Medium Enterprises (SMEs), Miguel Máximo dos Santos, Servulo Publications, Jan 2023