European regulators have a had a big target on Big Tech for years, but the companies have largely just paid their fines and tweaked their business models to maintain their paths in response.
After the EU passed a provisional version of the Digital Markets Act, or DMA, though, the companies should be quaking in their boots, and consumers should get ready for some real changes.
The new law, which was designed to “make the digital sector fairer and more competitive” and will still see some finalization of the text in the next few days, could result in hundreds of billions of dollars in fines for violations of new standards based on previous actions against the companies. Even after fining U.S. tech giants “billions of dollars” over the last decade for anticompetitive behavior and privacy violations, the EU is now getting even tougher, stating that the target companies of the new law are the “gatekeepers” maintaining walled gardens, with annual revenue of 7.5 billion euros ($82.4 billion), or a market cap of at least 75 billion euros, and at least 45 million monthly users, and 10,000 business users in the European Union.
The law is aimed directly at Alphabet Inc.
Facebook parent Meta Platforms Inc.
and Microsoft Corp.
but could affect others. If any of these companies violate a slew of new rules (which may change slightly based on future text changes), they can be fined up to 10% of their annual revenue for the first violation, and up to 20% of annual revenue for repeat violations.
Those fines would be incredibly steep, especially compared with what the EU has doled out before. Alphabet, with 2021 annual revenue before traffic acquisition costs of $257 billion, could see a first fine of up to $26 billion. But its unlikely Europe would see any action against Google as a first, after fining the company nearly $10 billion total in three separate actions, and a 20% fine could top $50 billion.
Apple, with $366 billion in fiscal 2021 revenue, could see a first fine of up to $37 billion, Microsoft with $168 billion in fiscal 2021 revenue, could see fines up to $17 billion, and Meta, with $118 billion in 2021 revenue, could see a fine of up to $11 billion.
The rules could also lead to big changes for the companies. Tech giants are being asked to make their messaging platforms have basic interoperability, or interact on a very basic level; ensure users have the right to unsubscribe to services; allow app developers fair access to new functions of smartphones; give advertisers access to their marketing or ad performance data; and inform the EU of mergers and acquisitions. In addition, companies can no longer rank their own products first in search; pre-install certain software; require app developers to use certain payment services; and reuse private data collected from one service for another service.
The new rules could force some very big changes for consumers. For example, on the surface, it looks like Apple’s iMessage would be forced to interoperate on a very basic level with Meta’s Facebook Messenger, at least for basic text messages. Alphabet’s Google and Apple would no longer be allowed to pre-install applications on their smartphones (those annoying ones that cannot be removed by users now) and Apple would have to allow developers fair access to the App Store, and potentially allow third-party app stores.
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The language of all of these new laws is likely going to change and will be reinterpreted many ways by legions of Big Tech lawyers going forward. That could be why Wall Street, so far, does not appear too concerned. In a note Thursday on Apple and a new law in South Korea requiring both Apple and Google to allow third-party payment systems, one analyst said not to worry about “material changes” just yet.
“The App Store remains under siege, but we will likely see a protracted legal battle before Apple is forced to make any material changes,” Amit Daryanani, an Evercore ISI analyst, wrote in a note. “[The] EU DMA (is) likely most near-term threat and could potentially take effect early next year. Also, we think adverting and Apple Pay could more than offset these concerns given the sizable ramp ahead.”
While it is true that Big Tech’s giant legal teams will fight these laws as hard as they can and push them as far into the future as possible, this new legislation has a lot of teeth and looks like it could require a lot of costly platform changes for Big Tech. Governments around the world are watching, and could follow with their own new laws, with many of the same ideas already floating around the halls of the U.S. Congress.
Attempted crackdowns on Big Tech have been in the works for years, but none have truly made these corporate giants bleed. The DMA could be the law that tips over that edge, and there should be real concern in Silicon Valley about the long-term effects.